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 23, 1996
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
26, 1996.
Class A Common Stock 235,720,875
Class B Common Stock 235,079,364
Page 1 of 16
The Exhibit index is located on page 13.
FOOD LION, INC.
INDEX TO FORM 10-Q
MARCH 23, 1996
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the 12 weeks
ended March 23, 1996 and March 25, 1995 3
Balance sheets as of March 23, 1996,
December 30, 1995 and March 25, 1995 4
Statements of Cash Flows for the 12 weeks
ended March 23, 1996 and March 25, 1995 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 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security
Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
-2-
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended March 23, 1996 and March 25, 1995
(Dollars in thousands except per share data)
March 23, 1996 March 25, 1995 12 WEEKS
(A) (B) (A) (B)
% %
<S> <C> <C> <C> <C>
Net sales $2,024,453 $1,866,262 100.00 100.00
Cost of goods sold 1,612,830 1,483,189 79.67 79.47
Gross profit 411,623 383,073 20.33 20.53
Selling and administrative expenses 278,988 268,833 13.78 14.40
Interest expense 19,004 18,874 0.94 1.01
Depreciation 37,019 33,110 1.83 1.78
SFAS No. 121 charge 9,640 0.47
344,651 320,817 17.02 17.19
Income before income taxes 66,972 62,256 3.31 3.34
Provision for income taxes 26,119 24,591 1.29 1.32
Net income $ 40,853(1) $ 37,665 2.02(1) 2.02
Earnings per share $ .09(1) $ 0.08
Dividends per share $ .03 $ 0.02
Weighted average number
of shares outstanding
Class A 237,202,480 244,141,614
Class B 235,935,114 239,571,114
Total 473,137,594 483,712,728
(1) Net income before the SFAS No. 121 charge is $46.7 million,
or 2.31% sales, resulting in an earnings per share of $0.10.
</TABLE>
-3-
<TABLE>
FOOD LION, INC.
BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 23, 1996 December 30, 1995 March 25, 1995
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 135,119 $ 70,035 $ 152,062
Receivables 130,483 127,995 123,761
Inventories 875,719 881,021 818,812
Prepaid expenses and other 70,513 73,362 72,008
Total current assets 1,211,834 1,152,413 1,166,643
Property, at cost, less accumulated depreciation 1,513,011 1,492,852 1,355,272
Total assets $2,724,845 $2,645,265 $2,521,915
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable, trade $ 363,520 $ 363,571 $ 324,986
Accrued expenses 358,977 316,569 334,882
Long-term debt - current 40,000
Capital lease obligations - current 16,220 15,032 9,351
Other liabilities - current 3,682 3,523 3,310
Income taxes payable 14,200 26,295
Total current liabilities 796,599 698,695 698,824
Long-term debt 315,300 355,300 355,300
Capital lease obligations 385,035 372,645 308,541
Deferred income taxes 44,120 44,120 46,190
Deferred compensation 734 726 667
Other liabilities 73,777 71,269 58,986
Total liabilities 1,615,565 1,542,755 1,468,508
Shareholders' Equity:
Class A non-voting common stock, $.50 par value 117,966 119,255 122,071
Class B voting common stock, $.50 par value 117,738 118,313 119,786
Additional capital 337
Retained earnings 873,576 864,942 811,213
Total shareholders' equity 1,109,280 1,102,510 1,053,407
Total liabilities and shareholders' equity $2,724,845 $2,645,265 $2,521,915
</TABLE>
-4-
FOOD LION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the 12 Weeks ended March 23, 1996 and March 25, 1995
(Dollars in thousands)
12 Weeks
March 23, 1996 March 25, 1995
Cash flows from operating activities
Net income $ 40,853 $ 37,665
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 37,019 33,110
Loss on disposals of property 401 309
SFAS No. 121 charge 9,640
Changes in operating assets and liabilities:
Receivables ( 2,488) 16,867
Inventories 5,302 34,472
Prepaid expenses and other 2,849 ( 4,103)
Accounts payable and accrued expenses 42,357 24,415
Income taxes payable 14,200 4,126
Deferred compensation 8 ( 1)
Other liabilities 2,667 1,598
Total adjustments 111,955 110,793
Net cash provided by operating activities 152,808 148,458
Cash flows from investing activities
Proceeds from disposal of property 1,251 3,068
Capital expenditures ( 50,992) ( 32,358)
Net cash used in investing activities ( 49,741) ( 29,290)
Cash flows from financing activities
Net payments under short-term borrowings ( 20,000)
Principal payments under capital lease obligations( 3,900) ( 2,339)
Principal payments on long-term debt ( 25)
Proceeds from issuance of common stock 2
Repurchase of common stock ( 20,944)
Dividends paid ( 13,141) ( 11,611)
Net cash used in financing activities ( 37,983) ( 33,975)
Net increase in cash and cash
equivalents 65,084 85,193
Cash and cash equivalents at beginning
of period 70,035 66,869
Cash and cash equivalents at end of period $135,119 $152,062
-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 December 30,
1995 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 23, 1996 March 25,1995
Interest (net of amounts
capitalized)* $16,189 $16,376
Income taxes 11,522 20,576
*Interest capitalized 373 436
Capital lease obligations for stores of $20,488 and $6,571
were incurred in the first quarter of 1996 and 1995,
respectively. Capital lease retirements of $3,010 and $425
were recorded in the first quarter of 1996 and 1995,
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 weeks ended March 23, 1996 and March
25, 1995)
Net sales increased 8.5% for the 12 weeks ended March 23, 1996
compared with the same period last year. Same store sales
increased 5.2% for first quarter. Contributing to the sales
increase this year was an expansion of many stores to 24-hour
service, the renovation and expansion of older stores, and the
effect of winter storms.
The 1996 business plan includes opening 50 new stores (up to 22 of
these replacing older stores) and renovating 120 existing stores.
During the first quarter, Food Lion completed its acquisition to
purchase the assets of Food Fair of North Carolina, Inc.,
operating nine of the 11 stores purchased. In addition, three new
Food Lion stores were opened and seven stores renovated during the
12 weeks ended March 23, 1996.
Gross profit was 20.33% of sales for the first quarter this year
compared to 20.53% of sales for the same period last year. The
Company is experiencing gross margin strength due to (1) its private
label program (currently representing approximately 12% of total
sales) and (2) improvement in the fresh departments highlighted by
a 28.2% increase in the number of stores with deli-bakeries.
These gross margin strengths were offset by the continued lowering
of retail prices as part of the Company's commitment to remain the
low price leader.
For the quarter, selling and administrative expenses decreased
0.62% of sales. During the first quarter Food Lion experienced a
level of selling and administrative expense dollars that was
consistent with previous quarters. The Company demonstrated the
ability to stabilize costs during a period of strong sales
performance, using increasing sales to leverage expense spending
thereby decreasing the selling and administrative ratio.(1)
Interest expense decreased 0.07% of sales during the quarter
primarily due to interest on store capital leases.(1)
Depreciation increased 0.05% of sales during first quarter
primarily due to depreciation recorded on late 1995 store openings
and renovations, and the store openings and renovations completed
in the first quarter of 1996.(1)
-7-
During the first quarter of 1996, Food Lion implemented Financial
Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of" (SFAS No. 121). The implementation of SFAS No. 121
created a non-operating, non-cash charge against first quarter
earnings of $9.6 million to properly reflect the carrying value of
the Company's assets. Excluding the SFAS No. 121 charge, earnings
per share were $0.10 for the first quarter.
At year end 1993, the Company established a pre-tax charge of
$170.5 million (approximately $104 million after tax) to cover
management's best estimate of the costs associated with closing 88
underperforming stores in 1994. During the first six months of 1994,
the Company closed 84 of these stores (a decision was made in early
1994 to keep four stores open). As of the end of the first quarter 1996, the
Company has charged $48.2 million against the provision, primarily
as a result of the payment of remaining rent obligations on leased
stores, and the disposition of store inventory and property. As
of March 23, 1996, the Company had made no additional adjustments
to the realizable value of the properties. The Company believes
the provision is adequate at this time and will continue to
monitor and evaluate the provision to make necessary adjustments.
(1)Last year included 0.09%, 0.08% and 0.03% of sales for selling
and administrative expenses, interest expense and depreciation,
respectively, for certain leases misclassified in first quarter as
capital rather than operating which were later adjusted in the
third quarter of 1995.
-8-
Liquidity and Capital Resources
Cash provided by operating activities totaled $152.8 million for
the 12 weeks ended March 23, 1995 compared with $148.5 million for
the same period last year. The increase in 1996 was primarily a factor of
increases due to trade payables and income taxes payable, offset
by changes in the comparable levels of inventory and an increase
in receivables.
Capital expenditures totaled $51.0 million for the 12 weeks ended
March 23, 1996 compared with $32.4 million for the same period in
1995. The increase is primarily due to costs associated with the
Food Fair acquisition and equipment costs for renovations and new
stores. During the first quarter of 1996, Food Lion completed its
acquisition to purchase the assets of Food Fair of North Carolina,
Inc. and began operating nine new locations in the Winston-Salem,
NC area. The Company also opened three new stores and plans to
open a total of 50 new stores during the year. In addition,
approximately 120 existing stores will be renovated. The majority
of the new stores will be opened under conventional leasing
arrangements and, as a result, the impact on liquidity of owning
stores will be insignificant in 1996.
Significant cash capital expenditures currently estimated for the
remainder of 1996 are as follows:
Store expansion and new store construction $ 68 million
Equip new and renovated stores $100 million
Land costs $ 6 million
Capital expenditures for 1996 will be financed through funds
generated from operations, existing bank and credit lines, and
other debt, if necessary. 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 under which no
borrowings were outstanding during the first quarter or as of
March 23, 1996 and March 25, 1995.
-9-
A revolving credit facility with a syndicate of commercial
banks providing $350 million in committed lines of credit. This
facility will expire in November, 1999. There were no borrowings
against these lines as of March 23, 1996 and March 25, 1995.
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 as of March 23, 1996 and March 25, 1995.
Periodic short-term borrowings under informal credit
arrangements, which are available to the Company at the discretion
of the lender. As of March 23, 1996 and March 25, 1995, there were
no outstanding borrowings under these informal credit
arrangements.
During the first quarter of 1996, the Company expended $20.9
million for the purchase of Class A and Class B shares, as part of
the Company's stock repurchase plan which began during the second
quarter of 1995. The Company purchased 2,577,000 shares of Class
A stock during the quarter at an average price of $5.57 per share,
and 1,147,500 shares of Class B stock at an average price of $5.58
per share. Additional purchases may be made in the open market
under the current program as deemed in the best interest of
shareholders. To date, 8,217,615 Class A shares and 4,094,000
Class B shares have been repurchased at a total cost of $71.9
million.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Rickey B. Bryant et. al. v. Food Lion, Inc. et. al., Civil
No. 2-90-0505-1 (D.S.C.) (complaint filed March 12, 1990 and
amended September 20, 1990 and January 24, 1991).
On April 3, 1996, the Court denied the Plaintiffs'motion for
class certification. The Defendants intend to vigorously
defend the 16 remaining claims of 11 employees and their
dependents. Based on currently available information, the
Company believes that any resulting liability will not have a
material adverse effect on the financial condition or results
of operations of the Company.
-10-
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 did not file a report on Form 8-K for the period
ended March 23, 1996.
-11-
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 May 1, 1996 BY:Dan A. Boone
Dan A. Boone
Vice President-Finance
Chief Financial Officer
and Secretary
Principal Financial Officer
(Duly Authorized Officer)
-12-
EXHIBIT INDEX
SEQ. PAGE
EXHIBIT # DESCRIPTION NO.
11 Computation of Earnings per Share 14
27 Financial Data Schedule 15-16
-13-
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except Years Ended
per share amounts)
March 23, 1996 March 25,1995
PRIMARY
NET INCOME $ 40,853 $ 37,665
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 473,138 483,713
STOCK OPTIONS 0 0
473,138 483,713
PRIMARY EARNINGS PER SHARE (*) $ .0863 $ .0779
FULLY DILUTED
NET INCOME $ 40,853 $ 37,665
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 807 807
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $ 41,660 $ 38,472
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 473,138 483,713
STOCK OPTIONS 0
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE
JUNE 14, 1993) 14,557 14,557
487,695 498,270
FULLY DILUTED EARNINGS PER SHARE (*) $ .0854 $ .0772
(*) NOTE: Dilution is less than 3%. Therefore, common stock equivalents
have been excluded from the total weighted average common shares.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Balance Sheets, the Consolidated Statements of Income
and the Consolidated Statement of Cash Flows and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-23-1996
<CASH> 135119
<SECURITIES> 0
<RECEIVABLES> 130483
<ALLOWANCES> 0
<INVENTORY> 875719
<CURRENT-ASSETS> 1211834
<PP&E> 2377796
<DEPRECIATION> 864785
<TOTAL-ASSETS> 2724845
<CURRENT-LIABILITIES> 796599
<BONDS> 315300
0
0
<COMMON> 235704
<OTHER-SE> 873576
<TOTAL-LIABILITY-AND-EQUITY> 2724845
<SALES> 2024453
<TOTAL-REVENUES> 2024453
<CGS> 1612830
<TOTAL-COSTS> 1612830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19004
<INCOME-PRETAX> 66972
<INCOME-TAX> 26119
<INCOME-CONTINUING> 40853
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<CHANGES> 0
<NET-INCOME> 40853
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
