-----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, IAMGzl2CXiXI7f9/+QZeB15fpSF3tJYi0KwwFrmBSuhCRu/aRJQxk7sazfJuL6RW ZnJErXgk3SzHm88tbTEwnw== 0000037912-98-000040.txt : 19981028 0000037912-98-000040.hdr.sgml : 19981028 ACCESSION NUMBER: 0000037912-98-000040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980912 FILED AS OF DATE: 19981027 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: 98731062 BUSINESS ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 BUSINESS PHONE: 7046338250 MAIL ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 FORMER COMPANY: FORMER CONFORMED NAME: FOOD TOWN STORES INC DATE OF NAME CHANGE: 19830510 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 12,1998 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 October 21, 1998. Class A Common Stock 250,574,943 Class B Common Stock 232,427,364 Page 1 of 20 The Exhibit index is located on page 18. FOOD LION, INC. INDEX TO FORM 10-Q September 12, 1998 Part I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Statements of Operations for the 12 and 36 weeks ended September 12, 1998 and September 6, 1997 3-4 Consolidated Balance Sheets as of September 12, 1998, January 3, 1998 and September 6, 1997 5 Consolidated Statements of Cash Flows for 36 weeks ended September 12, 1998 and September 6, 1997 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-15 Part II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security 16 Holders Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Exhibit Index 18 -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements FOOD LION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the 12 Weeks ended September 12, 1998 and September 6, 1997 (Dollars in thousands except per share data) Restated Restated Sept 12,1998 Sept 6,1997 Sept 12,1998 Sept 6,1997 % % Net sales $2,378,922 $2,366,905 100.00 100.00 Cost of goods sold 1,843,988 1,853,473 77.51 78.31 Gross profit 534,934 513,432 22.49 21.69 Selling and administrative expenses 356,043 346,059 14.97 14.62 Depreciation and amortization 55,777 52,153 2.35 2.20 Store closing charge 96,414 4.07 Operating income 123,114 18,806 5.17 0.80 Interest expense 17,420 29,268 0.73 1.24 Income (loss) before income taxes 105,694 (10,462) 4.44 (0.44) Income taxes (provision) benefit (32,925) 4,080 (1.38) 0.17 Net income (loss) $ 72,769 $ (6,382) 3.06 (0.27) Basic and diluted earnings(loss)per share $ 0.15 $ (0.01) Dividends per share $ 0.04 $ 0.03 Weighted average number of shares outstanding: Class A 250,738,274 236,086,942 Class B 232,727,364 232,727,364 Total 483,465,638 468,814,306
-3- PART I. FINANCIAL INFORMATION Item 1. Financial Statements FOOD LION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the 36 Weeks ended September 12, 1998 and September 6, 1997 (Dollars in thousands except per share data) Restated Restated Sept 12, 1998 Sept 6, 1997 Sept 12, 1998 Sept 6, 1997 % % Net sales $7,037,655 $6,968,371 100.00 100.00 Cost of goods sold 5,470,760 5,457,585 77.74 78.32 Gross profit 1,566,895 1,510,786 22.26 21.68 Selling and administrative expenses 1,044,947 1,038,313 14.85 14.90 Depreciation and amortization 162,207 153,000 2.30 2.20 Store closing charge 96,414 1.38 Operating income 359,741 223,059 5.11 3.20 Interest expense 68,188 83,714 0.97 1.20 Income before income taxes 291,553 139,345 4.14 2.00 Income taxes provision 103,517 54,345 1.47 0.78 Net income $ 188,036 $ 85,000 2.67 1.22 Basic and diluted earnings per share $ 0.39 $ 0.18 Dividends per share $ 0.11 $ 0.10 Weighted average number of shares outstanding: Class A 243,950,316 236,123,299 Class B 232,727,364 232,796,808 Total 476,677,680 468,920,107
-4- FOOD LION, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) Restated Sept 12, 1998 January 3, 1998 Sept 6, 1997 Assets Current assets: Cash and cash equivalents $ 159,920 $ 56,147 $ 106,088 Receivables 146,041 166,790 149,951 Inventories 1,005,866 982,744 984,482 Prepaid expenses and other 29,698 28,234 70,876 Deferred tax asset 73,604 63,123 75,807 Total current assets 1,415,129 1,297,038 1,387,204 Property, at cost, less accumulated depreciation 1,855,498 1,842,269 1,807,934 Deferred tax asset 37,645 51,980 8,619 Intangible assets 264,833 267,656 273,204 Total assets $3,573,105 $3,458,943 $3,476,961 Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $ - $ 80,000 $ - Accounts payable, trade 509,337 460,714 490,500 Accrued expenses 352,714 351,173 427,300 Capital lease obligations - current 20,549 20,427 20,456 Long term debt - current 37,638 2,525 50,805 Other liabilities - current 10,042 8,756 7,408 Income taxes payable 13,812 - - Total current liabilities 944,092 923,595 996,469 Long-term debt 435,168 586,355 583,802 Capital lease obligations 493,042 489,928 494,973 Other liabilities 118,613 125,880 140,749 Total liabilities 1,990,915 2,125,758 2,215,993 Shareholders' Equity: Class A non-voting common stock, $.50 par value 125,454 118,112 118,054 Class B voting common stock, $.50 par value 116,364 116,364 116,364 Additional capital 107,680 794 222 Retained earnings 1,232,692 1,097,915 1,026,328 Total shareholders' equity 1,582,190 1,333,185 1,260,968 Total liabilities and shareholders' equity $3,573,105 $3,458,943 $3,476,961
-5- FOOD LION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the 36 Weeks ended September 12, 1998 and September 6, 1997 (Dollars in thousands) 36 Weeks Restated Sept 12, 1998 Sept 6, 1997 Cash flows from operating activities Net income $188,036 $ 85,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 162,207 153,000 (Gain) Loss on disposals of property (1,746) 1,022 Store closing charge 96,414 Deferred income taxes 3,854 (5,850) Changes in operating assets and liabilities: Receivables 20,749 1,212 Inventories (23,122) 81,261 Prepaid expenses and other (1,464) (37,216) Accounts payable and accrued expenses 50,164 44,876 Income taxes payable 13,812 (5,578) Other liabilities (5,981) (14,149) Total adjustments 218,473 314,992 Net cash provided by operating activities 406,509 399,992 Cash flows from investing activities Capital expenditures (219,449) (236,712) Proceeds from disposal of property 74,702 17,644 Net cash used in investing activities (144,747) (219,068) Cash flows from financing activities Net payments under short-term borrowings (80,000) (250,010) Principal payments on long-term debt (5,629) (161,477) Proceeds from issuance of long-term debt - 300,000 Principal payments under capital lease obligations (22,884) (16,600) Dividends paid (53,259) (47,086) Repurchase of common stock - (2,960) Proceeds from issuance of common stock 3,783 926 Net cash used in financing activities (157,989) (177,207) Net increase in cash and cash equivalents 103,773 3,717 Cash and cash equivalents at beginning of period 56,147 102,371 Cash and cash equivalents at end of period $159,920 $106,088 -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 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 necessary for a fair presentation of interim results. 2) Supplemental Disclosure of Cash Flow Information: Selected cash payments and non-cash activities incurred during the 36 week period of 1998 and 1997 were as follows: Sept 12, 1998 Sept 6,1997 Cash payments for income taxes $96,941 $102,425 Cash payments for interest, net of amounts capitalized 69,883 70,234 Non-cash investing and financing activities: Capitalized lease obligations incurred for store properties 47,006 56,718 Capitalized lease obligations terminated for store properties 20,886 15,694 Conversion of long-term debt to stock 110,445 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 second quarter of 1998 the Company called for the redemption of its outstanding convertible subordinated debentures totaling $113.8 million through either (1) payment to the bond -7- holders at 101% of the principal together with accrued interest or (2)conversion of the debentures into shares of the Company's Class A Common Stock. Most bond holders elected conversion resulting in the issuance of 13,942,371 shares of Class A Common Stock.The Company paid $3.8 million in principal, premium and accrued interest to remaining bond holders. 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 84% 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 $121.1 million and $112.7 million greater at September 12, 1998 and September 6, 1997, respectively. Application of the LIFO method resulted in increases in the cost of goods sold of $6.7 million and $8.2 million for the 36 weeks ended September 12, 1998 and September 6, 1997, respectively. 4) Restatement of 1997 Financial Statements The Company previously determined that its financial statements for the quarter and the 36 weeks ended September 6, 1997 should be restated to reflect adjustments related to the store closing costs and the acquisition of Kash n' Karry. The impact of the restatement on the consolidated statement of operations for the third quarter and year to date ended September 6, 1997 is as follows: Amounts Restated Amounts Restated Previously Amounts - Previously Amounts Reported - Third Reported - - YTD Third Quarter YTD Quarter Operating income $ 31,283 $ 18,806 $241,891 $223,059 Net income (loss) 1,229 (6,382) 96,488 85,000 Basic earnings (loss) $0.00 $(0.01) $0.21 $0.18 per share 5) Reclassification Certain financial statement items have been reclassified to conform with the current year presentation. -8- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 and 36 weeks ended September 12, 1998 compared to 12 and 36 weeks ended September 6, 1997) Net sales increased 0.5% for the third quarter and 1.0% year to date, respectively. Third quarter 1998 total sales are not comparable to third quarter 1997 total sales due to (1) prior year sales from stores in the Southwest market which closed during the fourth quarter of 1997 ($75.6 million for third quarter and $236.2 million year to date) and (2) a change in the method of collecting sales tax on products discounted through the MVP customer ("MVP") and Preferred customer ("PCC") loyalty card programs. On a comparable basis total sales increased 5.5% for the third quarter and year to date. Same store sales increased 1.8% for third quarter and 2.1% year to date. Beginning in May 1998, after receiving permission from all state departments of revenue, the Company began collecting sales tax on the net sales price, after considering the MVP/PCC discount granted, rather than on the full retail price of the MVP/PCC items. The related impact on the quarter and the year to date was to reduce reported sales by approximately $38.8 million and $63.7 million, respectively. This change does not impact the same store sales calculation or the Company's net income, as gross profit and expense dollars are the same under either method. The only difference is that under the new method the discount granted is reflected in sales as opposed to cost of goods sold under the original method. The following table illustrates the impact of the change. Third Quarter 1998 Dollars Dollars % % (Dollars in thousands) As Reported Adjusted As Adjusted (New Method) (Original Reported (Original Method) (New Method) Method) Net sales $2,378,922 $2,417,757 100.00 100.00 Cost of goods sold 1,843,988 1,882,823 77.51 77.87 Gross profit 534,934 534,934 22.49 22.13 Selling and administrative 356,043 356,043 14.97 14.73 expenses Depreciation and 55,777 55,777 2.34 2.31 amortization Operating income 123,114 123,114 5.18 5.09 Interest expense 17,420 17,420 0.73 0.72 Income before income taxes 105,694 105,694 4.44 4.37 Provision for income taxes 32,925 32,925 1.38 1.36 Net income 72,769 72,769 3.06 3.01 Basic and diluted earnings $0.15 $0.15 per share Weighted average number of 483,466 483,466 shares outstanding -9- The Company's updated 1998 growth plan includes opening 81 new stores, closing 35 stores (approximately 20 of these closings will be relocations) and renovating approximately 142 existing stores. With this growth plan, the Company anticipates a net increase in square footage of 8% in 1998. As of September 12, 1998, the Company had opened 49 new stores, closed 22 stores (of which eleven were relocations), and completed renovations to 88 existing stores. Gross profits at 22.49% of sales for the third quarter and 22.26% of sales year to date (or 22.13% and 22.06%,respectively, adjusted to reflect the original method of collecting sales tax), compared favorably against prior year gross profits of 21.69% of sales in the third quarter and 21.68% of sales year to date. The increase in gross profit is due to continued category management initiatives and solid results in higher margin areas such as perishables and frozen foods. The third quarter LIFO charge was $1.2 million. The Company's internal testing for the third quarter indicated a minimal inflation rate of 0.5% primarily due to a 10% increase in tobacco prices (continuing the trend noted throughout 1998) offset by deflation in the grocery category. All other significant merchandise categories had no inflation. The current LIFO provision ($6.7 million year to date) is adequate to cover this level of inflation. For the third quarter of 1998, selling and administrative expenses were $356.0 million or 14.97% of sales (14.73% adjusted to reflect the original method of collecting sales tax) as compared to $346.1 million or 14.62% of sales in the corresponding period of the prior year. The increase in selling and administrative expenses over last year is due to (1) soft sales experienced during the early weeks of the quarter and (2) preparation, clean-up and repair costs associated with Hurricane Bonnie which impacted the Company's coastal markets during the quarter. Year to date selling and administrative expenses of 14.85% of sales (14.71% adjusted to reflect the original method of collecting sales tax)improved over the same period last year of 14.90% of sales due to (1) a continued focus on cost containment, (2) improved sales performance, (3) the fourth quarter 1997 closing of the under-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. During the quarter, the Company recorded a $4.2 million store closing charge. This charge included an increase in reserves for store closing costs of $10.2 million. (These items are included in "Additions" in the table below.) This increase was offset by a change in the estimate of the fair value of the assets to be disposed of related to the Company's distribution center in the Southwest market based on offers received for the facility. This revision increased the carrying value of the related assets by approximately $6 million and is reflected in "Reductions" in the table below. -10- Other significant reductions in the Company's store closing costs relate to (1) the sale of assets associated with closed store properties, (2) fees paid for lease terminations and (3) on-going rent payments made on remaining lease obligations. Store Closing Costs Reduction of Asset Lease Accrued (Dollars in millions) Values Liabilities Expenses Total Balance at June 20,1998 $39.7 $120.5 $4.2 $164.4 Additions 0.0 9.5 0.7 10.2 Reductions -11.0 -3.6 -2.9 -17.5 Reclassifications -0.3 -2.0 2.3 0.0 Recognition of unused 0.0 0.0 0.0 0.0 reserves Balance at Sept. 12,1998 $28.4 $124.4 $4.3 $157.1 At the end of the third quarter of 1998 the Company had $157.1 million in store closing costs related to 158 stores (154 leased and 4 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 $55.8 million was 2.35% of sales compared to 2.20% of sales in the third quarter of 1997. Year to date depreciation and amortization was $162.2 million or 2.30% of sales. The quarter and year to date increases are primarily due to leasehold improvements and equipment purchases for new stores and renovations since the third quarter of last year. Interest expense of $17.4 million for the third quarter of 1998 and $68.2 million year to date decreased $11.8 million and $15.5 million, respectively, compared to the same periods in 1997. During the third quarter, the Company reached an agreement with the U.S. Internal Revenue Service ("IRS")regarding its examination of tax years 1991-1994. As a result of this agreement, the Company received a refund, totaling $10.5 million, related to tax paid in previous years. The refund includes $7.2 million in tax (recorded during the quarter as a -11- reduction to the Provision for Income Taxes) and related interest income (recorded during the quarter as a reduction to Interest Expense). In addition, interest expense was impacted by (1) the redemption of the Company's convertible subordinated debentures during the second quarter of 1998,and(2)the pre-payment of $50 million in note purchase agreements during the fourth quarter of 1997. The Provision for Income Taxes was impacted by the IRS refund as discussed above, creating an effective tax rate for the third quarter of 31.2%. The Company expects its continuing effective tax rate to be 38%. Net income for the quarter was $72.8 million as compared to a loss of $6.4 million in the restated third quarter of 1997. The third quarter of 1997 included a $96.4 million pre-tax, non-operating charge ($58.8 after tax) representing the Company's estimated costs associated with its divestiture of the Southwest market. Excluding the impact of the tax refund recorded in the third quarter of 1998, and the impact of the store closing charge recorded in the third quarter of 1997, comparable net income increased 16% to $60.8 million in 1998 from $52.4 million in 1997. Liquidity and Capital Resources Cash provided by operating activities totaled $406.5 million for the 36 weeks ended September 12, 1998 compared with $400.0 million for the same period last year. The increase was primarily due to increases in net income and trade payables (which exceeded the increase in related inventory) and a decrease in receivables. Capital expenditures totaled $219.4 million for the 36 weeks ended September 12, 1998 compared with $236.7 million for the same period in 1997. The Company opened 49 new stores, closed 22 stores (including eleven relocations), and completed the renovation of 88 existing stores through the end of third quarter of 1998. Food Lion plans to open a total of 81 new stores in 1998 and to renovate approximately 142 stores. The Company anticipates that the majority of the new stores will be opened under conventional leasing arrangements. Capital expenditures are projected to total approximately $360 million in 1998. These capital expenditures will be financed through funds generated from operations, existing bank and credit lines, and other debt, if necessary. The Company maintains the following bank and credit lines: $250 million commercial paper program under which no borrowings were outstanding during the 36 weeks ended September 12, 1998 and September 6, 1997. -12- 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 at the end of the third quarter of 1998 or during 1997. Additional short-term committed lines of credit totaling $30 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 outstanding borrowings as of September 12, 1998 or September 6, 1997. During the third quarter of 1998, the Company had average borrowings of $.6 million at a daily weighted average interest rate of 5.77% 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 third quarter were as follows (see table below): Informal Credit Arrangements (dollars in millions) 1998 1997 Outstanding borrowings at end of third quarter $0 $0 Average borrowings $ 2.4 $ 4.9 Maximum amount outstanding $30.0 $52.0 Daily weighted average interest rate 5.76% 5.79% During the third 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 expires in May of 1999. The Company activated the share repurchase program October 6, 1998. Year 2000 In 1996, the Company began evaluating both its information technology systems, and other systems and equipment in order to identify and adjust date sensitive systems for Year 2000 compliance. As part of this undertaking, the Company created a Year 2000 Project Team to address the issues related to Year 2000 compliance. The Year 2000 Team is led by representatives from the Company's Information Technology department and includes key representatives from all areas of the Company. The Year 2000 Team has developed a plan to identify and remediate all existing systems to ensure Year 2000 compliance by the end of 1998. Project phases one and two included an assessment by each of the Company's departments to identify date sensitive systems and the creation and execution of a remediation plan for systems impacted by Year 2000 issues. At the end of the third quarter of 1998, the Company is on track to complete all remaining remediation efforts for existing systems during the current fiscal year. -13- The third and final phase of the plan began during the third quarter of the current fiscal year and is focused on testing the remediation of existing systems. Testing will focus on those systems identified by the plan as critical to the operation of the Company's business and will continue throughout 1999 as appropriate. In addition to the plan for existing systems, the Company anticipates finalizing the implementation of certain replacement systems in the first six months of 1999 and has included the cost of these systems in its estimates for the Year 2000 project. Except for the cost of replacement systems, the Company will expense the cost of the Year 2000 project as incurred. The Company is funding the costs associated with the Year 2000 project through operating cash flows and has not deferred any Information Technology projects in order to complete the Year 2000 project. The Company estimates the total incremental cost of the Year 2000 project, is $10.5 million which includes equipment and software replacements, reprogramming, systems testing, and outside consulting services. Approximately $2.8 million of the total cost for the Year 2000 project is related to reprogramming or remediation of existing software, while the remaining cost of approximately $7.7 million is related to the implementation of certain replacement systems. At the end of the third quarter, the Company had incurred approximately $6.0 million of the total cost of the Year 2000 project of which $1.8 million had been expensed as incurred and $4.2 million had been capitalized for replacement systems. As part of the Year 2000 project, the Company has identified relationships with third parties, including vendors, suppliers, and service providers, which the Company believes are critical to its business operations. The Company is in the process of communicating with these third parties through questionnaires, letters and interviews in an effort to determine the extent to which they are addressing their Year 2000 compliance issues. The Company will continue to communicate with, assess and monitor the progress of these third parties in resolving Year 2000 issues. The Company anticipates minimal disruptions in its operations as a result of system failures related to Year 2000 issues. If the Company or a key third party experiences a systems failure due to the century change, the Company believes the most significant adverse impact would be its inability to communicate with suppliers concerning timely delivery of inventory. Other possible consequences include, but are not limited to, loss of communications with stores, loss of electric power, and an inability to process customer transactions or otherwise engage in similar normal business activities. The Company cannot assure that there will not be an adverse impact on the Company if third parties do not appropriately address their Year 2000 issues in a timely manner. Although the Company does not believe the actual impact of these failures will be material, the Company is currently developing a -14- contingency plan for possible Year 2000 issues including the delivery of inventory and processing of customer transactions. The Company will continue to develop these plans based on its internal testing results, tests with third parties and its assessment of other outside risks. The Company will continually refine its contingency plan throughout 1999 as additional information becomes available. The projections and project completion dates are based on management's best estimates and may be updated from time to time as additional information becomes available. This section discussing Year 2000 issues contains forward-looking statements (refer to "Other" below which addresses forward-looking statements made by the Company). 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 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,issues and uncertainties related to Year 2000 detailed from time-to-time in the Company's filings with the Securities and Exchange Commission. -15- Part II OTHER INFORMATION Item 1. Legal Proceedings Except as set forth below, the Company has had no significant developments related to legal matters since the Item 1 disclosure included in the Company's Form 10-Q for the quarter ended June 20, 1998. In re Food Lion, Inc. Fair Labor Standards Act "Effective Scheduling" Litigation In the first quarter of 1998, a petition for attorneys' fees was filed with respect to the Florida claims and was settled during the third quarter of 1998 for an amount not material to the financial condition or results of operations of the Company. For further information concerning this litigation, see the Company's Form 10-Q for the quarter ended June 20, 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 This item is not applicable. Item 5. Other Information This item is not applicable. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 27 Financial Data Schedule (b). The Company did not file a report on Form 8-K for the period ended September 12, 1998. -16- 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 October 27, 1998 BY: Laura Kendall Laura Kendall Vice President of Finance Chief Financial Officer Principal Financial Officer -17- EXHIBIT INDEX SEQ. PAGE EXHIBIT # DESCRIPTION NO. 27 Financial Data Schedule 19-20 -18- EX-27 2
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets, the Consolidated Statements of Operations and the Consolidated Statement of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS JAN-02-1999 SEP-12-1998 159,920 0 146,041 0 1,005,866 1,415,129 2,963,963 1,108,465 3,573,105 944,092 435,168 0 0 349,498 1,232,692 3,573,105 7,037,655 7,037,655 5,470,760 5,470,760 0 0 68,188 291,553 103,517 188,036 0 0 0 188,036 .39 .39
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