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 June 18, 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 July
22, 1994.
Class A Common Stock 244,135,824
Class B Common Stock 239,571,114
Page 1 of 17
The Exhibit index is located on page 16.
FOOD LION, INC.
INDEX TO FORM 10-Q
JUNE 18, 1994
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the 12 and 24
weeks ended June 18, 1994 and June 19, 1993 3
Balance sheets as of June 18, 1994,
January 1, 1994 and June 19, 1993 4
Statements of Cash Flows for the 24 weeks
ended June 18, 1994 and June 19,1993 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 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security 13-14
Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
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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 June 18, 1994 and June 19, 1993
(Dollars in thousands except per share data)
<CAPTION>
June 18, 1994 June 19, 1993 12 WEEKS
(A) (B) (A) (B)
% %
<S> <C> <C> <C> <C>
Net sales $1,821,905 $1,749,923 100.00 100.00
Cost of goods sold 1,452,105 1,406,087 79.70 80.35
Gross profit 369,800 343,836 20.30 19.65
Selling and administrative expenses 259,659 245,138 14.25 14.01
Interest expense 21,116 15,997 1.16 0.92
Depreciation 31,500 32,632 1.73 1.86
312,275 293,767 17.14 16.79
Income before income taxes 57,525 50,069 3.16 2.86
Provision for income taxes 22,725 19,376 1.25 1.11
Net income $ 34,800 $ 30,693 1.91 1.75
Earnings per share $ .07 $ .06
Dividends per share $ .02 $ .02
Weighted average number
of shares outstanding
Class A 244,135,824 244,130,202
Class B 239,571,114 239,571,114
Total 483,706,938 483,701,316
</TABLE>
-3-
<TABLE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
FOOD LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 24 Weeks ended June 18, 1994 and June 19, 1993
(Dollars in thousands except per share data)
<CAPTION>
June 18, 1994 June 19, 1993 24 WEEKS
(C) (D) (C) (D)
% %
<S> <C> <C> <C> <C>
Net sales $3,625,927 $3,406,748 100.00 100.00
Cost of goods sold 2,892,917 2,746,837 79.78 80.63
Gross profit 733,010 659,911 20.22 19.37
Selling and administrative expenses 517,182 477,236 14.26 14.01
Interest expense 41,668 32,268 1.15 0.95
Depreciation 65,144 64,582 1.80 1.89
623,994 574,086 17.21 16.85
Income before income taxes 109,016 85,825 3.01 2.52
Provision for income taxes 43,060 33,214 1.19 0.98
Net income $ 65,956 $ 52,611 1.82 1.54
Earnings per share $ .14 $ .11
Dividends per share $ .04 $ .04
Weighted average number
of shares outstanding
Class A 244,135,787 244,127,563
Class B 239,571,114 239,571,114
Total 483,706,901 483,698,677
</TABLE>
-3a-
<TABLE>
FOOD LION, INC.
BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<CAPTION>
June 18, 1994 January 1, 1994 June 19, 1993
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 260,201 $ 46,066 $ 149,244
Receivables 93,719 109,952 95,543
Inventories 797,520 929,138 861,670
Prepaid expenses and other 55,617 54,316 49,844
Total current assets 1,207,057 1,139,472 1,156,301
Property, at cost, less accumulated
depreciation 1,328,189 1,364,211 1,413,042
Total assets $2,535,246 $2,503,683 $2,569,343
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ 10,007 $ 45,000
Accounts payable, trade $ 351,194 346,799 322,214
Accrued expenses 244,643 241,187 262,796
Long-term debt - current 97 183 329
Capital lease obligations - current 7,435 7,108 5,551
Other liabilities - current 3,307 3,880 282
Income taxes payable 8,469 10,107 10,936
Total current liabilities 615,145 619,271 647,108
Long-term debt 569,300 569,350 569,761
Capital lease obligations 295,335 301,541 267,083
Deferred income taxes 36,587 36,587 89,018
Deferred compensation 544 571 1,724
Other liabilities 55,847 58,809 7,301
Total liabilities 1,572,758 1,586,129 1,581,995
Shareholders' Equity:
Class A non-voting common stock, $.50 par
value 122,068 122,066 122,065
Class B voting common stock, $.50 par value 119,786 119,786 119,786
Additional capital 309 289 282
Retained earnings 720,325 675,413 745,215
Total shareholders' equity 962,488 917,554 987,348
Total liabilities and
shareholders' equity $2,535,246 $2,503,683 $2,569,343
</TABLE>
-4-
<TABLE>
FOOD LION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the 24 Weeks ended June 18, 1994 and June 19, 1993
(Dollars in thousands)
<CAPTION>
24 Weeks
June 18, 1994 June 19, 1993
Cash flows from operating activities
<S> <C> <C>
Net income $ 65,956 $ 52,611
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 65,144 64,582
Loss on disposals of property 153 8
Changes in operating assets and liabilities:
Receivables 16,233 444
Inventories 131,618 34,715
Prepaid expenses and other ( 1,301) 1,410
Accounts payable and accrued expenses 6,419 64,166
Income taxes payable ( 1,638) 10,936
Deferred income taxes 0 4,950
Deferred compensation ( 27) 0
Other liabilities ( 3,535) ( 247)
Total adjustments 213,066 180,964
Net cash provided by operating activities 279,022 233,575
Cash flows from investing activities
Proceeds from disposal of property 1,875 307
Capital expenditures ( 32,042) ( 80,061)
Net cash used in investing activities ( 30,167) ( 79,754)
Cash flows from financing activities
Net payments under short-term borrowings ( 10,007) ( 414,750)
Principal payments under capital lease obligations( 3,555) ( 2,796)
Principal payments on long-term debt ( 136) ( 172)
Proceeds from issuance of common stock 22 61
Proceeds from issuance of long-term debt 0 329,000
Dividends paid ( 21,044) ( 21,043)
Net cash used in financing activities ( 34,720) ( 109,700)
Net increase (decrease) in cash and cash
equivalents 214,135 ( 44,121)
Cash and cash equivalents at beginning
of period 46,066 105,123
Cash and cash equivalents at end of period $260,201 $149,244
</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:
June 18, 1994 June 19, 1993
Interest (net of amounts $39,487 $31,751
capitalized)*
Income taxes 44,616 21,408
*Interest capitalized 389 1,805
Capital lease obligations of $14,545 and $24,686 were incurred in
the 24 week period of 1994 and 1993, respectively.
Capital lease retirements of $16,869 and $0 were recorded in the
24 week period 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 24 weeks ended June 18, 1994
compared to 12 and 24 weeks ended June 19, 1993)
Net sales increased 4.1% and 6.4% for the quarter and year to
date, respectively. Same store sales (including all comparable
stores) increased 2.8% and 2.9% for the second quarter and year to
date, respectively. Same store sales, excluding sales for the 84
closed stores, increased 2.8% for the quarter and 3.1% year to
date.
As of the second quarter, the Company completed the first phase of
its 1994-95 business plan, by closing 84 underperforming stores.
During the fourth quarter of 1993, Food Lion established a pre-tax
charge against 1993 earnings of $170.5 million to cover
management's best estimate of the costs associated with these
store closings. These costs include the write-down of store
assets ($87.1 million) to reflect estimated realizable values, the
unrealizable portion of the present value of remaining rent
payments on leased stores ($55.1 million), and other costs
associated with the store closings such as legal expenses,
relocation expenses and costs to store and transfer reusable
equipment ($28.3 million). In estimating the store closing
reserve related to the store properties, the Company considered
many factors including individual market conditions, competitive
activity, Food Lion's history of successfully disposing idle
properties, the market knowledge of its real estate experts and
the recommendations of an independent consultant engaged to
evaluate the fair value of the specific properties involved.
The discount rate used to measure the present value of remaining
rent payments on leased stores was 8%, representing the Company's
incremental borrowing rate. After computing the present value of
the remaining lease payments the Company, in conjunction with
independent consultants, estimated that 37% of this obligation
would be realizable through sublease activities, early lease
terminations and lease assignment opportunities. As a result, a
charge of $55.1 was calculated representing the estimated
unrealizable portion of this lease obligation. Actual rent
payments for the closed stores that are leased will be made during
the years 1994 through 2017 (actual remaining lease terms) or
until successful lease termination or lease assignment is
arranged. The interest portion of these rent payments will be
charged to earnings as incurred each year during the remaining
lease terms.
Additional cash outlays related to the store closing charge will
be the "other costs" ($28.3 million) previously described above.
-7-
The decision to close stores comes as part of Food Lion's on-going
review of individual profitability. 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 scheduled to close throughout the first
two quarters of 1994, the Company will not recognize the total
annual benefit of these store closings until 1995.
The 1994-1195 business plan also includes opening new stores and
renovating existing stores. During 1994, Food Lion plans to open
30-35 new stores, down from an earlier projection of around 40 new
stores due primarily to delays in construction. The Company is on
track to complete around 60 renovations to existing stores during
1994.
During the first half of 1994, Food Lion opened 13 new stores,
replaced two older stores with new Food Lion locations, completed
renovations to existing stores and closed 84 unprofitable stores.
The second year of the Company's 1994-1995 business plan calls for
opening an additional 40 new stores and renovating between 100 and
120 existing locations.
The Company's gross profit margins increased 0.65% and 0.85%, 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 in the meat department,
which generates a higher profit margin. In addition, last years
gross profit margins were lower, due to heavy promotional activity
in the early months of 1993 designed to increase customer traffic
and sales. Although at the end of the second quarter of 1994, 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.
For the quarter and year to date, Selling and Administrative
Expenses increased 0.24% of sales and 0.25% of sales,
respectively. Primary contributors to this increase are store
salaries, store benefits and increased Workers' Compensation
reserves, and increases in store operating expenses such as
utilities and general maintenance and repair expenses.
Over the past few quarters, Food Lion has accelerated some routine
store maintenance and repair efforts, based on suggestions
received from customers, in order to better ensure superior store
conditions and excellent customer service. In addition, the
Company has incurred an increase in advertising, legal and public
relations costs associated with addressing continuing tactics from
the United Food and Commercial Workers Union Internationals'
-8-
"Corporate Campaign" to discredit or damage Food Lion's
credibility.
Store benefits include expenses for the Company's profit sharing
plan. The Company has a non-contributory profit sharing plan
covering all employees. Contributions to the profit sharing
plan are made at the discretion of the Board of Directors.
Historically, the Company has contributed 15% of the wages of
eligible employees on an annual basis. In light of decreased
profits for the 1993 fiscal year, the Board of Directors approved
a contribution equal to 10% of 1993 wages. This contribution
totaled $62.2 million. The 1993 contribution was 24% lower than
the 1992 contribution. Although the contribution was higher in
terms of percentage of income before taxes, in an effort to
recognize the performance of the Company's employees in 1993, the
Board did not believe a further reduction would be prudent for
1993. The 1993 profit sharing contribution had no effect on
dividends paid to the Company's shareholders, and future dividend
payments will not be affected by future profit sharing
contributions. The 1994 profit sharing contribution will not be
determined until the 1994 results have been finalized and
evaluated.
Although the Company anticipates some continued pressure on
expenses over the next several months, Food Lion expects expenses
as a percentage of sales to decrease during 1994.
Interest expense increased 0.24% of sales during the second
quarter of 1994 and 0.20% of sales year to date primarily due to a
higher interest rate on long-term financing that replaced short-
term borrowings outstanding during the second quarter of 1993. In
addition, interest increased due to the amortization of rent
obligations on the 1994 store closings and lower capitalized
interest resulting from a decrease in construction.
Depreciation decreased 0.13% and 0.09% for the quarter and year to
date, respectively. The decrease is 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 through the
second quarter of 1994.
Liquidity and Capital Resources
Cash provided by operating activities totaled $279.0 million for
the 24 weeks ended June 18, 1994 compared with $233.6 for the same
period last year. This increase is primarily due to a decrease in
inventory resulting from improved inventory management, offset
partially by a decrease in accrued expenses. This decrease in
accrued expenses is primarily due to the funding of the Company's
-9-
1993 profit sharing plan contribution during the first quarter.
Historically, the Company's profit sharing plan contribution has
been funded in September of each year.
Capital expenditures totaled $32.0 million for the 24 weeks ended
June 18, 1994 compared with $80.1 million for the same period in
1993. This decrease is primarily due to fewer new store openings
coupled with an increased focus on less costly renovations to
existing stores.
As discussed above, the Company's 1994-1995 business plan calls
for opening approximately 30-35 new stores and renovating an
estimated 60 existing locations. As of the second quarter of
1994, 13 new stores were opened, two older stores were replaced
with new Food Lion locations, and renovations to 16 existing
stores were completed. 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.
Significant cash capital expenditures currently estimated for the
remainder of 1994 is as follows:
Store renovations and new store openings $40 million
Distribution Center expansion $ 4 million
Land costs $ 7 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 second quarter of 1994, Food Lion closed the
remaining 30 of the 84 unprofitable stores scheduled to close
during 1994. The Company established a $170.5 million reserve in
the fourth quarter of 1993 to cover the costs to close the 84
stores; therefore, Food Lion 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:
-10-
Commercial Paper Program
(Dollars in millions)
1994 1993
Outstanding borrowings at end of
second quarter $ 0 $ 30.0
Average borrowings 0 85.3
Maximum amount outstanding 0 100.0
Daily weighted average interest rate N/A 3.25%
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 second quarter or as of June 18, 1994.
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 second quarter or as of June 18, 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
second quarter $ 0 $ 5.0
Average borrowings 0 121.3
Maximum amount outstanding 0 203.6
Daily weighted average interest rate N/A 3.40%
-11-
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, other than discussed
below:
On February 16, 1994, plaintiff Sarah Bullock, an African-American
female filed a motion to amend her federal district court
complaint in Bullock v. Food Lion, Inc. No. 93-CV-51-ATH (M.D.
Ga.), a pending individual plaintiff suit in which Ms. Bullock
alleges that she was denied a promotion and discharged because of
her race, by adding 10 named additional plaintiffs and company-
wide class action allegations of race discrimination in
violation of Title VII of the Civil Rights Act of 1964 and 42
U.S.C. 1981. By order dated May 4, 1994, the court denied
plaintiff's motion to amend seeking class certification. The
individual claim of the original party was settled shortly
thereafter, thereby terminating the Bullock action.
The ten plaintiffs who unsuccessfully sought to join the Bullock
action and three additional plaintiffs subsequently filed an
action on May 19, 1994 in the United States District Court for the
Eastern District of Virginia styled Sutton, et al. v. Food Lion,
Inc., Civil Action No. 3:94CV322 (E.D. Va.). The complaint
alleges a pattern and practice of discrimination in hiring,
promotions, discipline, discharge, allocation of hours, awarding
full-time status, and wages. The amended complaint seeks
certification of a class defined as all past and present black
employees at Food Lion and all black applicants for employment,
and seeks remedies including broad injunctive relief, monetary
damages, reasonable attorneys' fees, and expenses.
No motion for class certification has yet to be filed, no class
has been certified and the plaintiffs have not yet specified an
amount of monetary damages alleged to have been suffered by the
class. While at this time the Company cannot evaluate the
consequences of an adverse judgment, the Company intends to
vigorously defend this action.
-12-
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
(a). The Company held its Annual Meeting of Shareholders on May
5, 1994.
(b). Not applicable.
(c). Matters voted upon at the meeting:
Election of Directors
Broker
For Witheld Non-Votes
Pierre Olivier Beckers 203,730,536 529,657 35,310,921
Dan A. Boone 203,705,338 554,855 35,310,921
Jacqueline Kelly Callomore 203,559,316 700,877 35,310,921
William G. Ferguson 203,570,976 689,217 35,310,921
Dr. Bernard W. Franklin 202,802,693 1,457,500 35,310,921
E. Charles De Cooman D'Herlinckhove 203,741,043 519,150 35,310,921
Gui De Vaucleroy 203,745,135 515,058 35,310,921
Jacques LeClercq 203,740,909 519,284 35,310,921
Tom E. Smith 203,431,220 828,973 35,310,921
John P. Watkins 203,735,466 524,727 35,310,921
-13-
Appointment of Independent Accountants
For Against Abstain Broker Non-
Votes
Coopers & Lybrand 203,975,419 168,246 116,528 35,310,921
Amendment of 1991 Employee Stock Option Plan
For Against Abstain Broker
Non-Votes
194,398,367 4,303,150 5,558,676 35,310,921
Shareholder proposal for the
Disclosure of Profit Sharing balances of Key Executives
For Against Abstain Broker Non
Votes
13,072,405 168,152,375 4,291,188 54,055,146
(a). 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 did not file a report on Form 8-K for the period
ended June 18, 1994.
-14-
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:
Carol M. Herndon
Corporate Controller
Principal Accounting Officer
-15-
EXHIBIT INDEX
SEQ. PAGE
EXHIBIT # DESCRIPTION NO.
11 Computation of Earnings per Share 17
-16-
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except
per share amounts)
June 18, 1994 June 19, 1993
PRIMARY
NET INCOME $ 65,956 $ 52,611
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 483,707 483,699
STOCK OPTIONS 0 0
483,707 483,699
(*) SHARES USED IN COMPUTATION 483,707 483,699
PRIMARY EARNINGS PER SHARE $ .1364 $ .1088
FULLY DILUTED
NET INCOME $ 65,956 $ 52,611
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 1,614 48
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $ 67,570 $ 52,659
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 483,707 483,699
STOCK OPTIONS 15 0
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE 14,557 607
JUNE 14, 1993)
498,279 484,306
(*) SHARES USED IN COMPUTATION 498,279 484,306
FULLY DILUTED EARNINGS PER SHARE $ .1356 $ .1087
(*)Note: Dilution is less than 3%. Therefore, common stock equivalents
have been excluded from the total weighted average common shares.
-17-
