-----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, Uml1Dx2iDzHwSyfotHygbFLOABIRxQ/lhffRbVAZIZEJcWVI+LLSGRFDVcSHin+I XtceX8BfooeiHSGN5+79dw== 0000037912-97-000014.txt : 19970728 0000037912-97-000014.hdr.sgml : 19970728 ACCESSION NUMBER: 0000037912-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970614 FILED AS OF DATE: 19970725 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06080 FILM NUMBER: 97645548 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 June 14, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........to........... Commission File number 0-6080 FOOD LION, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0660192 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 1330, 2110 Executive Drive Salisbury, NC 28145-1330 (Address of principal executive office) (Zip Code) (704) 633-8250 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Outstanding shares of common stock of the Registrant as of July 18,1997. Class A Common Stock 236,082,726 Class B Common Stock 232,727,364 Page 1 of 30 The Exhibit index is located on page 16. FOOD LION, INC. INDEX TO FORM 10-Q June 14, 1997 Part I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Statements of Income for the 12 and 24 weeks ended June 14, 1997 and June 15, 1996 3-4 Consolidated Balance sheets as of June 14, 1997, December 28, 1996 and June 15, 1996 5 Consolidated Statements of Cash Flows for the 12 and 24 weeks ended June 14, 1997 and June 15, 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Part II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security 13-14 Holders Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Exhibit Index 16 -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements FOOD LION, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the 12 Weeks ended June 14, 1997 and June 15, 1996 (Dollars in thousands except per share data) June 14, 1997 June 15, 1996 June 14, 1997 June 15, 1996 % % Net sales $2,324,719 $2,084,414 100.00 100.00 Cost of goods sold 1,817,872 1,640,768 78.20 78.72 Gross profit 506,847 443,646 21.80 21.28 Selling and administrative expenses 345,413 306,410 14.86 14.70 Depreciation and amortization 52,150 37,951 2.24 1.82 Asset impairment reserve - - 0.00 0.00 Operating income 109,284 99,285 4.70 4.76 Interest expense 27,761 19,639 1.19 0.94 Income before income taxes 81,523 79,646 3.51 3.82 Provision for income taxes 31,794 31,062 1.37 1.49 Net income $ 49,729 $ 48,584 2.14 2.33 Earnings per share $ 0.11 $ 0.10 Dividends per share $ 0.03 $ 0.03 Weighted average number of shares outstanding: Class A 236,087,308 235,689,846 Class B 232,760,697 234,617,072 Total 468,848,005 470,306,918
-3- PART I. FINANCIAL INFORMATION Item 1. Financial Statements FOOD LION, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the 24 Weeks ended June 14, 1997 and June 15, 1996 (Dollars in thousands except per share data) June 14, 1997 June 15, 1996 June 14, 1997 June 15, 1996 % % Net sales $4,601,466 $4,108,867 100.00 100.00 Cost of goods sold 3,597,757 3,253,598 78.19 79.18 Gross profit 1,003,709 855,269 21.81 20.82 Selling and administrative expenses 692,254 585,398 15.04 14.26 Depreciation and amortization 100,847 74,970 2.19 1.82 Asset impairment reserve - 9,640 0.00 0.23 Operating income 210,608 185,261 4.58 4.51 Interest expense 54,446 38,643 1.18 0.94 Income before income taxes 156,162 146,618 3.40 3.57 Provision for income taxes 60,903 57,181 1.33 1.39 Net income $ 95,259 $ 89,437 2.07 2.18 Earnings per share $ 0.20 $ 0.19 Dividends per share $ 0.07 $ 0.06 Weighted average number of shares outstanding: Class A 236,141,377 236,446,163 Class B 232,831,531 235,276,093 Total 468,972,908 471,722,256
-4- FOOD LION, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) June 14, 1997 December 28, 1996 June 15, 1996 Assets Current assets: Cash and cash equivalents $ 26,638 $ 102,371 $ 75,690 Receivables 142,006 151,163 123,494 Inventories 974,953 1,065,743 871,203 Prepaid expenses and other 71,166 33,660 52,685 Deferred tax asset 75,807 75,807 50,018 Total current assets 1,290,570 1,428,744 1,173,090 Property, at cost, less accumulated depreciation 1,835,458 1,772,503 1,529,074 Deferred tax asset 8,619 8,619 - Intangible assets 274,117 278,726 9,864 Total assets $3,408,764 $3,488,592 $2,712,028 Liabilities and Shareholders' Equity Current Liabilities: Notes payable $ - $ 250,010 $ - Accounts payable, trade 477,972 470,994 404,444 Accrued expenses 368,024 397,431 322,831 Capital lease obligations - current 20,872 21,970 16,667 Long term debt - current 905 973 - Other liabilities - current 6,992 7,279 3,457 Income taxes payable - 5,578 ____ - Total current liabilities 874,765 1,154,235 747,399 Long-term debt 633,905 495,111 315,300 Capital lease obligations 479,338 469,035 398,033 Deferred income taxes - - 44,120 Other liabilities 143,202 154,273 79,525 Total liabilities 2,131,210 2,272,654 1,584,377 Shareholders' Equity: Class A non-voting common stock, $.50 par value 118,033 118,083 117,805 Class B voting common stock, $.50 par value 116,364 116,451 116,776 Additional capital 24 1,708 - Retained earnings 1,043,133 979,696 893,070 Total shareholders' equity 1,277,554 1,215,938 1,127,651 Total liabilities and shareholders' equity $3,408,764 $3,488,592 $2,712,028
-5- FOOD LION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the 24 Weeks ended June 14, 1997 and June 15, 1996 (Dollars in thousands) 24 Weeks June 14,1997 June 15,1996 Cash flows from operating activities Net income $95,259 $89,437 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 100,847 74,970 Loss (gain) on disposals of property 1,057 (463) Asset impairment reserve - 9,640 Changes in operating assets and liabilities: Receivables 9,157 4,501 Inventories 90,790 9,818 Prepaid expenses and other (37,506) (29,341) Accounts payable and accrued expenses (22,429) 47,135 Income taxes payable (5,578) - Other liabilities (11,358) 7,464 Total adjustments 124,980 123,724 Net cash provided by operating activities 220,239 213,161 Cash flows from investing activities Capital expenditures (145,846) (102,936) Proceeds from disposal of property 5,121 7,939 Net cash used in investing activities (140,725) (94,997) Cash flows from financing activities Net payments under short-term borrowings (250,010) - Principal payments on long-term debt (161,274) (40,000) Proceeds from issuance of long-term debt 300,000 Principal payments under capital lease obligations (10,320) (8,213) Dividends paid (31,390) (26,238) Repurchase of common stock (2,960) (38,599) Proceeds from issuance of common stock 707 541 Net cash used in financing activities (155,247) (112,509) Net (decrease)increase in cash and cash equivalents (75,733) 5,655 Cash and cash equivalents at beginning of period 102,371 70,035 Cash and cash equivalents at end of period $ 26,638 $75,690 -6- Notes to Consolidated Financial Statements (Dollars in thousands) 1) Basis of Presentation: The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and, consequently, do not include all the disclosures normally required by generally accepted accounting principles or those normally made in the Annual Report on Form 10-K of Food Lion, Inc. (the"Company"). Accordingly, the reader of this Form 10-Q should refer to the Company's Form 10-K for the year ended December 28, 1996 for further information. The financial information has been prepared in accordance with the Company's customary accounting practices and has not been audited. In the opinion of management, the financial information includes all adjustments consisting of normal recurring adjustments necessary for a fair presentation of interim results. 2) Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: June 14, 1997 June 15, 1996 Interest (net of amounts capitalized)* $ 50,302 $38,905 Income taxes 101,676 87,826 *Interest capitalized 835 623 Capital lease obligations for stores of $31,594 and $46,179 were incurred in the 24 week period of 1997 and 1996, respectively. Capital lease retirements of $12,069 and $10,943 were recorded in the 24 week period of 1997 and 1996, respectively. The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. 3) The Financial Accounting Standards Board has issued Statement No.128 "Earnings Per Share," effective for financial statements issued for periods ending after December 15, 1997. FAS No. 128 will be implemented in the Company's 10K for the year ended January 3, 1998. The Company does not expect that FAS No. 128 will have a material impact on the earnings per share computation. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 and 24 weeks ended June 14, 1997 compared to 12 and 24 weeks ended June 15, 1996) The Company's sales for the second quarter and year-to-date 1997 were $2.3 billion and $4.6 billion, respectively, resulting in increases of 11.5% and 12.0% over the corresponding period in 1996. These increases are primarily the result of additional sales from the Company's Kash n'Karry Food Stores, Inc. ("Kash n' Karry") subsidiary, which Food Lion acquired in December 1996. The second quarter and year to date same store sales declines of 0.2% and 0.1%, respectively, were influenced by the following: The Company is cycling many of the initiatives started in late 1995 and early 1996, which increased sales during 1996. Food Lion will not experience the same increase in sales from these initatives in 1997. These initiatives included the conversion to 24-hour store operations, expansion of the MVP program(Food Lion's customer loyalty card program), new deli/bakery operations, and acceptance of debit and credit card transactions in all stores. The grocery industry in general has experienced slow growth in the last several months. Competitive initiatives by other supermarkets in Food Lion's major markets have increased with the introduction of customer loyalty cards and heavy advertising and promotional activity. The Company's Southwest market is generating positive cash flow but is not achieving the Company's standards for financial performance. The Company continues to monitor sales and profits in the Southwest market and to evaluate the performance of all corporate assets, including those in the Southwest. The Company anticipates that it will open 62 new stores, close or relocate approximately 41 stores, and renovate approximately 100 stores in 1997. At June 14, 1997, the Company had opened 19 new stores, closed 31 stores (of which eight were relocations), and completed renovations of 33 existing stores. Gross profits of 21.80% of sales for the second quarter and 21.81% year to date increased 0.52% of sales and 0.99% of sales,respectively. The increase in gross profit is primarily due to continued category management initiatives particularly in the grocery and perishable departments and an increase in private label sales. Gross profit increased by 0.24% for the quarter and 0.18% year to date due to higher margins provided from the fresh and sevice departments offered in the Kash n' Karry stores. -8- For the second quarter of 1997, selling and administrative expenses were $345.4 million or 14.86% of sales as compared to 14.70% of sales in second quarter of 1996. Year to date, selling and administrative expenses were $692.3 million or 15.04% of sales as compared to 14.26% of sales for the same period last year. Kash n' Karry operations increased the Company's selling and administrative expenses by 0.7% and 0.8% of sales for the quarter and year to date, respectively. Kash n' Karry stores incur a higher level of selling and administrative expenses than Food Lion stores due to their larger square footage store format and emphasis on specialty service departments. Selling and administrative expenses for the Food Lion stores were 14.16% of sales for the second quarter of 1997, representing an improvement over expense levels experienced in the previous four quarters, as a result of continued cost containment, despite a soft sales environment. Because of the consolidation of Kash n' Karry stores, the Company anticipates that the selling, general and administrative ("SGA")ratio will continue to exceed historical levels for some time. As the Company implements cost saving strategies within the Kash n' Karry operation and consolidates the administrative functions of the two entities, the Company should experience a downward trend in the SGA ratio. Depreciation and amortization was $52.2 million or 2.24% of sales compared to 1.82% of sales in the second quarter of 1996. Year to date depreciation and amortization was $100.8 million or 2.19% of sales compared to 1.82% of sales year to date 1996. The quarter and year to date increases of 0.42% and 0.37% of sales, respectively, are primarily due to leasehold improvements and equipment purchases for new stores and renovations since the second quarter last year. Amortization of the goodwill from the Kash n' Karry acquisition also increased amortization expense in 1997. During the first quarter of 1996 Food Lion adopted Financial Accounting Standards Board Statement no. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS no. 121). The implementation of FAS no. 121 created a non-cash charge against first quarter 1996 pre-tax net income of $9.6 million to reflect the carrying value of the Company's assets, using a discounted cash flow valuation method. As of second quarter this year, no adjustment under FAS No. 121 has been required. Interest expense of $27.8 million for the second quarter of 1997 and $54.4 million year to date increased $8.1 million and $15.8 million, respectively, compared to the same periods of 1996. As a percent of sales, the second quarter increase of 0.25% of sales and the year to date increase of 0.24% of sales is due to borrowings incurred to fund the Kash n' Karry transaction, and an increase in interest expense on store capital leases resulting from new store openings and renovations. -9- During the second quarter of 1997, the Company replaced short-term borrowings with $300 million in debt securities - $150 million at an interest rate of 7.55% due in 2007 and $150 million at an interest rate of 8.05% due in 2027. Net income for the quarter was $49.7 million or 2.14% of sales as compared to 2.33% of sales in the second quarter of 1996. Earnings in the second quarter were $.11 per share as compared to $.10 per share in the second quarter last year. Liquidity and Capital Resources Cash provided by operating activities totaled $220.2 million for the 24 weeks ended June 14, 1997 compared with $213.2 million for the same period last year. The increase was primarily due to lower inventory levels, which were partially offset by a decrease in trade payables. Capital expenditures totaled $145.8 million for the 24 weeks ended June 14, 1997 compared with $102.9 million for the same period in 1996. During the second quarter of 1997, the Company opened ten new stores, including the relocation of five existing stores, and completed the renovation of 20 existing stores. Food Lion plans to open a total of 62 new stores and to renovate approximately 100 stores in 1997. The Company anticipates that the majority of new stores will be opened under conventional leasing arrangements. Significant cash capital expenditures currently estimated for the remainder of 1997 are $167 million to be applied to store renovations and expansions, new store construction, distribution equipment, information technology and other capital expenditures. In addition, the Company anticipates spending $150 million in capital expenditures over the next two to three years for renovations in Kash n' Karry stores. Capital expenditures for 1997 will be financed through funds generated from operations, existing bank and credit lines, and other debt, if necessary. On April 21, 1997, the Company issued $150 million in debt securities at an interest rate of 7.55% due in 2007 and $150 million in debt securities at an interest rate of 8.05% due in 2027. Interest on the notes is payable semiannually in arrears on April 15 and October 15 of each year, commencing on October 15, 1997. Proceeds from the issuance were used to refinance amounts outstanding under the Company's revolving credit facility, as noted below. The Company maintains the following bank and credit lines: $250 million commercial paper program under which no borrowings were outstanding during the entire second quarter of 1997 or 1996. -10- A revolving credit facility with a syndicate of commercial banks providing $700 million in committed lines of credit, of which $350 million will expire in December, 1997 with the remaining $350 million to expire in December, 2001. There were no borrowings outstanding at the end of the second quarter of 1997 or 1996. During the second quarter 1997, the Company had average borrowings of $104.2 million at a daily weighted average interest rate of 5.51% with a maximum amount outstanding of $300 million. Borrowings against this facility were used to fund the Kash n'Karry acquisition initially until long-term financing (see above discussion) was finalized in April 1997. Additional short-term committed lines of credit totaling $35 million which are available when needed. The Company is not required to maintain compensating balances related to these lines of credit, and borrowings may occur periodically. There were no borrowings as of June 14, 1997 or June 15, 1996. During the second quarter of 1997, the Company had average borrowings of $10.9 million at a daily weighted average interest rate of 5.70% with a maximum amount outstanding of $35 million. Periodic short-term borrowings may be placed under informal credit arrangements, which are available to the Company at the discretion of the lender. Borrowings for the second quarter were as follows (see following table): Informal Credit Arrangements: (dollars in millions) 1997 1996 Outstanding borrowings at end of second quarter $ 0 $0 Average borrowings $13.4 $5.3 Maximum amount outstanding $55.0 $25.0 Daily weighted average interest rate 5.72% 5.45% During the second quarter of 1997, Food Lion expended $2.1 million for the purchase of the Company's Class A and Class B shares, as part of the Company's stock repurchase plan. The Company purchased 125,000 shares of Class A stock during the quarter at an average price of $6.81 per share and 175,000 shares of Class B stock at an average price of $7.06 per share. Additional purchases of Class A and Class B Common Stock may be made in the open market under the current program which began in May of 1997, as deemed in the best interest of shareholders. The Board of Directors has approved the repurchase of up to $100 million worth of Class A and/or Class B common stock under the current program, which expires in May of 1998. The Company established a pre-tax charge against 1993 earnings of $170.5 million (approximately $104 million after tax) to cover management's estimate of the costs associated with the closing of 88 unprofitable store locations. As of the end of second quarter 1997, the Company has charged $88.0 million against the reserve, primarily as -11- a result of the payment of remaining rent obligations on leased stores and the disposition of property. The Company believes the remaining reserve is adequate to cover the costs associated with the disposition of the remaining properties. Other Information provided by the Company, including written or oral statements made by its representatives, may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as expansion and growth of the Company's business, future capital expenditures and the Company's business strategy, are forward- looking statements. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking statements. This forward-looking information is based on various factors and was derived using numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company, including filings with the Securities and Exchange Commission on Forms 10-Q, 10-K and 8-K. Important assumptions and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements include: changes in the general economy or in the Company's primary markets, changes in consumer spending, competitive factors, changes in the rate of inflation, changes in state or federal legislation or regulation, adverse determinations with respect to litigation or other claims, inability to develop new stores or complete remodels as rapidly as planned, stability of product costs, and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission. -12- Part II OTHER INFORMATION Item 1. Legal Proceedings The Company has had no significant developments related to legal matters since the Item 1 disclosure included in the Company's Form 10Q filed May 2,1997 for the quarter ended March 22, 1997. Item 2. Change in Securities This item is not applicable. Item 3. Defaults Upon Senior Securities This item is not applicable. Item 4. Submission of Matters to a Vote of Security Holders (a). The Company held its annual Meeting of Shareholders on May 1, 1997. (b). Not applicable (c). Matters voted upon at the meeting: Election of Directors Broker For Withheld Non-Votes Pierre-Olivier Beckers 199,580,788 4,010,144 29,311,432 Dr. J. Kelly Collamore 199,606,559 3,984,373 29,311,432 JC Coppieters `T Wallant 199,587,707 4,003,225 29,311,432 William G. Ferguson 199,554,946 4,035,986 29,311,432 Dr. Bernard W. Franklin 199,527,196 4,063,736 29,311,432 Joseph C. Hall, Jr. 198,009,860 5,581,072 29,311,432 Margaret H. Kluttz 199,524,909 4,066,023 29,311,432 Tom E. Smith 199,485,176 4,105,756 29,311,432 Philippe Stroobant 199,616,370 3,974,562 29,311,432 Gue De Vaucleroy 199,582,055 4,008,877 29,311,432 -13- Appointment of Independent Accountants Broker For Against Abstain Non-Votes Coopers & Lybrand, L.L.P. 203,201,592 156,381 232,959 29,311,432 Item 5. Other Information This item is not applicable. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 10(a) License Agreement 11 Computation of Earnings per Share 27 Financial Data Schedule (b). The Company filed a report on Form 8-K pursuant to Item 5 on April 7,1997 in regard to "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. -14- SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. FOOD LION, INC. Registrant DATE July 25,1997 BY: Laura Kendall Laura Kendall Vice President of Finance Chief Financial Officer Principal Financial Officer -15- EXHIBIT INDEX SEQ. PAGE EXHIBIT # DESCRIPTION No. 10(a) License Agreement 17-27 11 Computation of Earnings per Share 28 27 Financial Data Schedule 29-30 -16- EX-11 2 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (Amounts in thousands except Periods Ended per share amounts) June 14,1997 June 15,1996 PRIMARY NET INCOME $ 95,259 $89,437 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 468,973 471,722 STOCK OPTIONS 719 269 469,692 471,991 PRIMARY EARNINGS PER SHARE (*) $ .20 $ .19 FULLY DILUTED NET INCOME $95,259 $89,437 ELIMINATION OF INTEREST EXPENSE, NET OF RELATED TAX EFFECT, APPLICABLE TO 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 2,625 1,614 ADJUSTED INCOME APPLICABLE TO COMMON STOCK $97,884 $91,051 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 468,973 471,722 STOCK OPTIONS 719 561 SHARES ISSUABLE UPON CONVERSION OF 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 14,440 14,557 484,132 486,840 FULLY DILUTED EARNINGS PER SHARE (*) $ .20 $ .19 (*) NOTE: Dilution is less than 3%. Therefore, common stock equivalents have been excluded from the total weighted average common shares. EX-27 3
5 This schedule contains summary financial information extracted from the Consoldiated Balance Sheets, the Consolidated Statements of Income and the Consolidated Statement of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JAN-03-1998 DEC-29-1996 JUN-14-1997 26638 0 142006 0 974953 1290570 2832807 997349 3408764 874765 633905 0 0 234421 1043133 3408764 4601466 4601466 3597757 3597757 0 0 54446 156162 60903 95259 0 0 0 95259 .20 0
EX-10.A 4 LICENSE AGREEMENT THIS LICENSE AGREEMENT (the "Agreement") is made and entered into as of ________June 19, 1997, by and between FOOD LION, INC., a corporation organized and existing under the laws of the State of North Carolina, United States of America, having its principal offices at Harrison Road, Salisbury, North Carolina ("Food Lion") and Kash n' Karry, Inc., a corporation organized and existing under the laws of the State of Delaware, having its principal offices at 6422 Harney Road, Tampa, Florida ("Kash n' Karry") (hereinafter referred to as "Licensors"), and ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" S.A., a corporation organized under the laws of Belgium, having its principal office at rue Osseghem 53, 1080 Brussels, Belgium (hereinafter referred to as "Licensee"). RECITALS WHEREAS, Licensors are engaged primarily in the operation of supermarkets in the United States of America; WHEREAS, Licensee, through itself and its subsidiaries, is engaged primarily in the operation of supermarkets throughout the world; WHEREAS, Food Lion, Inc. is the sole proprietor of the trademark "Food Lion," registered in the United States of America under Registration Nos. 1,864,491, 1,560,829, 1,555,907, 1,562,117, 1,554,929, 1,552,177, 1,554,968, 1,534,561, 1,534,160, 1,532,732, 1,533,907, 1,557,579, 1,557,558, 1,558,705, 1,427,887, together with the goodwill associated therewith (hereinafter collectively referred to as the "Trademark"); WHEREAS, Kash n' Karry, Inc. is an indirect wholly-owned subsidiary of Food Lion, Inc. and is the company under which the Trademark is registered in Thailand; WHEREAS, Licensee desires to obtain from Licensors and Licensors desire to grant to Licensee the right in Thailand to import, manufacture, use and sell goods bearing the Trademark, to use the Trademark in Thailand in displays, signs, advertising and promotion of goods bearing the Trademark, and to have manufactured for it goods bearing the Trademark to be used or sold in Thailand; and WHEREAS, Licensee further desires to obtain from Licensors and Licensors further desire to grant to Licensee, the right to grant sublicenses to third parties to import, manufacture, use and sell goods in Thailand bearing the Trademark, to use the Trademark in displays, signs, advertising and promotion of goods bearing the Trademark and to have manufactured for it goods bearing the Trademark to be used or sold in Thailand and to provide services in connection with the Trademark in Thailand. NOW, THEREFORE, in consideration of and subject to the premises and the mutual agreements, terms and conditions herein contained, the benefits to be derived therefrom, including the expansion of the goodwill associated with the Trademark, the mutual cooperation and assistance between the parties, as well as Licensee's agreement to allow Food Lion to assign to an indirect wholly-owned subsidiary Food Lion's rights under that certain License Agreement between the parties having an effective date of January 1, 1983, and other good and valuable consideration, the receipt and the sufficiency of which are hereby acknowledged, Licensors and Licensee agree as follows: ARTICLE I THE TRADEMARK 1.1 Registration. In order to protect the rights of the Licensors in the Trademark the parties agree that Kash n' Karry alone shall have the right to register the Trademark in Thailand. 1.2 Goods and Services. The goods and services identified in the application or applications to register the Trademark in Thailand may include, but are not limited to, those goods and services recited in United States Trademark Registration Nos. 1,864,491, 1,560,829, 1,555,907, 1,562,117, 1,554,929, 1,552,177, 1,554,968, 1,534,561, 1,534,160, 1,532,732, 1,533,907, 1,557,579, 1,557,558, 1,558,705, 1,427,887 for the Trademark. ARTICLE II LICENSE GRANT 2.1 Grant. Licensors grant to Licensee the non-exclusive right, license and privilege in Thailand to import, manufacture, use, sell, distribute and advertise goods bearing the Trademark, use the Trademark in displays, signs, advertising and promotion of goods to be used or sold in Thailand, and to have manufactured for it goods bearing the Trademark to be used or sold in Thailand and to provide services in connection with the Trademark in Thailand, subject to the terms of this License Agreement. 2.2 Sublicenses. Licensor grants to Licensee the right to grant one or more sublicenses to joint venture entities in which Licensee has at least a direct or indirect 20% equity interest (hereinafter referred to as "Sublicensees") organized under the laws of Thailand to: (a) import, manufacture, use, sell, distribute and advertise in Thailand goods bearing the Trademark; (b) use the Trademark in displays, signs, advertising and promotion of goods to be used or sold in Thailand; (c) have goods manufactured for the Sublicensees bearing the Trademark; and (d) provide services in connection with the Trademark in Thailand. All sublicenses pursuant to this section 2.2 shall be subject to the terms of a License Agreement between the Sublicensees and Licensee pursuant to which the Sublicensees agree to maintain the quality standards set forth in this Agreement for goods used, sold, distributed or advertised by the Sublicensees in Thailand bearing the Trademark and for services provided in connection with the Trademark. 2.3 Ownership and Goodwill. It is the intent of Licensors and Licensee that nothing contained in this License Agreement shall be deemed in any way to confer on Licensee any proprietary interest in the Trademark. Licensee acknowledges and agrees that Licensors retain full and exclusive ownership of the Trademark and that neither Licensee nor any of its Sublicensees shall acquire any rights in the Trademark other than those rights expressly granted by the Licensors pursuant to and during the term of this Agreement, and that use of the Trademark by Licensee and its Sublicensees inures to the benefit of Licensors. Licensee further acknowledges Licensors' exclusive ownership of, the validity of, and Licensors' exclusive right to use the Trademark. Licensee agrees to cooperate fully with Licensors in securing, registering, maintaining and evidencing the Trademark, and to execute and deliver any and all agreements, instruments and other documents necessary or appropriate to secure, register, maintain and evidence such Trademark. Further, Licensee agrees not to contest, impugn, dispute or challenge, or to assist in any challenge during the term of this License Agreement, including any extension thereof, or at any time thereafter, Licensors' exclusive ownership of, validity of and Licensors' exclusive right (subject to Licensees rights hereunder) to use the Trademark. 2.4 Similar Trademark. Licensee agrees that neither during the term of this Agreement nor at any time thereafter shall Licensee ever use or register or cause or permit any of its Sublicensees to use or register any trademark or service mark that is identical or confusingly similar to the Trademark (including its phonetic equivalents) without the prior written consent of Licensors. ARTICLE III QUALITY CONTROL 3.1 Quality. Licensee acknowledges that Licensors, by reason of their maintenance of high standards of quality of goods and services at supermarkets and retail food outlets operated by it, have established over a period of years a reputation which is of great importance to Licensors. Accordingly, in the event that Licensee shall not maintain and operate its supermarkets in Thailand in accordance with Licensors' standards or maintain the quality of goods bearing the Trademark, Licensors may terminate this License Agreement as hereinafter provided. Licensee agrees that all advertising, publicity, and promotion of goods bearing the Trademark shall be in good taste and comport with the high standards established by Licensors. Licensee further agrees that it will cause to appear whenever proper or necessary and in the correct manner and position or place, notices of registration in connection with any and all uses of the Trademark. 3.2 Inspection. Licensee shall permit Licensors or their authorized representatives to inspect the goods and monitor the services in conjunction with which the Trademark is used and the methods of manufacturing the goods upon the premises of Licensee or of any person, firm, or corporation manufacturing any of the goods for Licensee, at all reasonable times to ensure that the required quality of the goods and services is maintained. In the event that Licensors shall be of the opinion that the quality of the goods bearing the Trademark or the services provided in connection with the Trademark fail to meet the quality standards set forth in the prior sentence, Licensors shall notify Licensee in writing (hereinafter referred to as the "notification"), and the notification shall specify the basis for such opinion in sufficient detail so as to enable Licensee to determine the objectionable practice or practices. Upon receiving the notification, Licensee shall forthwith make such changes in its methods of operation and the promotion of its affairs as shall be necessary to remedy the matters specified in the notification.. If Licensee shall fail to remedy the matters specified in the notification within thirty 30 days following the date of the notification, then this License Agreement shall be terminated. 3.3 Sublicensee Quality Control. Licensee agrees to ensure that the Sublicensees maintain the quality of the goods bearing the Trademark and the services provided in connection with the Trademark. If any one or more of the Sublicensees' goods or services fail to meet the quality standards set forth in Sections 3.1 or 3.2, Licensee agrees to send such Sublicensees with the notification provided for in Section 3.2 so that such Sublicensees can remedy the failure to meet the quality standards. Such Sublicensees shall forthwith make such changes in its methods of operation and the promotion of its affairs as shall be necessary to remedy the matters specified in the notification. If such Sublicensees shall fail to remedy the matters specified in the notification within thirty 30 days following the date of the notification, then the Licensee agrees to terminate such Sublicensees' sublicenses as appropriate. 3.4 Samples of Goods. From time to time at Licensors' reasonable request, Licensee agrees to submit to Licensors samples of the goods in conjunction with which the Trademark is used in Thailand by Licensee and the Sublicensees. 3.5 Advertising, Promotional or Other Materials. Licensors may from time to time require that Licensee furnish Licensors with samples of advertising, promotional or other materials including the Trademark that are to be used or being used by Licensee and any of its Sublicensees in connection with the advertising, promotion and sale of goods bearing the Trademark in Thailand. Licensee agrees that it and its Sublicensees will use the Trademark in a reasonable manner required by Licensors in order to identify Licensor's rights in the Trademark. . ARTICLE IV TERM AND TERMINATION 4.1 Term. The term of this License Agreement shall be ten (10) years from the date hereof and shall be automatically extended for successive additional terms of five (5) years each, unless terminated pursuant to Section 4.2 hereof. 4.2 Termination. This Agreement may be terminated by the parties hereto: (a) By mutual written consent of Licensors and Licensee; (b) By Licensors or Licensee if any Governmental Authority shall have issued an injunction or other order permanently restraining, enjoining or otherwise prohibiting Licensee from performing according to the terms of this Agreement; (c) By Licensors, in their sole discretion, effective thirty (30) days after giving written notice to Licensee to such effect, whenever Licensee shall do anything, or permit anything to be done, whether by action or inaction, contrary to any covenant or agreement required to be performed by Licensee under the terms of this License Agreement and shall fail within said thirty (30) days after written notice by Licensors to Licensee specifying the same to remedy the same; or (d) By Licensors, at their sole discretion, immediately upon written notice to Licensee, if: Licensee is adjudicated bankrupt or insolvent, or enters into a compromise arrangement with its creditors, or if a receiver or sequestrator is appointed to manage the affairs of Licensee. 4.3 Sublicense Termination. All sublicense agreements granted by Licensee pursuant to this Agreement shall be automatically terminated upon the expiration or termination of this Agreement. 4.4 Cessation of Rights. Upon expiration or termination of this Agreement for any reason, all rights granted to Licensee hereunder shall cease, and Licensee shall immediately: (1) Discontinue all use of the Trademark and any term confusingly similar thereto; (2) Cooperate with Licensors to apply to the appropriate authorities to cancel recording of this Agreement from all government records; (3) Take down all signs displaying the Trademark; and (4) Destroy or return to Licensors all printed materials bearing the Trademark and any other materials containing, displaying or using the Trademark. 4.5 Cessation of Sublicensee's Rights. Upon expiration or termination of any sublicense granted by Licensee pursuant to this Agreement for any reason, all rights granted to the Sublicensee shall cease twelve (12) months from the date of such expiration or termination, and Licensee shall ensure that such Sublicensee shall by the end of such twelve (12) month period: (1) Discontinue all use of the Trademark and any term confusingly similar thereto; (2) Cooperate with Licensee to apply to the appropriate authorities to cancel the recording of the relevant Sublicense Agreement from all government records; (3) Take down all signs displaying the Trademark; and (4) Destroy or return to Licensee all printed materials bearing the Trademark and any other materials containing, displaying or using the Trademark. ARTICLE V INDEMNIFICATION 5.1 Licensee's Agreement to Indemnify. Licensee agrees that it is wholly responsible for all goods and services offered or sold by it, and that Licensors shall have no liability for or in connection with any goods or services offered, sold or otherwise provided by Licensee in connection with the Trademark. Subject to the terms of this Agreement, Licensee shall indemnify, defend and hold harmless Licensors, their subsidiaries and their respective officers, directors, shareholders, employees and agents, from and against any and all claims, demands, losses, assessments, fines, penalties, liabilities, damages, reasonable expenses of investigations, reasonable fees of experts, reasonable disbursements and other reasonable costs (including reasonable attorneys' fees) (collectively referred to herein as "Damages") asserted against, resulting to, imposed upon or incurred by any of them, which arise from and to the extent they are attributable to, the use by Licensee or its Sublicensees of the Trademark in Thailand, the offer, sale or provision of any goods or services in connection with the Trademark in Thailand, a claim of defects in the materials, manufacture, production, bottling or packaging of any of the goods manufactured, produced, bottled, packaged, sold or distributed by or for Licensee or its Sublicensees under the Trademark in Thailand, including without limitation, claims or actions for negligence, breach of contract, strict liability and patent, trademark or copyright infringement. Licensor will give Licensee immediate notice of any such action, suit or proceeding and afford Licensee the opportunity to defend the same at Licensee's expense. 5.2 Limitation on Damages. LICENSORS SHALL NOT BE LIABLE FOR ANY CONTINGENT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR OTHER DAMAGE OR EXPENSE ASSOCIATED WITH THE TRADEMARK LICENSED TO LICENSEE PURSUANT TO THIS AGREEMENT FOR ANY REASON WHATSOEVER. ARTICLE VI INFRINGEMENT 6.1 Third Party Infringement. Licensee agrees, promptly upon learning thereof, to notify Licensor in writing of the name, address, and to furnish such other pertinent information as may be available, of any third party who may be infringing or otherwise violating any of the Licensors' rights in and to the Trademark, or of any third party who makes a claim that use of the Trademark infringes upon or otherwise violates any property or rights of any nature of said third party. Licensee agrees to cooperate in all necessary respects as required by Licensors in any action which Licensors deem advisable or necessary to protect Licensors' rights in the Trademark or to contest a claim by a third party that use of the Trademark infringes upon or otherwise violates any property or rights of any nature of said third party. However, Licensors shall be under no obligation to prosecute infringers of the Trademark. In any case in which Licensors determine not to do so, Licensee may do so with the prior written permission of and on behalf of Licensors but at Licensee's own expense and subject to whatever conditions Licensors may impose. 6.2 Reimbursement. Licensee shall reimburse Licensors for any expenses incurred by Licensors in defending any claims of third parties concerning the use of the Trademark by Licensee or Sublicensees, goods manufactured, assembled or sold by Licensee or Sublicensees or the services provided by Licensee or Sublicensees and for any liability paid by Licensors under order of any court or in good faith, in consultation with Licensee, to third parties with respect to goods manufactured, assembled or sold by Licensee or Sublicensees or services provided by Licensee or Sublicensees. ARTICLE VII GOVERNMENTAL APPROVALS AND LAWS 7.1 Compliance With Laws. The parties expressly agree that, in carrying out the terms of this Agreement, they shall not take or cause or present any of their respective subsidiaries to take any act inconsistent with the requirements of any Laws in Thailand or of any other applicable jurisdiction as the same may be in effect from time to time. 7.2 Governmental Approval. Licensee and Licensors acknowledge that this Agreement may be required to be approved and registered by the Trademark Office of Thailand to be effective. The parties agree to cooperate fully in obtaining such approval and registration of this Agreement and in demonstrating to the Trademark Office of Thailand the satisfaction of any conditions required to maintain the approval and registration of this Agreement. Neither Licensee nor Licensors shall submit anything to the Trademark Office of Thailand or any Governmental Authority of any other applicable jurisdiction in connection with the approval process without the express consent of the other party. Any and all expenses associated with obtaining the approval and registration of this Agreement shall be paid directly by Licensee. ARTICLE VIII MISCELLANEOUS 8.1 Notices. All reports, approvals, and notices required or permitted by this Agreement to be given to a party (each a "Notice") shall be given in writing, by personal delivery, telecopy or overnight courier, to the party concerned at its address as set forth below (or at such other address as a party may specify by written notice pursuant to this Section 8.1 to the other parties). If to Licensors: FOOD LION, INC. KASH n' KARRY, INC. Harrison Road Salisbury, North Carolina Fax: 704/637-8803 Attn: R. William McCanless with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1333 New Hampshire Avenue, N.W. Washington, D.C. 20036 Fax: 202/887-4288 Attn: Bruce S. Mendelsohn If to Licensee: Pierre-Oliver Beckers ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" S.A rue Osseghem 53, 1080 Brussels, Belgium All Notices shall be deemed effective, delivered and received (i) if given by personal delivery, when actually delivered and signed for, (ii) if given by telecopy, when such telecopy is transmitted to the telecopy number specified above and receipt thereof is confirmed; or (iii) if given by overnight courier, on the second Business Day immediately following the day on which such Notice is delivered to a reputable overnight courier service. 8.2 Assignment. This Agreement may be assigned by Licensors, however, except as otherwise set forth in this Agreement, neither this Agreement nor the rights granted hereunder may be assigned or transferred by Licensee (by operation of law or otherwise) without the prior written consent of Licensors and any attempted assignment, delegation or transfer in Violation hereof, shall be void and of no force and effect. 8.3 Entire Agreement. This Agreement contains the entire understanding and agreement between the parties with respect to the subject matter thereof and supersedes all prior oral and written understandings and agreements as well as all prior negotiations, representations, and proposals relating thereto. Any alteration in the provisions of this Agreement will only be valid between the parties upon written confirmation by both parties stating the commencement date for such alteration. 8.4 Expenses. All expenses incurred by a party or on its behalf in connection with this Agreement or related to the preparation, negotiation, execution and performance of this Agreement, shall be borne by the party incurring such expenses. 8.5 Waivers; Amendments. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing by the waiving party. This Agreement may only be amended with the written consent of Licensors and Licensee. 8.6 Reformation and Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future Laws effective during the term hereof, then (i) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable, and (ii) the legality, validity and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby provided that such invalidity of any clause does not substantially adversely affect the interest of either party. 8.7 Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the internal laws of the State of North Carolina, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Subject to Section 8.13, each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of any North Carolina Federal court, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, and hereby irrevocably and unconditionally agrees that all claims in respect of such action or proceeding may be heard and determined in such North Carolina State court or, to the extent permitted by law, in such North Carolina Federal court. Each of the parties hereby irrevocably and unconditionally waives, to the fullest extent it may effectively do so, any defense of any inconvenient forum or improper venue to the maintenance of such action or proceeding in any such court and any right of jurisdiction on account of the place of residence or domicile. Each of the parties irrevocably and unconditionally consents to the service of any and all process and in any such action or proceeding in such North Carolina State or North Carolina Federal court by the sending of copies of such process to each of the parties in Section 8.1. Each of the parties agrees that the final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 8.8 Waiver of Immunity. To the extent that a party hereto or any of its property is or becomes entitled at any time to any immunity on the grounds of sovereignty or otherwise from any legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction and/or venue of any competent court, from service of process, from attachment prior to judgment, from attachment in aid of execution, or from execution prior to judgment, enforcement, or other legal process in any jurisdiction, such party, for itself and its property, does hereby irrevocably and unconditionally waive, and agree not to plead or claim, any such immunity with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement or the subject matter hereof. Such agreement shall be irrevocable and not subject to withdrawal in any and all jurisdictions. 8.9 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.10 Headings. The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 8.11 Language of the Agreement. This Agreement is being executed in the English language, which will be controlling over any translations into another language. If any translation of this Agreement or such materials is required by any court having jurisdiction or by any other tribunal or arbitration panel, Licensee will pay the costs and expenses connected with such translation. 8.12 Income Taxes. Any tax, duty or impost imposed because of this Agreement, shall be borne and discharged by Licensee. 8.13 Arbitration. All disputes arising in connection with this Agreement shall be finally settled by arbitration pursuant to the rules of arbitration of the International Chamber of Commerce and judgment upon the award rendered may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. IN WITNESS WHEREOF, the parties hereto have executed this License Agreement as of the date and year first above written. FOOD LION, INC. By: /s/ R. William McCanless R. William McCanless Senior Vice President KASH n' KARRY, INC. By: /s/ R. William McCanless R. William McCanless Executive Vice President ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" S.A. By: /s/ G. de Vaucleroy G. de Vaucleroy Chief Executive Officer /s/ P. O. Beckers P. O. Beckers Director Executive Vice President of the Excutive Committee President of the International Management Committee -----END PRIVACY-ENHANCED MESSAGE-----