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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended April 6, 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 May 4, 2005, there were 141,928,777 shares outstanding of the registrant’s common stock, par value $1.00 per share.

Table of Contents

FORM 10-Q

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

Part I – Financial Information

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

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

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

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

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements (unaudited)

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Chapter 11 proceedings were initiated in the United States Bankruptcy Court for the Southern District of New York (the “N.Y. Court”) on the Petition Date. On April 13, 2005, the N.Y. Court ordered a change of venue for the Company’s bankruptcy proceedings to the United States Bankruptcy Court for the Middle District of Florida (the “Florida Court”). The change in venue does not affect substantial rulings that have already been handed down by the N.Y. Court, including approval of debtor-in-possession financing, subject, however, to further order of the Florida Court. The cases are being jointly administered by the Florida Court under the caption “In re Winn-Dixie Stores, Inc., et al., Case No. 05-03817.” References to the “Court” refer to either the N.Y. Court or the Florida Court as appropriate.

The Debtors currently operate the business as debtors-in-possession pursuant to the Bankruptcy Code. As a debtor-in-possession, Winn-Dixie is authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Court, after notice and an opportunity for a hearing. Under the Bankruptcy Code, actions to collect pre-petition indebtedness, as well as most pending litigation, are stayed and other contractual obligations against the Debtors generally may not be enforced. The rights of and ultimate payments by the Debtors under pre-petition obligations will be addressed in any plan of reorganization and may be substantially altered. This could result in unsecured claims being compromised at less (and possibly substantially less) than 100% of their face value. As provided by the Bankruptcy Code, the Debtors have the exclusive right to file a plan of reorganization until June 21, 2005 or such later date as may be designated by the Court upon motion of the Debtors. At this time the Debtors expect to seek an extension of the exclusive plan filing period. If the period is not extended, other parties in interest in addition to the Debtors will be permitted to file a plan after June 21, 2005. There can be no assurance that the exclusive period will be extended by the Court, that a reorganization plan will be filed by the Debtors or confirmed by the Court, or that any such plan will be consummated.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In conjunction with the Chapter 11 filing, the Debtors were granted several “first day” orders by the Court that enable the Company generally to operate in the ordinary course of business during the bankruptcy proceedings. Among the “first day” orders are orders that permit the Debtors to: pay salaries, wages and health and welfare benefits to associates in the ordinary course of business; honor customer service programs, such as returns, refunds, coupons, gift cards and the Company’s Customer Reward Card program; and pay certain limited categories of other pre-petition claims as necessary to avoid harm to the business. The Court also granted interim approval for the Company to access up to $600.0 million of its new $800.0 million debtor-in-possession credit facility (“DIP Credit Facility”) to supplement the Company’s cash flow during the reorganization process. In March 2005, the Court gave final approval to the DIP Credit Facility, related security interests and utilization of the full amount of the DIP Credit Facility as needed. See Note L for further discussion of the DIP Credit Facility.

Under the Bankruptcy Code, the Debtors generally must assume or reject pre-petition executory contracts, including but not limited to real property leases, subject to the approval of the Court and certain other conditions. In this context, “assumption” means that the Debtors agree to perform their obligations and cure all existing defaults under the contract or lease, and “rejection” means that the Debtors are relieved from their obligations to perform further under the contract or lease, but are subject to a pre-petition claim for damages for the breach thereof subject to certain limitations. Any damages resulting from rejection of executory contracts permitted to be recovered under Chapter 11 will be treated as liabilities subject to compromise unless such claims were secured prior to the Petition Date.

The Debtors are in the process of reviewing their executory contracts and unexpired leases to determine which they will reject in addition to the leases related to 147 closed facilities that were rejected by the “first day” orders. On April 29, 2005, the Company filed a motion to reject another 24 leases, and a Court order is pending. Management expects that additional liabilities subject to compromise will arise due to rejection of executory contracts, including leases, and from the determination of the Court (or agreement by parties in interest) of allowed claims for contingencies and other disputed amounts. Management also expects that the assumption of additional executory contracts and unexpired leases will convert certain of the liabilities shown on the accompanying financial statements as subject to compromise to post-petition liabilities. Due to the uncertain nature of many of the potential claims, the Company cannot project the magnitude of such claims with any degree of certainty. Winn-Dixie has incurred, and will continue to incur, significant costs associated with the reorganization. See Note X for further discussion of reorganization items.

The Debtors have filed with the Court schedules that set forth, among other things, the assets and liabilities of the Debtors as shown on their books and records, subject

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

to the assumptions contained in certain notes filed in connection therewith. All of the schedules are subject to further amendment or modification. The Court has established a general deadline of August 1, 2005 (the “Bar Date”) for the filing of proofs of claim. The Debtors have mailed notices to all known creditors specifying the deadline to file proofs of claim. Differences between amounts scheduled by the Debtors and claims filed by creditors will generally be investigated and resolved in connection with a claims resolution and objection process at the appropriate time. That process will not commence until after the Bar Date and, in light of the number of creditors, may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known and, because the settlement terms of these claims are subject to a confirmed plan of reorganization, the ultimate distribution with respect to allowed claims is not presently estimable.

The Office of the United States Trustee (the “U.S. Trustee”) has appointed an unsecured creditors committee. The creditors committee and its legal representatives have a right to be heard on all matters that come before the Court, including any proposed plan of reorganization. There can be no assurance that the creditors committee will support the Company’s positions in the bankruptcy proceedings or any plan of reorganization that it may propose, and disagreements with such committee could protract the bankruptcy proceedings, could negatively impact the Company’s ability to operate during bankruptcy and could delay the Debtors’ emergence from bankruptcy.

Under the priority scheme established by the Bankruptcy Code, as a general rule, post-petition liabilities and pre-petition liabilities must be satisfied before shareholders are entitled to receive any distribution. The ultimate recovery by creditors and shareholders, if any, will not be determined until confirmation and implementation of a plan of reorganization. No assurance can be given as to what recoveries, if any, will be assigned in the bankruptcy proceedings to each of these constituencies. A plan of reorganization could result in holders of Winn-Dixie stock receiving no value for their interests and holders of unsecured debt receiving less, and potentially substantially less, than payment in full for their claims. Because of such possibilities, the value of the common stock and unsecured debt is highly speculative. Accordingly, Winn-Dixie urges that appropriate caution be exercised with respect to existing and future investments in any of these securities and/or liabilities.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

obtain financing sources sufficient to satisfy its future obligations. These challenges are in addition to (but may be related to) the operational and competitive challenges the Company faces in its ordinary course of business, as discussed in the section “Forward Looking Statements.”

In accordance with Statement of Position 90-7 (“SOP 90-7”) “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” all pre-petition liabilities subject to compromise are segregated in the unaudited Condensed Consolidated Balance Sheets and classified as liabilities subject to compromise, at management’s estimate of the amount of allowable claims. Liabilities not subject to compromise are separately classified as current and non-current. Revenues, expenses, realized gains and losses, and provisions for losses that result from the reorganization are reported separately as reorganization items, net in the unaudited Condensed Consolidated Statements of Operations. Net cash used for reorganization items is disclosed separately in the unaudited Condensed Consolidated Statements of Cash Flows. A plan of reorganization could materially change the amounts reported in the financial statements, which do not give effect to all adjustments of the carrying value of assets or liabilities that might be necessary as a consequence of a plan of reorganization, or the effect of any operational changes that may be made in the business.

The accompanying unaudited Condensed Consolidated Financial Statements have also been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 40 weeks ended April 6, 2005 are not necessarily indicative of the results that may be expected for the year ending June 29, 2005.

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. 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 nine states in the southeastern United States and The Bahamas.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, the Company periodically offers awards to customers in the form of sales discounts to be used on future purchases 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.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 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 payments under 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 performing the required service activities, 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.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

To the extent that any of the foregoing forms of rebates are attributable to the pre-petition period, vendors may seek to apply them to any pre-petition liabilities owing such vendors through setoff or recoupment.

The LIFO inventory benefit of $3.8 million and $10.5 million recognized for the 12 and 40 weeks ended April 6, 2005, respectively, 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. This LIFO benefit has been classified as a component of loss on disposal of discontinued operations.

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.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The following table summarizes the components of liabilities subject to compromise in the Condensed Consolidated Balance Sheet as of April 6, 2005:

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

On February 23, 2005, the Court authorized Winn Dixie Stores, Inc. and five specified debtor subsidiaries, on an interim basis, to enter into the DIP Credit Facility. On February 23, 2005, the Court also authorized borrowings of up to $600.0 million under the DIP Credit Facility for payment of permitted pre-petition claims, working capital needs, letters of credit and other general corporate purposes. In March 2005, the Court gave final approval to the entire $800.0 million DIP Credit Facility and borrowings thereunder. The obligations under the DIP Credit Facility are guaranteed by all of the Debtors and are secured by a lien on assets of the Debtors, which lien has senior priority with respect to substantially all of the Debtors’ assets and by a super priority administrative expense claim in each of the Chapter 11 cases. The $800.0 million DIP Credit Facility is a revolving credit facility including a $300.0 million letter of credit sub-facility and a $40.0 million term loan. This Form 10-Q contains only a general description of the terms of the DIP Credit Facility and is qualified in its entirety by reference to the full DIP Credit Facility agreement filed as Exhibit 10.2 to a Current Report on Form 8-K filed February 24, 2005 and the amendment dated March 31, 2005 filed as Exhibit 10.4 to this Form 10-Q. The following capitalized terms have specific meanings as defined in the DIP Credit Facility agreement, as amended: Borrowing Base, Reserves, Excess Availability and EBITDA.

The initial usage of the DIP Credit Facility was approximately $440.0 million, of which approximately $267.0 million was used to repay the outstanding principal, interest and fees under the $600.0 million credit facility (the “Pre-petition Facility”) and $161.8 million was issued as letters of credit in order to continue the letters of credit issued under the Pre-petition Facility. Approximately $10.0 million was used to pay various issue costs related to the DIP Credit Facility. These costs are being amortized over the two-year maximum term of the facility. On March 31, 2005, $40.0 million of the outstanding borrowing on the revolving line portion of the DIP Credit Facility was converted to a term loan for which all material terms are consistent with the other portions of the DIP Credit Facility.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

At the Company’s option, interest on the revolving and term loans under the DIP Credit Facility is based on LIBOR or the bank’s prime rate plus an applicable margin. The applicable margin varies based upon the underlying rate and the amount drawn on the facility in relation to the underlying collateral (LIBOR plus 2.0% or the bank’s prime rate plus 0.5% at April 6, 2005). In addition, there is an unused line fee of 0.375%, a sub-facility letter of credit fee of 1.0%, a standby letter of credit fee of 1.75%, and a letter of credit fronting fee of 0.25%. The DIP Credit Facility contains various representations, warranties and covenants of the Debtors that are customary for such transactions, including among others, reporting requirements and financial covenants. The financial covenants include tests of cash receipts, cash disbursements and inventory levels as compared with the rolling 12-week cash forecast provided to the bank group. In addition, the Company is required to provide the bank group with monthly projections no later than May 31, 2005. At that time, the Company will be subject to an EBITDA test and a capital expenditure test. At all times, the Company is not permitted to allow Excess Availability to fall below $100.0 million. As of April 6, 2005, the Company was in compliance with all covenants and requirements, and Excess Availability was approximately $424.5 million, as summarized below:

The Debtors’ obligations under the DIP Credit Facility may be accelerated upon certain events of default, including any breach by the Debtors of any of the representations, warranties, or covenants made in the DIP Credit Facility agreement, the conversion of any of the Chapter 11 cases to a case under Chapter 7 of the Bankruptcy Code, or the appointment of a trustee or examiner pursuant to the Bankruptcy Code. The DIP Credit Facility will terminate on the earliest of (a) 24 months after the date of the initial loans (b) the effective date of any confirmed plan of reorganization, and (c) the last termination date set forth in any interim or final order approving the DIP Credit Facility.

Prior to the Petition Date, the Company’s primary sources of working capital had been cash flows from operations, trade credit from vendors, incoming and outgoing float on ACH transactions from its primary bank and borrowings under its Pre-petition Facility. As described above, on February 23, 2005, all outstanding borrowings on the Pre-petition Facility were paid off and the facility was subsequently cancelled.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In addition to the DIP Credit Facility, the Company has $300.0 million of outstanding senior notes bearing interest at 8.875% per annum (the “Notes”). The Notes were scheduled to mature in 2008, and required interest-only payments semi-annually until maturity. The Notes contain various affirmative and negative covenants customary to these types of agreements. The Chapter 11 filings created an event of default under the Notes. Under the terms of the Notes, the entire $300.0 million unpaid balance of principal, plus accrued interest and any other additional amounts due under the Notes, became immediately due and payable. The ability of the creditors to enforce their rights is stayed as a result of the Chapter 11 filings and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code. While operating under Chapter 11, the Company is prohibited from paying interest on unsecured pre-petition debts, including the Notes. As of the Petition Date, in accordance with SOP 90-7, the Company has ceased accruing interest on all unsecured debt subject to compromise.

The outstanding borrowing, including the revolving loan balance and the term loan, on the DIP Credit Facility was $106.3 million at April 6, 2005, compared to $153.0 million of revolving loans on the Pre-petition Facility at January 12, 2005. The average and peak borrowings on the revolving loans during the 12 weeks ended April 6, 2005 were $164.7 million and $277.7 million, respectively.

At April 6, 2005, the Company had letters of credit totaling $171.6 million issued under the DIP Credit Facility. Of the total, $0.3 million are import letters of credit, and $171.3 million are workers’ compensation standby letters of credit. Additionally, $17.0 million in letters of credit have been issued outside of the DIP Credit Facility for workers’ compensation purposes and are secured by marketable securities valued at $19.5 million at April 6, 2005.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The valuation allowance will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized. Consummation of a plan of reorganization and an ongoing pattern of profitability would generally be considered as sufficient positive evidence. Earnings or losses will not be tax-effected until such time as the realization of future tax benefits can be reasonably assured.

As a result of the Internal Revenue Service (“IRS”) audit of fiscal years 2000-2002, the Company was assessed $49.0 million in taxes and penalties during the third quarter. The Company disagrees with the position of the IRS and filed a protest on March 31, 2005. No amount in respect of this matter has been accrued in our consolidated financial statements.

The Company also has a retiree medical plan that 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.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

In addition, the Company has a deferred compensation supplemental retirement plan in effect for eligible management associates. The liability related to this plan of $15.6 million is classified as liabilities subject to compromise.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The following amounts are included in liabilities subject to compromise as of April 6, 2005:

The additions/adjustments amount includes the effect on operations 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. The utilization amount includes payments made for rent and related costs and the buyout of three leases.

The Company is in the process of reviewing all of its executory contracts, including its real property leases on both open and closed facilities, to determine which contracts will be rejected as allowed under the Bankruptcy Code. During the third quarter of fiscal 2005, the Company received approval from the Court to reject leases related to 147 closed facilities. Approval of further lease rejections and or closure of additional facilities will result in revisions of the liability on closed facilities and recognition of additional gains or losses. The original deadline for the Company to assume or reject each of its real property leases was April 22, 2005. The Company has been granted an extension of the deadline until September 19, 2005 for substantially all of these leases. The ultimate amount of allowed claims related to the rejection of leases, as well as the timing and amount of any payments, will be determined by the Chapter 11 proceedings.

Upon the rejection of a real property lease, the existing liability at the rejection date is reversed as an adjustment due to lease rejections. The reduction of these lease liabilities due to rejections is partially offset by an accrual for claims for damages due to lease rejection, as limited by §502(b)(6) of the Bankruptcy Code. The adjustments due to lease rejections for the leases related to 147 closed facilities rejected during the third quarter of fiscal 2005 was $258.6 million. Based upon the computation of the estimated maximum amount of allowable claims using the statutory formula provided in the Bankruptcy Code, the offsetting claim liability recorded was $92.5 million, which is included in liabilities subject to compromise. The net effect of the lease rejection adjustment and the claim liability accrual of $166.1 million is included in the Statement of Operations as a component of reorganization items, net.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Certain information technology projects have been discontinued due to the Chapter 11 filings, resulting in an impairment charge of $5.6 million related to amounts previously capitalized. Additionally, the carrying values of the two Company airplanes were evaluated based on current market prices for similar assets, resulting in an impairment charge of $4.9 million during the third quarter. One of the airplanes has been sold subsequent to the end of the quarter, and the other is being actively marketed for sale.

The Company also reviewed its estimates of fair value associated with certain assets related to discontinued operations. Management’s revised estimates of fair value indicated the need to impair the assets. Impairment charges of $1.6 million and $6.6 million were recognized during the 12 and 40 weeks ended April 6, 2005, respectively, related to discontinued operations. The impairment charge is classified in loss from discontinued operations in the Condensed Consolidated Statements of Operations. These assets in the amount of $11.9 million as of April 6, 2005 are included in prepaid expenses and other assets.

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 to 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 certain elements of the announced plan met the qualifications to be classified as discontinued operations. Other elements of the announced plan did not qualify and therefore are reported in continuing operations.

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Company determined that all 156 stores and the Louisville, Kentucky distribution center identified in the plan for exit were components of a business and were therefore reported as discontinued operations in the Condensed Consolidated Statements of Operations.

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

The loss from discontinued operations was $42.6 million and $144.4 million for the 12 and 40 weeks ended April 6, 2005, respectively, which includes a loss on disposal of discontinued operations of $28.5 million and $91.2 million, respectively, related to employee termination costs, lease termination costs, other location closing costs and a benefit from LIFO reserve. Restructuring gains were $6.9 million and charges were $78.2 million for the 12 and 40 weeks ended April 6, 2005, respectively, related to employee termination costs, lease termination costs, and other location closing costs.

Although lease liabilities on closed facilities have been expensed currently, the rent payments will continue through lease termination or rejection in the bankruptcy cases. The following tables display the total costs of the 2004 Restructure Plan incurred for the 12 weeks ended April 6, 2005 and since inception of the plan:

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WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The following table summarizes the change in liability recorded for the plan year to date to April 6, 2005:

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

Net sales from discontinued operations were $17.2 million and $238.5 million for the 12 weeks ended April 6, 2005 and March 31, 2004, respectively, and were $286.4 million and $821.2 million for the 40 weeks ended April 6, 2005 and March 31, 2004, respectively.

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Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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Table of Contents

WINN-DIXIE STORES, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION AS OF FEBRUARY 21, 2005)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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)