-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MoCWNaCvdabbXfDnNMYq7ZeMqqzlOCo/GWhcIlzK89CtFTdd2QYalNzPV6jkiP6K /+ak71WCkFRmc506WmckDQ== 0000037912-96-000004.txt : 19960328 0000037912-96-000004.hdr.sgml : 19960328 ACCESSION NUMBER: 0000037912-96-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD LION INC CENTRAL INDEX KEY: 0000037912 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 560660192 STATE OF INCORPORATION: NC FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06080 FILM NUMBER: 96538951 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-K405 1 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- 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 & 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-
EX-11 2 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. EX-13 3 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. EX-23 4 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 EX-27 5
5 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. 1,000 YEAR DEC-30-1995 JAN-1-1995 DEC-30-1995 70,035 0 127,995 0 881,021 1,152,413 2,333,744 840,892 2,645,265 698,695 355,300 0 0 237,568 864,942 2,645,265 8,210,884 8,210,884 6,516,637 6,516,637 0 0 73,484 283,061 110,700 172,361 0 0 0 172,361 .36 0
EX-99 6 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 -----END PRIVACY-ENHANCED MESSAGE-----