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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended June 25, 2003

OR

For the transition period from              to             

Commission File Number 1-3657

WINN-DIXIE STORES, INC.

(Exact name of registrant as specified in its charter)

(904) 783-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)  Yes  þ  No  ¨.

The aggregate market value of the common stock held by non-affiliates of the registrant, based upon the closing sale price of common stock on January 8, 2003, as reported on the New York Stock Exchange was approximately $1,262,463,692.

As of August 1, 2003, registrant had outstanding 140,819,913 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Proxy Statement for the 2003 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.

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WINN DIXIE STORES, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 25, 2003

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PART I

General:

Winn-Dixie Stores, Inc. (the “Company”) is a major food and drug retailer operating in 12 states in the southeastern United States and the Bahama Islands. According to published reports of sales at June 25, 2003, the Company is one of the largest food retailers and supermarket chains in the southeastern region of the United States.

As of June 25, 2003, the Company, directly or through subsidiaries, operated 1,073 supermarkets. As of June 25, 2003, 33 of the supermarkets had fuel centers and 44 had separate liquor stores. Supermarkets are generally operated under one of the Company’s two formats: combination food and drug stores or grocery warehouse stores. The Company operates stores under several banners that have strong local ties and brand recognition. The Winn-Dixie, Marketplace, Thriftway and City Markets banners are utilized in the combination food and drug store format. The Save Rite and Sack & Save banners represent the grocery warehouse format.

Store locations:

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Store and Other Data:

Segments:

The Company has determined that its operations are within one reportable segment. Accordingly, financial information on segments is omitted.

Strategy:

The Company’s strategic vision is to be the best supermarket in every neighborhood in which we operate, offering the best value, freshest products and outstanding customer service every day, while enhancing shareholder value. The Company plans to achieve this vision by effectively executing several key initiatives including: aligning stores and customers, strengthening superior customer relationships, leveraging operations and support and improving technology and process.

Marketing:

The Company utilizes all forms of mass media and selected forms of highly targeted media for its retail advertising. The Company also incorporates major sponsorships into the marketing plan, such as sponsorship of the Jacksonville Jaguars, the Tampa Bay Buccaneers, the Super Bowl and others. Marketing campaigns are executed on both a national and local basis and are often tailored to individual markets and customer demographics.

In fiscal 2002, the Customer Reward Card was introduced which generates data on customer buying preferences and enables the Company to better focus marketing programs on customer demands and to target individual customers with special offers.

Other marketing initiatives include acting to ensure that appropriate stores’ merchandising mix includes grocery items, such as specialty lines of produce and meat products, and continuing to remodel certain Winn-Dixie stores. Sixty-two older stores were remodeled last year with improved lighting, a contemporary color palette and attractive interior architectural changes.

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Information Technology:

The Company has made significant investments in technology and information systems in order to drive sales growth, improve operating efficiency and support the overall business strategy. During fiscal year 2003, the Company invested in a new buying and billing system, a perpetual inventory and pricing system, labor management systems, the enterprise data warehouse and continued its development of the Customer Reward Card program.

In 2003, the Company began the process of implementing a labor scheduling system available to store management. The system is intended to enable management to schedule the right associates at the right time of the day in order to best meet the customers’ needs.

In 2003, the Company began to equip the truck fleet with onboard computers that use a Global Positioning System to provide direct communication with drivers. This technology allows the Company to effectively route store deliveries while closely monitoring truck mileage and expenses. When fully implemented next year, the system is expected to reduce driver expenses.

In fiscal 2002, the Company implemented the Customer Reward Card which provides shoppers with ongoing benefits and incentives, while providing us with invaluable data on their buying preferences. That information is used to focus marketing programs and to develop product categories and assortments in each store tailored to the needs of each community. In addition, the Customer Reward Card program strengthens customer loyalty by targeting individual customers with special offers.

In addition, the Company has developed several new online programs that enhance customer service. In fiscal 2003, an online pharmacy program for customers to access the Winn-Dixie pharmacy services was introduced. In fiscal 2002, Party ONline, an online ordering service to assist customers with planning parties during the busy holiday season was introduced. The website also features fresh flowers from FTD, the world’s largest floral company as well as Express Special Purchase (ESP) which provides customers access to thousands of foods and other products not commonly found in local stores.

Competition:

The Company generally competes on a basis of location, product quality, service, price, convenience, product variety and store condition. The number and type of competitors vary by location and competitive position varies according to the individual markets in which the Company operates.

The supermarket industry is highly and increasingly competitive and generally characterized by high inventory turnover and narrow profit margins. The Company competes directly with national, regional and local supermarket chains and independent supermarkets. The Company also competes with non-traditional grocery retailers such as dollar discount stores, drug stores, convenience stores, warehouse club stores, deep discount supercenters and conventional department stores. Beyond grocery retailers, the Company also faces competition from restaurants and fast food chains due to the increasing trend of consumers purchasing and consuming food away from home rather than at home.

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Seasonality:

Due to the influx of winter residents to the Sunbelt, particularly to Florida, and increased purchases of food items for the Thanksgiving and Christmas holiday seasons, the Company usually experiences an increase in sales during the months of November to April each year. Interruptions to the normal tourism pattern may have a significant impact on this seasonal sales increase.

Suppliers and Raw Materials Sources:

The Company receives the products sold in its stores and the raw materials used in its manufacturing operations from a number of sources. The Company is not dependent on a single or relatively few suppliers. The Company believes that its products and raw materials generally are available in sufficient supply to adequately meet customer demand.

Environmental Matters:

The Company is subject to federal, state and local environmental laws that apply to property ownership, property development and its store operations. The Company may be subject to certain environmental regulations regardless of whether it leases or owns the stores or land or whether environmental conditions were created by the Company, the owner or a prior tenant.

The Company believes that compliance with federal, state and local environmental laws and regulations have not had a material effect on its capital expenditures, earnings and competitive position. The Company is not aware of any environmental condition at any of its properties that could be considered material. However, it is possible that the environmental investigations of its properties might not have revealed all potential environmental liabilities or might have underestimated any potential environmental issues. It is also possible that future environmental laws and regulations or new interpretations of existing environmental laws will impose material environmental liabilities on the Company or that current environmental conditions of properties that the Company owns or operates will be affected adversely by hazardous substances associated with other nearby properties or the actions of third parties unrelated to the Company. The costs of defending any future environmental claims, performing any future environmental remediation, satisfying any environmental liabilities, or responding to changed environmental conditions could materially adversely affect the Company’s financial condition and operating results.

Government Regulation:

The Company is subject to regulation by a number of government agencies including, but not limited to, the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the Occupational Safety and Health Administration and other federal, state and local agencies.

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The Company’s stores also are subject to local laws regarding zoning, land use and alcoholic beverage sales. The Company believes that it is in material compliance with these laws and regulations.

Employees:

On June 25, 2003, the Company employed approximately 99,200 associates, of whom approximately 39,900 were employed on a full-time basis and 59,300 on a part-time basis. The Company considers its employee relations to be good. No employees are covered by a collective bargaining agreement.

Trademarks:

The Company has invested significantly in the development and protection of the Winn-Dixie name. The right to use the Winn-Dixie name is considered to be an important asset. The Company also owns approximately 100 other trademarks registered or pending in the United States Patent and Trademark Office. The Company considers certain of its trademarks to be of material importance to its business and actively defends and enforces such trademarks.

Merchandising:

The Company supplies its stores with its own manufactured products and products purchased through outside vendors. The products are delivered through the Company’s distribution centers, manufacturing facilities and outside suppliers or directly from manufacturers.

The Company has developed a line of nearly 3,000 corporate brand products under a variety of brand names including Arrow, Astor, Deep South, Thrifty Maid, Chek and Superbrand. The Company is in the process of consolidating the number of brand names to four: Winn-Dixie, Winn-Dixie Prestige, Thrifty Maid and Chek. The Company’s line of products includes dairy, pasta, cereal, snacks, and peanut butter, as well as other quality products. The Prestige line of products includes an extensive array of ice creams and high quality meats. The Thrifty Maid line of products includes canned fruits and vegetables. The Chek line of products includes carbonated beverages.

Manufacturing:

The principal function of the Company’s manufacturing operations is to purchase, manufacture and process private label merchandise sold in Company stores. As measured by sales dollars, approximately 50% of the Company’s private label merchandise is manufactured in Company plants and the remainder is purchased from third parties.

The Company utilizes its manufacturing operations to produce and sell products on a wholesale basis in order to maximize production capacity. An insignificant portion of sales is derived from this business.

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The Company operated the following manufacturing operations at June 25, 2003:

The ice cream plants are located in facilities that also contain a milk bottling plant. The carbonated beverage plant is located in the same facility as the jam, jellies and condiment plant.

Distribution:

Each of the Company’s retail operating areas is served by a regional distribution center consisting of one or more facilities. The Company has 15 distribution centers (14 in the United States and one in the Bahamas), which collectively provide the majority of all products to the Company’s stores.

Additional Information:

The Company is a Florida corporation that was incorporated in 1928. The corporate headquarters is located at 5050 Edgewood Court, Jacksonville, Florida 32254-3699. The telephone number is 904-783-5000. The Company’s website located at www.winn-dixie.com provides additional information about the Company. The Company makes available through its website, free of charge, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including any amendments. These forms are available as soon as reasonably practicable after they are filed electronically with the SEC. The website address is included throughout this filing only as a textual reference. The information contained on the Company’s website is not incorporated by reference into this Form 10-K.

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Retail Operations:

The Company conducts its retail operations in 11 owned properties and 1,062 leased properties. Each lease provides for a minimum annual rent and certain of these leases require additional rental payments to the extent sales volumes exceed specified amounts.

Manufacturing and Distribution Operations:

The Company conducts its manufacturing operations in six owned facilities and ten leased facilities. The Company owns four of its distribution centers and leases the eleven.

The Company is involved in various legal proceedings incidental to its business from time to time, most of which are expected to be covered by liability insurance. While no one can predict the ultimate outcome of any pending or threatened litigation, management believes that any resolution of these proceedings will not have a material adverse effect on the Company’s results of operations or financial condition.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

The Company’s common stock is traded on the New York Stock Exchange under the ticker symbol: WIN. The number of holders of record of the Company’s common stock as of June 25, 2003 was 43,345.

The Company’s debt facility limits the amount of dividends that may be paid by the Company. Under this limitation, the Company is able to pay cash dividends in an amount equal to EBITDA (earnings before interest, taxes, depreciation and amortization), calculated for the then most recent four fiscal quarters minus the greater of $140.0 million or Capital Expenditures calculated for the most recent four fiscal quarters.

Quarterly high and low prices of the Company’s common stock and dividends per share are shown below:

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Note: Discontinued operations consist of the Texas and Oklahoma operations which were exited in 2002.

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Results of Operations

Fiscal year ended June 25, 2003 (“Fiscal 2003”) compared to Fiscal year ended June 26, 2002 (“Fiscal 2002”)

Net Sales

Net Sales for fiscal 2003 decreased 1.3% to $12.2 billion compared to $12.3 billion in fiscal 2002.

Average store sales, which is an average for all continuing operating stores based on the number of weeks open during the fiscal year, decreased 0.2%. Identical store sales, which include enlargements and exclude the sales from stores that opened and closed during the fiscal year, decreased 0.7%. Comparable store sales, which include replacement stores, decreased 0.7%.

The total store locations for fiscal 2003 remained unchanged compared to fiscal 2002 at 1,073. The Company opened 13 new stores, averaging 45,500 square feet, closed 13 stores, averaging 34,600 square feet and enlarged or remodeled 62 store locations. Retail space as of June 25, 2003 totaled 47.6 million square feet compared to 47.5 million square feet which is relatively flat as compared to June 26, 2002.

During the fourth quarter, identical store sales were negatively impacted by an increase in competitive action through significantly increased promotional activity. Sales were also impacted by increased competition through other channels such as mass merchandisers, supercenters, warehouse club stores, dollar-discount stores and drug stores. Other factors that led to the decline in identical store sales were the overall weakness in the economy and reduced store traffic in operating markets impacted by the decline of tourism and significant military troop deployments.

The Company continues to use the data collected from its Customer Reward Card program to build loyalty and target specific customers through special offers and promotions. Additionally, the Company intends to implement a more aggressive pricing and promotional stance using the Customer Reward Card to deliver savings.

Gross Profit on Sales

Gross profit on sales for fiscal 2003 increased 1.5% to $3.5 billion from $3.4 billion in fiscal 2002. As a percent of sales, gross profit was 28.5% for fiscal 2003 compared to 27.7% for fiscal 2002. The increase in gross profit on sales is due to pricing strategies and promotions, improved supply chain efficiencies and reductions in inventory shrink which was partially offset by decreased retail sales and decreased manufacturing sales to outside customers.

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The improvement in inventory shrink was achieved through better management of the Company’s product from the supplier to the customer. The benefit that was received from inventory shrink reduction in fiscal 2003 compared to fiscal 2002 was $26.5 million.

Gross profit was partially affected by the decrease in sales to retail customers. The affect of the sales decrease on gross profit in fiscal 2003 compared to fiscal 2002 was $47.0 million.

Other Operating and Administrative Expenses

Other operating and administrative expenses for fiscal 2003 increased 3.6% to $3.2 billion compared to $3.1 billion in fiscal 2002. As a percent of sales, other operating and administrative expenses was 26.0% for fiscal 2003 compared to 24.7% for fiscal 2002.

The increase in other operating and administrative expenses is due to the higher cost of settling prior year insurance claims, improving store conditions, costs associated with information technology initiatives, a gain on the sale of facilities recognized in the previous year and contributions to the State of Florida Nonprofit Scholarship Funding Organizations Program.

The Company has taken a proactive approach to settling outstanding insurance claims in the current year by accelerating claims payments to prevent future adverse development. In addition, the Company experienced adverse development related to prior year claims. As a result, current year expense, including the change in the actuarial reserve, increased by $34.8 million over the prior year.

The Company is committed to being the best supermarket in the neighborhood. With this commitment, the Company has increased the spending for items related to appearance and service by $16.0 million in fiscal 2003 as compared to fiscal 2002.

The Company increased spending on professional fees and other related costs associated with the implementation of several information technology initiatives. The improvement in information technology increased current operational efficiency and provided a platform to build on in the future. The increase in spending for fiscal 2003 as compared to fiscal 2002 for these initiatives was $14.2 million.

The Company sold its cheese processing facility in fiscal 2002 for a $12.7 million gain, which reduced other operating and administrative expenses in the prior year.

During fiscal 2003, the Company made contributions totaling $5.0 million to the State of Florida Nonprofit Scholarship Funding Organizations Program for which the Company will receive a tax credit for 100% of the amount of the contribution. Comparable contributions were not made in fiscal 2002.

Bank Agreement Termination Income

Bank agreement termination income of $52.7 million ($34.0 million net of tax, or $0.24 per diluted share) for fiscal 2003 resulted from Canadian Imperial Bank of Commerce

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“CIBC”) terminating its in-store bank agreement with the Company. The Company was paid $60.0 million and was responsible for the costs associated with the de-installation of the in-store Marketplace Bank locations and other related costs, totaling approximately $7.3 million. Sub-lease income, a component of other operating and administrative expenses, decreased by $8.4 million ($5.4 million net of tax, or $0.04 per diluted share) in fiscal 2003 as compared to fiscal 2002 due to the termination. The net impact on pre-tax profit for fiscal 2003 was an increase of $44.3 million ($28.6 million net of tax, or $0.20 per diluted share).

Interest Expense

Interest expense for fiscal 2003 decreased 34.3% to $40.4 million from $61.6 million in fiscal 2002. The decrease was due to the decrease in average debt outstanding and lower average interest rates paid on debt. This decrease was partially offset by $6.4 million of debt issue costs and $7.5 million to unwind interest rate swaps which were charged to interest expense related to the early extinguishment of the six-year term loan during fiscal 2003. In fiscal 2002, interest expense was impacted by $3.8 million of debt issue costs related to the early extinguishment of debt.

Earnings From Continuing Operations Before Income Taxes

Earnings from continuing operations before income taxes increased 5.3% to $320.6 million from $304.4 million in fiscal 2002. The increase was due primarily to the bank agreement termination income of $52.7 million in fiscal 2003.

Income Taxes

The combined federal and state effective income tax rate decreased to 25.4% for fiscal 2003 from 34.0% (includes benefit from discontinued operations) for fiscal 2002. The decrease in fiscal 2003 is primarily due to the reversal of $28.0 million in tax reserves related to the settlement of company-owned life insurance issues, a tax credit benefit from scholarship contributions and the resolution of other tax issues.

Net Earnings From Continuing Operations

Net earnings from continuing operations increased 27.8% to $239.2 million, or $1.70 per diluted share for fiscal 2003 from $187.2 million, or $1.33 per diluted share for fiscal 2002.

Fiscal year ended June 26, 2002 (“Fiscal 2002”) compared to Fiscal year ended June 27, 2001 (“Fiscal 2001”)

Net Sales

Net Sales for fiscal 2002 increased 0.8% to $12.3 billion from $12.2 billion in fiscal 2001.

Average store sales, which is an average for all continuing operating stores based on the number of weeks open during the fiscal year, decreased 3.0% from fiscal 2001. Identical store sales, which include enlargements and exclude the sales from stores that opened and closed

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during the fiscal year, decreased 2.5%. Comparable store sales, which include replacement stores, decreased 2.3% from fiscal 2001.

Identical store sales improved during fiscal 2002 as a result of a new marketing effort and the positive impact of the conversion of 41 locations to the Save Rite Grocery Warehouse concept. As part of the new marketing effort, the Company introduced a Customer Reward Card program which allows the customer to receive ongoing benefits that include merchandise discounts, sweepstakes entries, notification of special events, participation in specialty merchandise clubs, discounts on services provided by select marketing partners and other special incentives.

The Company opened five new stores, averaging 45,900 square feet, closed 85 stores, averaging 45,100 square feet and enlarged or remodeled 29 store locations. Total retail space as of June 26, 2002 totaled 47.5 million a decrease of 7.0% as compared to June 26, 2001. The 85 store closings included 76 stores associated with the exiting of the Texas and Oklahoma operations.

Gross Profit on Sales

Gross profit on sales for fiscal 2002 increased 3.7% to $3.4 billion from $3.3 billion in fiscal 2001. As a percent of sales, gross profit on sales was 27.7% for fiscal 2002 compared to 26.9% for fiscal 2001. The increase is due to a change in the product sales mix and improvements in procurement. The increase was partially offset by the increase in sales markdowns associated with the Customer Reward Card program and merchandise losses and markdown discounts incurred during the transition of 41 locations to the Save Rite Grocery Warehouse format. Continued improvements in gross profit are anticipated through enhanced procurement practices and promotional activities as well as shrink reduction initiatives. The amount retained through improvements in gross profit margin and not passed on to the customer is determined by competitive activity.

Other Operating and Administrative Expenses

Other operating and administrative expenses for fiscal 2002 increased 2.7% to $3.1 billion from $3.0 billion in fiscal 2001. As a percent of sales, other operating and administrative expenses was 24.7% for fiscal 2002 compared to 24.3% for fiscal 2001. The increase is due to increased retail and administrative expenses, such as rent, salaries and supplies associated with the operation of 77 additional stores acquired during fiscal 2001. The change in operating and administrative expenses from continuing operations for the 77 additional stores totaled approximately $60.7 million.

Interest Expense

Interest expense for fiscal 2002 increased 16.6% to $61.6 million from $52.8 million in fiscal 2001. The increase is due to the $3.8 million of debt issuance costs charged to interest expense related to the early pay down of a portion of the six-year term loan during fiscal 2002 as well as higher average debt outstanding and higher average interest paid on debt.

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Earnings From Continuing Operations Before Income Taxes

Earnings from continuing operations before income taxes for fiscal 2002 increased to $304.4 million from $124.8 million in fiscal 2001. The increase is due primarily to the restructuring costs of $147.2 million incurred in fiscal 2001.

Income Taxes

The combined federal and state effective income tax rate applied to continuing operations was unchanged at 38.5% for fiscal 2002 and fiscal 2001.

Net Earnings From Continuing Operations

Net earnings from continuing operations increased to $187.2 million, or $1.33 per diluted share for fiscal 2002 from $76.8 million, or $.55 per diluted share for fiscal 2001.

Discontinued Operations

On May 6, 2002, the Company announced plans to exit its Texas and Oklahoma operations, which consisted of 76 stores, a distribution center and a dairy plant. The decision resulted from continued losses and a reduction of market share. Under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Texas and Oklahoma operations are defined as components of the Company. Accordingly, the operating results from current and prior periods are reported as discontinued operations on the Consolidated Statements of Operations.

The pre-tax loss from discontinued operations was $46.4 million for fiscal 2002. The pre-tax loss on disposal of discontinued operations of $126.4 million for 2002 includes employee termination costs, lease termination costs, asset impairments, travel costs and capital asset and inventory disposal costs related to this exit.

Income tax benefit from discontinued operations was $72.5 million and $19.7 million in fiscal 2002 and 2001, respectively. The federal and state income tax rates related to discontinued operations was 41.9% for fiscal 2002 and 38.5% for fiscal 2001. The effective rate for fiscal 2002 reflects the tax benefit of certain disposal costs.

Net Earnings

Net earnings increased to $86.9 million, or $0.62 per diluted share for fiscal 2002 from $45.3 million, or $0.32 per diluted share for fiscal 2001.

Liquidity and Capital Resources

Cash and marketable securities amounted to $146.7 million and $246.5 million at the end of fiscal years 2003 and 2002, respectively.

Working capital amounted to $454.7 million and $529.6 million in fiscal 2003 and 2002, respectively.

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Cash provided by operating activities amounted to $385.2 million in fiscal 2003, $377.0 million in fiscal 2002 and $244.9 million in fiscal 2001. The increase in net cash provided by operations is due to an increase in net earnings, which was offset by a payment of $52.0 million to the Internal Revenue Service and a $20.0 million contribution to the profit sharing plan.

Net cash used in investing activities totaled $208.8 million, $64.8 million and $443.6 million in fiscal 2003, 2002 and 2001, respectively. The increase in the current year was largely due to capital expenditures. Net capital expenditures totaled $176.7 million, $83.5 million and $313.3 million in fiscal 2003, 2002 and 2001, respectively. The current and previous year expenditures were for new store locations, remodeling and enlarging of store locations, retrofits and maintenance support facilities. In fiscal year 2001, capital expenditures were made for a warehouse facility in Baldwin, Florida. During fiscal year 2001, the Company also acquired 77 retail locations totaling $123.8 million, which resulted in an increase in cash used in investing activities in fiscal 2001.

Net cash (used in) provided by financing activities was ($276.7) million, ($205.4) million and $290.2 million in fiscal 2003, 2002 and 2001, respectively. The increase in the current year was due primarily to the prepayment of $243.0 million on the six-year term loan and was offset by a $21.7 million reduction in dividends paid. In fiscal year 2001, the Company received net proceeds of $465.0 million from the credit facilities.

Based on the current projection of the Company’s operating results for the first quarter of fiscal 2004, the Company will not be in compliance with certain covenants related to the senior secured credit facility. At June 25, 2003, the Company had no outstanding borrowing under the senior secured credit facility although it was used to secure $57.1 million in letters of credit. The Company had preliminary discussions with the lead bank and administrative agent of the Company’s syndicate to revise the covenants and, based on the discussions, expects to obtain an amendment to the credit agreement before the end of the first quarter of fiscal 2004.

The Company had 1,083 operating lease properties in effect at June 25, 2003, with a present value of future rental obligation of $2,202 million, $2,283 million and $2,550 million in fiscal 2003, 2002 and 2001, respectively.

Contractual Obligations and Commercial Commitments

The Company has assumed various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements, such as debt and lease arrangements. The following table represents the scheduled maturities of the Company’s long-term contractual obligations as of June 25, 2003.

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The Company’s purchase obligations include purchase commitments to be used in the normal course of business and range from one to nine years. The total remaining purchase obligations have been apportioned by year based on estimates of current purchasing and price levels.

The Company’s commercial commitments as of June 25, 2003, representing possible commitments triggered by potential future events, were as follows:

Impact of Inflation

The Company’s primary costs, inventory and labor, increase with inflation. Recovery of these costs will come, if at all, from improved operating efficiencies, including improvements in merchandise procurement, and to the extent permitted by the competition, through improved gross profit margins.

Critical Accounting Policies

The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain information that is pertinent to Management’s Discussion and Analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial calculations. The Company constantly reviews these significant factors and makes adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from estimated results determined using the factors described above.

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The following is a discussion of the accounting policies considered to be most critical to the Company. The accounting policies are most important to the portrayal of the Company’s financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Revenue recognition. Revenue is recognized at the point of sale for retail sales. Sales discounts offered to customers at the time of purchase, as part of the Company’s Customer Reward Card program as well as other promotional events, are recorded as a reduction of sales at the time of purchase.

Merchandise Cost. The Company receives various rebates from third party vendors in the form of promotional allowances, quantity discounts and payments under merchandising agreements. Such rebates are classified as either a reduction to cost of goods sold or a reduction of cost incurred, depending on the nature of the rebate.

Promotional allowances, including lump sum payments associated with long-term contracts, are recorded as a component of cost of sales as they are earned, the recognition of which is determined in accordance with the underlying agreement with the vendor, the authoritative guidance and completion of the earnings process. Portions of promotional allowances that are contractually refundable to the vendor, in whole or in part, are deferred from recognition until realization is assured.

Quantity discounts and merchandising agreements are typically measured and earned based on inventory purchases or sales volume levels and are received from vendors at the time certain performance measures are achieved. These performance-based rebates are recognized as a component of cost of sales based on a systematic and rational allocation of the consideration received relative to the transaction that marks the progress of the Company toward earning the rebate or refund. If the amounts are not probable and reasonably estimable, rebate income is recognized upon achieving the performance measure.

Some rebates received from third party vendors require the Company to make assumptions and judgments regarding specific purchase or sales levels and an estimation of the related inventory turns. The Company constantly reviews the relevant significant assumptions and estimates and makes adjustments as necessary. Although the Company believes that the assumptions and estimates used are reasonable, significant changes in these arrangements or purchase volumes could have a material effect on future cost of sales.

Self-insurance reserves. It is the Company’s policy to self insure for certain insurable risks consisting primarily of physical loss to property, business interruptions, workers’ compensation, comprehensive general and auto liability. Insurance coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. Liabilities relating to worker’s compensation, comprehensive general and auto liability claims are based on independent actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims. The actuarial estimates are subject to a high degree of uncertainty from various sources, including changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although the Company believes that the actuarial estimates are reasonable, significant

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differences related to the items noted above could materially affect the Company’s self-insurance obligations and future expense.

Long-lived assets. The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset. An impairment loss would be recorded for the excess of net book value over the fair value of the asset impaired. The fair value is estimated based on expected discounted future cash flows.

With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on the Company’s prior history of disposing of similar assets and current economic conditions.

The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating results. The Company believes that, based on current conditions, materially different reported results are not likely to result from long-lived asset impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results.

Intangible assets and goodwill. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” SFAS 142 requires companies to cease amortizing goodwill that existed at the time of adoption and establish a new method for testing goodwill for impairment on an annual basis at the reporting unit level (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). The Company has determined that it is contained within one reporting unit and, as such, impairment is tested at the company level. SFAS 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a fair value based approach.

The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue and cash flows. The Company believes that, based on current conditions, materially different reported results are not likely to result from goodwill and intangible impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results.

Store closing costs. The Company provides for closed store liabilities relating to the estimated post-closing lease liabilities and other related exit costs associated with the store closing commitments. The closed store liabilities are usually paid over the lease terms associated with the closed stores having remaining terms ranging from one to 17 years. The Company estimates the lease liabilities, net of estimated sublease income only to the extent of the liability, using a discount rate based on long-term rates with a remaining lease term based on an estimated disposition date to calculate the present value of the anticipated rent payments on closed stores. Other exit costs include estimated real estate taxes, common area

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maintenance, insurance and utility costs to be incurred after the store closes over the anticipated lease term. Store closings are generally completed within one year after the decision to close.

Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess accrued store closing liability remaining upon settlement of the obligation is reversed to income in the period that such settlement is determined. Inventory write-downs, if any, in connection with store closings, are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred. Severance costs are rarely incurred in connection with ordinary store closings.

Store closing liabilities are reviewed quarterly and adjusted to ensure that any accrued amount is properly stated. Although the Company believes that the estimates used are reasonable, significant differences related to the items noted above or a change in market conditions could materially affect the Company’s reserve for closed store obligations and future expense.

Recently Issued Accounting Standards

Emerging Issues Task Force (EITF) No. 02-16, “Accounting by a Customer for Certain Consideration Received from a Vendor” was adopted on a prospective basis during the third quarter of the current fiscal year. Issue 02-16 provides guidance for the accounting of cash consideration given to a reseller from a vendor. The adoption of Issue 02-16 did not have a material effect on the Company’s financial statements.

Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections” (“SFAS 145”), became effective for the Company in July 2002. The adoption of SFAS 145 requires that losses on early extinguishment of debt be included in continuing operations rather than as an extraordinary item. The adoption of this standard did not have a material effect on the Company’s financial statements but required the $2.3 million related to early extinguishment of debt previously characterized as an extraordinary item during 2002 be reclassified to interest expense.

Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), provides guidance on the recognition and measurement of liabilities for costs associated with exit or disposal activities. The provisions of this statement are effective for the Company for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard did not have a material effect on the Company’s financial statements.

Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an Amendment to FASB Statement No. 123” (“SFAS 148”), provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation and requires prominent disclosures in both annual and interim financial statements. The Company accounts for stock-based employee compensation in accordance with the Statement of Financial Accounting

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Standards No. 123, “Accounting for Stock-Based Compensation”. SFAS 148 will have no impact on the Company’s financial statements.

Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This standard is effective for contracts entered into or modified after June 30, 2003. The Company does not expect that the adoption of this standard will have a material effect on the Company’s financial statements.

Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” provides guidance on classification and measurement of certain financial instruments with characteristics of both liabilities and equity. This standard is effective for financial instruments entered into or modified after May 31, 2003. The Company does not expect that the adoption of this standard will have a material effect on the Company’s financial statements.

FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, was issued by the FASB in November of 2002. FIN 45 provides guidance relating to initial recognition and measurement of the guarantees and is effective on a prospective basis for guarantees issued or modified after December 31, 2002. These provisions did not have a material effect on the Company’s financial statements in fiscal 2003.

FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”, was issued by the FASB in January of 2003. FIN 46 provides guidance relating to the identification of, and financial reporting for, variable-interest entities, as defined in the Interpretation. The Company does not expect that the adoption of this standard will have a material effect on the Company’s financial statements.

Forward-Looking Statements

Certain statements made in this report, and other written or oral statements made by or on behalf of the Company, may constitute “forward-looking statements” within the meaning of the federal securities laws. Statements regarding future events and developments and the Company’s future performance, as well as management’s expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws.

All forward-looking statements are subject to certain risks and uncertainties that could cause actual events to differ materially from those projected. Management believes that these forward-looking statements are reasonable. However, you should not place undue reliance on such statements. These statements are based on current expectations and speak only as of the date of such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Additional information concerning the risks and uncertainties listed above, and other

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factors that you may wish to consider, is contained elsewhere in the Company’s filings with the Securities and Exchange Commission.

Factors that could cause the Company’s actual results to differ materially from the expected results described in the Company’s forward-looking statements include, but are not limited to:

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The Company manages its exposure to changes in market interest rates. The interest rate exposure arises primarily from the interest payment terms of the Company’s borrowing agreements. Interest rate swap agreements are used to adjust the interest rate risk exposures that are inherent in its portfolio of funding sources. The Company has not established any interest risk positions for purposes other than managing the risk associated with its portfolio of funding sources. Counterparties to interest rate swap agreements are major financial institutions. The Company has established counterparty credit guidelines and only enters into transactions with financial institutions with long-term credit ratings of ‘A’ or better. In addition, the Company monitors its position and the credit ratings of its counterparties, thereby minimizing the risk of non-performance by the counterparties.

The table below summarizes the Company’s market risks associated with long-term debt obligations and interest rate swaps as of June 25, 2003. For long-term debt obligations, the table presents cash flows related to payments of principal and interest by fiscal year of maturity. For interest rate swaps, the table presents the notional amounts underlying the agreements by year of maturity. The notional amounts are used to calculate contractual payments to be exchanged and are not actually paid or received. Fair values were computed using market quotes, if available, or based on discounted cash flows using market interest rates.

The following table presents the future principal cash flows and weighted-average interest rates expected on the Company’s existing long-term debt instruments and interest rate swap agreements.

Expected Maturity Date

(Dollar amounts in thousands)

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,

SUPPORTING SCHEDULES AND SUPPLEMENTARY DATA

All other schedules are omitted either because they are not applicable or because information required therein is shown in the Financial Statements or Notes thereto.

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INDEPENDENT AUDITORS’ REPORT

The Shareholders and the Board of Directors

Winn-Dixie Stores, Inc.:

We have audited the accompanying consolidated balance sheets of Winn-Dixie Stores, Inc. and subsidiaries as of June 25, 2003 and June 26, 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years ended June 25, 2003, June 26, 2002 and June 27, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Winn-Dixie Stores, Inc. and subsidiaries at June 25, 2003 and June 26, 2002, and the results of their operations and their cash flows for each of the years ended June 25, 2003, June 26, 2002 and June 27, 2001 in conformity with accounting principles generally accepted in the United States of America.

Jacksonville, Florida

August 6, 2003

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended June 25, 2003, June 26, 2002 and June 27, 2001