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 March 26, 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 April
29, 1994.
Class A Common Stock 244,135,824
Class B Common Stock 239,571,114
Page 1 of 13
The Exhibit index is located on page 12.
FOOD LION, INC.
INDEX TO FORM 10-Q
MARCH 26, 1994
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the 12 weeks
ended March 26, 1994 and March 27, 1993 3
Balance sheets as of March 26, 1994,
January 1, 1994 and March 27, 1993 4
Statements of Cash Flows for the 12 weeks
ended March 26, 1994 and March 27, 1993 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit Index 12
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<TABLE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
FOOD LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended March 26, 1994 and March 27, 1993
(Dollars in thousands except per share data)
<CAPTION>
March 26, 1994 March 27, 1993 12 WEEKS
(A) (B) (A) (B)
% %
<S> <C> <C> <C> <C>
Net sales $1,804,022 $1,656,825 100.00 100.00
Cost of goods sold 1,440,812 1,340,750 79.87 80.92
Gross profit 363,210 316,075 20.13 19.08
Selling and administrative expenses 257,523 232,098 14.28 14.01
Interest expense 20,552 16,271 1.14 0.98
Depreciation 33,644 31,950 1.86 1.93
311,719 280,319 17.28 16.92
Income before income taxes 51,491 35,756 2.85 2.16
Provision for income taxes 20,335 13,838 1.12 0.84
Net income $ 31,156 $ 21,918 1.73 1.32
Earnings per share $ .06 $ .05
Dividends per share $ .02 $ .02
Weighted average number
of shares outstanding
Class A 244,135,749 244,124,924
Class B 239,571,114 239,571,114
Total 483,706,863 483,696,038
</TABLE>
<TABLE> -3-
FOOD LION, INC.
BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<CAPTION>
March 26, 1994 January 1, 1994 March 27, 1993
Assets
Current assets:
<S> <C> <C> <C>
cash and cash equivalents $ 156,584 $ 46,066 $ 77,590
Receivables 93,970 109,952 94,995
Inventories 831,014 929,138 861,083
Prepaid expenses and other 54,148 54,316 45,793
Total current assets 1,135,716 1,139,472 1,079,461
Property, at cost, less accumulated
depreciation 1,335,790 1,364,211 1,390,279
Total assets $2,471,506 $2,503,683 $2,469,740
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ 10,007 $ 332,500
Accounts payable, trade $ 325,861 346,799 324,160
Accrued expenses 214,334 241,187 234,452
Long-term debt - current 152 183 327
Capital lease obligations - current 7,040 7,108 5,279
Other liabilities - current 3,379 3,880 302
Income taxes payable 29,193 10,107 15,252
Total current liabilities 579,959 619,271 912,272
Long-term debt 569,325 569,350 240,798
Capital lease obligations 288,854 301,541 253,726
Deferred income taxes 36,587 36,587 86,543
Deferred compensation 562 571 1,732
Other liabilities 58,009 58,809 7,503
Total liabilities 1,533,296 1,586,129 1,502,574
Shareholders' Equity:
Class A non-voting common stock, $.50 par
value 122,068 122,066 122,064
Class B voting common stock, $.50 par value 119,786 119,786 119,786
Additional capital 309 289 272
Retained earnings 696,047 675,413 725,044
Total shareholders' equity 938,210 917,554 967,166
Total liabilities and
shareholders' equity $2,471,506 $2,503,683 $2,469,740
</TABLE>
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<TABLE>
FOOD LION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the 12 Weeks ended March 26, 1994 and March 7, 1993
(Dollars in thousands)
<CAPTION>
12 Weeks
March 26, 1994 March 27, 1993
Cash flows from operating activities
<S> <C> <C>
Net income $ 31,156 $ 21,918
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 33,644 31,950
Gain on disposals of property ( 142) ( 19)
Changes in operating assets and liabilities:
Receivables 15,982 992
Inventories 98,124 35,302
Prepaid expenses and other 168 4,561
Accounts payable and accrued expenses ( 49,223) 37,768
Income taxes payable 19,086 15,252
Deferred income taxes --- 2,475
Deferred compensation ( 9) 8
Other liabilities ( 1,301) 62
Total adjustments 116,329 128,351
Net cash provided by operating activities 147,485 150,269
Cash flows from investing activities
Proceeds from disposal of property 823 108
Capital expenditures ( 15,510) ( 38,645)
Net cash used in investing activities ( 14,687) ( 38,537)
Cash flows from financing activities
Net payments under short-term borrowings ( 10,007) ( 127,250)
Principal payments under capital lease obligations( 1,717) ( 1,344)
Principal payments on long-term debt ( 56) ( 200)
Proceeds from issuance of common stock 22 50
Dividends paid ( 10,522) ( 10,521)
Net cash used in financing activities ( 22,280) ( 139,265)
Net increase (decrease) in cash and cash
equivalents 110,518 ( 27,533)
Cash and cash equivalents at beginning
of period 46,066 105,123
Cash and cash equivalents at end of period $156,584 $ 77,590
</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:
March 26, 1994 March 27, 1993
Interest (net of amounts $13,374 $14,844
capitalized)*
Income taxes 1,296 1,136
*Interest capitalized 227 1,017
Capital lease obligations of $5,282 and $9,605 were incurred in
the first quarter of 1994 and 1993, respectively.
Capital lease retirements of $16,320 and $0 were recorded in the
first quarter of 1994 and 1993, respectively.
The Company acquired new equipment totaling $449 which was
financed with capital leases.
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 weeks ended March 26, 1994 compared to
12 weeks ended March 27, 1993)
Net sales increased 8.9% for the 12 weeks ended March 26, 1994
compared with the same period last year. Same store sales
(including all comparable stores) increased 3.0% during the first
quarter of 1994. Same store sales, excluding sales for the 88
stores scheduled to close during 1994, increased 3.5% during the
first quarter of 1994.
On January 7, 1994 Food Lion announced its 1994 business plan,
which included opening 40-50 new stores, renovating 60-70 existing
stores and closing 88 unprofitable store locations. In the fourth
quarter of 1993, the Company recorded a $170.5 million reserve
against 1993's earnings to cover management's best estimate of the
costs to close these 88 stores.
During the first quarter of 1994, Food Lion opened six new stores,
replaced two older stores with new Food Lion locations, completed
nine renovations to existing stores and closed 54 unprofitable
store locations.
Gross Profit was 20.13% of sales for the first quarter of 1993
compared with 19.08% of sales for the same period last year. The
improvement over last year is primarily due to an increase in
customer traffic in the market department which generates a higher
profit margin. Last year, during the first quarter of 1993, the
Company experienced declines in gross profits, due primarily to
the cost of heavy promotional activity designed to increase
customer traffic and sales. Although the level of promotional
activity has decreased 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.
Selling and administrative expenses as a percentage of sales were
14.28% for the first quarter of 1994 compared to 14.01% for the
same period last year. This is due primarily to increases in
store salaries, benefits and other store operating expenses such
as general repairs and maintenance.
Interest expense increased 0.16% of sales during the first quarter
of 1994 primarily due to interest recognized on the amortization
of rent payments on 1994 store closings, and lower capitalized
interest due to a decrease in construction. In addition, interest
expense for the quarter was affected by a higher interest rate on
long-term financing that replaced short-term borrowings
outstanding during the second quarter of 1993.
-7-
For the quarter, depreciation decreased 0.07% of sales primarily
due to a higher sales base available this year over last year to
absorb fixed costs as well as, fewer store openings and additional
store closings, during the first quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $147.5 million for
the 12 weeks ended March 26, 1994 compared with $150.3 million for
the same period last year. This decrease is primarily due to the
funding of the Company's 1993 profit sharing plan contribution
during the quarter. Historically, the Company's profit sharing
plan contribution has been funded in September of each year.
Capital expenditures totaled $15.5 million for the 12 weeks ended
March 26, 1994 compared with $38.6 million for the same period in
1993. This decrease is primarily due to slower new store opening
plans coupled with an increased focus on less costly renovations
to existing stores. During the first quarter of 1994, the Company
opened six new stores, replaced two older stores with new Food
Lion locations and completed renovations to nine existing stores.
The Company plans to open between 30-40 new stores in the
remaining months of 1994, located primarily in the southeast. The
majority of these new stores will be opened under conventional
leasing arrangements and, as a result, the impact on liquidity of
owning stores will be insignificant. The Company also plans to
renovate 50-60 existing stores in the remaining three quarters of
1994.
Significant cash capital expenditures currently estimated for the
remainder of 1994 are as follows:
Store renovations and new store openings $60 million
Distribution center expansion $10 million
Land costs $ 8 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.
Also, during the first quarter, Food Lion closed 54 of the 88
unprofitable stores scheduled to close during 1994. The remaining
34 stores are expected to be closed in the second quarter of 1994.
The Company established a $170.5 million reserve in the fourth
quarter of 1993 to cover the costs to close these 88 stores. Of
this $170.5 million, only $28.3 million represents cash outlays to
cover legal expenses, relocation expenses and costs to store and
transfer reusable equipment. As a result, Food Lion does not
expect a significant impact on liquidity in 1994 resulting from
the store closings.
-8-
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
first quarter $ 0 $ 60.0
Average borrowings 0 137.4
Maximum amount outstanding 0 183.3
Daily weighted average interest rate 0 3.48%
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 first quarter or as of March 26, 1994. This facility will
expire on June 3, 1994, however the Company plans to renew the
facility.
Additional short-term lines of credit totaling $43 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 first quarter or as of March 26, 1994.
Periodic short-term borrowings under informal credit
arrangements, which are available to the Company at the
discretion of the lender (see table below):
-9-
Informal Credit Arrangements
(Dollars in millions)
1994 1993
Outstanding borrowings at end of
first quarter $ 0 $ 87.0
Average borrowings .1 128.7
Maximum amount outstanding 10.0 171.0
Daily weighted average interest rate 3.50% 3.73%
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has had no significant developments
related to legal matters since the Item 3.
disclosure previously included in the Company's
Form 10-K filed on March 31, 1994.
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.
(b). The Company filed a report on Form 8-K pursuant to Item 5 on
January 7, 1994 listing a) a new director and b) discussing
various financial matters.
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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
Dan A. Boone
Vice President-Finance,
Chief Financial Officer
and Secretary
Principal Financial Officer
(Duly Authorized Officer)
-11-
EXHIBIT INDEX
SEQ. PAGE
EXHIBIT # DESCRIPTION NO.
11 Computation of Earnings per Share 13
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Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except
per share amounts)
March 26, 1994 March 27, 1993
PRIMARY
NET INCOME $ 31,156 $21,918
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 483,707 483,696
STOCK OPTIONS 0 0
483,707 483,696
(*) SHARES USED IN COMPUTATION 483,707 483,696
PRIMARY EARNINGS PER SHARE $ .0644 $ .0453
FULLY DILUTED
NET INCOME $ 31,156 $ 21,918
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 807
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $ 31,963
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 483,707 483,696
STOCK OPTIONS 0 0
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE 14,557 0
JUNE 14, 1993)
498,264 483,696
(*) SHARES USED IN COMPUTATION 498,264 483,696
FULLY DILUTED EARNINGS PER SHARE $ .0641 $ .0453
(*)Note: Dilution is less than 3%. Therefore, common stock equivalents
have been excluded from the total weighted average common shares.
-13-
