ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
Hannaford Bros. Co. (the "Registrant" or the "Company") was incorporated in Maine in 1902 as the successor to a business established by the Hannaford family in 1883. Its principal executive offices are located at 145 Pleasant Hill Road, Scarborough, Maine 04074. Its telephone number is (207) 883-2911.
Approximately 25.6% of the outstanding shares of the Registrant's common stock, par value $.75 per share, is owned by certain members of the Sobey family of Stellarton, Nova Scotia, and certain companies and trusts controlled by them (the "Sobey Parties").
Consolidated sales and other revenues for 1993 amounted to $2.055 billion, a decrease of 0.5% from last year's sales and other revenues of $2.066 billion. The decrease in sales for the year was primarily the result of the 53 week year in 1992 and the sales from thirty-four Wellby Super Drug stores which were sold to Rite Aid Corporation on May 27, 1992. Had the sales from these stores, and the sales from the 53rd week, been excluded from 1992 results, sales and other revenues for fiscal year 1993 would have increased 3.3%.
In May 1992 the Registrant sold 34 of its 41 free-standing drug stores to Rite Aid Corporation. These drug stores had mostly been operated under the "Wellby Super Drug Store" trade name. These stores represented less than 5% of the total sales of the Registrant. The Registrant continues to operate pharmacies within certain of its supermarkets and combination stores. Of the seven free- standing drug stores not sold to Rite Aid, one has been sold, three have been closed and the other three are intended to be closed. The pharmacy operations of six of these seven stores have been or will be incorporated into supermarkets or combination stores of the Registrant.
The Registrant ships food and food-related products from its distribution centers to an additional 19 independent wholesale customers. Sales to these wholesale accounts amounted to 2.8% of total sales in 1993. Other revenues from such activities as trucking, real estate and retail services amounted to about 1.7% of total sales.
On February 11, 1992, the Board of Directors of the Registrant declared a two- for-one stock split effected in the form of a 100% stock dividend, payable on March 10, 1992, to shareholders of record at the close of business on February 24, 1992.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Registrant, through its operations and those of its subsidiaries, is principally involved in the retail food and drug business through supermarkets
and combination stores. The Registrant considers its business a single segment under the applicable reporting rules. See Item 8, Financial Statements and Supplementary Data.
NARRATIVE DESCRIPTION OF THE BUSINESS
The Registrant believes it is northern New England's largest food retailer. It currently operates 93 supermarkets throughout Maine and New Hampshire, and in parts of New York, Massachusetts and Vermont under the names Shop 'n Save, Alexander's, Martin's and Sun Foods. The Registrant's goal is to offer consumers very competitive prices with comprehensive product variety and outstanding freshness and quality in perishables from modern and convenient facilities. The Registrant also operates 3 retail drug stores principally under the Shop 'n Save Pharmacy name and 45 pharmacies within the Registrant's supermarkets and combination stores.
Of the Registrant's 93 supermarkets, more than 75% are either new or have been expanded or relocated in the past 10 years. During this period, a number of smaller outdated facilities have been closed or sold. Since 1983, the Registrant has opened or acquired fifty-five combination stores ranging in size from 30,000 to 84,000 square feet. These stores offer under one roof the traditional all-department supermarket, together with a bakery, video rental center and other shops and services, as well as expanded lines of general merchandise. All but 14 of these combination stores, as well as an additional 4 conventional supermarkets, have pharmacy departments. The new stores opened by the Registrant since 1983 also include four super warehouse stores of 52,000 to 64,000 square feet, operated under the name Sun Foods.
These new and recently expanded stores illustrate the Registrant's belief that one of the most important factors in the success of a store, in addition to location, is format. The Registrant views the new and effective store formats as creating opportunities to enter new markets, expand its share of markets where it already operates, and strengthen its overall position.
The following tables set forth certain statistical information regarding the Registrant's operations at the dates indicated:
NUMBER OF STORES 12/30/89 12/29/90 12/28/91 1/2/93 1/1/94
Supermarkets Wholly-owned
Beginning 64 76 89 88 93 Opened 4 4 3 7 4 Closed 0 (2) (2) (2) (4) Transferred 8(A) 0 (2) 0 0 Acquired 0 11 0 0 0 Ending 76 89 88 93 93
Majority-owned
Beginning 8 0 0 0 0 Opened 0 0 0 0 0 Closed 0 0 0 0 0 Transferred (8)(A) 0 0 0 0 Ending 0 0 0 0 0
Total at Year End 76 89 88 93 93
Drug Stores
Beginning 36 41 41 42 6 Opened 5 0 1 1 0 Closed 0 (3) (1) (3) (2) Sold 0 0 0 (34) (1) Acquired 0 3 1 0 0 Ending 41 41 42 6 3
AVERAGE SQUARE FEET OF SELLING AREA PER STORE
Supermarkets 23,300 25,100 26,700 28,200 29,800 Drug Stores 5,500 5,700 6,000 4,900 5,000
TOTAL SQUARE FEET OF SELLING AREA
Supermarkets 1,772,000 2,238,000 2,347,000 2,619,000 2,771,000 Drug Stores 226,000 232,000 252,000 29,000 15,000
(A) The Registrant formerly operated some of its stores through subsidiaries in which one or more prior owners held a 49% common stock interest. By 1989 the Registrant had bought out the last remaining minority interests of this type.
The Registrant has expanded its food store operations beyond Northern New England and continues to seek large store opportunities within its present five-state marketing territory. For example, in upstate New York, the Registrant now operates 11 new combination stores, including new stores in Gloversville and Colonie that were opened during 1993, and 3 super warehouse stores, all ranging in size from 44,000 to 84,000 square feet, and has selected a number of additional locations in which it plans to build additional stores. The Registrant has also significantly expanded its presence in southern New Hampshire and northeastern Massachusetts through its December 1990 acquisition of the Alexander's supermarket chain. During 1993, a new 55,000 square foot combination food/drug store was opened in Concord, New Hampshire, while in Maine, one relocated 44,000 square foot combination food/drug store opened in Farmington and four other stores, in Bangor, Belfast, North Windham and Damariscotta, were expanded to combination food/drug stores. As part of its ongoing expansion program, the Registrant will also consider the acquisition of one or more supermarkets, if attractive opportunities become available. Construction has commenced or will commence on a number of stores for openings during 1994 and 1995 in both upstate New York and in the Registrant's traditional market areas.
Innovation in operating systems is an important component of the Registrant's strategy, and the Registrant is committed to investing in new technology and the development of new systems. The Registrant intends to be an industry leader in the application of new technology and systems in its retail, distribution and administrative functions. In certain instances, such technology and systems are designed to provide services directly for customers and, in other instances, they are designed to increase efficiency and provide the Registrant with greater information with respect to its operations.
The principal distribution center, in South Portland, Maine, occupies 521,000 square feet and is well located in the Registrant's marketing territory. It handles a complete line of grocery, dairy, frozen food, produce and meat products. The distribution center has a dedicated on-line computerized warehouse management system, which efficiently controls the movement of product through the facility and schedules labor for greater efficiency and productivity. Productivity in the distribution facility also has been enhanced through the use of incentive payment programs.
The Registrant opened a new distribution center in Schodack, New York, during 1990, to service certain store locations in New York, Vermont, New Hampshire and Massachusetts. This facility occupies 489,000 square feet. This distribution center operates under a team management system which the Registrant calls Socio-Technical Systems. The Registrant believes this operation to be one of the first successful non-manufacturing uses of this type of team management concept in the country.
A 200,000 square foot distribution center in Winthrop, Maine is operated by Progressive Distributors, Inc., a wholly-owned service merchandise subsidiary which for many years has supplied a comprehensive line of health and beauty care products, specialty food items and some general merchandise to the Registrant's stores. From this warehouse, Progressive also distributes a significant portion of the pharmaceutical items supplied to the Registrant's pharmacies. During 1993, this facility converted from a conventional management system to a team-based one similar to that used by the Registrant in its Schodack, New York, distribution center.
Merchandise is transported from the Registrant's distribution facilities by Hannaford Trucking Company, a wholly-owned subsidiary, which is licensed as an irregular route common carrier with 48 state authority. Hannaford Trucking Company also hauls products for third-party customers, thereby reducing the number of miles that its trucks travel empty.
Raw materials, as such, are not essential to the business of the Registrant.
The Registrant sells private label products under the names "Shop 'n Save," "Bonnie Maid" and "Green Meadow." During 1994, the Registrant will continue to expand its use of the "Shop 'n Save" private label. The Registrant also sells a line of large size/large pack items it calls "Budget Values".
Seasonal business affects the Registrant's operations in that sales are generally greater in the second half of the year than in the first. (See Note 11 of Notes to Consolidated Financial Statements.)
Inventory levels are maintained at the distribution center and all retail locations in amounts adequate to minimize "out of stock" conditions.
Backlog is not material to the Registrant's business.
No material portion of the business of the Registrant is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government.
In its wholesale operations, the Registrant directly competes with numerous other regional wholesalers, some of which supply franchised retail outlets. The loss of any one or a few of the wholesale customers would not have a materially adverse effect on the Registrant.
At the retail level, the Registrant's supermarkets and drug stores are in direct competition with regional, national and local food and drug chains, some of which have greater resources than the Registrant, as well as with other independent operators. In addition, certain of the independent stores served by the Registrant as wholesale customers are located in the same trade areas as the Registrant's own stores and therefore compete with them.
No material expenditures were made during fiscal 1991, 1992 or 1993 on research activities relating to new or improved products, services or techniques.
The Registrant does not foresee that material capital outlays will be needed nor that material increases in operating expenses will be incurred for the purpose of compliance with any statutory requirement respecting environmental quality.
As of January 1, 1994, the Registrant had approximately 5,750 full-time and 8,950 part-time employees. During 1992, the Registrant conducted an early retirement and voluntary resignation program aimed at eliminating about 100 positions from its corporate support staff. This restructuring was successfully accomplished during the latter half of the year.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
Neither the Registrant nor any of its subsidiaries engages in any operations in foreign countries, nor is a material portion of sales and revenues derived from retail customers in foreign countries.
ITEM 2.
ITEM 2. PROPERTIES
The Registrant operates a distribution facility in South Portland, Maine. This facility warehouses grocery, fresh fruits and vegetables, frozen foods, meat, and dairy products in approximately 521,000 square feet of floor area, and has dock facilities for 89 highway trailers. The Registrant acquired this facility through a wholly-owned subsidiary in April 1983 and subsequently expanded it to its current size. The Registrant operates a second distribution and office facility in Schodack, New York. This facility warehouses grocery, fresh fruit and vegetables, meat, dairy and frozen food products in approximately 489,000 square feet of floor area and has dock facilities for 129 highway trailers. The Registrant built this facility through a wholly-owned subsidiary, completing Phase I in 1990 and Phase II in 1991. Approvals have been received to expand this facility to approximately 1,200,000 square feet although the Registrant has no current plans to do so. The Registrant also operates a 200,000 square foot distribution facility in Winthrop, Maine. This facility, completed in 1989, distributes health and beauty care products, specialty foods, pharmaceuticals and some general merchandise to all of the Registrant's retail outlets. The Registrant also leases a warehouse facility in Scarborough, Maine, of 157,500 square feet, under a lease and options which expire in 1994 and two other multi-use buildings in Scarborough, Maine, totalling 48,000 square feet under leases and options that expire in 1999 and 2004. The Registrant also leases its office facility in Scarborough, Maine, under a lease and options which expire in 2020. The Registrant owns certain real estate consisting primarily of distribution facilities, food stores, related shopping center properties and land for future retail developments, some of which are encumbered by mortgages. The Registrant currently owns approximately 37% of its retail facilities and leases the remainder.
The following table sets forth expiration dates of leased retail stores, assuming exercise of all renewal options.
2014 and 1994-2003 2004-2013 thereafter
Food Stores 3 8 48
Drug Stores 2 0 0
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Registrant is a party or to which any of its property is subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Executive Officers of the Registrant is set forth below.
Under the by-laws of the Registrant, all Executive Officers hold office, at the pleasure of the Board of Directors, until the Annual Meeting of the Directors next following their election or until others are elected and qualified in their stead.
There are no family relationships between any of the Executive Officers of the Registrant nor were there any special arrangements or understandings regarding the selection of any officer. SERVED AS AN EXECU- NAME AGE POSITION TIVE OFFICER SINCE:
JAMES L. MOODY, JR. 62 Chairman of the Board 04/28/60
Mr. Moody was elected Chairman of the Board on May 29, 1984. He also served in the capacity of Chief Executive Officer from 1973 until May 14, 1992. He held the position of President for more than five years prior to his election as Chairman and has been employed by the Registrant in various supervisory and executive capacities since 1959.
HUGH G. FARRINGTON 49 President 09/30/77 Chief Executive Officer
Mr. Farrington was elected President on May 29, 1984 and designated Chief Executive Officer on May 14, 1992. He had held the position of Chief Operating Officer from May 29, 1984 to May 14, 1992. He had been Executive Vice President from 1981 until his election as President. He has been employed by the Registrant in various operating, supervisory and executive capacities since 1968.
ROGER W. HOYT 57 Group Vice President, 05/17/71 Retail Operations
Mr. Hoyt was elected Group Vice President, Retail Operations in 1990. He had been Senior Vice President, Retail Operations since 1977. He has been employed by the Registrant in various supervisory and executive capacities since 1971, including President and General Manager of a significant wholly-owned subsidiary from 1980 to 1983. SERVED AS AN EXECU- NAME AGE POSITION TIVE OFFICER SINCE:
NORMAN E. BRACKETT 64 Senior Vice President & 10/07/74 Chief Financial Officer
Mr. Brackett was elected Senior Vice President in 1990 and designated Chief Financial Officer in 1992. He served as Chief Accounting Officer from 1990 to 1992. He joined the Registrant as Vice President, Management Services in 1974, and has directed the Registrant's accounting, auditing and technical information systems since that time.
JAMES J. JERMANN 49 Senior Vice President, 08/05/83 Merchandising
Mr. Jermann was elected Senior Vice President, Merchandising in 1990. He had been Vice President, Merchandising from 1983 to 1990. He has been employed by the Registrant since 1978 in various merchandising capacities. He was previously Director of Grocery Merchandising.
LARRY A. PLOTKIN 43 Senior Vice President, 10/06/81 Development & Planning
Mr. Plotkin was elected Senior Vice President, Development & Finance in 1990 and Senior Vice President, Development & Planning on May 14, 1992. He had been Vice President from 1989 to 1990. He previously served as Vice President, Corporate Development from 1981 to 1987 and Vice President, Wellby Super Drug Stores from 1987 to 1989. He has been employed by the Registrant since 1972 in various real estate capacities.
ANDREW P. GEOGHEGAN, ESQ. 43 Vice President, Secretary 09/14/87 & General Counsel
Mr. Geoghegan joined the Registrant as Vice President, General Counsel in September 1987. He was elected Secretary on December 9, 1992. From 1981 to 1987 he was in private law practice with the firm of Kassoy, Lopez & Geoghegan Law Corporation, Beverly Hills, California, specializing in corporate, tax and real estate law.
PAUL A. FRITZSON 40 Vice President, 01/02/92 Marketing
Mr. Fritzson was elected Vice President, General Merchandise and Progressive on May 13, 1990 and Vice President, Marketing on May 14, 1992. He was designated an executive officer on January 2, 1992. He has served in various staff and merchandising capacities since 1978.
SERVED AS AN EXECU- NAME AGE POSITION TIVE OFFICER SINCE:
ANDREW N. WESTLUND 41 Vice President, 10/04/92 Distribution
Mr. Westlund was elected Vice President Warehousing on April 7, 1992, and Vice President Distribution on October 13, 1992. He was designated an executive officer on October 13, 1992. Prior to his election as Vice President, he served as Director, Warehouse Operations-New York since his employment on July 16, 1989. He was previously employed by Super Valu, Minneapolis, Minnesota as Warehouse Manager. Part II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Registrant has been listed on the New York Stock Exchange since July 18, 1986. The following table sets forth the dividends per share and the high and low sales prices of the Common Stock on the New York Stock Exchange composite tapes during each quarter of 1992 and 1993. All per share amounts have been adjusted for a two-for-one stock split, effected in the form of a 100% stock dividend, paid on March 10, 1992.
QUARTERLY SALE PRICE DIVIDENDS HIGH LOW PER SHARE
1st Quarter, 1992 $28.500 $21.375 .075 2nd Quarter, 1992 26.250 16.000 .075 3rd Quarter, 1992 22.250 17.875 .075 4th Quarter, 1992 24.000 19.250 .075
1st Quarter, 1993 $23.500 $20.500 .085 2nd Quarter, 1993 23.500 21.000 .085 3rd Quarter, 1993 24.250 20.250 .085 4th Quarter, 1993 25.000 20.000 .085
There are approximately 11,350 record holders of the Common Stock. Fiscal 1993 was the forty-fifth consecutive year that dividends were paid on the Common Stock and the thirty-first consecutive year that the aggregate dividend paid per share (after adjusting for stock splits) has increased. On February 8, 1994, the Board of Directors voted to increase the quarterly dividend to $.095 per share for the dividend due to be paid on March 24, 1994. Future dividends will depend on the Registrant's earnings and financial condition.
Item 6.
Item 6. Selected Financial Data
HANNAFORD BROS. CO. AND SUBSIDIARIES
Schedule IX--Short-Term Borrowings
(Amounts in thousands)
Column A Column B Column C Column D Column E Column F Daily Maximum Average Daily Category of Weighted Amount Amount Weighted Aggregate Balance Average Outstanding Outstanding Average Short-Term At End of Interest During The During The Interest Borrowings Period Rate Period Period Rate
Fiscal Year 1993: Banks $ -- -- $ 8,700 $ 66 6.0%
Fiscal Year 1992: Banks $ -- -- $ 9,700 $ 88 6.4%
Fiscal Year 1991: Banks $ -- -- $26,100 $5,137 7.7%