SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 14, 1997
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 (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Outstanding shares of common stock of the Registrant as of July 18,1997.
Class A Common Stock 236,082,726
Class B Common Stock 232,727,364
Page 1 of 30
The Exhibit index is located on page 16.
FOOD LION, INC.
INDEX TO FORM 10-Q
June 14, 1997
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Income for the
12 and 24 weeks ended June 14, 1997 and
June 15, 1996 3-4
Consolidated Balance sheets as of June 14,
1997, December 28, 1996 and June 15, 1996 5
Consolidated Statements of Cash Flows for
the 12 and 24 weeks ended June 14, 1997
and June 15, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security 13-14
Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended June 14, 1997 and June 15, 1996
(Dollars in thousands except per share data)
June 14, 1997 June 15, 1996 June 14, 1997 June 15, 1996
% %
<S> <C> <C> <C> <C>
Net sales $2,324,719 $2,084,414 100.00 100.00
Cost of goods sold 1,817,872 1,640,768 78.20 78.72
Gross profit 506,847 443,646 21.80 21.28
Selling and administrative expenses 345,413 306,410 14.86 14.70
Depreciation and amortization 52,150 37,951 2.24 1.82
Asset impairment reserve - - 0.00 0.00
Operating income 109,284 99,285 4.70 4.76
Interest expense 27,761 19,639 1.19 0.94
Income before income taxes 81,523 79,646 3.51 3.82
Provision for income taxes 31,794 31,062 1.37 1.49
Net income $ 49,729 $ 48,584 2.14 2.33
Earnings per share $ 0.11 $ 0.10
Dividends per share $ 0.03 $ 0.03
Weighted average number
of shares outstanding:
Class A 236,087,308 235,689,846
Class B 232,760,697 234,617,072
Total 468,848,005 470,306,918
</TABLE>
-3-
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 24 Weeks ended June 14, 1997 and June 15, 1996
(Dollars in thousands except per share data)
June 14, 1997 June 15, 1996 June 14, 1997 June 15, 1996
% %
<S> <C> <C> <C> <C>
Net sales $4,601,466 $4,108,867 100.00 100.00
Cost of goods sold 3,597,757 3,253,598 78.19 79.18
Gross profit 1,003,709 855,269 21.81 20.82
Selling and administrative expenses 692,254 585,398 15.04 14.26
Depreciation and amortization 100,847 74,970 2.19 1.82
Asset impairment reserve - 9,640 0.00 0.23
Operating income 210,608 185,261 4.58 4.51
Interest expense 54,446 38,643 1.18 0.94
Income before income taxes 156,162 146,618 3.40 3.57
Provision for income taxes 60,903 57,181 1.33 1.39
Net income $ 95,259 $ 89,437 2.07 2.18
Earnings per share $ 0.20 $ 0.19
Dividends per share $ 0.07 $ 0.06
Weighted average number
of shares outstanding:
Class A 236,141,377 236,446,163
Class B 232,831,531 235,276,093
Total 468,972,908 471,722,256
</TABLE>
-4-
<TABLE>
FOOD LION, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 14, 1997 December 28, 1996 June 15, 1996
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 26,638 $ 102,371 $ 75,690
Receivables 142,006 151,163 123,494
Inventories 974,953 1,065,743 871,203
Prepaid expenses and other 71,166 33,660 52,685
Deferred tax asset 75,807 75,807 50,018
Total current assets 1,290,570 1,428,744 1,173,090
Property, at cost, less accumulated
depreciation 1,835,458 1,772,503 1,529,074
Deferred tax asset 8,619 8,619 -
Intangible assets 274,117 278,726 9,864
Total assets $3,408,764 $3,488,592 $2,712,028
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ - $ 250,010 $ -
Accounts payable, trade 477,972 470,994 404,444
Accrued expenses 368,024 397,431 322,831
Capital lease obligations - current 20,872 21,970 16,667
Long term debt - current 905 973 -
Other liabilities - current 6,992 7,279 3,457
Income taxes payable - 5,578 ____ -
Total current liabilities 874,765 1,154,235 747,399
Long-term debt 633,905 495,111 315,300
Capital lease obligations 479,338 469,035 398,033
Deferred income taxes - - 44,120
Other liabilities 143,202 154,273 79,525
Total liabilities 2,131,210 2,272,654 1,584,377
Shareholders' Equity:
Class A non-voting common stock, $.50 par value 118,033 118,083 117,805
Class B voting common stock, $.50 par value 116,364 116,451 116,776
Additional capital 24 1,708 -
Retained earnings 1,043,133 979,696 893,070
Total shareholders' equity 1,277,554 1,215,938 1,127,651
Total liabilities and shareholders' equity $3,408,764 $3,488,592 $2,712,028
</TABLE>
-5-
FOOD LION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 24 Weeks ended June 14, 1997 and June 15, 1996
(Dollars in thousands)
24 Weeks
June 14,1997 June 15,1996
Cash flows from operating activities
Net income $95,259 $89,437
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 100,847 74,970
Loss (gain) on disposals of property 1,057 (463)
Asset impairment reserve - 9,640
Changes in operating assets and liabilities:
Receivables 9,157 4,501
Inventories 90,790 9,818
Prepaid expenses and other (37,506) (29,341)
Accounts payable and accrued expenses (22,429) 47,135
Income taxes payable (5,578) -
Other liabilities (11,358) 7,464
Total adjustments 124,980 123,724
Net cash provided by operating activities 220,239 213,161
Cash flows from investing activities
Capital expenditures (145,846) (102,936)
Proceeds from disposal of property 5,121 7,939
Net cash used in investing activities (140,725) (94,997)
Cash flows from financing activities
Net payments under short-term borrowings (250,010) -
Principal payments on long-term debt (161,274) (40,000)
Proceeds from issuance of long-term debt 300,000
Principal payments under capital lease obligations (10,320) (8,213)
Dividends paid (31,390) (26,238)
Repurchase of common stock (2,960) (38,599)
Proceeds from issuance of common stock 707 541
Net cash used in financing activities (155,247) (112,509)
Net (decrease)increase in cash and cash
equivalents (75,733) 5,655
Cash and cash equivalents at beginning
of period 102,371 70,035
Cash and cash equivalents at end of period $ 26,638 $75,690
-6-
Notes to Consolidated 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 28, 1996 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 adjustments necessary for
a fair presentation of interim results.
2) Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
June 14, 1997 June 15, 1996
Interest (net of amounts
capitalized)* $ 50,302 $38,905
Income taxes 101,676 87,826
*Interest capitalized 835 623
Capital lease obligations for stores of $31,594 and $46,179
were incurred in the 24 week period of 1997 and 1996,
respectively. Capital lease retirements of $12,069 and $10,943
were recorded in the 24 week period of 1997 and 1996,
respectively.
The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to
be cash equivalents.
3) The Financial Accounting Standards Board has issued Statement No.128
"Earnings Per Share," effective for financial statements
issued for periods ending after December 15, 1997. FAS No. 128 will be
implemented in the Company's 10K for the year ended January 3, 1998.
The Company does not expect that FAS No. 128 will have a material impact
on the earnings per share computation.
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 24 weeks ended June 14, 1997 compared to 12 and
24 weeks ended June 15, 1996)
The Company's sales for the second quarter and year-to-date 1997 were $2.3
billion and $4.6 billion, respectively, resulting in increases of 11.5% and
12.0% over the corresponding period in 1996. These increases are primarily the
result of additional sales from the Company's Kash n'Karry Food Stores, Inc.
("Kash n' Karry") subsidiary, which Food Lion acquired in December 1996. The
second quarter and year to date same store sales declines of 0.2% and 0.1%,
respectively, were influenced by the following:
The Company is cycling many of the initiatives started in late 1995 and
early 1996, which increased sales during 1996. Food Lion will not experience
the same increase in sales from these initatives in 1997. These initiatives
included the conversion to 24-hour store operations, expansion of the MVP
program(Food Lion's customer loyalty card program), new deli/bakery
operations, and acceptance of debit and credit card transactions in all
stores.
The grocery industry in general has experienced slow growth in the last
several months.
Competitive initiatives by other supermarkets in Food Lion's major markets
have increased with the introduction of customer loyalty cards and heavy
advertising and promotional activity.
The Company's Southwest market is generating positive cash flow but is
not achieving the Company's standards for financial performance. The Company
continues to monitor sales and profits in the Southwest market and to evaluate
the performance of all corporate assets, including those in the Southwest.
The Company anticipates that it will open 62 new stores, close or relocate
approximately 41 stores, and renovate approximately 100 stores in 1997. At June
14, 1997, the Company had opened 19 new stores, closed 31 stores (of which eight
were relocations), and completed renovations of 33 existing stores.
Gross profits of 21.80% of sales for the second quarter and 21.81% year to date
increased 0.52% of sales and 0.99% of sales,respectively. The increase in gross
profit is primarily due to continued category management initiatives
particularly in the grocery and perishable departments and an increase in
private label sales. Gross profit increased by 0.24% for the quarter and 0.18%
year to date due to higher margins provided from the fresh and sevice
departments offered in the
Kash n' Karry stores.
-8-
For the second quarter of 1997, selling and administrative expenses were $345.4
million or 14.86% of sales as compared to 14.70% of sales in second quarter of
1996. Year to date, selling and administrative expenses were $692.3 million or
15.04% of sales as compared to 14.26% of sales for the same period last year.
Kash n' Karry operations increased the Company's selling and administrative
expenses by 0.7% and 0.8% of sales for the quarter and year to date,
respectively. Kash n' Karry stores incur a higher level of selling and
administrative expenses than Food Lion stores due to their larger square footage
store format and emphasis on specialty service departments.
Selling and administrative expenses for the Food Lion stores were 14.16% of
sales for the second quarter of 1997, representing an improvement over expense
levels experienced in the previous four quarters, as a result of continued cost
containment, despite a soft sales environment.
Because of the consolidation of Kash n' Karry stores, the Company anticipates
that the selling, general and administrative ("SGA")ratio will continue to
exceed historical levels for some time. As the Company implements cost saving
strategies within the Kash n' Karry operation and consolidates the
administrative functions of the two entities, the Company should experience a
downward trend in the SGA ratio.
Depreciation and amortization was $52.2 million or 2.24% of sales compared to
1.82% of sales in the second quarter of 1996. Year to date depreciation and
amortization was $100.8 million or 2.19% of sales compared to 1.82% of sales
year to date 1996. The quarter and year to date increases of 0.42% and 0.37% of
sales, respectively, are primarily due to leasehold improvements and equipment
purchases for new stores and renovations since the second quarter last year.
Amortization of the goodwill from the Kash n' Karry acquisition also increased
amortization expense in 1997.
During the first quarter of 1996 Food Lion adopted Financial Accounting
Standards Board Statement no. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS no. 121). The
implementation of FAS no. 121 created a non-cash charge against first quarter
1996 pre-tax net income of $9.6 million to
reflect the carrying value of the Company's assets, using a discounted cash flow
valuation method. As of second quarter this year, no adjustment under FAS No.
121 has been required.
Interest expense of $27.8 million for the second quarter of 1997 and $54.4
million year to date increased $8.1 million and $15.8 million, respectively,
compared to the same periods of 1996. As a percent of sales, the second quarter
increase of 0.25% of sales and the year to date increase of 0.24% of sales is
due to borrowings incurred to fund the Kash n' Karry transaction, and an
increase in interest expense on store capital leases resulting from new store
openings and renovations.
-9-
During the second quarter of 1997, the Company replaced short-term borrowings
with $300 million in debt securities - $150 million at an interest rate of 7.55%
due in 2007 and $150 million at an interest rate of 8.05% due in 2027.
Net income for the quarter was $49.7 million or 2.14% of sales as compared to
2.33% of sales in the second quarter of 1996. Earnings in the second quarter
were $.11 per share as compared to $.10 per share in the second quarter last
year.
Liquidity and Capital Resources
Cash provided by operating activities totaled $220.2 million for the 24 weeks
ended June 14, 1997 compared with $213.2 million for the same period last year.
The increase was primarily due to lower inventory levels, which were partially
offset by a decrease in trade payables.
Capital expenditures totaled $145.8 million for the 24 weeks ended June 14, 1997
compared with $102.9 million for the same period in 1996. During the second
quarter of 1997, the Company opened ten new stores, including the relocation of
five existing stores, and completed the renovation of 20 existing stores. Food
Lion plans to open a total of 62 new stores and to renovate approximately 100
stores in 1997. The Company anticipates that the majority of new stores will be
opened under conventional leasing arrangements.
Significant cash capital expenditures currently estimated for the remainder of
1997 are $167 million to be applied to store renovations and expansions, new
store construction, distribution equipment, information technology and other
capital expenditures.
In addition, the Company anticipates spending $150 million in capital
expenditures over the next two to three years for renovations in Kash n' Karry
stores.
Capital expenditures for 1997 will be financed through funds generated from
operations, existing bank and credit lines, and other debt, if necessary.
On April 21, 1997, the Company issued $150 million in debt securities at an
interest rate of 7.55% due in 2007 and $150 million in debt securities at an
interest rate of 8.05% due in 2027. Interest on the notes is payable
semiannually in arrears on April 15 and October 15 of each year, commencing on
October 15, 1997. Proceeds from the issuance were used to refinance amounts
outstanding under the Company's revolving credit facility, as noted below.
The Company maintains the following bank and credit lines:
$250 million commercial paper program under which no borrowings were
outstanding during the entire second quarter of 1997 or 1996.
-10-
A revolving credit facility with a syndicate of commercial banks providing
$700 million in committed lines of credit, of which $350 million will expire in
December, 1997 with the remaining $350 million to expire in December, 2001.
There were no borrowings outstanding at the end of the second quarter of 1997 or
1996. During the second quarter 1997, the Company had average borrowings of
$104.2 million at a daily weighted average interest rate of 5.51% with a maximum
amount outstanding of $300 million. Borrowings against this facility were used
to fund the Kash n'Karry acquisition initially until long-term financing (see
above discussion) was finalized in April 1997.
Additional short-term committed lines of credit totaling $35 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. There were no borrowings as of June 14, 1997 or June 15, 1996.
During the second quarter of 1997, the Company had average borrowings of $10.9
million at a daily weighted average interest rate of 5.70% with a maximum amount
outstanding of $35 million.
Periodic short-term borrowings may be placed under informal credit
arrangements, which are available to the Company at the discretion of the
lender. Borrowings for the second quarter were as follows (see following
table):
Informal Credit Arrangements:
(dollars in millions) 1997 1996
Outstanding borrowings at end of second quarter $ 0 $0
Average borrowings $13.4 $5.3
Maximum amount outstanding $55.0 $25.0
Daily weighted average interest rate 5.72% 5.45%
During the second quarter of 1997, Food Lion expended $2.1 million for the
purchase of the Company's Class A and Class B shares, as part of the Company's
stock repurchase plan. The Company purchased 125,000 shares of Class A stock
during the quarter at an average price of $6.81 per share and 175,000 shares of
Class B stock at an average price of $7.06 per share. Additional purchases of
Class A and Class B Common Stock may be made in the open market under the
current program which began in May of 1997, as deemed in the best interest of
shareholders. The Board of Directors has approved the repurchase of up to $100
million worth of Class A and/or Class B common stock under the current program,
which expires in May of 1998.
The Company established a pre-tax charge against 1993 earnings of $170.5 million
(approximately $104 million after tax) to cover management's estimate of the
costs associated with the closing of 88 unprofitable store locations. As of the
end of second quarter 1997, the Company has charged $88.0 million against the
reserve, primarily as
-11-
a result of the payment of remaining rent obligations on leased stores and the
disposition of property. The Company believes the remaining reserve is adequate
to cover the costs associated with the disposition of the remaining properties.
Other
Information provided by the Company, including written or oral statements made
by its representatives, may contain forward-looking information as defined in
the Private Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, which address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, including such things as expansion and growth of the Company's business,
future capital expenditures and the Company's business strategy, are forward-
looking statements. In reviewing such information, it should be kept in mind
that actual results may differ materially from those projected or suggested in
such forward-looking statements. This forward-looking information is based on
various factors and was derived using numerous assumptions. Many of these
factors have previously been identified in filings or statements made by or on
behalf of the Company, including filings with the Securities and Exchange
Commission on Forms 10-Q, 10-K and 8-K.
Important assumptions and other factors that could cause actual results to
differ materially from those set forth in the forward-looking statements
include: changes in the general economy or in the Company's primary markets,
changes in consumer spending, competitive factors, changes in the rate of
inflation, changes in state or federal legislation or regulation, adverse
determinations with respect to litigation or other claims, inability to develop
new stores or complete remodels as rapidly as planned, stability of product
costs, and uncertainties detailed from time to time in the Company's filings
with the Securities and Exchange Commission.
-12-
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has had no significant developments related
to legal matters since the Item 1 disclosure included in the
Company's Form 10Q filed May 2,1997 for the quarter ended March 22,
1997.
Item 2. Change in Securities
This item is not applicable.
Item 3. Defaults Upon Senior Securities
This item is not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a). The Company held its annual Meeting of Shareholders on May 1,
1997.
(b). Not applicable
(c). Matters voted upon at the meeting:
Election of Directors
Broker
For Withheld Non-Votes
Pierre-Olivier Beckers 199,580,788 4,010,144 29,311,432
Dr. J. Kelly Collamore 199,606,559 3,984,373 29,311,432
JC Coppieters `T Wallant 199,587,707 4,003,225 29,311,432
William G. Ferguson 199,554,946 4,035,986 29,311,432
Dr. Bernard W. Franklin 199,527,196 4,063,736 29,311,432
Joseph C. Hall, Jr. 198,009,860 5,581,072 29,311,432
Margaret H. Kluttz 199,524,909 4,066,023 29,311,432
Tom E. Smith 199,485,176 4,105,756 29,311,432
Philippe Stroobant 199,616,370 3,974,562 29,311,432
Gue De Vaucleroy 199,582,055 4,008,877 29,311,432
-13-
Appointment of Independent Accountants
Broker
For Against Abstain Non-Votes
Coopers & Lybrand, L.L.P. 203,201,592 156,381 232,959 29,311,432
Item 5. Other Information
This item is not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10(a) License Agreement
11 Computation of Earnings per Share
27 Financial Data Schedule
(b). The Company filed a report on Form 8-K pursuant to Item 5 on
April 7,1997 in regard to "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
-14-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
FOOD LION, INC.
Registrant
DATE July 25,1997 BY: Laura Kendall
Laura Kendall
Vice President of Finance
Chief Financial Officer
Principal Financial Officer
-15-
EXHIBIT INDEX
SEQ. PAGE
EXHIBIT # DESCRIPTION No.
10(a) License Agreement 17-27
11 Computation of Earnings per Share 28
27 Financial Data Schedule 29-30
-16-
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except Periods Ended
per share amounts)
June 14,1997 June 15,1996
PRIMARY
NET INCOME $ 95,259 $89,437
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 468,973 471,722
STOCK OPTIONS 719 269
469,692 471,991
PRIMARY EARNINGS PER SHARE (*) $ .20 $ .19
FULLY DILUTED
NET INCOME $95,259 $89,437
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 2,625 1,614
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $97,884 $91,051
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 468,973 471,722
STOCK OPTIONS 719 561
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 14,440 14,557
484,132 486,840
FULLY DILUTED EARNINGS PER SHARE (*) $ .20 $ .19
(*) 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
Consoldiated 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> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-14-1997
<CASH> 26638
<SECURITIES> 0
<RECEIVABLES> 142006
<ALLOWANCES> 0
<INVENTORY> 974953
<CURRENT-ASSETS> 1290570
<PP&E> 2832807
<DEPRECIATION> 997349
<TOTAL-ASSETS> 3408764
<CURRENT-LIABILITIES> 874765
<BONDS> 633905
0
0
<COMMON> 234421
<OTHER-SE> 1043133
<TOTAL-LIABILITY-AND-EQUITY> 3408764
<SALES> 4601466
<TOTAL-REVENUES> 4601466
<CGS> 3597757
<TOTAL-COSTS> 3597757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54446
<INCOME-PRETAX> 156162
<INCOME-TAX> 60903
<INCOME-CONTINUING> 95259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95259
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made and entered
into as of ________June 19, 1997, by and between FOOD LION, INC.,
a corporation organized and existing under the laws of the State
of North Carolina, United States of America, having its principal
offices at Harrison Road, Salisbury, North Carolina ("Food Lion")
and Kash n' Karry, Inc., a corporation organized and existing
under the laws of the State of Delaware, having its principal
offices at 6422 Harney Road, Tampa, Florida ("Kash n' Karry")
(hereinafter referred to as "Licensors"), and ETABLISSEMENTS
DELHAIZE FRERES ET CIE "LE LION" S.A., a corporation organized
under the laws of Belgium, having its principal office at rue
Osseghem 53, 1080 Brussels, Belgium (hereinafter referred to as
"Licensee").
RECITALS
WHEREAS, Licensors are engaged primarily in the operation of
supermarkets in the United States of America;
WHEREAS, Licensee, through itself and its subsidiaries, is
engaged primarily in the operation of supermarkets throughout the
world;
WHEREAS, Food Lion, Inc. is the sole proprietor of the
trademark "Food Lion," registered in the United States of America
under Registration Nos. 1,864,491, 1,560,829, 1,555,907,
1,562,117, 1,554,929, 1,552,177, 1,554,968, 1,534,561, 1,534,160,
1,532,732, 1,533,907, 1,557,579, 1,557,558, 1,558,705, 1,427,887,
together with the goodwill associated therewith (hereinafter
collectively referred to as the "Trademark");
WHEREAS, Kash n' Karry, Inc. is an indirect wholly-owned
subsidiary of Food Lion, Inc. and is the company under which the
Trademark is registered in Thailand;
WHEREAS, Licensee desires to obtain from Licensors and
Licensors desire to grant to Licensee the right in Thailand to
import, manufacture, use and sell goods bearing the Trademark, to
use the Trademark in Thailand in displays, signs, advertising and
promotion of goods bearing the Trademark, and to have
manufactured for it goods bearing the Trademark to be used or
sold in Thailand; and
WHEREAS, Licensee further desires to obtain from Licensors
and Licensors further desire to grant to Licensee, the right to
grant sublicenses to third parties to import, manufacture, use
and sell goods in Thailand bearing the Trademark, to use the
Trademark in displays, signs, advertising and promotion of goods
bearing the Trademark and to have manufactured for it goods
bearing the Trademark to be used or sold in Thailand and to
provide services in connection with the Trademark in Thailand.
NOW, THEREFORE, in consideration of and subject to the
premises and the mutual agreements, terms and conditions herein
contained, the benefits to be derived therefrom, including the
expansion of the goodwill associated with the Trademark, the
mutual cooperation and assistance between the parties, as well as
Licensee's agreement to allow Food Lion to assign to an indirect
wholly-owned subsidiary Food Lion's rights under that certain
License Agreement between the parties having an effective date of
January 1, 1983, and other good and valuable consideration, the
receipt and the sufficiency of which are hereby acknowledged,
Licensors and Licensee agree as follows:
ARTICLE I
THE TRADEMARK
1.1 Registration. In order to protect the rights of the
Licensors in the Trademark the parties agree that Kash n' Karry
alone shall have the right to register the Trademark in Thailand.
1.2 Goods and Services. The goods and services identified
in the application or applications to register the Trademark in
Thailand may include, but are not limited to, those goods and
services recited in United States Trademark Registration Nos.
1,864,491, 1,560,829, 1,555,907, 1,562,117, 1,554,929, 1,552,177,
1,554,968, 1,534,561, 1,534,160, 1,532,732, 1,533,907, 1,557,579,
1,557,558, 1,558,705, 1,427,887 for the Trademark.
ARTICLE II
LICENSE GRANT
2.1 Grant. Licensors grant to Licensee the non-exclusive
right, license and privilege in Thailand to import, manufacture,
use, sell, distribute and advertise goods bearing the Trademark,
use the Trademark in displays, signs, advertising and promotion
of goods to be used or sold in Thailand, and to have manufactured
for it goods bearing the Trademark to be used or sold in Thailand
and to provide services in connection with the Trademark in
Thailand, subject to the terms of this License Agreement.
2.2 Sublicenses. Licensor grants to Licensee the right to
grant one or more sublicenses to joint venture entities in which
Licensee has at least a direct or indirect 20% equity interest
(hereinafter referred to as "Sublicensees") organized under the
laws of Thailand to:
(a) import, manufacture, use, sell, distribute and
advertise in Thailand goods bearing the Trademark;
(b) use the Trademark in displays, signs, advertising and
promotion of goods to be used or sold in Thailand;
(c) have goods manufactured for the Sublicensees bearing
the Trademark; and
(d) provide services in connection with the Trademark in
Thailand.
All sublicenses pursuant to this section 2.2 shall be subject to
the terms of a License Agreement between the Sublicensees and
Licensee pursuant to which the Sublicensees agree to maintain the
quality standards set forth in this Agreement for goods used,
sold, distributed or advertised by the Sublicensees in Thailand
bearing the Trademark and for services provided in connection
with the Trademark.
2.3 Ownership and Goodwill. It is the intent of Licensors
and Licensee that nothing contained in this License Agreement
shall be deemed in any way to confer on Licensee any proprietary
interest in the Trademark. Licensee acknowledges and agrees that
Licensors retain full and exclusive ownership of the Trademark
and that neither Licensee nor any of its Sublicensees shall
acquire any rights in the Trademark other than those rights
expressly granted by the Licensors pursuant to and during the
term of this Agreement, and that use of the Trademark by Licensee
and its Sublicensees inures to the benefit of Licensors.
Licensee further acknowledges Licensors' exclusive ownership of,
the validity of, and Licensors' exclusive right to use the
Trademark. Licensee agrees to cooperate fully with Licensors in
securing, registering, maintaining and evidencing the Trademark,
and to execute and deliver any and all agreements, instruments
and other documents necessary or appropriate to secure, register,
maintain and evidence such Trademark. Further, Licensee agrees
not to contest, impugn, dispute or challenge, or to assist in any
challenge during the term of this License Agreement, including
any extension thereof, or at any time thereafter, Licensors'
exclusive ownership of, validity of and Licensors' exclusive
right (subject to Licensees rights hereunder) to use the
Trademark.
2.4 Similar Trademark. Licensee agrees that neither during
the term of this Agreement nor at any time thereafter shall
Licensee ever use or register or cause or permit any of its
Sublicensees to use or register any trademark or service mark
that is identical or confusingly similar to the Trademark
(including its phonetic equivalents) without the prior written
consent of Licensors.
ARTICLE III
QUALITY CONTROL
3.1 Quality. Licensee acknowledges that Licensors, by
reason of their maintenance of high standards of quality of goods
and services at supermarkets and retail food outlets operated by
it, have established over a period of years a reputation which is
of great importance to Licensors. Accordingly, in the event that
Licensee shall not maintain and operate its supermarkets in
Thailand in accordance with Licensors' standards or maintain the
quality of goods bearing the Trademark, Licensors may terminate
this License Agreement as hereinafter provided. Licensee agrees
that all advertising, publicity, and promotion of goods bearing
the Trademark shall be in good taste and comport with the high
standards established by Licensors. Licensee further agrees that
it will cause to appear whenever proper or necessary and in the
correct manner and position or place, notices of registration in
connection with any and all uses of the Trademark.
3.2 Inspection. Licensee shall permit Licensors or their
authorized representatives to inspect the goods and monitor the
services in conjunction with which the Trademark is used and the
methods of manufacturing the goods upon the premises of Licensee
or of any person, firm, or corporation manufacturing any of the
goods for Licensee, at all reasonable times to ensure that the
required quality of the goods and services is maintained. In the
event that Licensors shall be of the opinion that the quality of
the goods bearing the Trademark or the services provided in
connection with the Trademark fail to meet the quality standards
set forth in the prior sentence, Licensors shall notify Licensee
in writing (hereinafter referred to as the "notification"), and
the notification shall specify the basis for such opinion in
sufficient detail so as to enable Licensee to determine the
objectionable practice or practices. Upon receiving the
notification, Licensee shall forthwith make such changes in its
methods of operation and the promotion of its affairs as shall be
necessary to remedy the matters specified in the notification..
If Licensee shall fail to remedy the matters specified in the
notification within thirty 30 days following the date of the
notification, then this License Agreement shall be terminated.
3.3 Sublicensee Quality Control. Licensee agrees to ensure
that the Sublicensees maintain the quality of the goods bearing
the Trademark and the services provided in connection with the
Trademark. If any one or more of the Sublicensees' goods or
services fail to meet the quality standards set forth in Sections
3.1 or 3.2, Licensee agrees to send such Sublicensees with the
notification provided for in Section 3.2 so that such
Sublicensees can remedy the failure to meet the quality
standards. Such Sublicensees shall forthwith make such changes in
its methods of operation and the promotion of its affairs as
shall be necessary to remedy the matters specified in the
notification. If such Sublicensees shall fail to remedy the
matters specified in the notification within thirty 30 days
following the date of the notification, then the Licensee agrees
to terminate such Sublicensees' sublicenses as appropriate.
3.4 Samples of Goods. From time to time at Licensors'
reasonable request, Licensee agrees to submit to Licensors
samples of the goods in conjunction with which the Trademark is
used in Thailand by Licensee and the Sublicensees.
3.5 Advertising, Promotional or Other Materials. Licensors
may from time to time require that Licensee furnish Licensors
with samples of advertising, promotional or other materials
including the Trademark that are to be used or being used by
Licensee and any of its Sublicensees in connection with the
advertising, promotion and sale of goods bearing the Trademark in
Thailand. Licensee agrees that it and its Sublicensees will use
the Trademark in a reasonable manner required by Licensors in
order to identify Licensor's rights in the Trademark. .
ARTICLE IV
TERM AND TERMINATION
4.1 Term. The term of this License Agreement shall be
ten (10) years from the date hereof and shall be automatically
extended for successive additional terms of five (5) years each,
unless terminated pursuant to Section 4.2 hereof.
4.2 Termination. This Agreement may be terminated by the
parties hereto:
(a) By mutual written consent of Licensors and Licensee;
(b) By Licensors or Licensee if any Governmental Authority
shall have issued an injunction or other order permanently
restraining, enjoining or otherwise prohibiting Licensee from
performing according to the terms of this Agreement;
(c) By Licensors, in their sole discretion, effective
thirty (30) days after giving written notice to Licensee to such
effect, whenever Licensee shall do anything, or permit anything
to be done, whether by action or inaction, contrary to any
covenant or agreement required to be performed by Licensee under
the terms of this License Agreement and shall fail within said
thirty (30) days after written notice by Licensors to Licensee
specifying the same to remedy the same; or
(d) By Licensors, at their sole discretion, immediately
upon written notice to Licensee, if: Licensee is adjudicated
bankrupt or insolvent, or enters into a compromise arrangement
with its creditors, or if a receiver or sequestrator is appointed
to manage the affairs of Licensee.
4.3 Sublicense Termination. All sublicense agreements
granted by Licensee pursuant to this Agreement shall be
automatically terminated upon the expiration or termination of
this Agreement.
4.4 Cessation of Rights. Upon expiration or termination of
this Agreement for any reason, all rights granted to Licensee
hereunder shall cease, and Licensee shall immediately:
(1) Discontinue all use of the Trademark and any term
confusingly similar thereto;
(2) Cooperate with Licensors to apply to the appropriate
authorities to cancel recording of this Agreement from all
government records;
(3) Take down all signs displaying the Trademark; and
(4) Destroy or return to Licensors all printed materials
bearing the Trademark and any other materials containing,
displaying or using the Trademark.
4.5 Cessation of Sublicensee's Rights. Upon expiration or
termination of any sublicense granted by Licensee pursuant to
this Agreement for any reason, all rights granted to the
Sublicensee shall cease twelve (12) months from the date of such
expiration or termination, and Licensee shall ensure that such
Sublicensee shall by the end of such twelve (12) month period:
(1) Discontinue all use of the Trademark and any term
confusingly similar thereto;
(2) Cooperate with Licensee to apply to the appropriate
authorities to cancel the recording of the relevant Sublicense
Agreement from all government records;
(3) Take down all signs displaying the Trademark; and
(4) Destroy or return to Licensee all printed materials
bearing the Trademark and any other materials containing,
displaying or using the Trademark.
ARTICLE V
INDEMNIFICATION
5.1 Licensee's Agreement to Indemnify. Licensee agrees
that it is wholly responsible for all goods and services offered
or sold by it, and that Licensors shall have no liability for or
in connection with any goods or services offered, sold or
otherwise provided by Licensee in connection with the Trademark.
Subject to the terms of this Agreement, Licensee shall indemnify,
defend and hold harmless Licensors, their subsidiaries and their
respective officers, directors, shareholders, employees and
agents, from and against any and all claims, demands, losses,
assessments, fines, penalties, liabilities, damages, reasonable
expenses of investigations, reasonable fees of experts,
reasonable disbursements and other reasonable costs (including
reasonable attorneys' fees) (collectively referred to herein as
"Damages") asserted against, resulting to, imposed upon or
incurred by any of them, which arise from and to the extent they
are attributable to, the use by Licensee or its Sublicensees of
the Trademark in Thailand, the offer, sale or provision of any
goods or services in connection with the Trademark in Thailand, a
claim of defects in the materials, manufacture, production,
bottling or packaging of any of the goods manufactured, produced,
bottled, packaged, sold or distributed by or for Licensee or its
Sublicensees under the Trademark in Thailand, including without
limitation, claims or actions for negligence, breach of contract,
strict liability and patent, trademark or copyright infringement.
Licensor will give Licensee immediate notice of any such action,
suit or proceeding and afford Licensee the opportunity to defend
the same at Licensee's expense.
5.2 Limitation on Damages. LICENSORS SHALL NOT BE LIABLE
FOR ANY CONTINGENT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR OTHER
DAMAGE OR EXPENSE ASSOCIATED WITH THE TRADEMARK LICENSED TO
LICENSEE PURSUANT TO THIS AGREEMENT FOR ANY REASON WHATSOEVER.
ARTICLE VI
INFRINGEMENT
6.1 Third Party Infringement. Licensee agrees, promptly
upon learning thereof, to notify Licensor in writing of the name,
address, and to furnish such other pertinent information as may
be available, of any third party who may be infringing or
otherwise violating any of the Licensors' rights in and to the
Trademark, or of any third party who makes a claim that use of
the Trademark infringes upon or otherwise violates any property
or rights of any nature of said third party. Licensee agrees to
cooperate in all necessary respects as required by Licensors in
any action which Licensors deem advisable or necessary to protect
Licensors' rights in the Trademark or to contest a claim by a
third party that use of the Trademark infringes upon or otherwise
violates any property or rights of any nature of said third
party. However, Licensors shall be under no obligation to
prosecute infringers of the Trademark. In any case in which
Licensors determine not to do so, Licensee may do so with the
prior written permission of and on behalf of Licensors but at
Licensee's own expense and subject to whatever conditions
Licensors may impose.
6.2 Reimbursement. Licensee shall reimburse Licensors for
any expenses incurred by Licensors in defending any claims of
third parties concerning the use of the Trademark by Licensee or
Sublicensees, goods manufactured, assembled or sold by Licensee
or Sublicensees or the services provided by Licensee or
Sublicensees and for any liability paid by Licensors under order
of any court or in good faith, in consultation with Licensee, to
third parties with respect to goods manufactured, assembled or
sold by Licensee or Sublicensees or services provided by Licensee
or Sublicensees.
ARTICLE VII
GOVERNMENTAL APPROVALS AND LAWS
7.1 Compliance With Laws. The parties expressly agree
that, in carrying out the terms of this Agreement, they shall not
take or cause or present any of their respective subsidiaries to
take any act inconsistent with the requirements of any Laws in
Thailand or of any other applicable jurisdiction as the same may
be in effect from time to time.
7.2 Governmental Approval. Licensee and Licensors
acknowledge that this Agreement may be required to be approved
and registered by the Trademark Office of Thailand to be
effective. The parties agree to cooperate fully in obtaining
such approval and registration of this Agreement and in
demonstrating to the Trademark Office of Thailand the
satisfaction of any conditions required to maintain the approval
and registration of this Agreement. Neither Licensee nor
Licensors shall submit anything to the Trademark Office of
Thailand or any Governmental Authority of any other applicable
jurisdiction in connection with the approval process without the
express consent of the other party. Any and all expenses
associated with obtaining the approval and registration of this
Agreement shall be paid directly by Licensee.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. All reports, approvals, and notices required
or permitted by this Agreement to be given to a party (each a
"Notice") shall be given in writing, by personal delivery,
telecopy or overnight courier, to the party concerned at its
address as set forth below (or at such other address as a party
may specify by written notice pursuant to this Section 8.1 to the
other parties).
If to Licensors: FOOD LION, INC.
KASH n' KARRY, INC.
Harrison Road
Salisbury, North Carolina
Fax: 704/637-8803
Attn: R. William McCanless
with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Fax: 202/887-4288
Attn: Bruce S. Mendelsohn
If to Licensee: Pierre-Oliver Beckers
ETABLISSEMENTS DELHAIZE FRERES
ET CIE "LE LION" S.A
rue Osseghem 53, 1080 Brussels, Belgium
All Notices shall be deemed effective, delivered and received
(i) if given by personal delivery, when actually delivered and
signed for, (ii) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified above and receipt
thereof is confirmed; or (iii) if given by overnight courier, on
the second Business Day immediately following the day on which
such Notice is delivered to a reputable overnight courier
service.
8.2 Assignment. This Agreement may be assigned by
Licensors, however, except as otherwise set forth in this
Agreement, neither this Agreement nor the rights granted
hereunder may be assigned or transferred by Licensee (by
operation of law or otherwise) without the prior written consent
of Licensors and any attempted assignment, delegation or transfer
in Violation hereof, shall be void and of no force and effect.
8.3 Entire Agreement. This Agreement contains the entire
understanding and agreement between the parties with respect to
the subject matter thereof and supersedes all prior oral and
written understandings and agreements as well as all prior
negotiations, representations, and proposals relating thereto.
Any alteration in the provisions of this Agreement will only be
valid between the parties upon written confirmation by both
parties stating the commencement date for such alteration.
8.4 Expenses. All expenses incurred by a party or on its
behalf in connection with this Agreement or related to the
preparation, negotiation, execution and performance of this
Agreement, shall be borne by the party incurring such expenses.
8.5 Waivers; Amendments. Any waiver by any party of a
breach of any provision of this Agreement shall not operate as or
be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this
Agreement. Any waiver must be in writing by the waiving party.
This Agreement may only be amended with the written consent of
Licensors and Licensee.
8.6 Reformation and Severability. Whenever possible, each
provision of this Agreement will be interpreted in such a manner
as to be effective and valid under applicable Law, but if any
provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future Laws effective during the
term hereof, then (i) in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a
part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable, and (ii) the legality,
validity and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby
provided that such invalidity of any clause does not
substantially adversely affect the interest of either party.
8.7 Governing Law; Venue. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of North Carolina, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws
thereof. Subject to Section 8.13, each of the parties hereto
irrevocably and unconditionally submits to the exclusive
jurisdiction of any North Carolina Federal court, and any
appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, and hereby
irrevocably and unconditionally agrees that all claims in respect
of such action or proceeding may be heard and determined in such
North Carolina State court or, to the extent permitted by law, in
such North Carolina Federal court. Each of the parties hereby
irrevocably and unconditionally waives, to the fullest extent it
may effectively do so, any defense of any inconvenient forum or
improper venue to the maintenance of such action or proceeding in
any such court and any right of jurisdiction on account of the
place of residence or domicile. Each of the parties irrevocably
and unconditionally consents to the service of any and all
process and in any such action or proceeding in such North
Carolina State or North Carolina Federal court by the sending of
copies of such process to each of the parties in Section 8.1.
Each of the parties agrees that the final judgment in any such
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner provided by law.
8.8 Waiver of Immunity. To the extent that a party hereto
or any of its property is or becomes entitled at any time to any
immunity on the grounds of sovereignty or otherwise from any
legal action, suit or proceeding, from set-off or counterclaim,
from the jurisdiction and/or venue of any competent court, from
service of process, from attachment prior to judgment, from
attachment in aid of execution, or from execution prior to
judgment, enforcement, or other legal process in any
jurisdiction, such party, for itself and its property, does
hereby irrevocably and unconditionally waive, and agree not to
plead or claim, any such immunity with respect to its
obligations, liabilities or any other matter under or arising out
of or in connection with this Agreement or the subject matter
hereof. Such agreement shall be irrevocable and not subject to
withdrawal in any and all jurisdictions.
8.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.10 Headings. The headings in this Agreement are solely
for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
8.11 Language of the Agreement. This Agreement is being
executed in the English language, which will be controlling over
any translations into another language. If any translation of
this Agreement or such materials is required by any court having
jurisdiction or by any other tribunal or arbitration panel,
Licensee will pay the costs and expenses connected with such
translation.
8.12 Income Taxes. Any tax, duty or impost imposed because
of this Agreement, shall be borne and discharged by Licensee.
8.13 Arbitration. All disputes arising in connection with
this Agreement shall be finally settled by arbitration pursuant
to the rules of arbitration of the International Chamber of
Commerce and judgment upon the award rendered may be entered in
any court having jurisdiction or application may be made to such
court for a judicial acceptance of the award and an order of
enforcement, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this
License Agreement as of the date and year first above written.
FOOD LION, INC.
By: /s/ R. William McCanless
R. William McCanless
Senior Vice President
KASH n' KARRY, INC.
By: /s/ R. William McCanless
R. William McCanless
Executive Vice President
ETABLISSEMENTS DELHAIZE FRERES
ET CIE "LE LION" S.A.
By: /s/ G. de Vaucleroy
G. de Vaucleroy
Chief Executive Officer
/s/ P. O. Beckers
P. O. Beckers
Director
Executive Vice President of the
Excutive Committee
President of the International Management
Committee
