SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995. Commission File No. 0-6080
F O O D L I O N, INC.
(Exact name of registrant as specified in its charter)
Incorporated in North Carolina 56-0660192
(State or other jurisdiction of (I.R.S. Employer Identification
No.)
incorporation or organization)
P.O. Box 1330, 2110 Executive Drive
Salisbury, North Carolina 28145-1330
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code--
(704) 633-8250
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.50 per share
Class B Common Stock, par value $.50 per share
(Title of Class)
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 (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.[x]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant based on the price of such stock at
the close of business on March 21, 1996 was $637,408,086. For
purposes of this report and as used herein, the term "non-
affiliate" includes all shareholders of the Registrant other than
Directors, executive officers, and other senior management of the
Registrant and persons holding more than five per cent of the
outstanding voting stock of the Registrant.
Outstanding shares of common stock of the Registrant as of
March 21, 1996.
Class A Common Stock - 236,087,225
Class B Common Stock - 235,502,114
Exhibit index is located on sequential page 17 hereof.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
in this Form
10-K:
1. Annual Report to Shareholders for the year ended December 30,1995
are incorporated by reference in Part II hereof.
2. Proxy Statement for the 1996 Annual Meeting of Shareholders of the
Company to be held on May 2, 1996, are incorporated by reference in
Part III hereof.
PART I
Item 1. Business.
Food Lion, Inc. (the "Company") engages in one line of
business, the operation of retail food supermarkets principally in
the southeastern United States. The Company was incorporated in
North Carolina in 1957 and maintains its corporate headquarters in
Salisbury, North Carolina.
The Company's stores, which are operated under the name of
"Food Lion", sell a wide variety of groceries, produce, meats,
dairy products, seafood, frozen food, deli/bakery and non-food
items such as health and beauty aids and other household and
personal products. The Company offers nationally and regionally
advertised brand name merchandise as well as products manufactured
and packaged for the Company under the private label of "Food
Lion". The Company offers over 20,000 Stock Keeping Units (SKU's)
in its prototype 35,000 square foot model.
The products sold by the Company are purchased through a
centralized buying department at the Company's headquarters. The
centralization of the buying function allows the management of the
Company to establish long-term relationships with many vendors
providing various alternatives for sources of product supply.
Food Lion currently operates deli/bakery departments in
approximately 70% of its stores. Deli/bakeries are included in
almost all of its new store openings and in most renovations. Deli/
bakeries are added to existing stores after research indicates
customer demand for such products.
-2-
The business in which the Company is engaged is highly
competitive and characterized by low profit margins. The Company
competes with national, regional and local supermarket chains,
supercenters, discount food stores, single unit stores,
convenience stores and warehouse clubs. The Company will continue
to develop and evaluate new retailing strategies that will respond
to its customers' needs. Seasonal changes have no material effect
on the operation of the Company's supermarkets.
Since 1968, the Company has followed a policy of selling
merchandise at low item prices in order to increase volume without
a proportionate increase in fixed and operating expenses.
As of December 30, 1995, 1,073 supermarkets were in
operation, of which 371 were located in North Carolina, 100 in
South Carolina, 234 in Virginia, 70 in Tennessee, 53 in Georgia,
106 in Florida, 30 in Maryland, 8 in Delaware, 16 in West
Virginia, 13 in Kentucky, 10 in Pennsylvania, 49 in Texas, 8 in
Oklahoma and 5 in Louisiana. As of March 21, 1996, the Company
had opened 12 supermarkets since December 30, 1995, closed one
supermarket and had signed leases for 91 supermarkets which
are expected to open in either 1996 or 1997.
Warehousing and distribution facilities, including a truck
fleet, are owned and operated by the Company and are located in
Salisbury and Dunn, North Carolina; Disputanta, Virginia; Elloree,
South Carolina; Green Cove Springs and Plant City, Florida;
Clinton, Tennessee; Greencastle, Pennsylvania and Roanoke, Texas.
As of December 30, 1995, the Company employed 27,369 full-
time and 41,976 part-time employees.
The following table shows the number of stores opened and closed
and the number of stores opened at the end of the year for the
past three years.
# Stores # Stores # Stores Opened
Opened Closed Year-end
1995 47 13 1,073
1994 30 87 1,039
1993 100 16 1,096
Item 2. Properties.
Supermarkets operated by the Company in the southeastern
United States average 28,000 square feet in size. The Company's
current prototype retail format is a 35,000 square foot model with
a deli/bakery department. All of the Company's supermarkets are
self-service, cash and carry stores which have off-street parking
facilities. With the exception of 110 supermarkets which it owns,
the Company occupies its various supermarket premises under lease
agreements providing for initial terms of up to 25 years, with
options generally ranging from ten to twenty years.
-3-
The table below sets forth information with respect to the
expiration of leases on supermarkets and surrounding land in
operation by the Company on December 30, 1995.
Year of Number of Leases Year of Number of Leases
Expiration* which expire Expiration* which expire
1997 1 2023 16
1998 1 2024 12
1999 2 2025 25
2001 2 2026 54
2004 3 2027 83
2005 1 2028 96
2006 2 2029 106
2007 4 2030 124
2008 3 2031 73
2009 3 2032 73
2010 1 2033 68
2012 3 2034 40
2013 4 2035 63
2014 2 2036 9
2015 1 2037 23
2016 2 2038 24
2017 4 2039 4
2018 4 2040 4
2019 4 2043 2
2020 3 2045 2
2021 6 2047 1
2022 8 2051 1
*NOTE: Year of expiration includes renewal terms.
The following table identifies the location and square footage of
distribution centers and office space owned by the Company as of
December 30, 1995.
Location of
Property Square Footage
Distribution Center #1 Salisbury, NC 1,630,233
Distribution Center #2 Disputanta, VA 1,123,718
Distribution Center #3 Elloree, SC 1,093,252
Distribution Center #4 Dunn, NC 1,224,652
Distribution Center #5 Green Cove Springs, FL 832,109
Distribution Center #6 Clinton, TN 825,967
Distribution Center #7 Greencastle, PA 1,236,124
Distribution Center #8 Plant City, FL 758,549
Distribution Center #9 Roanoke, TX 1,254,169
Corporate Headquarters Salisbury, NC 271,592
10,250,365
-4-
Item 3. Legal Proceedings.
Longman et al. v. Food Lion, Inc. and Tom E. Smith, 4:92 CV 696
(M.D.N.C.) (complaint filed November 12, 1992, and amended January
23, 1993) ("Longman"); and Feinman et al. v. Food Lion, Inc. and
Tom E. Smith, 4:92 CV 705 (M.D.N.C.) (complaint filed November 13,
1992) ("Feinman").
The Longman and Feinman actions assert claims against the Company
and Tom E. Smith under Section 10(b) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and Rule 10b-5 for
"securities fraud" and claims of common law fraud and negligent
misrepresentation. The actions have been consolidated for
discovery and trial purposes and the court has granted class
certification motions, certifying a single class composed of those
persons who purchased common stock of the Company from May 7, 1990
through November 5, 1992 and were damaged thereby. The actions
seek damages, plaintiffs' attorneys'fees and costs, punitive damages,
prejudgment interest and certain other relief. Merits discovery is
pending in the actions. 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.
In re Food Lion, Inc. Fair Labor Standards Act "Effective
Scheduling" Litigation, MDL Docket No. 929, pursuant to which a
number of actions against the Company were transferred by the
Multi-District Litigation Panel to the United States District
Court for the Eastern District of North Carolina for pretrial
proceedings (the "Multi-District Action"). Those pretrial
proceedings are complete and pursuant thereto, a number of claims
were dismissed. Approximately 67 claims dismissed from the North
Carolina cases were consolidated and certified for appeal to the
United States Court of Appeals for the Fourth Circuit. The Fourth
Circuit has held in abeyance its decision on these appeals
pending entry of a final Order as to all other claims previously
dismissed in the Multi-District Action so that dismissed claims
from other states may be joined and consolidated in the current
appeal to the Fourth Circuit. Approximately 123 claims dismissed
from the South Carolina and Florida cases would be eligible to
join this Appeal.
The remaining cases involve the claims of approximately 209
plaintiffs in South Carolina and Florida. The parties are
currently engaged in settlement negotiations in an effort to
resolve these remaining claims. The negotiations recently
reached impasse on the claims of 17 Assistant Managers pending in
Florida and trial of these claims is likely in 1996. Based on
currently available information, the Company believes that any
resulting liability will not have any material adverse effect on
the financial condition or results of operations of the Company.
-5-
Item 4. Submission of Matters to a Vote of Security Holders.
This item is not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The information pertaining to the Class A and Class B Common
Stock price range, dividends and record holders discussed beneath
the headings "Market Price of Common Stock" and "Dividends
Declared Per Share of Common Stock" in the Annual Report to
Shareholders for the year ended December 30, 1995, is hereby
incorporated by reference.
Item 6. Selected Financial Data.
The information set forth beneath the heading "Five Year
Summary of Operations" in the Annual Report to Shareholders for
the year ended December 30, 1995, is hereby incorporated by
reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information set forth beneath the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report to Shareholders for the year
ended December 30, 1995, is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements, including the accompanying notes
and results by quarter, set forth beneath the headings "Statements
of Income", "Balance Sheets", "Statements of Cash Flows",
"Statements of Shareholders' Equity", "Notes to Financial
Statements" and "Results by Quarter" in the Annual Report to
Shareholders for the year ended December 30, 1995, are hereby
incorporated by reference.
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.
This item is not applicable.
-6-
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information pertaining to nominees for election as
directors and the Company's executive officers set forth beneath
the heading "Election of Directors" and in the description of
employment agreements beneath the heading "Employment Plans and
Agreements" in the Proxy Statement for the 1996 Annual Meeting of
Shareholders to be held May 2, 1996, is hereby incorporated by
reference.
Item 11. Executive Compensation.
The information pertaining to executive compensation set
forth beneath the heading "Report of the Senior Management
Compensation Committee, Stock Option Committee and Board of
Directors" in the Proxy Statement for the 1996 Annual Meeting of
Shareholders to be held on May 2, 1996, is hereby incorporated by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information pertaining to security ownership of certain
beneficial owners and management set forth beneath the heading
"Security Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement for the 1996 Annual Meeting of Shareholders
to be held on May 2, 1996, is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The information relating to certain relationships and related
transactions set forth beneath the headings "Employment Plans and
Agreements - Low Interest Loan Plan" and "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement for
the 1996 Annual Meeting of Shareholders to be held May 2, 1996, is
hereby incorporated by reference.
-7-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
The following financial statements are incorporated by
reference in Item 8 hereof from the Annual Report to
Shareholders for the year ended December 30, 1995:
ANNUAL REPORT
PAGE NO.
Statements of Income for the years
ended December 30, 1995, December
31, 1994 and January 1, 1994 14
Balance Sheets, as of December 30,
1995 and December 31, 1994 15
Statements of Cash Flows for the
years ended December 30, 1995,
December 31, 1994 and January 1, 1994 16
Statements of Shareholders' Equity
for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994 17
Notes to Financial Statements 18-21
Results by Quarter (unaudited) 23
10-K
PAGE NO.
2. Financial Statement Schedules:
Report of Independent Accountants 15
II. Valuation and Qualifying Accounts 16
-8-
All other schedules are omitted since the required
information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information
required is included in the financial statements and notes
thereto.
With the exception of the financial statements listed in the
above index, the information referred to in Items 5, 6, 7 and the
supplementary quarterly financial information referred to in Item
8, all of which is included in the 1995 Annual Report to
Shareholders of Food Lion, Inc. and incorporated by reference
into this Form 10-K Annual Report, the 1995 Annual Report to
Shareholders is not to be deemed "filed" as part of this report.
3. Exhibits:
Exhibit No.
3(a) Articles of Incorporation, together with all
amendments thereto (through May 5, 1988)
(incorporated by reference to Exhibit 3(a) of the
Company's Annual Report on Form 10-K dated March
24, 1992)
3(b) Bylaws of the Company effective July 1, 1990
(incorporated by reference to Exhibit 3 of
the Company's Quarterly Report on Form 10-Q dated
June 17, 1995)
4(a) Indenture dated as of August 15, 1991 between
the Company and the Bank of New York, Trustee,
providing for the issuance of an unlimited amount
of Debt Securities in one or more series (incorpo-
rated by reference to Exhibit 4(a) of the Company's
Annual Report on Form 10-K dated March 24, 1992)
4(b) Form of Food Lion, Inc. Medium Term Note (Global
Fixed Rate) (incorporated by reference to Exhibit
4(b) of the Company's Annual Report on Form 10-K
dated March 24, 1992)
10(a) Low Interest Loan Plan (incorporated by reference
to Exhibit 19(a) of the Company's report on Form
8-K dated October 27, 1986)
10(b) Form of Deferred Compensation Agreement
(incorporated by reference to Exhibit 19(b) of
the Company's report on Form 8-K dated October
27,1986)
10(c) Form of Salary Continuation Agreement (incorporated
by reference to Exhibit 19(c) of the Company's
report on Form 8-K dated October 27, 1986)
-9-
10(d) 1994 Shareholders' Agreement dated as of the 15th
day of September 1994 among Etablissements Delhaize
Freres et Cie "Le Lion" S.A., Delhaize The Lion
America, Inc., and the Company (incorporated by
reference to Exhibit 10 of the Company's Report on
Form 8-K dated October 7, 1994)
10(e) Proxy Agreement dated January 4, 1991 between
Etablissements Delhaize Freres et Cie "Le Lion"
S.A. and Delhaize The Lion, America, Inc.
(incorporated by reference to Exhibit 10(e) of
the Company's Annual Report on Form 10-K dated
March 25, 1991)
10(f) Annual Incentive Bonus Plan (incorporated by
reference to Exhibit 19(a) of the Company's
Annual Report on Form 10-K dated March 30, 1983)
10(g) Declaration of Amendment to the Company's Annual
Incentive Bonus Plan effective as of December 14,
1987 (incorporated by reference to Exhibit 10(h)
of the Company's Annual Report on Form 10-K dated
March 20, 1989)
10(h) Employment Agreement dated August 1, 1991 between
the Company and Tom E. Smith (incorporated by
reference to Exhibit 10(h) of the Company's Annual
Report on Form 10-K dated March 24, 1992)
10(i) Retirement and Consulting Agreement dated May 1,
1991 between the Company and Jerry W. Helms
(incorporated by reference to Exhibit 10(i) of the
Company's Annual Report on Form 10-K dated March
24, 1992)
10(j) Stock Purchase Agreement dated June 30, 1981
between the Company and Ralph W. Ketner
(incorporated by reference to Exhibit 10(j) of
the Company's Annual Report on Form 10-K dated
April 1, 1987)
10(k) Amended and Restated Food Lion, Inc. 1983
Employee Stock Option Plan (incorporated by
reference to Exhibit 10(k) of the Company's Annual
Report on Form 10-K dated March 24, 1992)
10(l) 1991 Employee Stock Option Plan of Food Lion,
Inc. (incorporated by reference to Exhibit 10(l)
of the Company's Annual Report on Form 10-K dated
March 24, 1992)
-10-
10(m) Split Dollar Life Insurance Agreement between the
Company and Tom E. Smith (incorporated by
reference to Exhibit 10(o) of the Company's
Annual Report on Form 10-K dated April 1, 1987)
10(n) Split Dollar Life Insurance Agreement between the
Company and Tom E. Smith issued May 25, 1988
(incorporated by reference to Exhibit 10(w) of the
Company's Annual report on Form 10-K dated March
20, 1989)
10(o) Letter Agreement dated May 10, 1990 between the
Company and Ralph W. Ketner (incorporated by
reference to Exhibit 10(q) of the Company's Annual
Report on Form 10-K dated March 25, 1991)
10(p) U.S. Distribution Agreement dated August 20,1991
between the Company and Goldman, Sachs & Co. and
Merrill Lynch & Co. relating to the sale of up
to $300,000,000 in principal amount of the Company's
Medium-Term Notes (incorporated by reference to
Exhibit 10(p) of the Company's Annual Report on
Form 10-K dated March 24, 1992)
10(q) $350,000,000 Revolving Credit Facility dated November
17, 1994, among the Company, and various banks and
Wachovia Bank of Georgia, N.A. and Nations Bank
of North Carolina, N.A. as Co-Agents and Wachovia Bank of
Georgia, N.A. as Administrative Agent (incorporated by
reference to Exhibit 10(q) of the Company's Annual Report
on Form 10-K dated March 28, 1995)
10(r) License Agreement between the Company and Etablissements
Delhaize Freres Et Cie "Le Lion" S.A. dated January 1, 1983
(incorporated by reference to Exhibit 10(t) of the Company's
Annual Report on Form 10-K dated March 31, 1994)
10(s) Employee Severence Agreement dated July 13, 1995 between
the Company and John P. Watkins (incorporated by reference
to Exhibit 10 of the Company's Quarterly Report on
Form 10-Q dated September 9, 1995)
11 Computation of Earnings Per Share
13 Annual Report to Shareholders for the year
ended December 30, 1995
-11-
23 Consent of Independent Accountants
27 Financial Data Schedule
99 Undertaking of the Company to file exhibits
pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K pursuant to Item 5 and Item 7
on May 5, 1995 announcing a) a stock repurchase plan and b) press
release.
-12-
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 26,1996
By Tom E. Smith
Tom E. Smith
President, Chief Executive
Officer, Principal
Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the
dates indicated.
Date:March 26, 1996 By Tom E. Smith
Tom E. Smith
President, Chief Executive
Officer, Principal
Executive Officer and
Director
Date:March 26, 1996 By Pierre-Olivier Beckers
Pierre-Olivier Beckers
Director
Date:March 26, 1996 By Dan A. Boone
Dan A. Boone
Vice President of Finance,
Chief Financial Officer
Secretary, Principal
Financial Officer
Date:March 26, 1996 By Dr. Jacqueline K. Collamore
Dr. Jacqueline K. Collamore
Director
Date:March 26, 1996 By Charles de Cooman
d'Herlinckhove
Charles de Cooman
d'Herlinckhove
Director
Date: March 26, 1996 By William G. Ferguson
William G. Ferguson
Director
Date: March 26, 1996 By Dr. Bernard Franklin
Dr. Bernard Franklin
Director
Date: March 26, 1996 By Joseph C. Hall
Joseph C. Hall
Director
-13-
Date: March 26, 1996 By Carol Herndon
Carol Herndon
Corporate Controller and
Director of Accounting
Date: March 26, 1996 By Margaret H. Kluttz
Margaret H. Kluttz
Director
Date: March 26, 1996 By Philippe Stroobant
Philippe Stroobant
Director
Date: March 26, 1996 By Gui de Vaucleroy
Gui de Vaucleroy
Director
-14-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Food Lion, Inc.:
We have audited the financial statements of Food Lion, Inc.
as of December 30, 1995 and December 31, 1994, and for each of the
three fiscal years in the period ended December 30, 1995, which
financial statements are included on pages 14 through 22 of the
1995 Annual Report to Shareholders of Food Lion, Inc. and
incorporated by reference herein. We have also audited the
financial statement schedule listed in the index on page 8 of this
Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Food Lion, Inc. as of December 30, 1995 and December 31, 1994,
and the results of its operations and its cash flows for each of
the three fiscal years in the period ended December 30, 1995, in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included
therein.
Charlotte, North Carolina
February 7, 1996
COOPERS & LYBRAND, L.L.P.
-15-
<TABLE>
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Balance at (1) Additions (2)
Beginning Charged to Charges to other Deductions- Balance at end
Description of Period Cost & Expenses accounts-describe describe of period
1995
Furniture, Fixtures &
<S> <C> <S> <C> <C>
Equipment $ 22,538,511 B ( 7,131,165) 15,407,346
Leasehold improvements 407,586 B ( 358,240) 49,346
Buildings 60,676,705 B (17,934,744) 42,741,961
Other liabilities 51,353,503 B ( 3,602,823) 47,750,680
Accrued expenses 22,571,672 B ( 2,159,080) 20,412,592
$157,547,977 $ (31,186,052) $126,361,925
1994
Furniture, Fixtures &
Equipment $ 24,177,600 A ( 1,639,089) $ 22,538,511
Leasehold improvements 1,417,007 A ( 1,009,421) 407,586
Buildings 61,500,004 A ( 823,299) 60,676,705
Other liabilities 55,100,000 A ( 3,746,497) 51,353,503
Accrued expenses 28,305,389 A ( 5,733,717) 22,571,672
$170,500,000 $ (12,952,023) $157,547,977
1993
Furniture, Fixtures &
Equipment $ 24,177,600 $ 24,177,600
Leasehold improvements 1,417,007 1,417,007
Buildings 61,500,004 61,500,004
Other liabilities 55,100,000 55,100,000
Accrued expenses 28,305,389 28,305,389
$ $170,500,000 $170,500,000
(A) Represents provisions against the assets of stores closed in 1994 to reflect the estimated realizable value,
the present value of remaining rent payments on leased stores and other costs associated with the store closings
such as legal expenses and relocation expenses.
(B) Certain items in the 1994 financial information have been reclassified for comparative purposes.
-16-
EXHIBIT INDEX
to
ANNUAL REPORT ON FORM 10-K of
Food Lion, Inc.
For Year Ended December 30, 1995
Sequential
Exhibit No. Description Page No.
3(a) Articles of Incorporation, together with all
amendments thereto (through May 5, 1988)
(incorporated by reference to Exhibit 3(a) of
the Company's Annual Report on Form 10-K dated
March 24, 1992)
3(b) Bylaws of the Company effective July 1, 1990
(incorporated by reference to Exhibit 3 of the
Company's Quarterly Report on Form 10-Q dated June
17, 1995)
4(a) Indenture dated as of August 15, 1991 between the
Company and the Bank of New York, Trustee, providing
for the issuance of an unlimited amount of Debt Securities
in one or more series (incorporated by reference to Exhibit
4(a) of the Company's Annual Report on Form 10-K dated March
24, 1992)
4(b) Form of Food Lion, Inc. Medium Term Note (Global Fixed
Rate) (incorporated by reference to Exhibit 4(b) of the
Company's Annual Report on Form 10-K dated March 24, 1992)
10(a) Low Interest Loan Plan (incorporated by reference to Exhibit
19(a) of the Company's report on Form 8-K dated October 27,
1986)
10(b) Form of Deferred Compensation Agreement (incorporated by
reference to Exhibit 19(b) of the Company's report on Form
8-K dated October 27, 1986)
10(c) Form of Salary Continuation Agreement (incorporated by
reference to Exhibit 19(c) of the Company's report on Form
8-K dated October 27, 1986)
10(d) 1994 Shareholders' Agreement dated as of the 15th day of
September 1994 among Etablissements Delhaize Freres et Cie
"Le Lion" S.A., Delhaize The Lion America, Inc., and the
Company (incorporated by reference to Exhibit 10 of the
Company's Report on Form 8-K dated October 7, 1994)
-1-
10(e) Proxy Agreement dated January 4, 1991 between
Etablissements Delhaize Freres et Cie "Le Lion"
S.A. and Delhaize The Lion America, Inc. (incorporated
by reference to Exhibit 10(e) of the Company's Annual
Report on form 10-K dated March 25, 1991)
10(f) Annual Incentive Bonus Plan (incorporated by
reference to Exhibit 19(a) of the Company's
Annual Report on Form 10-K dated March 30, 1983)
10(g) Declaration of Amendment to the Company's Annual
Incentive Bonus Plan effective as of December 14,
1987 (incorporated by reference to Exhibit 10(h)
of the Company's Annual Report on Form 10-K dated
March 20, 1989)
10(h) Employment Agreement dated August 1, 1991 between
the Company and Tom E. Smith (incorporated by
reference to Exhibit 10(h) of the Company's Annual
Report on Form 10-K dated March 24, 1992)
10(i) Retirement and Consulting Agreement dated May 1,
1991 between the Company and Jerry W. Helms
(incorporated by reference to Exhibit 10(i) of
the Company's Annual Report on Form 10-K dated
March 24, 1992)
10(j) Stock Purchase Agreement dated June 30, 1981 between
the Company and Ralph W. Ketner (incorporated by
reference to Exhibit 10(j) of the Company's Annual
Report on Form 10-K dated April 1, 1987)
10(k) Amended and Restated Food Lion, Inc. 1983 Employment
Stock Option Plan (incorporated by reference to
Exhibit 10(k) of the Company's Annual Report on Form
10-K dated March 24, 1992)
10(l) 1991 Employee Stock Option Plan of Food Lion, Inc.
(incorporated by reference to Exhibit 10(l) of the
Company's Annual Report on Form 10-K dated March 24,
1992)
10(m) Split Dollar Life Insurance Agreement between the
Company and Tom E. Smith (incorporated by reference
to Exhibit 10(o) of the Company's Annual Report on
Form 10-K dated April 1, 1987)
10(n) Split Dollar Life Insurance Agreement between
the Company and Tom E. Smith issued May 25, 1988
(incorporated by reference to Exhibit 10(w) of
the Company's Annual report on Form 10-K dated
March 20, 1989)
-2-
10(o) Letter Agreement dated May 10, 1990 between the
Company and Ralph W. Ketner (incorporated by
reference to Exhibit 10(q) of the Company's
Annual Report on Form 10-K dated March 25, 1991)
10(p) U.S. Distribution Agreement dated August 20, 1991
between the Company and Goldman, Sachs & Co and
Merrill Lynch & Co. relating to the sale of up to
$300,000,000 in principal amount to the Company's
Medium-Term Notes (incorporated by reference to
Exhibit 10(p) of the Company's Annual Report on
Form 10-K dated March 24, 1992)
10(q) $350,000,000 Revolving Credit Facility dated November
17, 1994, among the Company, and various banks and
Wachovia Bank of Georgia, N.A. and Nations Bank
of North Carolina, N.A. as Co-Agents and Wachovia Bank of
Georgia, N.A. as Administrative Agent (incorporated by
reference to Exhibit 10(q) of the Company's Annual Report
on Form 10-K dated March 28, 1995)
10(r) License Agreement between the Company and Etablissements
Delhaize Freres Et Cie "Le Lion" S.A. dated January 1,
1983 (incorporated by reference to Exhibit 10(t) of the
Company's Annual Report on Form 10-K dated March 31, 1994)
10(s) Employee Severence Agreement dated July 13, 1995 between the
Company and John P. Watkins (incorporated by reference to
Exhibit 10 of the Company's Quarterly Report on Form 10-Q
dated September 9, 1995)
11 Computation of Earnings Per Share 20
13 Annual Report to Shareholders for the year ended
December 30, 1995 21-46
23 Consent of Independent Accountants 47
27 Financial Data Schedule 48-49
99 Undertaking of the Company to file exhibits pursuant
to Item 601(b)(4)(iii)(A) of Regulation S-K 50
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K pursuant to Item 5 and
Item 7 on May 5, 1995 announcing a) a stock repurchase plan
and b) press release.
-3-
</TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except Years Ended
per share amounts)
December 30, December 31, January 1,
1995 1994 1994
PRIMARY
NET INCOME $172,361 $152,898 $ 3,852
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 481,154 483,708 483,701
STOCK OPTIONS 149
481,154 483,708 483,850
PRIMARY EARNINGS PER SHARE (*) $ .3582 $ .3161 $ .0080
FULLY DILUTED
NET INCOME $172,361 $152,898 $ 3,852
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 3,508 3,508
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $175,869 $156,406 $ 3,852
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 481,154 483,708 483,701
STOCK OPTIONS 195
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE
JUNE 14, 1993) 14,557 14,557
495,711 498,265 483,896
FULLY DILUTED EARNINGS PER SHARE (*) $ .3548 $ .3139 $ .0080
(*) NOTE: Dilution is less than 3%. Therefore, common stock equivalents have
been excluded from the total weighted average common shares.
Five Year Summary of Operations
(Dollars in thousands 1995 1994 1993
except per share amounts)
1. Net sales $8,210,884 7,932,592 7,609,817
2. Income before taxes $ 283,061 252,698 6,352
3. Net income $ 172,361 152,898 3,852
4. Current assets $1,152,413 1,128,686 1,139,472
5. Non-current assets $1,492,852 1,353,255 1,364,211
6. Total assets $2,645,265 2,481,941 2,503,683
7. Current liabilities $ 698,695 690,062 619,271
8. Long-term debt $ 355,300 355,300 569,350
9. Capital lease obligations,
deferred taxes and other
liabilities $ 488,760 409,226 397,508
10. Shareholders' equity $1,102,510 1,027,353 917,554
11. Cash dividends
Class A $ 23,621 22,021 21,483
Class B $ 22,672 21,131 20,603
12. Depreciation $ 146,170 139,834 143,042
13. Number of stores
opened (net) # 34 (57) 84
14. Number of stores open # 1,073 1,039 1,096
15. Total store square
footage (000) # 30,056 27,335 28,950
16. Number of employees # 69,345 64,840 65,494
17. Weighted average shares
outstanding (000) # 481,154 483,708 483,701
18. Number of Deli/Bakery stores # 733 575 553
19. Earnings per share (a) $ .36 .32 .01
20. Dividends per share (a) $ .096 .089 .087
21. Book value per share (a) $ 2.29 2.12 1.90
22. Asset turnover x 3.20 3.18 3.03
23. Return on sales % 2.10 1.93 .05
24. Return on assets % 6.72 6.13 .15
25. Return on equity % 16.18 15.72 .41
26. Equity ratio % 41.68 41.39 36.65
27. Return on investment % 17.31 16.69 5.68
28. Current ratio x 1.65 1.64 1.84
29. Recapitalization and
stock splits
(Dollars in thousands 1992 1991
except per share amounts) (53 Weeks)
1. Net sales $7,195,923 6,438,507
2. Income before taxes $ 290,605 340,671
3. Net income $ 178,005 205,171
4. Current assets $1,148,725 983,370
5. Non-current assets $1,372,767 1,035,922
6. Total assets $2,521,492 2,019,292
7. Current liabilities $ 986,274 676,768
8. Long-term debt $ 240,537 240,810
9. Capital lease obligations,
deferred taxes and other
liabilities $ 338,962 270,659
10. Shareholders' equity $ 955,719 831,055
11. Cash dividends
Class A $ 27,355 24,393
Class B $ 26,457 23,638
12. Depreciation $ 121,616 104,614
13. Number of stores
opened (net) # 131 103
14. Number of stores open # 1,012 881
15. Total store square
footage (000) # 26,428 22,480
16. Number of employees # 59,721 53,583
17. Weighted average shares
outstanding (000) # 483,663 483,516
18. Number of Deli/Bakery stores # 446 279
19. Earnings per share (a) $ .37 .42
20. Dividends per share (a) $ .111 .099
21. Book value per share (a) $ 1.98 1.72
22. Asset turnover $ 3.17 3.58
23. Return on sales $ 2.47 3.19
24. Return on assets $ 7.84 11.40
25. Return on equity $ 19.92 27.28
26. Equity ratio $ 37.90 41.16
27. Return on investment $ 20.02 26.09
28. Current ratio $ 1.16 1.45
29. Recapitalization and
stock splits 3 for 2
Notes to Five Year Summary of Operations
(a) Amounts are based upon the weighted average number of the Class A and
Class B common shares outstanding.
DEFINITIONS
Line
13. Number of stores opened (net) - Number of stores opened less stores
closed during the year.
14. Number of stores open - Number of stores operating at year-end.
16. Number of employees - Number of full-time and part-time employees at
year-end.
17. Weighted average shares outstanding - Weighted average shares outstanding
have been restated to reflect the stock split in 1992.
18. Number of Deli/Bakery stores - Number of stores with Deli/Bakery at year-
end.
19. Earnings per share - Net income per common share (line 3 , line 17).
20. Dividends per share - Cash dividends per common share (line 11 , line
17).
21. Book value per share - Book value of shareholders' equity per common
share (line 10 , line 17).
22. Asset turnover - The ratio of sales per dollar of assets employed during
the year. It is calculated by dividing sales by the average total assets
(line 1 , line 6).
23. Return on sales - The percentage of net income earned on each dollar of
sales (line 3 , line 1).
24. Return on assets - The percentage of net income earned on average total
assets (line 3 , line 6).
25. Return on equity - The percentage of net income earned on average
shareholders' equity (line 3 , line 10).
26. Equity ratio - Shows the share of total assets of the business owned by
the shareholders as opposed to outside sources. It is calculated by
dividing year-end shareholders' equity by year-end total assets
(line 10 , line 6).
27. Return on investment - The percentage of net income, excluding interest
expense, to invested capital. ([line 3 + interest] , [average line 8 +
average line 10]).
28. Current ratio - The ratio of current assets to current liabilities
(line 4 , line 7).
Statements of Income
Years Ended
December 30, December 31, January 1,
(Dollars in thousands 1995 1994 1994
except per share amounts)
Net sales $8,210,884 $7,932,592 $7,609,817
Cost of goods sold 6,516,637 6,323,693 6,121,274
Gross profit 1,694,247 1,608,899 1,488,543
Selling and administrative
expenses 1,191,532 1,129,803 1,096,306
Interest expense 73,484 86,564 72,343
Depreciation 146,170 139,834 143,042
Store closing charge
(Note 13) 170,500
1,411,186 1,356,201 1,482,191
Income before
income taxes 283,061 252,698 6,352
Provision for income taxes 110,700 99,800 2,500
Net income $ 172,361 $ 152,898 $ 3,852
Earnings per share $ .36 $ .32 $ .01
(Results as a percentage
of sales)
Net sales 100.00% 100.00% 100.00%
Cost of goods sold 79.37 79.72 80.44
Gross profit 20.63 20.28 19.56
Selling and administrative
expenses 14.51 14.24 14.41
Interest expense 0.89 1.09 0.95
Depreciation 1.78 1.76 1.88
Store closing charge
(Note 13) 2.24
17.18 17.09 19.48
Income before
income taxes 3.45 3.19 0.08
Provision for income taxes 1.35 1.26 0.03
Net income 2.10% 1.93% 0.05%
The accompanying notes are an integral part of the financial statements.
Balance Sheets
December 30, December 31,
(Dollars in thousands 1995 1994
except per share amounts)
Assets
Current assets:
Cash and cash equivalents $ 70,035 $ 66,869
Receivables 127,995 140,628
Inventories 881,021 853,284
Prepaid expenses and other 73,362 67,905
Total current assets 1,152,413 1,128,686
Property, at cost, less accumulated
depreciation 1,492,852 1,353,255
Total assets $2,645,265 $2,481,941
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 20,000
Accounts payable, trade $ 363,571 344,595
Accrued expenses 316,569 290,858
Long-term debt - current 25
Capital lease obligations - current 15,032 9,122
Other liabilities - current 3,523 3,293
Income taxes payable 22,169
Total current liabilities 698,695 690,062
Long-term debt 355,300 355,300
Capital lease obligations 372,645 304,963
Deferred income taxes 44,120 46,190
Deferred compensation 726 668
Other liabilities 71,269 57,405
Total liabilities 1,542,755 1,454,588
Shareholders' equity:
Class A non-voting common stock,
$.50 par value; authorized 1,500,000,000
shares; issued and outstanding 238,509,000
shares-December 30, 1995 and
244,142,000 shares-December 31, 1994 119,255 122,071
Class B voting common stock, $.50
par value; authorized 1,500,000,000 shares;
issued and outstanding 236,625,000 shares-
December 30, 1995 and 239,571,000 shares-
December 31, 1994 118,313 119,786
Additional capital 337
Retained earnings 864,942 785,159
Total shareholders' equity 1,102,510 1,027,353
Total liabilities and
shareholders' equity $2,645,265 $2,481,941
The accompanying notes are an integral part of the financial statements.
Statements of Cash Flows
December 30, December 31,
1995 1994
(Dollars in thousands)
Cash flows from operating activities
Net income $172,361 $152,898
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 146,170 139,834
(Gain) loss on disposals of property ( 1,995) ( 228)
Store closing charge (Note 13)
Deferred income taxes 2,000 ( 3,800)
Changes in operating assets
and liabilities:
Receivables 12,633 ( 30,676)
Inventories ( 27,737) 75,854
Prepaid expenses and other ( 9,527) ( 186)
Accounts payable and accrued expenses 44,687 46,035
Income taxes payable ( 22,169) 12,062
Deferred compensation 58 97
Other liabilities 14,094 ( 1,991)
Total adjustments 158,214 237,001
Net cash provided by operating
activities 330,575 389,899
Cash flows from investing activities
Proceeds from sale of property 20,806 5,254
Capital expenditures ( 219,905) ( 117,312)
Net cash used in investing
activities ( 199,099) ( 112,058)
Cash flows from financing activities
Net proceeds (payments) under short-term
borrowings ( 20,000) 9,993
Principal payments under capital
lease obligations ( 11,081) ( 9,724)
Principal payments on long-term debt ( 25) ( 214,208)
Proceeds from issuance of common stock 39 53
Proceeds from issuance of long-term debt
Repurchase of common stock ( 50,950)
Dividends paid ( 46,293) ( 43,152)
Net cash used in
financing activities ( 128,310) ( 257,038)
Net increase (decrease)in cash and cash
equivalents 3,166 20,803
Cash and cash equivalents at beginning
of year 66,869 46,066
Cash and cash equivalents at end of year $ 70,035 $ 66,869
The accompanying notes are an integral part of the financial statements
Statements of Cash Flows
January 1,
1994
(Dollars in thousands)
Cash flows from operating activities
Net income $ 3,852
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 143,042
Loss on disposals of property 529
Store closing charge (Note 13) 170,500
Deferred income taxes ( 55,500)
Changes in operating assets
and liabilities:
Receivables ( 13,965)
Inventories ( 32,753)
Prepaid expenses and other 4,933
Accounts payable and accrued expenses 38,837
Income taxes payable 10,107
Deferred compensation ( 1,153)
Other liabilities ( 241)
Total adjustments 264,336
Net cash provided by operating
activities 268,188
Cash flows from investing activities
Proceeds from sale of property 2,382
Capital expenditures (159,857)
Net cash used in investing
activities (157,475)
Cash flows from financing activities
Net (payments) proceeds under short-term
borrowings (449,743)
Principal payments under capital
lease obligations ( 6,730)
Principal payments on long-term debt ( 280)
Proceeds from issuance of common stock 69
Proceeds from issuance of long-term debt 329,000
Purchase of treasury stock
Dividends paid ( 42,086)
Net cash used in
financing activities (169,770)
Net (decrease) increase in cash and cash
equivalents ( 59,057)
Cash and cash equivalents at beginning
of year 105,123
Cash and cash equivalents at end of year $ 46,066
The accompanying notes are an integral part of the financial statements
Statements of Shareholders' Equity
Class A Class B
(Dollars and shares in thousands Common Stock Common Stock
except per share amounts) Shares Amount Shares Amount
Balances January 2, 1993 244,122 $122,061 239,571 $119,786
Cash dividends declared:
Class A - $.0880 per share
Class B - $.0860 per share
Sale of stock 10 5
Net income
Balances January 1, 1994 244,132 122,066 239,571 119,786
Cash dividends declared:
Class A - $.0902 per share
Class B - $.0882 per share
Sale of stock 10 5
Net income
Balances December 31, 1994 244,142 122,071 239,571 119,786
Cash dividends declared:
Class A - $.0972 per share
Class B - $.0948 per share
Sale of stock 8 4
Repurchase of common stock ( 5,641) ( 2,820) ( 2,946) ( 1,473)
Net income
Balances December 30, 1995 238,509 $119,255 236,625 $118,313
The accompanying notes are an integral part of the financial statements
Additional Retained
Capital Earnings Total
Balances January 2, 1993 $ 225 $ 713,647 $ 955,719
Cash dividends declared:
Class A - $.0880 per share ( 21,483) ( 21,483)
Class B - $.0860 per share ( 20,603) ( 20,603)
Sale of Stock 64 69
Net Income 3,852 3,852
Balances January 1, 1994 289 675,413 917,554
Cash dividends declared:
Class A - $.0902 per share ( 22,021) ( 22,021)
Class B - $.0882 per share ( 21,131) ( 21,131)
Sale of Stock 48 53
Net Income 152,898 152,898
Balances December 31, 1994 337 785,159 1,027,353
Cash dividends declared:
Class A - $.0972 per share ( 23,621) ( 23,621)
Class B - $.0948 per share ( 22,672) ( 22,672)
Sale of stock 35 39
Repurchase of common stock ( 372) ( 46,285) ( 50,950)
Net income 172,361 172,361
Balances December 30, 1995 $ 0 $864,942 $1,102,510
Notes to Financial Statements
(Dollars in thousands except per share amounts)
1. Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to December 31.
Single Industry Segment
The Company engages in one line of business, the operation of general food
supermarkets.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments purchased with an
original maturity of three months or less to be cash equivalents.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Inventories valued using
the last-in, first out (LIFO) method comprised approximately 90% and 91% of
inventories, in 1995 and 1994, respectively. Meat, produce and deli inventories
are valued on the first-in, first-out (FIFO) method. If the FIFO method were
used entirely, inventories would have been $94,195 and $79,221 greater in 1995
and 1994, respectively.
Statements of Cash Flows
Selected cash payments and noncash activities were as follows:
1995 1994 1993
Cash payments for income taxes $130,907 $ 60,005 $ 53,288
Cash payments for interest,
net of amounts capitalized 70,095 86,645 67,319
Noncash investing and financing activities:
Capitalized lease obligations for
store properties incurred 91,219 36,140 62,760
Capitalized lease obligations for
store properties terminated 9,615 21,012 1,653
Capitalized lease obligations for
store equipment purchases 3,069 32 3,528
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Nature of Operations
The Company operates a chain of retail food supermarkets in fourteen states,
principally located in the southeast. As of December 30, 1995, the Company
operated 1,073 retail food supermarkets and nine distribution centers. The
Company's stores, which are operated under the name of "Food Lion," sell a wide
variety of groceries, produce, meats, dairy products, seafood, frozen foods,
deli/bakery and non-food items, such as health and beauty aids and other
household and personal products.
Notes to Financial Statements
(Dollars in thousands except per share amounts)
Depreciation
Depreciation is provided on a straight-line basis over the estimated service
lives of assets, generally as follows:
Buildings 40 years
Furniture, fixtures and equipment 3 - 10 years
Leasehold improvements 8 years
Vehicles 7 years
Property under capital leases Lease term
Cost of Goods Sold
Purchases are recorded net of cash discounts.
Store Opening and Closing Costs
Costs associated with the opening of new stores are expensed as incurred. When
a store is closed the remaining investment in fixed assets, net of expected
recovery value, is expensed. For properties under lease agreements, the present
value of any remaining liability under the lease is expensed when the closing is
determined.
Income Taxes
Deferred tax liabilities or assets are established for temporary differences
between financial and tax reporting bases and are subsequently adjusted to
reflect changes in tax rates expected to be in effect when the temporary
differences reverse.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding.
Reclassification
Certain items in the 1994 financial information have been reclassified for
comparative purposes.
2. Property
Property consists of the following:
1995 1994
Land and improvements $ 201,622 $ 184,817
Buildings 409,730 391,704
Furniture, fixtures and equipment 1,034,619 945,602
Vehicles 95,965 95,198
Leasehold improvements 153,279 107,392
Construction in progress (estimated
costs to complete and equip at
December 30, 1995 are $43.6 million) 19,658 32,501
1,914,873 1,757,214
Less accumulated depreciation 761,337 676,930
1,153,536 1,080,284
Property under capital leases
(less accumulated depreciation
of $79,555 and $67,869 for 1995
and 1994, respectively) 339,316 272,971
$1,492,852 $1,353,255
Property is recorded net of provisions totaling $58.2 million and $83.6 million
for 1995 and 1994, respectively, to reflect the realizable value of properties
that are held for sale as part of the Company's 1994 store closing program (Note
13).
The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," effective for fiscal years that begin after December
15, 1995. SFAS No. 121 will be implemented in 1996. The Company does not
expect the implementation of SFAS No. 121 to have a material effect on 1996
earnings.
3. Accrued Expenses
Accrued expenses consist of the following:
1995 1994
Employee profit sharing $ 89,854 $ 77,572
Payroll 39,532 34,922
Provision for store closings
(Note 13) 20,413 22,572
Self insurance 59,535 51,006
Other 107,235 104,786
$316,569 $290,858
4. Employee Benefit Plan
The Company has a noncontributory retirement plan covering all employees. The
plan provides benefits to participants upon death, retirement or termination of
employment with the Company. Contributions to the retirement plan are
determined by the Company's Board of Directors. The plan year ends in mid
December.
Profit sharing expense totaled $85.3 million in 1995, $73.3 million in 1994 and
$58.0 million in 1993.
5. Long-Term Debt
Long-term debt consists of the following:
1995 1994
Medium term notes, due from 1999 to
2006. Interest ranges from 8.32%
to 8.73%. $150,300 $150,300
Note purchase agreements, due 1998.
Interest is at 10.21%. 50,000 50,000
Note purchase agreements, due 1997.
Interest is at 8.25%. 40,000 40,000
Convertible subordinated debentures, due 2003.
Interest is at 5%. The debentures are convertible
at any time into shares of the Company's Class A
non-voting common stock at a conversion price of
$7.90 per share, subject to adjustment under
certain circumstances. 115,000 115,000
Other 25
355,300 355,325
Less current portion 25
$355,300 $355,300
At December 30, 1995, no property was pledged as collateral for long-term debt.
At December 30, 1995 and December 31, 1994 the Company estimated that the market
value of its long-term debt was approximately $377.2 million and $344.4 million,
respectively. The fair value of the Company's long-term debt is estimated based
on the current rates offered to the Company for debt of the same remaining
maturities.
Approximate maturities of long-term debt in the years 1996 through 2000 are
$0, $40.0, $50.0, $27.0 and $1.0 million, respectively.
6. Credit Arrangements
The Company maintains a revolving credit facility with a syndicate of commercial
banks providing $350.0 million in committed lines of credit. This facility will
expire in November, 1999. There were no borrowings outstanding at December 30,
1995.
Additionally, the Company had other committed short-term lines of credit with
banks totaling $30.5 million of which no borrowings were outstanding at December
30, 1995.
The Company has a $250.0 million commercial paper program, of which no
borrowings were outstanding at December 30, 1995 and December 31, 1994.
In addition, the Company has periodic short-term borrowings under informal
arrangements. There were no outstanding borrowings under these arrangements at
December 30, 1995 and $20.0 million at December 31, 1994 at an average interest
rate of 6.05%.
7. Leases
The Company's stores operate principally in leased premises. Lease terms
generally range from ten to twenty-five years with renewal options ranging from
ten to twenty years. The following schedule shows future minimum lease payments
under capital leases, together with the present value of net minimum lease
payments, and operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 30, 1995.
Capital Operating
Leases Leases
1996 $ 63,594 $ 108,895
1997 63,356 108,518
1998 63,246 108,505
1999 62,297 108,178
2000 62,246 107,004
Thereafter 704,855 921,240
Total minimum payments 1,019,594 $1,462,340
Less estimated executory
costs 98,930
Net minimum lease payments 920,664
Less amount representing
interest 532,987
Present value of net minimum
lease payments $ 387,677
Minimum payments have not been reduced by minimum sublease rentals of $13.9
million due in the future under noncancelable subleases or the remaining rent
payments on leased stores that have been closed.
Total rent expense for operating leases, excluding those with terms of one year
or less that were not renewed, is as follows:
1995 1994 1993
Minimum rents $108,457 $113,606 $102,390
Contingent rents,
based on sales 457 490 608
$108,914 $114,096 $102,998
In addition, the Company has signed lease agreements for additional store
facilities, the construction of which was not complete at December 30, 1995.
The leases expire on various dates extending to 2020 with renewal options
generally ranging from ten to twenty years. Total future minimum rents under
these agreements are approximately $363.1 million.
8. Income Taxes
Provisions for income taxes for 1995, 1994 and 1993 consist of the following:
Current Deferred Total
1995
Federal $ 90,500 $ 1,600 $ 92,100
State 18,200 400 18,600
$108,700 $ 2,000 $110,700
1994
Federal $ 86,400 $( 3,200) $ 83,200
State 17,200 ( 600) 16,600
$103,600 $( 3,800) $ 99,800
1993
Federal $ 48,400 $(46,300) $ 2,100
State 9,600 ( 9,200) 400
$ 58,000 $(55,500) $ 2,500
The Company's effective tax rate varied from the federal statutory rate as
follows:
1995 1994 1993
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 4.3 4.3 4.1
Other ( 0.2) 0.2 0.3
39.1% 39.5% 39.4%
Deferred income tax expense relates to the following:
1995 1994 1993
Excess tax depreciation $ 2,852 $ 11,409 $ 18,438
Excess interest and amortization
over rent on capital leases ( 3,258) ( 3,229) ( 3,537)
Inventory capitalization ( 600) 94 ( 283)
Provision for store closings 12,237 5,080 (66,870)
Accrued expenses ( 2,635) ( 12,507) (14,879)
Other ( 6,596) ( 4,647) 11,631
$ 2,000 $( 3,800) $( 55,500)
The components of deferred income tax assets and liabilities at December 30,
1995 and December 31, 1994 are as follows:
1995 1994
Current assets:
Inventories $ 6,298 $ 15,800
Accrued expenses 37,125 31,512
Provision for store closings 6,595 6,776
Total current assets included in prepaid
expenses and other 50,018 54,088
Noncurrent assets/(liability):
Depreciation (112,810) (117,086)
Leases 25,700 15,882
Provision for store closings 42,990 55,014
Total noncurrent liability ( 44,120) ( 46,190)
Net deferred taxes $ 5,898 $ 7,898
Notes to Financial Statements
(Dollars in thousands except per share amounts)
9. Other Liabilities
Other liabilities consist of the following:
1995 1994
Present value of remaining rent payments:
1994 store closings (Note 13) $47,750 $51,354
Other store closings 19,311 1,772
Other 7,731 7,572
74,792 60,698
Less current portion 3,523 3,293
$71,269 $57,405
10. Stock Option Plans
The Company has stock option plans under which options to purchase shares of
Class A common stock may be granted to officers and key employees at prices not
less than fair market value on the date of grant. Options become exercisable
at such time or times as determined by the Stock Option Committee of the Board
of Directors of the Company on the date of grant, provided that no option may be
exercised more than ten years after the date of grant.
Transactions in stock options are summarized as follows:
Shares
Under
Option Price Per Share
Outstanding at 1992 699,211 $6.09 - 17.58
Granted 2,842,325 5.25 - 11.25
Exercised ( 9,826) 6.09 - 8.33
Cancelled ( 207,190) 5.25 - 16.17
Outstanding at 1993 3,324,520 $5.25 - 17.58
Granted 187,650 5.25 - 6.38
Exercised ( 9,270) 5.25 - 6.17
Cancelled ( 493,970) 5.25 - 15.83
Outstanding at 1994 3,008,930 $5.25 - 17.58
Granted 146,650 5.125 - 6.50
Exercised ( 7,531) 5.25
Cancelled ( 489,980) 5.125 - 14.67
Outstanding at 1995 2,658,069 $5.125 - 17.58
On December 30, 1995, options for the purchase of 2,250,261 shares of Class A
common stock were exercisable and 2,545,280 shares of Class A common stock were
available for future grants.
The Financial Accounting Standards Board has issued Statement No. 123,
"Accounting for Stock-Based Compensation," effective for fiscal years that begin
after December 15, 1995. SFAS No. 123 will be implemented in 1996, and the
Company has elected to adopt the disclosure option under SFAS No.123. Therefore,
it will not affect earnings.
11. Common Stock
On December 30, 1995, approximately 24.1% and 15.0% of the issued and
outstanding Class A non-voting common stock and 24.1% and 26.8% of the issued
and outstanding Class B voting common stock were held, respectively, by
Etablissements Delhaize Freres et Cie "Le Lion" S.A. (Delhaize) and Delhaize The
Lion America, Inc., a wholly owned subsidiary of Delhaize (Detla). In the
aggregate, Delhaize and Detla owned approximately 50.9% of the Class B voting
common stock and 45.0% of the combined common stock as of December 30, 1995.
Holders of Class B common stock are entitled to one vote for each share of Class
B common stock held, while holders of Class A common stock are not entitled to
vote except as required by law.
The Board of Directors of the Company may declare dividends with respect to
Class A common stock in excess of dividends declared and paid with respect to
the Class B common stock or without declaring and paying any dividends with
respect to the Class B common stock. When dividends are declared with respect
to the Class B common stock, the Board of Directors of the Company must declare
a greater per share dividend to the holders of Class A common stock.
12. Interest Expense
Interest expense consists of the following:
1995 1994 1993
Interest on capital leases $38,995 $38,511 $34,905
Other interest (net of $1.9, $1.0
and $4.6 million capitalized in
1995, 1994, and 1993, respectively.) 34,489 48,053 37,438
$73,484 $86,564 $72,343
13. Store Closing Charge
On January 7, 1994, Food Lion announced plans to close 88 unprofitable store
locations 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). In
1993, the Company established a pre-tax charge against 1993 earnings of $170.5
million (after tax $104 million, or 22 cents per share) to cover management's
best estimate of the costs associated with the store closings. During 1995 and
1994, the Company charged $31.1 million and $13.0 million, respectively, against
the provision related primarily to the disposition of property, the disposition
of store inventory and the payment of remaining rent obligations on leased
stores. As of December 30, 1995, the remaining provision totaled $126.4
million. As efforts to dispose of store properties continue, the Company will
monitor the provision and adjust it accordingly. (See Notes 2, 3 and 9 for
related information).
Report of Independent Accountants
To the Shareholders of Food Lion, Inc.:
We have audited the accompanying balance sheets of Food Lion, Inc., as of
December 30, 1995 and December 31, 1994 and the related statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Food Lion, Inc., as of December
30, 1995 and December 31, 1994 and the results of its operations and its cash
flows for each of the three fiscal years in the period ended December 30, 1995
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Charlotte, North Carolina
February 7, 1996
Results by Quarter
(Unaudited)
(Dollars in thousands except First Second Third Fourth
per share amounts) (12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
1995
Net sales $1,866,262 $1,895,208 $1,913,982 $2,535,432
Gross profit 383,073 390,456 398,292 522,426
Net income 37,665 38,732 41,003 54,961
Earnings per share .08 .08 .09 .11
1994
Net sales $1,804,022 $1,821,905 $1,849,806 $2,456,859
Gross profit 363,210 369,800 375,411 500,478
Net income 31,156 34,800 36,553 50,389
Earnings per share .06 .07 .08 .11
Market Price of Common Stock
Years Ended
December 30, 1995 December 31, 1994
Class A Class B Class A Class B
Quarter High Low High Low High Low High Low
First 5 7/8 4 15/16 6 5 1/16 7 1/8 5 1/2 7 1/4 5 3/4
Second 6 5/8 5 7/16 6 5/16 5 1/2 6 1/4 5 1/2 6 3/8 5 3/4
Third 6 1/8 5 11/16 6 1/4 5 11/16 6 3/8 5 1/2 6 5/8 5 9/16
Fourth 6 3/16 5 1/2 6 1/4 5 7/16 6 5 1/8 6 5 1/8
The Company's Class A and the Class B common stock trades on the NASDAQ Stock
Market under the symbol: FDLNA and FDLNB, respectively. Price quotations are
reported in the NASDAQ National Market System. The closing market prices per
share for the Class A and Class B common stock at December 30, 1995 were
$5.71875 and $5.6875,respectively, compared with $5.125, for both classes of
common stock at December 31, 1994. The over-the-counter quotations reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. On February 5, 1996, there were
30,709 holders of record of Class A common stock and 19,128 holders of record of
Class B common stock. The closing market prices per share for the Class A and
the Class B common stock at February 5, 1996 were $5.625 and $5.5625.
Dividends Declared Per Share of Common Stock
Years Ended
December 30, 1995 December 31, 1994
Quarter Class A Class B Class A Class B
First $.0243 $.0237 $.0220 $.0215
Second .0243 .0237 .0220 .0215
Third .0243 .0237 .0231 .0226
Fourth .0243 .0237 .0231 .0226
Total $.0972 $.0948 $.0902 $.0882
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company recorded sales of $8.2 billion and net earnings
of $172.4 million in fiscal 1995, increases of 3.5% and 12.7%,
respectively, compared with fiscal 1994. During 1995, Food Lion
opened 47 new stores (and closed 13 older stores), resulting in
1,073 stores operating at the end of the fiscal year compared with
1,039 stores in 1994. The Company renovated 121 existing Food Lion
stores in 1995 which included expanding square footage and adding
deli/bakeries in most of the stores.
Sales
Sales for the 52 weeks ended December 30, 1995 increased to
$8.2 billion, compared with $7.9 billion and $7.6 billion for the
comparable periods in 1994 and 1993, resulting in annual increases
of 3.5%, 4.2% and 5.8%, respectively. The 1995 sales increase was
achieved without the full benefit of the new store openings, as a
majority of the new stores were opened near the end of 1995. Same
store sales, sales for stores open in comparable periods,
increased 2.3% in 1995 in the midst of a very competitive retail
environment impacted by increased competition from supermarkets,
discount stores and supercenters. Same store sales increased 3.3%
in 1994 compared with a decrease of 2.6% in 1993.
The Company's sales increase in 1995 resulted from its
aggressive store renovation strategy, opening new stores, and
initiatives to provide value and quality to customers. The sales
improvements attributable to store renovations continue to be
strong, as 121 existing stores were renovated to update equipment
and properties, and in most locations, to add deli/ bakeries. As
stated under Results of Operations above, the Company opened 47
new stores and replaced 13 older units, a net increase of 34
stores for 1995. The sales from these new stores were the
strongest in the Company's history. The Company opened three
larger-format supermarkets to experiment with providing additional
variety to customers, especially in the perimeter departments of
produce, meat and deli/bakeries. Two additional larger-format
stores are planned to open in 1996.
The Company also implemented the MVP Customer program in
1995, which rewards loyal Food Lion shoppers with additional
discounts of up to 20% off Food Lion's Extra Low Prices on a
monthly selection of items featured by the program. The MVP
Customer program has attracted over 5 million customers and will
be tied into additional promotional activity in 1996. The Company
continued the Gold Lion Guarantee initiative, which began in late
1994, as its commitment to customers to provide quality, service,
cleanliness, and friendliness in addition to Extra Low Prices.
Food Lion's Southwest market is generating positive cash flow,
but it is still not profitable. The Company will continue to monitor
sales and profits in the Southwest market as compared to expectations,
adjusting the operations to incorporate initiatives to better meet the
needs of customers in that region. Food Lion will continue to evaluate
the performance of all corporate assets, including those in the Southwest,
to ensure those assets are returning an appropriate value to shareholders
or have a reasonable possibility of doing so in line with internal time
frames. If the Company's efforts to improve the Southwest market are not
successful, the Company is prepared to make a decision regarding continued
operations in that market area at some time in the future.
The 1996 business plan includes opening 50 new stores (up to
22 of these replacing older stores) and renovating at least 120
existing stores. The Company is committed to a growth strategy
which includes adding new stores and strengthening existing stores
to maintain a competitive edge in the Company's current markets.
Decisions related to opening new stores or renovating existing
stores are evaluated based on projected returns as compared to the
Company's weighted average cost of capital. The Company's plan in
1996 will add additional square footage, as well as strengthen
sales in renovated units. In addition to growth through new stores
and renovations, on January 12, 1996, Food Lion signed an
agreement to acquire the assets of Food Fair, Inc. of North
Carolina, an 11 store supermarket chain in a rapidly growing area
of North Carolina. Food Lion will operate nine of the 11 Food Fair
stores. Food Lion's growth strategy is flexible, and the Company
will continue to listen to its customers and revise its strategy
accordingly in an effort to provide Extra Low Prices And More for
its customers.
Gross Profit
Gross profit was 20.63% of sales in 1995, as compared with
20.28% in 1994 and 19.56% in 1993. Gross profit increased by 0.35%
of sales in 1995 as the Company continued implementation of a
category management system designed to maximize gross profits
through product analysis, selection and pricing. In addition, the
Company's growth in its Food Lion private label program (now
representing 12% of total sales) resulted in positive improvements
in gross profits in 1995. The addition of deli/bakeries in 1995
through renovations and new stores (733 stores in 1995 compared
with 575 stores in 1994) and improved sales mix contributed to
increased gross profits in the higher margin categories of deli
and meat. The Company continues to focus on quality, freshness
and cleanliness in an effort to provide customers with Extra
Low Prices and More.
The LIFO charge, as a percent of sales, decreased gross
profit by 0.18% in 1995, 0.21% in 1994 and 0.14% in 1993,
resulting in FIFO gross profits of 20.81%, 20.49% and 19.70%,
respectively for 1995 and the two prior years.
The Company's improved gross profit in 1994 was the result of
increases in both the number of customers and items purchased per
customer in the higher margin departments of meat, perishable and
deli, and a decrease in promotional activity (featured special
pricing on certain products, double coupons, etc.) in comparison
with 1993 levels.
Selling and Administrative Expenses
Selling and administrative expenses as a percentage of sales
were 14.51%, 14.24% and 14.41% in 1995, 1994, and 1993,
respectively. Selling and administrative expenses increased by 0.27%
of sales in 1995 as a result of costs to open 47 stores in 1995
compared with 30 new stores opened in 1994 and the additional
costs of renovating 121 stores in 1995 compared with 65
renovations in 1994. As mentioned under Sales above, the Company
continues to add deli/bakery departments to its operations through
new store growth and renovations, and although the deli/bakery
commands a high gross margin, it includes additional expenses
related to rent, supplies, salaries and maintenance. Rent
increased due to provisions made to cover the cost of closing
older stores (continued obligation for future rent payments) as
they were replaced by new stores. Supply costs also were affected
during 1995 by the increasing cost of paper and plastic bags.
Advertising costs increased in 1995 as the Company continued
its marketing strategies of the previous two years focusing on
enhancing the Company's image. The Company's Gold Lion Guarantee
initiative, which communicates the Company's commitment to
quality, freshness, cleanliness, service and friendliness, through
advertising using the theme Extra Low Prices and More and the MVP
Customer Card program, described under "Sales" above, were
strategies designed to enhance the Company's service and
commitment to customers. In December 1995, the Company announced a
new relationship with NASCAR (National Association for Stock Car
Auto Racing) as the "Official Supermarket of NASCAR," an
exciting opportunity for the Company to serve many customers with
additional promotions. NASCAR is extremely popular in many Food
Lion markets.
Food Lion's 1995 business plan reflected the Company's
commitment to maintaining its existing store base as 121 store
renovations were completed in 1995 compared with 65 in 1994 and 30
in 1993. In 1996, the Company plans to complete 120
renovations to existing stores. Store renovations negatively
impact the Company's operating expenses such as rent and
utilities, but add value to customers as demonstrated by sales
increases in renovated stores. The Company plans to continue an
aggressive renovation program to maintain a quality shopping
environment for customers in all Food Lion stores.
The Company continues to incur advertising, legal and public
relations costs to strengthen customer relations and to combat
efforts by the United Food and Commercial Workers Union
International's "Corporate Campaign" to discredit and damage Food
Lion. The Company expects such costs to continue in 1996.
Although the Company anticipates some continued pressure on
expenses in conjunction with implementing its 1996 business plan
and enhancing customer satisfaction,however, Food Lion expects
expenses as a percentage of sales to improve slightly during 1996.
Interest Expense
During 1995, interest expense decreased to 0.89% of sales
compared with 1.09% in 1994 and 0.95% in 1993. Interest expense
decreased in 1995 due to the prepayment of a $214 million note
agreement in the fourth quarter of 1994, and additional
capitalized interest as a result of construction to expand the
Greencastle, Pennsylvania distribution center and the construction
of nine Company-owned stores. Interest expense increased in 1994
due to the amortization of rent obligations on the 1994 store
closings and lower capitalized interest as a result of less
construction (during 1994, eight Company-owned stores were
constructed compared with 31 Company-owned stores in 1993).
The Company does not presently anticipate incurring
additional long-term borrowings during 1996.
Depreciation Expense
Depreciation expense as a percentage of sales was 1.78% in
1995, 1.76% in 1994 and 1.88% in 1993. Depreciation increased in
1995 primarily due to leasehold improvements resulting from
renovations to 121 existing stores in 1995 compared to 65
renovations in 1994. During 1995, the Company constructed and
equipped nine stores, equipped 38 leased stores, renovated 121
existing stores and completed an expansion of its Greencastle,
Pennsylvania distribution center. During 1994, the Company closed
84 underperforming stores, constructed and equipped eight stores,
equipped 22 leased stores, renovated 65 existing stores and began
construction to expand its Greencastle, Pennsylvania distribution
center. During 1993, the Company constructed and equipped 31
stores, equipped 69 leased stores and renovated 30 existing
stores.
The Company will finance the majority of its store growth in
1996 with conventional lease arrangements, but will continue to
build and own stores in market areas where leasing is not
economically advantageous. The Company expects depreciation to
increase in 1996 as a result of its new store opening and
renovation plans for 1996, and due to the timing of 1995 new store
openings. The majority of 1995 new store openings fell in the
fourth quarter of 1995, creating a minimal impact on 1995
depreciation. During 1996, the Company will record a full year
depreciation charge for these assets, increasing depreciation as
compared with 1995.
Store Closing Charge
During the first two quarters of 1994, the Company closed 84
underperforming stores as part of its 1994 business plan. The
Company established a pre-tax charge against 1993 earnings of
$170.5 million (approximately $104 million after tax) to cover
management's best estimate of the costs associated with closing
these stores. These costs include provisions against store assets
to reflect estimated realizable values ($87.1 million), 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 and
relocation expenses ($28.3 million). As of the end of 1995, the
Company had charged $44.1 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.
The Company recorded approximately $30 million in annual pre-
tax losses in 1993 attributable to these stores that will not
recur in future years. The Company realized the total annual
benefit of these store closings in 1995 (partial benefit of
approximately $24.0 million was realized in 1994). At the end of
1995, the Company was continuing in its efforts to dispose of or
sublease these store properties and believes the provision is
adequate at this time. The Company has been encouraged by
successful disposition and subleasing of a number of properties
and will continue to monitor and evaluate the provision to make
necessary adjustments.
LIFO
The LIFO reserve increased $15.0 million in 1995, as compared
to increases of $16.3 million in 1994 and $10.8 million in 1993.
The 1995 increase was primarily due to increased cost of paper,
plastic products and packaging. During 1994, inflationary coffee
costs were a large part of the LIFO reserve increase. During 1993,
the Company experienced cost increases on certain products
resulting primarily from inclement weather in the spring and
summer of 1993.
Income Taxes
The provision for income taxes was $110.7 million in 1995,
$99.8 million in 1994 and $2.5 million in 1993. The decrease in
1993 resulted from a decrease in earnings primarily as a result of
the store closing charge discussed above. The Company's effective
tax rate was 39.1% in 1995 compared with 39.5% in 1994 and 39.4%
in 1993.
Assuming there are no additional federal or state income tax
rate increases, Food Lion expects the effective rate for 1996 and
forward to be 39.0%.
Liquidity and Capital Resources
Cash provided by operating activities was $330.6 million in
1995 compared with $389.9 million in 1994 and $268.2 million in
1993. The decrease in 1995 was primarily due to changes in
comparative levels of inventory as a result of more store openings
occurring toward the end of 1995, an increase in prepaid expenses
and a decrease in taxes payable, offset by a decrease in
receivables and an increase in payables. The increase in 1994 was
due to improved earnings, lower inventories achieved by continued
improvement in inventory management techniques such as just-in-
time inventory and the closing of underperforming stores in early
1994. Accounts payable, accrued expenses and income taxes payable
increases also contributed to the increase in cash provided by
operating activities in 1994.
Cash capital expenditures increased to $219.9 million in
1995, compared with $117.3 million in 1994 and $159.9 million in
1993. During 1995, the Company equipped a total of 47 new stores,
constructed nine Company-owned stores, completed 121 store
renovations and completed construction on an expansion of the
Greencastle, Pennsylvania distribution center. During 1994, the
Company equipped a total of 30 new stores, constructed eight
Company-owned stores, completed 65 store renovations and began
construction of the expansion of its Greencastle, Pennsylvania
distribution center. In 1993, the Company equipped 100 new stores,
constructed 31 stores, and renovated 30 stores.
As a result of 47 total store openings and the closing of 13
older stores in 1995, total stores increased from 1,039 to 1,073.
The total distribution space owned by the Company increased to 9.9
million square feet compared with 9.5 million in 1994 and 1993.
In 1996, Food Lion plans to move forward with a three-fold
growth plan, which focuses on a combination of renovations and new
store openings, as well as possible growth through acquisitions.
The Company expects to open a total of 50 new
stores and to renovate at least 120 stores in 1996. 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 planned for 1996 include approximately $94
million for store expansion and new store construction (including
the Food Fair acquisition), $118 million to equip new and
renovated stores, and $7 million for land costs.
Cash 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.
During 1995, the Company expended $50.9 million for the
purchase of Class A and Class B shares, as part of the Company's
program to repurchase up to $100 million of the Company's
outstanding shares. The Company purchased 5,640,615 shares of
Class A stock at an average price of $5.89 per share, and
2,946,500 shares of Class B stock at an average price of $5.87 per
share. Additional purchases may be made in the open market under
the current program as deemed in the best interest of
shareholders.
Debt
The Company maintains a revolving credit facility with a
syndicate of commercial banks providing $350.0 million in
committed lines of credit. This facility will expire in November,
1999. There were no borrowings outstanding against these lines at
December 30, 1995.
The Company also maintains additional committed lines of
credit totaling $30.5 million which are available when needed. The
Company is not required to maintain compensating balances related
to these lines of credit, and borrowings may occur periodically.
The Company had no borrowings outstanding under these lines at
December 30, 1995.
The Company has a $250.0 million commercial paper program, of
which no borrowings were outstanding at December 30, 1995 and
December 31, 1994. During 1993, the Company had average
borrowings of $51.6 million at an average daily weighted average
interest rate of 3.39%, a maximum amount outstanding of $183.0
million and no outstanding borrowings at January 1, 1994.
Finally, the Company has 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)
1995 1994 1993
Outstanding borrowings at year end $ 0 $20.0 $ 10.0
Average borrowings .3 2.4 59.0
Maximum amount outstanding 20.0 0.0 203.6
Daily weighted average interest rate 6.04% 5.62% 3.56%
During the fourth quarter of 1994, the Company pre-paid three
series of senior unsecured notes totaling $214.0 million which
were due from 1998 to 2003 at interest rates ranging from 6.97% to
8.00%.
In 1993, the Company sold $115.0 million of 5% convertible
subordinated debentures due 2003. The debentures are convertible
into shares of the Company's Class A non-voting stock at $7.90 per
share.
Impact of Inflation
The inflation rate for the "Food at Home" index in 1995 of
2.0% was below the overall increase in the Consumer Price Index of
2.5% for the year. Inventory and labor, the Company's primary
costs, increase with inflation and, where possible, will be
recovered through operating efficiencies and gross profits.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Food Lion, Inc. on Form S-8 (File Nos. 33-18796 and 33-
18797) and Form S-3 (File No. 33-40457) of our report dated February 7,
1996, on our audits of the financial statements and financial statement
schedule of Food Lion, Inc. as of December 30, 1995, and December 31,
1994, and for the fiscal years ended December 30, 1995, December 31,
1994 and January 1, 1994, which report is included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND, L.L.P.
Charlotte, North Carolina
March 26, 1996
<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> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-30-1995
<CASH> 70,035
<SECURITIES> 0
<RECEIVABLES> 127,995
<ALLOWANCES> 0
<INVENTORY> 881,021
<CURRENT-ASSETS> 1,152,413
<PP&E> 2,333,744
<DEPRECIATION> 840,892
<TOTAL-ASSETS> 2,645,265
<CURRENT-LIABILITIES> 698,695
<BONDS> 355,300
0
0
<COMMON> 237,568
<OTHER-SE> 864,942
<TOTAL-LIABILITY-AND-EQUITY> 2,645,265
<SALES> 8,210,884
<TOTAL-REVENUES> 8,210,884
<CGS> 6,516,637
<TOTAL-COSTS> 6,516,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,484
<INCOME-PRETAX> 283,061
<INCOME-TAX> 110,700
<INCOME-CONTINUING> 172,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,361
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
</TABLE>
Exhibit 99
UNDERTAKING TO FILE EXHIBITS PURSUANT
TO ITEM 601(b)(4)(iii)(A) OF REGULATIONS S-K
The undersigned registrant acknowledges that it has not filed
with the Securities and Exchange Commission (the "Commission") copies
of certain instruments with respect to long-term debt of the
registrant representing obligations not exceeding 10% of the
registrant's total assets as of December 30, 1995, pursuant to the
provisions of Item 601(b)(4)(iii)(A) of Regulation S-K of the
Commission (the "Regulation").
Pursuant to the Regulation, the undersigned registrant hereby
undertakes to furnish to the Commission upon its request a copy of
any such instrument, including nine Note Purchase Agreements dated
January 30, 1987 between the Company and various parties, in amounts
ranging from $500,000 to $18 million and totaling $40 million, nine
Note Purchase Agreements dated July 20, 1988 between the Company and
various parties, in amounts ranging from $1.5 million to $15 million
and totaling $50 million, and convertible subordinated debentures
dated June 15, 1993 totaling $115 million.
This is the 26th day of March, 1996.
FOOD LION, INC.
Dan Boone
Dan Boone, Vice President of
Finance
