SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 10, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........to...........
Commission File number 0-6080
FOOD LION, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0660192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
P.O. Box 1330, 2110 Executive Drive Salisbury, NC 28145-
1330
(Address of principal executive office) (Zip
Code)
(704) 633-8250
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed
all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months and
(2) has been subject to such filing requirements for the
past 90
days.
Yes X No
Outstanding shares of common stock of the Registrant as of
October
14, 1994.
Class A Common Stock 244,139,999
Class B Common Stock 239,571,114
Page 1 of 17
The Exhibit index is located on page 14.
FOOD LION, INC.
INDEX TO FORM 10-Q
SEPTEMBER 10, 1994
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the 12 and 36
weeks ended September 10, 1994 and
September 11, 1993
3
Balance sheets as of September 10, 1994,
January 1, 1994 and September 11, 1993
4
Statements of Cash Flows for the 36 weeks
ended September 10, 1994 and September 11,
1993
5
Notes to Financial Statements
6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-
11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
12
Item 2. Changes in Securities
12
Item 3. Defaults Upon Senior Securities
12
Item 4. Submission of Matters to a Vote of
Security Holders
12
Item 5. Other Information
12
Item 6. Exhibits and Reports on Form 8-K
12
Signatures
13
Exhibit Index
14
-2-
<TABLE>
PART I.
FINANCIAL INFORMATION
Item I. Financial Statements
FOOD
LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended
September 10, 1994 and September 11, 1993
(Dollars in thousands
except per share data)
<CAPTION>
September 10, 1994
September 11, 1993 12 WEEKS
(A)
(B) (A) (B)
% %
<S> <C>
<C> <C> <C>
Net sales $1,849,806
$1,807,374 100.00 100.00
Cost of goods sold 1,474,395
1,446,316 79.71 80.02
Gross profit 375,411
361,058 20.29 19.98
Selling and administrative expenses 262,031
268,215 14.16 14.84
Interest expense 21,496
19,051 1.16 1.05
Depreciation 31,465
33,323 1.70 1.85
314,992
320,589 17.02 17.74
Income before income taxes 60,419
40,469 3.27 2.24
Provision for income taxes 23,866
15,783 1.29 0.87
Net income $ 36,553
$ 24,686 1.98 1.37
Earnings per share $ 0.08
$ 0.05
Dividends per share $ 0.02
$ 0.02
Weighted average number
of shares outstanding
Class A 244,135,824
244,130,872
Class B 239,571,114
239,571,114
Total 483,706,938
483,701,986
</TABLE>
- -3-
<TABLE>
PART I.
FINANCIAL INFORMATION
Item I. Financial Statements
FOOD
LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 36 Weeks ended
September 10, 1994 and September 11, 1993
(Dollars in thousands
except per share data)
<CAPTION>
September 10, 1994
September 11, 1993 36 WEEKS
(C)
(D) (C) (D)
% %
<S> <C>
<C> <C> <C>
Net sales $5,475,732
$5,214,122 100.00 100.00
Cost of goods sold 4,367,311
4,193,153 79.76 80.42
Gross profit 1,108,421
1,020,969 20.24 19.58
Selling and administrative expenses 779,213
745,452 14.23 14.30
Interest expense 63,164
51,319 1.16 0.98
Depreciation 96,609
97,905 1.76 1.88
938,986
894,676 17.15 17.16
Income before income taxes 169,435
126,293 3.09 2.42
Provision for income taxes 66,926
48,997 1.22 0.94
Net income $ 102,509
$ 77,296 1.87 1.48
Earnings per share $ 0.21
$ 0.16
Dividends per share $ 0.07
$ 0.07
Weighted average number
of shares outstanding
Class A 244,135,799
244,128,666
Class B 239,571,114
239,571,114
Total 483,706,913
483,699,780
</TABLE>
- -3a-
<TABLE>
FOOD
LION, INC.
BALANCE SHEETS
(Dollars
in thousands)
(Unaudited)
<CAPTION>
September 10, 1994 January 1, 1994 September 11,
1993
Assets
Current assets:
<S> <C>
<C> <C>
Cash and cash equivalents $
337,233 $ 46,066 $ 190,108
Receivables
100,948 109,952 103,693
Inventories
805,029 929,138 864,321
Prepaid expenses and other
54,522 54,316 48,453
Total current assets
1,297,732 1,139,472 1,206,575
Property, at cost, less accumulated
depreciation
1,324,342 1,364,211 1,437,601
Total assets
$2,622,074 $2,503,683 $2,644,176
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable
$ 10,007 $ 15
Accounts payable, trade $
343,465 346,799 353,506
Accrued expenses
291,300 241,187 303,598
Long-term debt - current
75 183 222
Capital lease obligations - current
7,621 7,108 6,298
Other liabilities - current
3,411 3,880 301
Income taxes payable
31,284 10,107 23,243
Total current liabilities
677,156 619,271 687,183
Long-term debt
569,300 569,350 569,389
Capital lease obligations
295,882 301,541 286,610
Deferred income taxes
36,587 36,587 91,493
Deferred compensation
714 571 706
Other liabilities
54,448 58,809 7,278
Total liabilities
1,634,087 1,586,129 1,642,659
Shareholders' Equity:
Class A non-voting common stock, $.50 par
value
122,068 122,066 122,066
Class B voting common stock, $.50 par value
119,786 119,786 119,786
Additional capital
309 289 286
Retained earnings
745,824 675,413 759,379
Total shareholders' equity
987,987 917,554 1,001,517
Total liabilities and
shareholders' equity
$2,622,074 $2,503,683 $2,644,176
</TABLE>
-
4-
<TABLE>
FOOD LION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the 36 Weeks ended September 10, 1994 and
September 11, 1993
(Dollars in thousands)
<CAPTION>
36 Weeks
September 10,
1994 September 11, 1993
Cash flows from operating activities
<S> <C>
<C>
Net income $102,509
$ 77,296
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 96,609
97,905
Gain on disposals of property (
81) ( 806)
Changes in operating assets and liabilities:
Receivables 9,004
( 7,706)
Inventories 124,109
32,064
Prepaid expenses and other (
206) 2,777
Accounts payable and accrued expenses 45,347
136,260
Income taxes payable 21,177
23,243
Deferred income taxes 0
7,425
Deferred compensation 143
( 1,018)
Other liabilities (
4,830) ( 251)
Total adjustments 291,272
289,893
Net cash provided by operating activities 393,781
367,189
Cash flows from investing activities
Proceeds from disposal of property 2,330
1,197
Capital expenditures (
57,217) ( 116,414)
Net cash used in investing activities (
54,887) ( 115,217)
Cash flows from financing activities
Net payments under short-term borrowings (
10,007) ( 459,735)
Principal payments under capital lease obligations(
5,486) ( 4,552)
Principal payments on long-term debt (
158) ( 202)
Proceeds from issuance of common stock 22
66
Proceeds from issuance of long-term debt 0
329,000
Dividends paid (
32,098) ( 31,564)
Net cash used in financing activities (
47,727) ( 166,987)
Net increase in cash and cash equivalents 291,167
84,985
Cash and cash equivalents at beginning
of period 46,066
105,123
Cash and cash equivalents at end of period $337,233
$190,108
</TABLE>
-5-
Notes to Financial Statements (Dollars in thousands)
1) Basis of Presentation:
The accompanying financial statements are presented in
accordance
with the requirements of Form 10-Q and, consequently, do not
include all the disclosures normally required by generally
accepted accounting principles or those normally made in the
Annual Report on Form 10-K of Food Lion, Inc. (the
"Company").
Accordingly, the reader of this Form 10-Q should refer to
the
Company's Form 10-K for the year ended January 1, 1994 for
further
information.
The financial information has been prepared in accordance
with the
Company's customary accounting practices and has not been
audited.
In the opinion of management, the financial information
includes
all adjustments consisting of normal recurring accruals
necessary
for a fair presentation of interim results.
2) Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
September 10, 1994
September 11,1993
Interest (net of amounts $53,049
$44,402
capitalized)*
Income taxes 45,685
23,698
*Interest capitalized 580
2,198
Capital lease obligations of $17,760 and $44,137 were
incurred in
the 36 week periods of 1994 and 1993, respectively.
Capital lease retirements of $17,420 and $950 were recorded
in
the 36 week periods of 1994 and 1993, respectively.
The Company considers all highly liquid investment
instruments
purchased with an original maturity of three months or less
to be
cash equivalents.
-6-
Item 2. Management's Discussion and Analysis of
Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 36 weeks ended September 10,
1994
compared to 12 and 36 weeks ended September 11, 1993)
Net sales increased 2.3% and 5.0% for the quarter and year
to
date, respectively. Same store sales increased 3.2% and
3.0% for
the third quarter and year to date, respectively. The sales
increase for the third quarter was negatively impacted by
the
closing of 84 underperforming stores in the first and second
quarters of 1994, resulting in 1,028 stores operating at the
end
of the third quarter this year compared with 1,080 stores
last
year.
During the fourth quarter of 1993, the Company established a
pre-
tax charge against 1993 earnings of $170.5 million to cover
management's best estimate of the costs associated with
closing
the 84 underperforming stores. These costs include the write-
down
of store assets to reflect estimated realizable values, the
unrealizable portion of the present value of remaining rent
payments on leased stores and other costs associated with
the
store closings such as legal expenses, relocation expenses
and
costs to store and transfer reusable equipment.
The decision to close stores resulted from the Company's on-
going
review of the profitability of individual stores. By
closing
unprofitable stores, the Company eliminates the operating
losses
of these stores which enhances future profits. During 1993
the
Company recorded approximately $30 million in annual pre-tax
losses attributable to these stores that will not recur in
future
years. Because these stores were closed in the first two
quarters
of 1994, the Company will not recognize the total annual
benefit
of these store closings until 1995. As of the end of the
third
quarter of 1994, the Company is early in the process of
efforts
to dispose of properties and to terminate or assign leases
for the
properties and no adjustments to the carrying value of the
properties is necessary at this time. The Company will
continue to
monitor and evaluate the reserve to make necessary
adjustments.
The 1994-1995 business plan also includes opening new stores
and
renovating existing stores. During 1994, the Company plans
to
open 30 new stores, down from an earlier projection of
around 40
new stores due primarily to delays in construction. These
additional 10 new stores will be pushed into early 1995 as a
result of the construction delays. The Company is on track
to
complete around 60 renovations to existing stores during
1994.
-7-
As of September 10, 1994, the Company opened 16 new stores,
replaced three older stores with new Food Lion locations and
completed 25 renovations to existing stores. The second
year of
the Company's 1994-1995 business plan calls for opening 50
new
stores (including those delayed by construction) and
renovating
between 100 and 120 existing locations. The Company
currently has
no plans for additional closings other than normal
replacements.
The Company's gross profit margins increased 0.31% and
0.66%, for
the quarter and year to date, respectively, as compared to
the
same periods in 1993. The improvement over last year is
primarily
due to an increase in customer traffic and items per
customer in
the meat department, which generates a higher profit margin,
and
an increase in grocery gross profit margins. In addition,
last
year's gross profit margins were impacted by heavy
promotional
activity in the quarter designed to increase customer
traffic and
sales. Although the level of promotional activity has
decreased in
1994 as compared to a year ago, the Company continues
promotional
activity that is greater than historical levels. Currently,
promotional activity is designed to specifically target
certain
geographic areas in an effort to increase sales and profits
in
these areas.
For the quarter and year to date, Selling and Administrative
Expenses decreased 0.68% of sales and 0.07% of sales,
respectively. Last year during the third quarter, Selling
and
Administrative Expenses included a $16.2 million settlement
with
the Department of Labor (DOL) of which $8.0 million was
reserved
prior to the quarter. Selling and Administrative Expenses
restated without the DOL settlement payment were 14.39% of
sales
for the quarter and 14.14% of sales year to date resulting
in
0.23% of sales decrease for Selling and Administrative
Expenses
for the third quarter and 0.09% of sales increase year to
date.
Contributing to the third quarter 0.23% decrease of Selling
and
Administrative Expenses as a percent of sales (after
restatement
of the DOL settlement payment last year) were decreases in
store
operating expenses, advertising and legal expenses. Store
operating expenses such as rent, utilities, maintenance and
repairs declined as the Company had 52 fewer stores in
operation
as compared to a year earlier. In addition, in 1993,
advertising
expenses were higher than 1994 due to a large coupon
campaign in
Florida.
Although the Company anticipates some continued pressure on
expenses over the next several months, Food Lion expects
year to
date expenses as a percentage of sales to decrease for 1994
compared to 1993.
-8-
Interest expense increased 0.11% of sales during the third
quarter
of 1994 and 0.18% of sales year to date. The increase in
interest
for the quarter and year to date is due to the amortization
of
rent obligations on the 1994 store closings and lower
capitalized
interest resulting from decreased construction. Year to
date
interest also increased due to a higher interest rate on
long-term
financing that replaced short-term borrowings outstanding
during
the second quarter of 1993, therefore not affecting the
third
quarter interest comparison.
Depreciation decreased 0.15% and 0.12% for the quarter and
year to
date, respectively. The decrease is primarily due to the 84
store
closings in the first and second quarters of 1994.
Liquidity and Capital Resources
Cash provided by operating activities totaled $393.8 million
for
the 36 weeks ended September 10, 1994 compared with $367.2
for the
same period last year. This increase is primarily due to
the
$25.2 million increase in profits and improved inventory
management offset by a decrease in accounts payable and
accrued
expenses for the third quarter 1994 vs. 1993. The decrease
in
accrued expenses is primarily due to the funding of the
Company's
1993 profit sharing plan contribution during the first
quarter of
1994. Historically, the Company's Profit Sharing plan
contribution has been funded in September of each year.
Capital expenditures totaled $57.2 million for the 36 weeks
ended
September 10, 1994 compared with $116.4 million for the same
period in 1993. This decrease is primarily due to fewer new
store
openings coupled with an increased focus on renovations to
existing stores.
As stated above, Food Lion's two-track growth plan, which
focuses
on a combination of renovations and new store openings,
continues
to move forward. The Company expects to open a total of 30
new
stores during
1994 while renovating 60 existing locations. As of the end
of the
third quarter of 1994, 16 new stores were opened, three
older
stores were replaced with new Food Lion locations, and
renovations
to 25 existing stores have been completed. Construction
delays
are expected to push the openings of 10 additional new
stores into
early 1995, increasing Food Lion's growth plan for 1995 to a
total
of 50 new store openings and 100-120 store renovations. The
majority of the new store openings will be opened under
conventional leasing arrangements, therefore the impact on
liquidity of owning stores will be insignificant.
-9-
Significant cash capital expenditures currently estimated
for the
remainder of 1994 are as follows:
Construction - renovations and new store openings $25
million
Equipment - Renovations and new store openings $22
million
Distribution Center Expansion $ 5
million
Land costs $ 5
million
Other $ 3
million
For the foreseeable future, the Company's cash capital
expenditures will be financed through funds generated from
operations and with existing bank and credit lines, along
with
other debt, if necessary.
As the Company established a $170.5 million reserve in the
fourth
quarter of 1993 to cover the costs to close 84 unprofitable
stores(54 in the first quarter and 30 in the second quarter
of
1994), the Company does not expect a significant impact on
liquidity in 1994 resulting from these store closings.
The Company will consider the possibility of sale-leaseback
transactions on certain free-standing, company owned stores
in the
future if advantageous opportunities are presented by
potential
lessors.
The Company maintains the following bank and credit lines:
$250 million commercial paper program which is outlined
in
the table below:
Commercial Paper Program
(Dollars in millions)
1994
1993
Outstanding borrowings at end of third quarter $ 0
$0
Average borrowings 0
3.3
Maximum amount outstanding 0
30.0
Daily weighted average interest rate N/A
3.30%
-10-
A renewable 364-day credit facility with a syndicate of
commercial banks providing $300 million in formal lines of
credit. There were no borrowings against these lines
during
the third quarter or as of September 10, 1994. The Company
has
engaged Wachovia Bank to arrange for the syndication of a
60
month revolving credit facility to replace the existing
364 day
facility which would otherwise expire in June, 1995. The
Company
expects improvements in both pricing and covenants in this
new
facility relative to those of the existing facility.
Additional short-term lines of credit totaling $30.5
million.
These lines of credit are available when needed. The
Company is
not required to maintain compensating balances and
borrowings
may occur periodically. The Company had no borrowings
under
these lines during the third quarter or as of September
10,
1994.
Periodic short-term borrowings under informal credit
arrangements, which are available to the Company at the
discretion of the lender (see table below):
Informal Credit Arrangements
(Dollars in millions)
1994
1993
Outstanding borrowings at end of third quarter $
0 $0
Average borrowings
0 1.8
Maximum amount outstanding
0 5.0
Daily weighted average interest rate
N/A 3.35%
During the fourth quarter, the Company will pay off early
three
series of senior unsecured notes totaling $214 million which
are
due from 1998 to 2003. The Company expects no make whole
premium
unless interest rates on term-matched treasury notes fall
substantially from current levels.
-11-
Part II OTHER INFORMATION
Item 1. Legal Proceedings
On May 19, 1994, a complaint was filed in the United States
District Court for the Eastern District of Virginia styled
Sutton,
et al v. Food Lion, Inc., civil action #3:94CV322(ED VA.).
The
complaint alleges a pattern and practice of discrimination
in
hiring, promotions, discipline, discharge, allocation of
hours,
awarding full-time status and wages, because of race in
violation
of Title VII of the Civil Rights Act of 1964 and 42 U.S.C.
1981.
By order dated September 7, 1994, the Court denied
plaintiff's
motion for class certification of the case. The individual
claims
of the named parties are scheduled for trial at a later
date.
Item 2. Change in Securities
This item is not applicable.
Item 3. Defaults Upon Senior Securities
This item is not applicable.
Item 4. Submission of Matters to a Vote of Security
Holders
This item is not applicable.
Item 5. Other Information
This item is not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
11-Computation of Earnings per Share.
27-Financial Data Schedule
(b). The Company filed a report on Form 8-K pursuant to
Item 5 and
Item 7 on October 7, 1994 listing a) a new director
and b) a
new shareholders' agreement.
-12-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE
ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
FOOD LION, INC.
Registrant
DATE BY:
Dan A. Boone
Vice President-Finance
Chief Financial Officer
and Secretary
Principal Financial
Officer
(Duly Authorized
Officer)
-13-
EXHIBIT INDEX
SEQ. PAGE
EXHIBIT # DESCRIPTION
NO.
11 Computation of Earnings per Share
15
27 Financial Data Schedule
16-17
-14-
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except
per share amounts)
September 10, 1994
September 11, 1993
PRIMARY
NET INCOME $102,509
$77,296
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 483,707
483,700
STOCK OPTIONS 55
0
483,762
483,700
(*) SHARES USED IN COMPUTATION 483,762
483,700
PRIMARY EARNINGS PER SHARE $ .2119
$.1598
FULLY DILUTED
NET INCOME $102,509
$77,296
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 2,422
855
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $104,931
$78,151
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 483,707
483,700
STOCK OPTIONS 55
0
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE 14,557
5,257
JUNE 14, 1993)
498,319
488,957
(*) SHARES USED IN COMPUTATION 498,319
488,957
FULLY DILUTED EARNINGS PER SHARE $ .2106
$.1598
(*)Note: Dilution is less than 3%. Therefore, common stock
equivalents have been excluded from the total weighted
average
common shares.
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from 9/10/94
balance sheet and income statement and is qualified in its
entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-02-1994
<PERIOD-END> SEP-10-1994
<CASH> 337,233
<SECURITIES> 0
<RECEIVABLES> 100,948
<ALLOWANCES> 0
<INVENTORY> 805,029
<CURRENT-ASSETS> 1,297,732
<PP&E> 2,034,545
<DEPRECIATION> 710,203
<TOTAL-ASSETS> 2,622,074
<CURRENT-LIABILITIES> 677,156
<BONDS> 569,300
<COMMON> 241,854
0
0
<OTHER-SE> 746,133
<TOTAL-LIABILITY-AND-EQUITY> 2,622,074
<SALES> 5,475,732
<TOTAL-REVENUES> 5,475,732
<CGS> 4,367,311
<TOTAL-COSTS> 4,367,311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,164
<INCOME-PRETAX> 169,435
<INCOME-TAX> 66,926
<INCOME-CONTINUING> 102,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,509
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
