Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended January 12, 2005

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)

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

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

As of February 4, 2005, there were 142,156,319 shares outstanding of the registrant’s common stock, par value $1.00 per share.

Table of Contents

FORM 10-Q

TABLE OF CONTENTS

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

Part I – Financial Information

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements (unaudited).

1

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements (unaudited).

2

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements (unaudited).

3

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements (unaudited).

4

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

As of January 12, 2005, total liquidity was $176.3 million, which was comprised of $31.6 million in cash and cash equivalents (including cash in stores and ATMs of $11.5 million) and $144.7 million of net borrowing availability under the revolving credit facility.

Subsequent to the end of the second quarter, the Company has taken actions to improve its liquidity position by (1) obtaining from its bank group a waiver of the EBITDA test in its revolving credit facility through June 29, 2005, thereby providing up to an additional $100 million of borrowing availability under that facility subject to Adjusted Excess Availability, as defined in the credit agreement, (supported by a requirement that the Company perfect the bank group’s security interest in assets with a requisite value on or before March 31, 2005), (2) planning sales initiatives to be introduced during the third quarter designed to increase sales and retail operating profit, (3) instituting new inventory management processes designed to improve inventory turnover, and (4) implementing other actions to improve short-term liquidity.

Assuming the successful implementation of the Company’s plans (as described in the preceding paragraph) and the continuation of vendor financing on current terms, management believes that current cash on hand, available trade credit, available borrowings under the revolving credit facility, cash expected to be generated as a result of improvements in working capital and the sales of assets will be sufficient to fund current operating and capital needs. In the longer term (beyond the end of this fiscal year), the Company will need to produce improved operating results, reduce expenses or secure additional sources of capital before it can expand the store upgrade

5

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

program beyond the existing lead markets or increase the scope and timing of full remodels. The Company’s liquidity is dependent upon the continuation of existing bank and vendor financing. A substantial restriction in or tightening of vendor credit terms or the continuation of the level of operating losses experienced in the second quarter could leave the Company with insufficient liquidity to operate its business.

The balance sheet at June 30, 2004 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Winn-Dixie Stores, Inc. (the “Company”) and subsidiaries annual report on Form 10-K for the fiscal year ended June 30, 2004. The Condensed Consolidated Financial Statements include the accounts of Winn-Dixie Stores, Inc. and its subsidiaries, which operate as a major food retailer in ten states and the Bahama Islands. References to the “Company” include Winn-Dixie Stores, Inc. and all of its subsidiaries, collectively.

6

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

Manufacturing, pharmacy, produce and deli inventories are valued at the lower of first-in, first-out (FIFO) cost or market. Elements of cost included in manufacturing inventories consist of material, direct labor and plant overhead.

The Company evaluates inventory shortages throughout the year based on actual physical counts in the facilities. Allowances for inventory shortages are recorded based on the results of these counts to provide for estimated shortages as of the balance sheet date.

In addition, from time to time, the Company offers awards to customers in the form of sales discounts to be used on a future purchase based on an accumulation of points as part of its Customer Reward Card program. The obligation related to the award of a future sales discount is recognized as a reduction of sales based on a systematic and rational allocation of the cost of the award earned and claimed to each of the underlying revenue transactions that result in progress by the customer toward earning the award.

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 of cost of goods sold or a reduction of cost incurred, depending on the nature of the rebate.

7

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

Promotional allowances are recorded as a reduction of cost of sales as they are earned, the recognition of which is determined in accordance with the terms of the underlying agreement with the vendor, the guidance set forth in EITF 02-16 and management’s conclusion that the earnings process is complete. Certain promotional allowances are associated with long-term contracts that require specific performance by the Company or time-based merchandising of vendor products. Contractually obligated allowances are recognized as the specific performance criteria set forth in the contract are met or when time expires. In addition, 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 after certain performance measures are achieved. These performance-based rebates are recognized as a reduction of cost of sales based on a systematic and rational determination of the progress of the Company toward earning the rebate or refund. If the amounts are not probable and reasonably estimable, rebate income is recognized only upon achieving the performance measure.

Certain other allowances for new item introductions, slotting fees, placement of the vendor’s products in the Company’s advertising, placement of vendor’s product in premier locations within the stores, and temporary reductions offered to customers on products in the stores reduce cost of sales as product is sold. If allowances have been earned as a result of completing the required performance, but the product has not been sold, the allowances are recognized as reductions of inventory. Since the Company uses the retail method of valuing inventory, average product turnover rates are used by management to determine the amount of product sold and ultimately the amount of fees reducing ending inventory.

8

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

The LIFO inventory benefit of $6.7 million recognized for the 16 weeks ended January 12, 2005 is a result of estimated liquidations of prior LIFO layers due to a reduction in FIFO inventory carrying values from June 30, 2004 caused by the exit of stores and a distribution center included in discontinued operations. The $6.7 million LIFO benefit has been classified as a component of loss on disposal of discontinued operations.

The LIFO inventory benefit recognized for the 16 weeks ended January 7, 2004 is a result of estimated liquidation of prior LIFO layers of $4.3 million due to a reduction in FIFO inventory carrying values of $37.5 million from June 25, 2003.

An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these are subject to forces beyond management’s control, interim results are subject to the final year-end LIFO inventory valuations.

9

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

The Company has a revolving credit facility (the “Facility”) with a maximum borrowing capacity of $600.0 million. The Facility is secured by substantially all assets of the Company. The borrowing base assets include specified inventory, pharmacy accounts receivable, pharmacy scripts, and real estate. In addition to the reductions described below, the borrowing capacity under the Facility could be decreased due to reductions in inventory, asset disposals, reductions in appraisals, or other events. The Facility expires June 29, 2007, but contains provisions for possible renewal.

The following capitalized terms have specific meanings as defined in the Facility agreement: Borrowing Base, Borrowing Base Assets, Reserves, Excess Availability and Adjusted Excess Availability. Refer to the Facility agreement filed on a Current Report on Form 8-K dated June 29, 2004, for a full description of their meaning.

The Facility provides for a $400.0 million revolving credit facility, which also includes certain letters of credit, and a separate $200.0 million standby letter of credit facility. The maximum Borrowing Base is $600.0 million, which is reduced by Reserves, letters of credit issued under the Facility and borrowings, resulting in Excess Availability. Adjusted Excess Availability utilizes actual collateral balances as the Borrowing Base and is then reduced in a similar computation.

Covenants under the Facility restrict capital expenditures, dividends, new debt arrangements, and acquisitions and dispositions of subsidiaries. The Company must maintain a minimum Excess Availability of $100.0 million to avoid measurement of the minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) test which, if not met, reduces the borrowing capacity by $100.0 million. Since the end of the first quarter of fiscal 2005, the Company has not had the targeted level of EBITDA, thereby reducing the borrowing capacity by $100.0 million. On February 9, 2005, the Company obtained a waiver of the minimum EBITDA test through June 29, 2005 based on a requirement that the Company perfect the bank group’s security interest in assets with a requisite value on or before March 31, 2005. In the event that the advance rate on the net orderly liquidation basis of the perfected security interests is not at least $75 million, the bank group may, after March 31, 2005, establish additional Reserves to make up any shortfall. Additionally, Adjusted Excess Availability must exceed $75.0 million at all times to draw all $600 million under the Facility. Because Borrowing Base Assets were approximately $650 million at January 12, 2005, the Excess Availability covenant limited Company liquidity by approximately $25 million as of February 9, 2005. At January 12, 2005, Excess Availability and Adjusted Excess Availability were calculated to be $276.2 million and $324.3 million, respectively.

At January 12, 2005, the Company had $153.0 million of outstanding borrowings under the revolving line of credit. There were no borrowings on the revolving line of credit during the 12 weeks ended September 22, 2004. The average and peak

10

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

borrowings on the revolving line of credit during the 16 weeks ended January 12, 2005 were $71.1 million and $179.0 million, respectively. Interest on the revolving line of credit facility (5.75% at January 12, 2005) is based on LIBOR or the bank’s prime rate plus an applicable margin.

At January 12, 2005, the Company had letters of credit totaling $141.0 million issued under the Facility. Of the total, $2.3 million are import letters of credit issued under the revolving credit facility, and $138.7 million are workers’ compensation standby letters of credit issued under the standby letter of credit facility. The Company paid weighted-average commitment fees of 2.44% on the import and standby letters of credit. Additionally, $17.0 million in letters of credit have been issued outside of the Facility for workers’ compensation and are secured by marketable securities valued at $19.4 million at January 12, 2005. Availability under the standby letter of credit facility, net of Reserves, is $30.1 million at January 12, 2005.

In addition to the Facility, the Company has $300.0 million of outstanding senior notes bearing interest at 8.875%. The notes mature in 2008 and require semi-annual interest-only payments until maturity. Covenants require maintenance of a minimum fixed charge coverage ratio in order to incur additional indebtedness outside of the Facility or to make dividend payments. At January 12, 2005, the Company did not meet the minimum fixed charge coverage ratio of 2.25 to 1.0 and thus cannot incur additional indebtedness outside of the Facility or declare dividends until such time as the coverage ratio is met. On January 30, 2004, the Company’s Board of Directors suspended indefinitely the declaration of future quarterly dividends.

The valuation allowance that has been established will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that such assets will be realized. An ongoing pattern of profitability would generally be considered as sufficient positive evidence. In future periods, earnings or losses will not be tax effected until such time as the certainty of future tax benefits can be reasonably assured.

11

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

The Company also has a retiree medical plan which provides medical benefits to employees who terminate employment after attaining 55 years of age and ten years of full-time service with the Company. Employees terminating employment after attaining 55 years of age and completion of ten years of service continue to be eligible to participate in the plan, but those meeting the criteria subsequent to July 1, 2002 are assessed the full cost of coverage.

The following represents the components of expense for the Company’s retirement plans:

12

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

The additions/adjustments amount includes the effect on earnings from the accretion of the present value of the expected future rental payments, additional leases added to the accrual and adjustments due to the settlement of certain existing leases. Included in the additions/adjustments for the 2004 Restructure is a charge of $77.5 million related to closure of the Raleigh and Sarasota warehouses and $62.8 million related primarily to the closure of stores included in the asset rationalization plan. The utilization amount includes payments made for rent and related costs and the buyout of two leases. The current portion of the accrued balances is included in accrued rent on the Condensed Consolidated Balance Sheets.

The following table details the activity for the period related to closed facilities. Subleased or assigned facilities are deducted from the number of facilities though the sublease may not fully cover the Company’s costs.

13

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

The goodwill impairment loss was determined by calculating the difference between: a) the Company’s implied fair value less the fair value of the net assets and b) the carrying value of goodwill. The Company’s implied fair value was estimated based on the market value of its common stock multiplied by the number of outstanding common shares (market capitalization) plus an implied control premium as if it were 100% owned by a single stockholder. The Company obtained information on completed and pending sales of similar-sized companies to estimate an implied control premium for the Company.

Other intangible assets consist of a non-compete fee and the cost of purchasing pharmacy scripts. The balance, which is a component of Other assets, net, on the Condensed Consolidated Balance Sheets, as of January 12, 2005 is as follows:

Amortization expense for other intangible assets was $313 and $368 for the 16 weeks ended January 12, 2005 and January 7, 2004, respectively, and $576 and $647 for the 28 weeks ended January 12, 2005 and January 7, 2004, respectively. The estimated remaining amortization expense for each of the fiscal years subsequent to June 30, 2004 is as follows:

14

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

The Company reviewed its estimates of fair value associated with certain assets classified as held for sale. Management’s revised estimates of fair value indicated the need to impair the assets. Impairment charges of $0.5 million and $5.0 million were recognized during the 16 and 28 weeks ended January 12, 2005, respectively, related to discontinued operations. The impairment charge is classified in loss from discontinued operations in the Condensed Consolidated Statements of Operations.

15

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

As of January 12, 2005 the Company had subleased, assigned or sold 57 stores and closed 59 stores. The three distribution centers, the Greenville ice cream plant and the Miami dairy have closed. The Dixie Packers manufacturing plant was sold. Subsequent to the end of the second quarter, the Crackin’ Good Bakery and Snacks operations were sold.

In accordance with SFAS 144, the Company determined that certain elements of the announced plan meet the qualifications to be classified as discontinued operations. Other elements of the announced plan do not qualify and must remain in continuing operations. The Company determined that all 156 stores and the Louisville, Kentucky distribution center identified in the plan for exit are components of a business and are therefore reported as discontinued operations in the Condensed Consolidated Statements of Operations.

Each store is considered to be a component of a business as this is the lowest level at which the operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes. To determine if a location is includable in discontinued operations, the Company conducted an analysis of the stores in close proximity of other Winn-Dixie stores and other surrounding competitors and determined that the operations and cash flows of the component have been (or will be) eliminated from the Company’s ongoing operations and that cash inflows of remaining stores are not expected to increase as a result of the disposal transaction.

The Company determined that the dairy and manufacturing operations to be exited and the remaining two distribution centers did not qualify as discontinued operations. The exit of these dairy and manufacturing operations and these two distribution

16

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

centers will not eliminate the cash outlay for warehousing and similar manufactured goods subsequent to disposal. The results of operations of these facilities remain in continuing operations. Costs incurred to dispose of the manufacturing and dairy operations and two distribution centers are classified primarily as restructuring costs.

The pre-tax loss from discontinued operations was $55.1 million and $101.8 million for the 16 and 28 weeks ended January 12, 2005, respectively, which includes a pre-tax loss on disposal of discontinued operations of $31.0 million and $62.6 million, respectively, related to employee termination costs, lease termination costs, other location closing costs and a benefit from LIFO reserve. Restructuring charges were $1.9 million and $85.1 million for the 16 and 28 weeks ended January 12, 2005, respectively, related to employee termination costs, lease termination costs, and other location closing costs.

The total costs of the plan are expected to be incurred by the end of the third quarter of fiscal 2005. Although lease liability on closed facilities will be expensed within this timeframe, the rent payments will continue through lease termination. The following tables display the total costs of the asset rationalization plan incurred for the 16 weeks ended January 12, 2005 and since inception of the plan, along with an updated range of total expected costs:

17

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

The following table summarizes the change in liability recorded for the plan to January 12, 2005:

Employee termination costs and other location closing costs are included in accrued wages and salaries and accrued expenses, respectively, in the Condensed Consolidated Balance Sheets. See Note O for a reconciliation of lease termination costs.

Net sales from discontinued operations were $104.4 million and $332.9 million for the 16 weeks ended January 12, 2005 and January 7, 2004, respectively, and were $269.3 million and $582.7 million for the 28 weeks ended January 12, 2005 and January 7, 2004, respectively.

Property, plant and equipment related to the operations detailed in the asset rationalization plan in the amount of $21.4 million pertaining to leasehold improvements and equipment has been classified as assets held for sale as of January 12, 2005.

18

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

19

Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dollar amounts in thousands except per share data, unless otherwise stated

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Amounts in thousands)

16 Weeks ended January 12, 2005