-----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, AhNkuQbaEkHLz9lVLtieRk6V/4nAM5FXciY/JtUYlwbLXARBMHwlcJ1qC/OjnSN7 i1eiZTzgXjxMxDsCQG0Spg== 0000037912-98-000024.txt : 19980513 0000037912-98-000024.hdr.sgml : 19980513 ACCESSION NUMBER: 0000037912-98-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980512 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: SEC FILE NUMBER: 000-06080 FILM NUMBER: 98616521 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 March 28, 1998 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 April 30, 1998. Class A Common Stock 236,572,031 Class B Common Stock 232,727,364 Page 1 of 18 The Exhibit index is located on page 16. FOOD LION, INC. INDEX TO FORM 10-Q March 28, 1998 Part I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Statements of Income for the 12 weeks ended March 28, 1998 and March 22, 1997 3 Consolidated Balance sheets as of March 28, 1998, January 3, 1998 and March 22, 1997 4 Consolidated Statements of Cash Flows for 12 weeks ended March 28, 1998 and March 22, 1997 5 Notes to Consolidated Financial Statements 6-7 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 Holders Item 5. Other Information 13 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 March 28, 1998 and March 22, 1997 (Dollars in thousands except per share data) Restated Mar 28, 1998 Mar 22, 1997 Mar 28, 1998 Mar 22, 1997 % % Net sales $2,305,473 $2,276,746 100.00 100.00 Cost of goods sold 1,800,115 1,783,063 78.08 78.32 Gross profit 505,358 493,683 21.92 21.68 Selling and administrative expenses 336,295 346,841 14.59 15.23 Depreciation and amortization 52,418 48,697 2.27 2.14 Operating income 116,645 98,145 5.06 4.31 Interest expense 27,614 26,685 1.20 1.17 Income before income taxes 89,031 71,460 3.86 3.14 Provision for income taxes 33,797 27,869 1.47 1.22 Net income $ 55,234 $ 43,591 2.39 1.92 Basic and diluted earnings per share $ 0.12 $ 0.09 Dividends per share $ 0.04 $ 0.03 Weighted average number of shares outstanding: Class A 236,334,766 236,195,448 Class B 232,727,364 232,902,364 Total 469,062,130 469,097,812
-3- FOOD LION, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) Restated Mar 28, 1998 January 3, 1998 Mar 22, 1997 Assets Current assets: Cash and cash equivalents $ 152,231 $ 56,147 $ 101,205 Receivables 157,306 166,790 142,509 Inventories 1,014,622 982,744 974,861 Prepaid expenses and other 28,031 28,234 30,463 Deferred tax asset 63,123 63,123 75,807 Total current assets 1,415,313 1,297,038 1,324,845 Property, at cost, less accumulated depreciation 1,819,752 1,842,269 1,779,281 Deferred tax asset 51,980 51,980 8,619 Intangible assets 269,480 267,656 276,754 Total assets $3,556,525 $3,458,943 $3,389,499 Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $ - $ 80,000 $ 300,000 Accounts payable, trade 496,724 460,714 426,848 Accrued expenses 409,043 351,173 402,307 Capital lease obligations - current 20,915 20,427 21,452 Long term debt - current 2,580 2,525 988 Other liabilities - current 9,446 8,756 6,813 Income taxes payable 27,796 - ____ 20,868 Total current liabilities 966,504 923,595 1,179,276 Long-term debt 585,260 586,355 334,085 Capital lease obligations 505,479 489,928 470,545 Other liabilities 126,746 125,880 152,892 Total liabilities 2,183,989 2,125,758 2,136,798 Shareholders' Equity: Class A non-voting common stock, $.50 par value 118,253 118,112 118,130 Class B voting common stock, $.50 par value 116,364 116,364 116,451 Additional capital 2,248 794 1,376 Retained earnings 1,135,671 1,097,915 1,016,744 Total shareholders' equity 1,372,536 1,333,185 1,252,701 Total liabilities and shareholders' equity $3,556,525 $3,458,943 $3,389,499
-4- FOOD LION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the 12 Weeks ended March 28, 1998 and March 22, 1997 (Dollars in thousands) 12 Weeks Restated Mar 28,1998 Mar 22,1997 Cash flows from operating activities Net income $55,234 $43,591 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 52,418 48,697 (Gain) Loss on disposals of property (4,834) 1,515 Deferred income taxes - (5,850) Changes in operating assets and liabilities: Receivables 9,484 8,654 Inventories (31,878) 90,882 Prepaid expenses and other 203 3,197 Accounts payable and accrued expenses 93,880 (19,999) Income taxes payable 27,796 15,290 Other liabilities 1,556 (1,847) Total adjustments 148,625 140,539 Net cash provided by operating activities 203,859 184,130 Cash flows from investing activities Capital expenditures (58,304) ( 53,464) Proceeds from disposal of property 56,224 758 Net cash used in investing activities ( 2,080) ( 52,706) Cash flows from financing activities Net (payments)proceeds under short-term borrowings (80,000) 49,990 Principal payments on long-term debt (740) (161,011) Principal payments under capital lease obligations (8,772) (5,591) Dividends paid (17,474) (15,693) Repurchase of common stock - (874) Proceeds from issuance of common stock 1,291 589 Net cash used in financing activities (105,695) (132,590) Net increase in cash and cash equivalents 96,084 (1,166) Cash and cash equivalents at beginning of period 56,147 102,371 Cash and cash equivalents at end of period $152,231 $101,205 -5- 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 January 3, 1998 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: Selected cash payments and non-cash activities during the period were as follows: Mar 28, 1998 Mar 22, 1997 Cash payments for income taxes $ 6,681 $18,144 Cash payments for interest, net of amounts capitalized 18,390 21,326 Non-cash investing and financing activities: Capitalized lease obligations incurred for store properties 33,024 18,092 Capitalized lease obligations terminated for store properties 8,213 11,509 Conversion of long-term debt to stock 300 0 The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. During the first quarter additional Class A common stock of 37,974 shares was issued upon the conversion of $.3 million of long-term debt. The convertible subordinated debentures are convertible into shares of the Company's Class A non-voting common stock -6- at a conversion price of $7.90 per share, subject to adjustment under certain circumstances. 3) Inventories Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first-out(LIFO)method comprised approximately 85% and 86% of inventories, in 1998 and 1997, 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 $117.9 million and $107.5 million greater for the period ended March 28, 1998 and March 22, 1997, respectively. Application of the LIFO method resulted in increases in the cost of goods sold of $3.5 million and $3.0 million for the period ended March 28, 1998 and March 22, 1997, respectively. 4) Restatement of 1997 Financial Statements The Company has determined that its financial statements for the quarter ended March 22, 1997 should be restated to reflect adjustments related to the acquisition of Kash n' Karry and store closing costs. The impact of the restatement on the consolidated statement of income for the quarter then ended is as follows: Amounts Restated Previously Reported Amounts Operating income $101,323 $98,145 Net income 45,529 43,591 Basic earnings per share $0.10 $0.09 5) Year 2000 Disclosure The Company has and will continue to make certain investments in software systems and applications to ensure the Company is year 2000 compliant. The financial impact to the Company has not been and is not anticipated to be material to its financial position or results of operations in any given year. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 weeks ended March 28, 1998 compared to 12 weeks ended March 22, 1997) The Company's sales for the first quarter of 1998 were $2.3 billion, an increase of 1.3% over the corresponding period of the prior year. Sales increased 5.0% over the first quarter of last year excluding 1997 sales for stores in the Company's Southwest market which closed during the fourth quarter of 1997. Same store sales increased 1.7%. First quarter 1998 sales were highlighted by an increase in both customer counts and average sales per customer. The Company experienced the strongest sales performance in Florida, Maryland, North Carolina and Virginia. Sales were also positively impacted during March by a customer contest in Food Lion stores which included a $1 million giveaway related to the Company's MVP customer card program. In addition, sales trends improved with the implementation in January of the Preferred Customer Club card, a customer loyalty program for Kash n' Karry stores. The Company's 1998 business plan includes opening 75 new stores, closing 32 stores (approximately 14 of these closings will be relocations) and renovating approximately 133 existing stores. With this growth plan, the Company anticipates a net increase in store square footage of 8.0% in 1998. As of March 28, 1998, the Company had opened 14 new stores, closed seven stores (of which three were relocations), and completed renovations of six existing stores. Gross profit was 21.92% of sales for the first quarter this year compared to 21.68% of sales for the same period last year. The increase in gross profit is due to continued category management initiatives particularly in the grocery and meat departments. Also the Company's gross profits were positively impacted by its Kash n' Karry stores which offer an expanded selection of higher margin non-food items in their larger store format. For the first quarter of 1998, selling and administrative expenses were $336.3 million or 14.59% of sales as compared to 15.23% of sales in the corresponding period of the prior year. The improvement in selling and administrative expenses of 0.64% of sales is due to lower store operating expenses resulting from (1) a continued focus on cost containment, (2) improved sales performance, (3) the fourth quarter 1997 closing of the poor performing stores in the Company's Southwest market, and (4) improvement in the cost structure at Kash n' Karry due to the integration of all administrative functions during 1997. The Company recorded $3.5 million in store closing costs (included in Selling and Administrative Expenses on the Company's Consolidated Statement of Income), related to planned store closings, during the -8- first quarter of 1998. These costs are included in Additions in the table below. Store Closing Costs Reduction Lease Accrued Total (Dollars in millions) of Asset Liabilities Expenses Values Balance at Jan. 3, 1998 $103.8 $123.1 $7.4 $234.3 Additions 0.0 5.7 2.9 8.6 Reductions (65.9) (1.8) (2.4) (70.1) Reclassifications .7 (1.4) .7 0.0 Recognition of unused 0.0 0.0 0.0 0.0 reserves Balance at Mar. 28, 1998 $38.6 $125.6 $8.6 $172.8 Additions also include gains ($5.1 million) related to the disposal of properties during the quarter. The Company recorded these gains to the store closing reserve pending the results of disposition efforts on remaining closed store properties. Significant reductions in the Company's store closing costs relate to the sale of 43 owned stores in the Southwest market, which the Company exited in the fourth quarter of 1997. At the end of the first quarter 1998, 48 of the 61 stores in the Southwest market had been disposed (44 owned stores were sold, one store lease was terminated, one store lease was assigned and two leased stores were subleased). The Company continues to market its distribution center located in Roanoke, Texas. As of March 28, 1998 the Company has received $78 million in proceeds related to these disposition efforts since closing the stores in November of 1997. At the end of the first quarter of 1998 the Company had $172.8 million in store closing costs related to 183 stores (174 leased and nine owned)and two distribution centers. Disposition efforts on the properties related to these stores (leases, equipment and store buildings) began immediately following the store closing and will continue until all related properties are disposed. Depreciation and amortization of $52.4 million was 2.27% of sales compared to 2.14% of sales in the first quarter of 1997. The 0.13% of sales increase is due to leasehold improvements and equipment purchases for new stores and renovations since the first quarter last year. Interest expense as a percent of sales was 1.20% for first quarter 1998 compared to 1.17% for the corresponding period last year. The increase in interest is due to the amortization of lease liabilities on closed stores and an increase in interest expense on store capital leases resulting from new store openings and renovations. -9- Net income for the quarter was $55.2 million or 2.39% of sales as compared to 1.92% of sales in the restated first quarter of the prior year. Basic and diluted earnings per share were $.12 as compared to $.09 restated last year. Liquidity and Capital Resources Cash provided by operating activities totaled $203.9 million for the 12 weeks ended March 28, 1998 compared with $184.1 million for the same period last year. The increase was primarily due to an increase in accounts payable, accrued expenses and net income, offset by an increase in inventory levels. Capital expenditures totaled $58.3 million for the 12 weeks ended March 28, 1998 compared with $53.4 million for the same period in 1997. The company opened 14 new stores, closed seven stores (including three relocations), and completed the renovation of six existing stores during the first quarter of 1998. Food Lion plans to open a total of 75 new stores in 1998 and to renovate approximately 133 stores. The Company anticipates that the majority of the new stores will be opened under conventional leasing arrangements. Significant capital expenditures currently estimated for the remainder of 1998 are $360 million. Capital expenditures for 1998 will be financed through funds generated from operations, existing bank and credit lines, and other debt, if necessary. On April 27, 1998 the Company exercised its right to call all of its 5% convertible subordinated debentures, orginally due in 2003. The redemption date is May 27, 1998, and the bondholders' right to convert debentures terminates on May 18, 1998. The redemption will be funded by cash provided by operations. At March 28, 1998, the Company had $113.8 million outstanding related to these convertible debentures. The conversion election will have no impact on the Company's basic and diluted earnings per share calculations. The Company maintains the following bank and credit lines: $250 million commercial paper program under which no borrowings were outstanding during the first quarters of 1998 and 1997. A revolving credit facility with a syndicate of commercial banks providing $700 million in committed lines of credit, of which $350 million expires in December, 1998 and the remaining $350 million will expire in December, 2001. There were no outstanding borrowings as of March 28, 1998, compared with $300 million outstanding as of March 22, 1997. -10- 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 March 28, 1998 or March 22, 1997. During the first quarter of 1998, the Company had average borrowings of $6.3 million at a daily weighted average interest rate of 5.61% with a maximum amount outstanding of $20 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 first quarter were as follows (see table below): Informal Credit Arrangements (dollars in millions) 1998 1997 Outstanding borrowings at end of first quarter $0 $0 Average borrowings $10.0 $ 0.2 Maximum amount outstanding $80.0 $20.0 Daily weighted average interest rate 5.66% 5.46% During the first quarter of 1998, the Company did not purchase any shares of Class A or Class B stock, under the Company's $100 million stock repurchase plan which expired April 1998. Purchases of Class A and/or Class B Common Stock may be made in the open market, as deemed in the best interest of shareholders. The Company's Board of Directors renewed this program until May, 1999. 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 utilizing numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the -11- Company, including filings with the Securities and Exchange Commission of Forms 10-Q, 10-K and 8-K. Important assumptions and other important 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, the nature and extent of continued consolidation in the industry, 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 - supply or quality control problems with the Company's vendors, and uncertainties detailed from time-to-time in the Company's filings with the Securities and Exchange Commission. In addition, with respect to the anticipated proceeds from the disposition of assets in the Southwest, additional factors that could cause results to differ materially include conditions in the real estate market and general economic conditions in the local communities where the assets are located. -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 10K filed April 8, 1998 for the year ended January 3, 1998. 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 7,1998. (b). Not applicable (c). Matters voted upon at the meeting. Election of Directors For Withheld Broker Non-Votes Pierre-Olivier Beckers 201,517,594 4,213,685 26,996,085 Dr. J. Kelly Collamore 201,670,587 4,060,692 26,996,085 JC Coppieters`T Wallant 201,431,095 4,300,184 26,996,085 William G. Ferguson 201,612,322 4,118,957 26,996,085 Dr.Bernard W. Franklin 201,534,759 4,196,520 26,996,085 Joseph C. Hall, Jr. 201,623,421 4,107,858 26,996,085 Margaret H. Kluttz 201,481,123 4,250,156 26,996,085 Dominique Raquez 201,508,584 4,222,695 26,996,085 Tom E. Smith 201,531,820 4,199,459 26,996,085 Gui de Vaucleroy 201,511,128 4,220,151 26,996,085 Appointment of For Against Abstain Broker Independent Accountants Non-votes Coopers & 205,391,501 135,923 203,855 26,996,085 Lybrand,L.L.P. Item 5. Other Information This item is not applicable. -13- Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 27 Financial Data Schedule (b). The Company did not file a report on Form 8-K for the period ended March 28, 1998. -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: May 12, 1998 BY: Laura Kendall Laura Kendall Vice President of Finance Chief Financial Officer Principal Financial Officer -15- EXHIBIT INDEX SEQ. PAGE EXHIBIT # DESCRIPTION NO. 27 Financial Data Schedule 17-18 -16- EX-27 2
5 This schedule contains summary financial information extractd 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 3-MOS JAN-02-1999 MAR-28-1998 152,231 0 157,306 0 1,014,622 1,415,313 2,862,393 1,042,641 3,556,525 966,504 585,260 0 0 236,865 1,135,671 3,556,525 2,305,473 2,305,473 1,800,115 1,800,115 0 0 27,614 89,031 33,797 55,234 0 0 0 55,234 .12 .12
-----END PRIVACY-ENHANCED MESSAGE-----