-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, T+99x3vLMpfsStvc5XrQFFH9Dcsxqn3cQZ3pXPYWjQ/TwTtRQJKL5fMna8eXO42N tgJpgoqqM7GirGgG0fLvLw== 0000037912-94-000040.txt : 19941020 0000037912-94-000040.hdr.sgml : 19941020 ACCESSION NUMBER: 0000037912-94-000040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940910 FILED AS OF DATE: 19941019 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD LION INC CENTRAL INDEX KEY: 0000037912 STANDARD INDUSTRIAL CLASSIFICATION: 5411 IRS NUMBER: 560660192 STATE OF INCORPORATION: NC FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06080 FILM NUMBER: 94554036 BUSINESS ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 BUSINESS PHONE: 7046338250 MAIL ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 FORMER COMPANY: FORMER CONFORMED NAME: FOOD TOWN STORES INC DATE OF NAME CHANGE: 19830510 10-Q 1 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 September 10, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........to........... Commission File number 0-6080 FOOD LION, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0660192 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 1330, 2110 Executive Drive Salisbury, NC 28145- 1330 (Address of principal executive office) (Zip Code) (704) 633-8250 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Outstanding shares of common stock of the Registrant as of October 14, 1994. Class A Common Stock 244,139,999 Class B Common Stock 239,571,114 Page 1 of 17 The Exhibit index is located on page 14. FOOD LION, INC. INDEX TO FORM 10-Q SEPTEMBER 10, 1994 PAGE NUMBER Part I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Income for the 12 and 36 weeks ended September 10, 1994 and September 11, 1993 3 Balance sheets as of September 10, 1994, January 1, 1994 and September 11, 1993 4 Statements of Cash Flows for the 36 weeks ended September 10, 1994 and September 11, 1993 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7- 11 Part II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 Exhibit Index 14 -2- PART I. FINANCIAL INFORMATION Item I. Financial Statements FOOD LION, INC. STATEMENTS OF INCOME (Unaudited) For the 12 Weeks ended September 10, 1994 and September 11, 1993 (Dollars in thousands except per share data)
September 10, 1994 September 11, 1993 12 WEEKS (A) (B) (A) (B) % % Net sales $1,849,806 $1,807,374 100.00 100.00 Cost of goods sold 1,474,395 1,446,316 79.71 80.02 Gross profit 375,411 361,058 20.29 19.98 Selling and administrative expenses 262,031 268,215 14.16 14.84 Interest expense 21,496 19,051 1.16 1.05 Depreciation 31,465 33,323 1.70 1.85 314,992 320,589 17.02 17.74 Income before income taxes 60,419 40,469 3.27 2.24 Provision for income taxes 23,866 15,783 1.29 0.87 Net income $ 36,553 $ 24,686 1.98 1.37 Earnings per share $ 0.08 $ 0.05 Dividends per share $ 0.02 $ 0.02 Weighted average number of shares outstanding Class A 244,135,824 244,130,872 Class B 239,571,114 239,571,114 Total 483,706,938 483,701,986
- -3- PART I. FINANCIAL INFORMATION Item I. Financial Statements FOOD LION, INC. STATEMENTS OF INCOME (Unaudited) For the 36 Weeks ended September 10, 1994 and September 11, 1993 (Dollars in thousands except per share data)
September 10, 1994 September 11, 1993 36 WEEKS (C) (D) (C) (D) % % Net sales $5,475,732 $5,214,122 100.00 100.00 Cost of goods sold 4,367,311 4,193,153 79.76 80.42 Gross profit 1,108,421 1,020,969 20.24 19.58 Selling and administrative expenses 779,213 745,452 14.23 14.30 Interest expense 63,164 51,319 1.16 0.98 Depreciation 96,609 97,905 1.76 1.88 938,986 894,676 17.15 17.16 Income before income taxes 169,435 126,293 3.09 2.42 Provision for income taxes 66,926 48,997 1.22 0.94 Net income $ 102,509 $ 77,296 1.87 1.48 Earnings per share $ 0.21 $ 0.16 Dividends per share $ 0.07 $ 0.07 Weighted average number of shares outstanding Class A 244,135,799 244,128,666 Class B 239,571,114 239,571,114 Total 483,706,913 483,699,780
- -3a- FOOD LION, INC. BALANCE SHEETS (Dollars in thousands) (Unaudited)
September 10, 1994 January 1, 1994 September 11, 1993 Assets Current assets: Cash and cash equivalents $ 337,233 $ 46,066 $ 190,108 Receivables 100,948 109,952 103,693 Inventories 805,029 929,138 864,321 Prepaid expenses and other 54,522 54,316 48,453 Total current assets 1,297,732 1,139,472 1,206,575 Property, at cost, less accumulated depreciation 1,324,342 1,364,211 1,437,601 Total assets $2,622,074 $2,503,683 $2,644,176 Liabilities and Shareholders' Equity Current Liabilities: Notes payable $ 10,007 $ 15 Accounts payable, trade $ 343,465 346,799 353,506 Accrued expenses 291,300 241,187 303,598 Long-term debt - current 75 183 222 Capital lease obligations - current 7,621 7,108 6,298 Other liabilities - current 3,411 3,880 301 Income taxes payable 31,284 10,107 23,243 Total current liabilities 677,156 619,271 687,183 Long-term debt 569,300 569,350 569,389 Capital lease obligations 295,882 301,541 286,610 Deferred income taxes 36,587 36,587 91,493 Deferred compensation 714 571 706 Other liabilities 54,448 58,809 7,278 Total liabilities 1,634,087 1,586,129 1,642,659 Shareholders' Equity: Class A non-voting common stock, $.50 par value 122,068 122,066 122,066 Class B voting common stock, $.50 par value 119,786 119,786 119,786 Additional capital 309 289 286 Retained earnings 745,824 675,413 759,379 Total shareholders' equity 987,987 917,554 1,001,517 Total liabilities and shareholders' equity $2,622,074 $2,503,683 $2,644,176
- 4- FOOD LION, INC. STATEMENTS OF CASH FLOWS (Unaudited) For the 36 Weeks ended September 10, 1994 and September 11, 1993 (Dollars in thousands)
36 Weeks September 10, 1994 September 11, 1993 Cash flows from operating activities Net income $102,509 $ 77,296 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 96,609 97,905 Gain on disposals of property ( 81) ( 806) Changes in operating assets and liabilities: Receivables 9,004 ( 7,706) Inventories 124,109 32,064 Prepaid expenses and other ( 206) 2,777 Accounts payable and accrued expenses 45,347 136,260 Income taxes payable 21,177 23,243 Deferred income taxes 0 7,425 Deferred compensation 143 ( 1,018) Other liabilities ( 4,830) ( 251) Total adjustments 291,272 289,893 Net cash provided by operating activities 393,781 367,189 Cash flows from investing activities Proceeds from disposal of property 2,330 1,197 Capital expenditures ( 57,217) ( 116,414) Net cash used in investing activities ( 54,887) ( 115,217) Cash flows from financing activities Net payments under short-term borrowings ( 10,007) ( 459,735) Principal payments under capital lease obligations( 5,486) ( 4,552) Principal payments on long-term debt ( 158) ( 202) Proceeds from issuance of common stock 22 66 Proceeds from issuance of long-term debt 0 329,000 Dividends paid ( 32,098) ( 31,564) Net cash used in financing activities ( 47,727) ( 166,987) Net increase in cash and cash equivalents 291,167 84,985 Cash and cash equivalents at beginning of period 46,066 105,123 Cash and cash equivalents at end of period $337,233 $190,108
-5- Notes to Financial Statements (Dollars in thousands) 1) Basis of Presentation: The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and, consequently, do not include all the disclosures normally required by generally accepted accounting principles or those normally made in the Annual Report on Form 10-K of Food Lion, Inc. (the "Company"). Accordingly, the reader of this Form 10-Q should refer to the Company's Form 10-K for the year ended January 1, 1994 for further information. The financial information has been prepared in accordance with the Company's customary accounting practices and has not been audited. In the opinion of management, the financial information includes all adjustments consisting of normal recurring accruals necessary for a fair presentation of interim results. 2) Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: September 10, 1994 September 11,1993 Interest (net of amounts $53,049 $44,402 capitalized)* Income taxes 45,685 23,698 *Interest capitalized 580 2,198 Capital lease obligations of $17,760 and $44,137 were incurred in the 36 week periods of 1994 and 1993, respectively. Capital lease retirements of $17,420 and $950 were recorded in the 36 week periods of 1994 and 1993, respectively. The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 and 36 weeks ended September 10, 1994 compared to 12 and 36 weeks ended September 11, 1993) Net sales increased 2.3% and 5.0% for the quarter and year to date, respectively. Same store sales increased 3.2% and 3.0% for the third quarter and year to date, respectively. The sales increase for the third quarter was negatively impacted by the closing of 84 underperforming stores in the first and second quarters of 1994, resulting in 1,028 stores operating at the end of the third quarter this year compared with 1,080 stores last year. During the fourth quarter of 1993, the Company established a pre- tax charge against 1993 earnings of $170.5 million to cover management's best estimate of the costs associated with closing the 84 underperforming stores. These costs include the write- down of store assets to reflect estimated realizable values, the unrealizable portion of the present value of remaining rent payments on leased stores and other costs associated with the store closings such as legal expenses, relocation expenses and costs to store and transfer reusable equipment. The decision to close stores resulted from the Company's on- going review of the profitability of individual stores. By closing unprofitable stores, the Company eliminates the operating losses of these stores which enhances future profits. During 1993 the Company recorded approximately $30 million in annual pre-tax losses attributable to these stores that will not recur in future years. Because these stores were closed in the first two quarters of 1994, the Company will not recognize the total annual benefit of these store closings until 1995. As of the end of the third quarter of 1994, the Company is early in the process of efforts to dispose of properties and to terminate or assign leases for the properties and no adjustments to the carrying value of the properties is necessary at this time. The Company will continue to monitor and evaluate the reserve to make necessary adjustments. The 1994-1995 business plan also includes opening new stores and renovating existing stores. During 1994, the Company plans to open 30 new stores, down from an earlier projection of around 40 new stores due primarily to delays in construction. These additional 10 new stores will be pushed into early 1995 as a result of the construction delays. The Company is on track to complete around 60 renovations to existing stores during 1994. -7- As of September 10, 1994, the Company opened 16 new stores, replaced three older stores with new Food Lion locations and completed 25 renovations to existing stores. The second year of the Company's 1994-1995 business plan calls for opening 50 new stores (including those delayed by construction) and renovating between 100 and 120 existing locations. The Company currently has no plans for additional closings other than normal replacements. The Company's gross profit margins increased 0.31% and 0.66%, for the quarter and year to date, respectively, as compared to the same periods in 1993. The improvement over last year is primarily due to an increase in customer traffic and items per customer in the meat department, which generates a higher profit margin, and an increase in grocery gross profit margins. In addition, last year's gross profit margins were impacted by heavy promotional activity in the quarter designed to increase customer traffic and sales. Although the level of promotional activity has decreased in 1994 as compared to a year ago, the Company continues promotional activity that is greater than historical levels. Currently, promotional activity is designed to specifically target certain geographic areas in an effort to increase sales and profits in these areas. For the quarter and year to date, Selling and Administrative Expenses decreased 0.68% of sales and 0.07% of sales, respectively. Last year during the third quarter, Selling and Administrative Expenses included a $16.2 million settlement with the Department of Labor (DOL) of which $8.0 million was reserved prior to the quarter. Selling and Administrative Expenses restated without the DOL settlement payment were 14.39% of sales for the quarter and 14.14% of sales year to date resulting in 0.23% of sales decrease for Selling and Administrative Expenses for the third quarter and 0.09% of sales increase year to date. Contributing to the third quarter 0.23% decrease of Selling and Administrative Expenses as a percent of sales (after restatement of the DOL settlement payment last year) were decreases in store operating expenses, advertising and legal expenses. Store operating expenses such as rent, utilities, maintenance and repairs declined as the Company had 52 fewer stores in operation as compared to a year earlier. In addition, in 1993, advertising expenses were higher than 1994 due to a large coupon campaign in Florida. Although the Company anticipates some continued pressure on expenses over the next several months, Food Lion expects year to date expenses as a percentage of sales to decrease for 1994 compared to 1993. -8- Interest expense increased 0.11% of sales during the third quarter of 1994 and 0.18% of sales year to date. The increase in interest for the quarter and year to date is due to the amortization of rent obligations on the 1994 store closings and lower capitalized interest resulting from decreased construction. Year to date interest also increased due to a higher interest rate on long-term financing that replaced short-term borrowings outstanding during the second quarter of 1993, therefore not affecting the third quarter interest comparison. Depreciation decreased 0.15% and 0.12% for the quarter and year to date, respectively. The decrease is primarily due to the 84 store closings in the first and second quarters of 1994. Liquidity and Capital Resources Cash provided by operating activities totaled $393.8 million for the 36 weeks ended September 10, 1994 compared with $367.2 for the same period last year. This increase is primarily due to the $25.2 million increase in profits and improved inventory management offset by a decrease in accounts payable and accrued expenses for the third quarter 1994 vs. 1993. The decrease in accrued expenses is primarily due to the funding of the Company's 1993 profit sharing plan contribution during the first quarter of 1994. Historically, the Company's Profit Sharing plan contribution has been funded in September of each year. Capital expenditures totaled $57.2 million for the 36 weeks ended September 10, 1994 compared with $116.4 million for the same period in 1993. This decrease is primarily due to fewer new store openings coupled with an increased focus on renovations to existing stores. As stated above, Food Lion's two-track growth plan, which focuses on a combination of renovations and new store openings, continues to move forward. The Company expects to open a total of 30 new stores during 1994 while renovating 60 existing locations. As of the end of the third quarter of 1994, 16 new stores were opened, three older stores were replaced with new Food Lion locations, and renovations to 25 existing stores have been completed. Construction delays are expected to push the openings of 10 additional new stores into early 1995, increasing Food Lion's growth plan for 1995 to a total of 50 new store openings and 100-120 store renovations. The majority of the new store openings will be opened under conventional leasing arrangements, therefore the impact on liquidity of owning stores will be insignificant. -9- Significant cash capital expenditures currently estimated for the remainder of 1994 are as follows: Construction - renovations and new store openings $25 million Equipment - Renovations and new store openings $22 million Distribution Center Expansion $ 5 million Land costs $ 5 million Other $ 3 million For the foreseeable future, the Company's cash capital expenditures will be financed through funds generated from operations and with existing bank and credit lines, along with other debt, if necessary. As the Company established a $170.5 million reserve in the fourth quarter of 1993 to cover the costs to close 84 unprofitable stores(54 in the first quarter and 30 in the second quarter of 1994), the Company does not expect a significant impact on liquidity in 1994 resulting from these store closings. The Company will consider the possibility of sale-leaseback transactions on certain free-standing, company owned stores in the future if advantageous opportunities are presented by potential lessors. The Company maintains the following bank and credit lines: $250 million commercial paper program which is outlined in the table below: Commercial Paper Program (Dollars in millions) 1994 1993 Outstanding borrowings at end of third quarter $ 0 $0 Average borrowings 0 3.3 Maximum amount outstanding 0 30.0 Daily weighted average interest rate N/A 3.30% -10- A renewable 364-day credit facility with a syndicate of commercial banks providing $300 million in formal lines of credit. There were no borrowings against these lines during the third quarter or as of September 10, 1994. The Company has engaged Wachovia Bank to arrange for the syndication of a 60 month revolving credit facility to replace the existing 364 day facility which would otherwise expire in June, 1995. The Company expects improvements in both pricing and covenants in this new facility relative to those of the existing facility. Additional short-term lines of credit totaling $30.5 million. These lines of credit are available when needed. The Company is not required to maintain compensating balances and borrowings may occur periodically. The Company had no borrowings under these lines during the third quarter or as of September 10, 1994. Periodic short-term borrowings under informal credit arrangements, which are available to the Company at the discretion of the lender (see table below): Informal Credit Arrangements (Dollars in millions) 1994 1993 Outstanding borrowings at end of third quarter $ 0 $0 Average borrowings 0 1.8 Maximum amount outstanding 0 5.0 Daily weighted average interest rate N/A 3.35% During the fourth quarter, the Company will pay off early three series of senior unsecured notes totaling $214 million which are due from 1998 to 2003. The Company expects no make whole premium unless interest rates on term-matched treasury notes fall substantially from current levels. -11- Part II OTHER INFORMATION Item 1. Legal Proceedings On May 19, 1994, a complaint was filed in the United States District Court for the Eastern District of Virginia styled Sutton, et al v. Food Lion, Inc., civil action #3:94CV322(ED VA.). The complaint alleges a pattern and practice of discrimination in hiring, promotions, discipline, discharge, allocation of hours, awarding full-time status and wages, because of race in violation of Title VII of the Civil Rights Act of 1964 and 42 U.S.C. 1981. By order dated September 7, 1994, the Court denied plaintiff's motion for class certification of the case. The individual claims of the named parties are scheduled for trial at a later date. Item 2. Change in Securities This item is not applicable. Item 3. Defaults Upon Senior Securities This item is not applicable. Item 4. Submission of Matters to a Vote of Security Holders This item is not applicable. Item 5. Other Information This item is not applicable. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 11-Computation of Earnings per Share. 27-Financial Data Schedule (b). The Company filed a report on Form 8-K pursuant to Item 5 and Item 7 on October 7, 1994 listing a) a new director and b) a new shareholders' agreement. -12- SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. FOOD LION, INC. Registrant DATE BY: Dan A. Boone Vice President-Finance Chief Financial Officer and Secretary Principal Financial Officer (Duly Authorized Officer) -13- EXHIBIT INDEX SEQ. PAGE EXHIBIT # DESCRIPTION NO. 11 Computation of Earnings per Share 15 27 Financial Data Schedule 16-17 -14- EX-11 2 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (Amounts in thousands except per share amounts) September 10, 1994 September 11, 1993 PRIMARY NET INCOME $102,509 $77,296 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 483,707 483,700 STOCK OPTIONS 55 0 483,762 483,700 (*) SHARES USED IN COMPUTATION 483,762 483,700 PRIMARY EARNINGS PER SHARE $ .2119 $.1598 FULLY DILUTED NET INCOME $102,509 $77,296 ELIMINATION OF INTEREST EXPENSE, NET OF RELATED TAX EFFECT, APPLICABLE TO 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 2,422 855 ADJUSTED INCOME APPLICABLE TO COMMON STOCK $104,931 $78,151 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 483,707 483,700 STOCK OPTIONS 55 0 SHARES ISSUABLE UPON CONVERSION OF 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 (AS OF DATE OF ISSUE 14,557 5,257 JUNE 14, 1993) 498,319 488,957 (*) SHARES USED IN COMPUTATION 498,319 488,957 FULLY DILUTED EARNINGS PER SHARE $ .2106 $.1598 (*)Note: Dilution is less than 3%. Therefore, common stock equivalents have been excluded from the total weighted average common shares. -15- EX-27 3
5 This schedule contains summary financial information extracted from 9/10/94 balance sheet and income statement and is qualified in its entirety by reference to such financial statements. 1,000 QTR-3 DEC-31-1994 JAN-02-1994 SEP-10-1994 337,233 0 100,948 0 805,029 1,297,732 2,034,545 710,203 2,622,074 677,156 569,300 241,854 0 0 746,133 2,622,074 5,475,732 5,475,732 4,367,311 4,367,311 0 0 63,164 169,435 66,926 102,509 0 0 0 102,509 .21 .21
-----END PRIVACY-ENHANCED MESSAGE-----