ITEM 1: BUSINESS Business General
Winn-Dixie Stores, Inc., organized in Florida on December 26, 1928, is a major food retailer with 1,178 stores in fourteen states and the Bahama Islands. According to published reports of sales at June 26, 1996 the Company was the fifth largest in United States supermarket sales.
All of the Company's subsidiaries except Bahamas Supermarkets Limited are wholly-owned. Except where the context indicates otherwise, the term "Company" includes the parent company and all of its subsidiaries, collectively.
Financial information on industry segments and lines of business is omitted because, apart from the principal business of operating retail self-service food stores, the Company had no other lines of business or industry segments.
Store Formats and Business Strategy
The business of the Company is the operation of a chain of retail self-service food stores which sell groceries, meats, seafood, fresh produce, deli/bakery, pharmaceuticals and general merchandise items. The Company's stores offer broad lines of merchandise, including nationally advertised and private label brands and unbranded merchandise (principally meats, seafood and produce), and generally operate on the basis of competitive pricing. Food items sold include dry groceries, dairy products, baked goods, meats, poultry, fish, fresh fruit, vegetables, frozen foods and other items commonly marketed by retail food stores. The Company's stores also sell many general merchandise items, such as magazines, soaps, paper products, health and cosmetic products, hardware and numerous small household items. Many locations have ancillary departments such as pharmacies, photo labs, dry cleaners and in-store banks. At June 26, 1996, the Company operated 1,178 retail stores of which 431 were located in Florida, 128 in North Carolina, 123 in Georgia, 91 in Alabama, 82 in South Carolina, 75 in Louisiana, 70 in Texas, 61 in Kentucky, 32 in Virginia, 24 in Tennessee, 21 in Ohio, 17 in Mississippi, 14 in the Bahamas, 7 in Oklahoma and 2 in Indiana. Such stores were operated under the names of "Winn-Dixie" (634), "Marketplace" (504), "Thriftway" (27), "The City Meat Markets" (12) and "Buddies" (1).
Support and Other Services
The following table shows the locations of the Company's distribution centers and its manufacturing and processing plants, as well as the principal products produced in the plants:
LOCATION FACILITIES _______________________________________________________________________________
ALABAMA Montgomery Distribution center; Plants: milk bottling and frozen pizza
FLORIDA Jacksonville Two distribution centers; Plants: detergents; paper bags; and coffee, tea and spices Madison Plant: meat processing Miami Distribution center; Plant: milk bottling Orlando Distribution center Bartow Plant: egg processing Plant City Plants: ice cream and milk bottling Pompano Distribution center Sarasota Distribution center Tampa Distribution center
GEORGIA Atlanta Distribution center Fitzgerald Plants: jams, jellies, mayonnaise, salad dressing, peanut butter and condiments; canned and bottled carbonated beverages Gainesville Plants: oleomargarine; natural cheese cutting and wrapping, processed cheese and pimento cheese Valdosta Plants: crackers and cookies; and snacks
KENTUCKY Louisville Distribution center
LOUISIANA New Orleans Distribution center Hammond Distribution center; Plant: milk bottling
NORTH CAROLINA Charlotte Distribution center Raleigh Distribution center High Point Plants: milk bottling and cultured products
SOUTH CAROLINA Greenville Distribution center; Plants: ice cream and milk bottling
TEXAS Fort Worth Distribution center; Plant: milk bottling
BAHAMAS Nassau Distribution center
An insignificant portion of the production of the manufacturing plants is sold to others.
Types of products produced by the Company for sale in its stores are described above. Services provided by the Company such as check cashing are incidental to the total business.
The Company has not publicly announced, or otherwise made public, information about any new product or industry segment which would require the investment of a material amount of the assets of the Company or which otherwise is material.
Sources of available raw materials are factors which do not affect the Company in any different manner than they affect other manufacturers and processors of the goods identified.
Patents and trademarks owned by the Company are not of material importance to its operations.
Seasonality does not materially affect the business of the Company. However, due to the influx of winter residents to the Sunbelt, Florida in particular, and increased purchases of food items for the Thanksgiving and Christmas holiday seasons, there is a seasonal sales increase during the period of November - April each fiscal year.
The Company and other food retailers have no unusual working capital requirements.
The business of the Company is not dependent upon a single or a few customers. The Company does not sell goods or services in an amount which equals 10 percent or more of the Company's consolidated sales to any single customer or group of customers under common control or to any affiliated group of customers.
Backlog ordering is not a factor in the business of the Company.
No portion of the business of the Company is subject to renegotiation of profits or termination of contracts or subcontracts at the election of any government.
Marketing and Competition
In all areas in which the Company operates, the business is highly competitive with local and national food chain stores as well as with independent stores and markets. Many factors enter into the competition, including price, quality of goods and services, product mix and convenience.
The retail food industry is extremely competitive. Each division faces somewhat different competitive conditions. The following table lists the major competitors for each division.
Division Major Competitors
Jacksonville Publix, Albertson's, Piggly Wiggly (Bruno), Food Lion, Super K Tampa Publix, Kash N Karry, Albertson's, Food Lion, Wal-Mart Supercenter, U-Save Montgomery Bruno, Delchamps, Wal-Mart Supercenter Miami Publix, Sedano's, Albertson's Orlando Publix, Albertson's, Goodings, Food Lion, Wal-Mart Supercenter, Super K Raleigh Food Lion, Harris-Teeter, Kroger, Hannaford, U-Krops Charlotte Food Lion, Harris-Teeter, Bi-Lo, Super K, Publix Atlanta Kroger, Ingles, A&P, Cub, Publix, Harris-Teeter, Wal-Mart Supercenter Midwest Kroger, Wal-Mart Supercenter, Biggs, Meijers New Orleans Delchamps, Schwegmans, Albertson's Fort Worth Kroger, Albertson's, Minyards, Food Lion, Randall's, Wal-Mart Supercenter Bahamas Super Value
Additionally, local chains and wholesaler-supported independents are well represented in all regions.
Winn-Dixie is considered a major competitor in all geographic areas in which it competes.
The Company did not spend a material amount on Company-sponsored research and development activities or on Company-sponsored research activities relating to the development of new products, services or techniques, or the improvement of existing products, services or techniques during any of the years in the three-year period ended June 26, 1996.
Government Regulation
The Company's compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment has not had, and is not expected to have, a material effect on its capital expenditures, earnings or competitive position.
Associates
At the end of fiscal 1996, the Company had 50,000 full-time and 76,000 part-time associates.
Bahamas
All sales are to customers within the United States and the Bahama Islands. The Company exports an insignificant amount of merchandise to its subsidiaries in the Bahamas which operate 14 retail food stores as outlined above.
ITEM 2:
ITEM 2: PROPERTIES
Stores
All of the retail stores operated by the Company are on premises occupied on a rental basis. See "Note 9 of the Notes to Consolidated Financial Statements," page, included herein.
Support Properties
The warehousing and distribution centers are rented under leases due to expire as follows: Atlanta - 2019; Charlotte - 2019; Greenville - 2019; Jacksonville (Edgewood) - 2019; Louisville - 2019; Sarasota - 2019; Miami - 2018; Montgomery - 2018; New Orleans - 2018; Raleigh - 2018; Tampa - 2018; Fort Worth - 2016; Hammond - 2016; Jacksonville (Commonwealth) - 2011; Nassau - 2011; Orlando - 2005 and Pompano - 2003. All of these contain renewal options, which vary from lease to lease.
The Deep South plant in Orlando, Florida, is no longer in operation and has been replaced with a new facility. This property is now owned in fee by the Company and is under contract for sale.
The Company's Valdosta cracker and cookie, and snacks bakeries; Fort Worth dairy plant; Madison meat processing plant; Plant City ice cream and milk bottling plants; Miami reclaim center; and Gainesville oleomargarine and cheese processing and packaging plants are owned in fee.
The Company's Greenville ice cream and milk bottling plants; Jacksonville coffee, tea and spices processing, detergent and bag plants; Montgomery milk bottling plant; and Hammond milk bottling plant are situated at the leased warehousing and distribution center locations in those cities. The Bartow egg processing plant; High Point milk bottling and cultured products plants; Miami milk bottling plant; Montgomery frozen pizza plant; and the Fitzgerald jam, jellies, mayonnaise, salad dressing, peanut butter and condiments and canned and bottled carbonated beverage plants are rented under leases.
All of the above support properties are considered to be in excellent condition.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
There are pending against the Company various claims and lawsuits arising in the normal course of business, including suits charging violations of certain civil rights laws. In addition, the Company is a party to various proceedings arising under federal, state or local regulations protecting the environment. Management is of the opinion that any liability which might result from any such claim, lawsuit or proceeding will not have a material adverse effect on the Company's consolidated earnings or financial position.
ITEM 4:
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter ended June 26, 1996.
Executive Officers of the Registrant
Set forth below is certain information concerning the executive officers of the Company:
YEAR YEAR FIRST AGE IN APPOINTED EMPLOYED YEARS AT TO CURRENT BY NAME 06-26-96 OFFICE HELD POSITION WINN-DIXIE
A. Dano Davis 51 Chairman of the Board 1988 1968 and Principal Executive Officer
James Kufeldt 58 President 1988 1961
C. H. McKellar 58 Executive Vice President 1988 1957
E. T. Walters 62 Senior Vice President 1989 1959
C. E. Winge 51 Senior Vice President 1988 1963
T. E. McDonald 59 Senior Vice President 1986 1955
H. E. Hess 56 Senior Vice President 1988 1958
R. P. McCook 43 Financial Vice President 1984 1984 and Principal Financial Officer
L. H. May 51 Vice President 1989 1964
E. E. Zahra, Jr. 49 Vice President and General Counsel 1995 1995
D. H. Bragin 52 Treasurer 1985 1961
R. J. Brocato 52 Vice President 1993 1963
R. D. Buday 53 Vice President 1995 1971
W. C. Calkins 57 Vice President 1987 1958
J. W. Critchlow 49 Vice President 1988 1967
R. J. Ehster 55 Vice President 1983 1958
D. G. Lafever 47 Vice President 1990 1966
H. E. Miller 64 Vice President 1984 1956
J. R. Pownall 59 Vice President 1986 1955
L. J. Sadlowski 55 Vice President 1983 1961
R. A. Sevin 53 Vice President 1987 1961
B. B. Tripp 59 Vice President 1987 1954
All of the officers listed above, with the exception of E. E. Zahra, Jr., have been employed for the past five years in either the same capacity as listed, or in a position with the Company which was consistent in occupation with the present assignment. Prior to becoming General Counsel, Mr. Zahra was the managing partner of the Jacksonville office of LeBoeuf, Lamb, Greene & MacRae L.L.P., an international law firm.
Officers are elected annually by the Board of Directors and serve for a one-year period or until their successors are elected. No officers have employment contracts with the Company.
PART II
ITEM 5:
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The principal market on which the Company's common stock is traded is the New York Stock Exchange. The number of record holders of the Company's common stock as of June 28, 1996 was 56,148.
Information required by this Item concerning sales prices of the Company's common stock and the frequency and amount of dividends is hereby incorporated by reference to "Note 12 of the Notes to Consolidated Financial Statements," page included herein.
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
The information required by this Item is on page included herein.
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is on page included herein.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are as set forth in the "Index to Consolidated Financial Statements, Supporting Schedules and Supplemental Data" on page 12 included herein.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure between the Company and its auditors within the 24 months prior to June 26, 1996.
PART III
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by these Items are incorporated herein by reference to the Company's definitive proxy statement to be filed on, or before, August 30, 1996 in connection with its Annual Meeting of Shareholders.
PART IV
ITEM 14:
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements and Schedules:
(a) Exhibit and Financial Statements and Schedules
(1) Financial Statements:
See "Index to Consolidated Financial Statements, Supporting Schedules and Supplemental Data" on page 12 included herein.
(2) Financial Statement Schedules:
See "Index to Consolidated Financial Statements, Supporting Schedules and Supplemental Data"on page 12 included herein.
Exhibits:
Certain of the following exhibits which have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934 and which are designated in prior filings as noted below, are hereby incorporated by reference and made a part hereof:
Exhibit Number Description of Exhibit Incorporated by Reference From
3.1 Restated Articles of Incorporation as Previously filed as Exhibit 3.1 filed with the Secretary of State of to Form 10-K for the year ended Florida. herein incorporated by reference.*
3.1.1 Amendment adopted October 7, 1992, to Previously filed as Exhibit Restated Articles of Incorporation. 3.1.1 to Form 10-K for the year ended June 30, 1993, which Exhibit is herein incorporated by reference.*
3.1.2 Amendment adopted October 5, 1994, to Previously filed as Exhibit Restated Articles of Incorporation. 3.1.2 to Form 10-Q for the quarter ended January 11, 1995, which Exhibit is herein incorporated by reference.*
3.2 Restated By-Laws of the Registrant as Previously filed as Exhibit 3.2 amended through June 21, 1995. to Form 10-K for the year ended June 28, 1995, which Exhibit is herein incorporated by reference.*
9.1 Agreement of Shareholders of D.D.I., Previously filed as Exhibit 9.1 Inc.(formerly Vadis Investments, Inc.) June 30, 1993, which Exhibit is dated April 19, 1989. to Form 10-K for the year ended herein incorporated by reference.*
10.1 Annual Officer Incentive Compensation Previously filed as Exhibit 10.2 Plan as amended, effective June 17, to Form 10-K for the year ended 1991. June 30, 1993, which Exhibit is herein incorporated by reference.*
10.2 Long-term Officer Incentive Previously filed as Exhibit 10.3 Compensation Plan as amended, June 30, 1993, which Exhibit is effective June 27, 1991. to Form 10-K for the year ended herein incorporated by reference.*
10.2.1 Restricted Stock Plan, effective Previously filed as Exhibit June 29, 1995. 10.2.1 to Form 10-Q for the quarter ended January 10, 1996, which Exhibit is herein incorporated by reference.*
10.3 Key Employee Stock Option Plan Previously filed as Exhibit 10.5 effective January 24, 1990, as to Form 10-K for the year ended amended through October 7, 1992. June 30,1993, which Exhibit is herein incorporated by reference.*
10.3.1 Amendment adopted June 22, 1994 to Previously filed as Exhibit Key Employee Stock Option Plan. 10.5.1 to Form 10-Q for the quarter ended January 11, 1995, which Exhibit is herein incorporated by reference.*
10.3.2 Amendment adopted July 25, 1994 to Previously filed as Exhibit Key Employee Stock Option Plan. 10.5.2 to Form 10-Q for the quarter ended January 11, 1995, which Exhibit is herein incorporated by reference.*
10.4 Supplemental Retirement Plan dated Previously filed as Exhibit 10.6 July 1, 1994. to Form 10-K for the year ended June 29, 1994, which Exhibit is herein incorporated by reference.*
10.5 Management Security Plan as amended and restated effective June 30,1982.
10.5.1 Amendment effective May 1, 1992 to Management Security Plan.
10.6 Senior Corporate Officer's Management Security Plan as amended and restated effective June 30,1982.
10.6.1 Amendment effective May 1, 1992 to Senior Corporate Officer's Management Security Plan.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of Winn-Dixie Stores, Inc.
23.1 Consent of KPMG Peat Marwick LLP.
*Incorporated herein by reference as indicated.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter ended June 26, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WINN-DIXIE STORES, INC.
By A. DANO DAVIS A. Dano Davis, Chairman
Date August 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
A. DANO DAVIS Chairman (Principal August 9, 1996 (A. Dano Davis ) Executive Officer) and Director
JAMES KUFELDT President and Director August 9, 1996 (James Kufeldt)
RICHARD P. MCCOOK Financial Vice President August 9, 1996 (Richard P. McCook) (Principal Financial Officer)
DAVID H. BRAGIN Treasurer August 9, 1996 (David H. Bragin) (Principal Accounting Officer)
ROBERT D. DAVIS Director August 9, 1996 (Robert D. Davis)
Director (T. Wayne Davis)
CHARLES H. MCKELLAR Director August 9, 1996 (Charles H. McKellar)
RADFORD D. LOVETT Director August 9, 1996 (Radford D. Lovett)
CHARLES P. STEPHENS Director August 9, 1996 (Charles P. Stephens)
ARMANDO M. CODINA Director August 9, 1996 (Armando M. Codina)
DAVID F. MILLER Director August 9, 1996 (David F. Miller)
Director (Carleton T. Rider)
JULIA B. NORTH Director August 9, 1996 (Julia B. North)
WINN-DIXIE STORES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SUPPORTING SCHEDULES AND SUPPLEMENTAL DATA
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Financial Statements and Supplemental Data:
Independent Auditors' Report
Report of Management
Consolidated Statements of Earnings, Years ended June 26, 1996, June 28, 1995 and June 29, 1994
Consolidated Balance Sheets, June 26, 1996 and June 28, 1995
Consolidated Statements of Cash Flows, Years ended June 26, 1996, June 28, 1995 and June 29, 1994
Consolidated Statements of Shareholders' Equity, Years ended June 26, 1996, June 28, 1995 and June 29, 1994
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Independent Auditors' Report on Financial Statement Schedules S-1
II Consolidated Valuation and Qualifying Accounts, Years ended June 26, 1996, June 28, 1995 and June 29, 1994 S-2
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information.
(a) Fiscal Year: The fiscal year ends on the last Wednesday in June. Fiscal years ended 1996, 1995 and 1994 comprised 52 weeks.
(b) Basis of Consolidation: The consolidated financial statements include the accounts of Winn-Dixie Stores, Inc. and its subsidiaries which operate as a major food retailer in fourteen states and the Bahama Islands.
(c) Acquisition: On March 26, 1995, the Company acquired Thriftway, Inc., a twenty-five store supermarket chain operating in Ohio and Kentucky in a stock-for-stock transaction which is not reflected in the statement of cash flows. This acquisition has been accounted for using the purchase method.
(d) Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased. Cash and cash equivalents are stated at cost plus accrued interest, which approximates market.
(e) Inventories: Inventories are stated at the lower of cost or market. The "dollar value" last-in, first-out(LIFO) method is used to determine the cost of approximately 91% of inventories consisting primarily of merchandise in stores and distribution warehouses. Manufacturing and produce 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.
(f) Fair Value of Financial Instruments: The carrying amount of the short-term borrowings approximates fair value because of their short-term maturity. See Note 6(b) for information on interest rate swap agreements.
(g) Income Taxes: Deferred tax asset s and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
(h) Self-insurance: Self-insurance reserves are established for automobile and general liability, workers' compensation and property loss costs based on claims filed and claims incurred but not reported, with a maximum per occurrence of $2,000,000 for automobile and general liability and $1,000,000 for workers' compensation. Self-insurance reserves are established for property losses with a maximum annual aggregate of $5,000,000 and a $100,000 per occurrence deductible after the aggregate is obtained. The Company is insured for insurance costs in excess of these limits.
(i) Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(j) Depreciation and Amortization: Depreciation of plant and equipment, which is stated at historical cost, is provided over the estimated useful lives by the straight-line method or by methods that produce results similar to the straight-line method. Amortization of improvements to leased premises is provided principally by the straight-line method over the periods of the leases or the estimated useful lives of the improvements, whichever is less
(k) Store Opening and Closing Costs: The costs of opening new stores and closing of old stores are charged to earnings in the year incurred.
(l) Earnings Per Share: The number of shares used in the calculation for 1996, 1995 and 1994 amounted to 151,577,205, 149,434,006 and 149,288,072, respectively, which is the weighted average number of shares of common stock outstanding during each year. All share and per share amounts have been retroactively restated to reflect the 2-for-1 stock split effected on November 10,1995.
(m) Stock-Based Compensation: During fiscal year 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FASB Statement No.123), which establishes a fair value based method of accounting for stock-based compensation plans. Prior to fiscal year 1996, the Company followed the intrinsic value method set forth in APB Opinion 25, "Accounting for Stock Issued to Employees." The adoption of this Standard in 1996 had no material effect on the Company's financial statements (see Notes 7 and 8).
(n) New Accounting Standard: In March 1995, the Financial Accounting Standards Board issued Financial Accounting Standard No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the flows estimated to be generated by those assets are less than the asset's carrying amount. This Standard also addresses the accounting for long-lived assets that are expected to be disposed of. The Company has historically reserved for losses related to the impairment of long-term assets. The adoption of this Standard in 1996 had no material effect on the Company's financial statements.
(o) Reclassification: Loans to associates for the purchase of Company stock has been reclassified as a reduction of shareholders' equity rather than a current asset. Certain prior year amounts have been reclassified to conform with the presentation adopted in 1996.
2. Accounts Receivable.
Accounts receivable at year-end were as follows: 1996 1995 Amounts in thousands Trade and other receivables $ 78,698 67,183 Construction advances 81,607 85,834 160,305 153,017 Less: Allowance for doubtful items. 1,860 1,105 $ 158,445 151,912
3. Inventories.
At June 26, 1996, inventories valued by the LIFO method would have been $222,341,000 higher ($212,485,000 higher at June 28, 1995) if they were stated at the lower of FIFO cost or market. If the FIFO method inventory valuation had been used for the year ended June 26, 1996, reported net earnings would have been $6,022,000 or $0.04 per share higher ($4,625,000 or $0.03 per share higher in 1995 and $1,088,000 or $0.01 per share lower in 1994).
4. Property, Plant and Equipment.
Property, plant and equipment consists of the following: 1996 1995 Amounts in thousands
Land $ 2,459 2,441 Buildings 25,962 25,368 Furniture, fixtures, machinery and equipment 1,915,937 1,735,949 Transportation equipment 117,242 122,322 Improvements to leased premises 397,464 333,460 Construction in progress 49,493 44,349 2,508,557 2,263,889 Less: Accumulated depreciation and amortization 1,553,990 1,425,601 954,567 838,288 Leased property under capital leases, less accumulated amortization of $37,373,000 ($40,779,000 in 1995) 44,282 59,535 Net property, plant and equipment $ 998,849 897,823
The Company had no non-cash additions to leased property for 1996 and 1995 as compared to $10.3 million for 1994.
5. Income Taxes.
The provision for income taxes consisted of: Current Deferred Total Amounts in thousands Federal $ 117,136 (7,523) 109,613 State 22,251 (173) 22,078 $ 139,387 (7,696) 131,691
Federal $ 89,648 9,326 98,974 State 21,800 1,034 22,834 $ 111,448 10,360 121,808
Federal $ 108,163 (217) 107,946 State 19,805 4,631 24,436 $ 127,968 4,414 132,382
The following reconciles the above provision to the Federal statutory income tax rate:
1996 1995 1994
Federal statutory income tax rate 35.0 % 35.0 % 35.0 % State and local income taxes, net of federal income tax benefits 3.5 4.3 3.8 Other tax credits (0.2) (1.1) (1.1) Life insurance (3.1) (2.1) (1.1) Other, net (1.2) (1.7) 1.4 34.0 % 34.4 % 38.0 %
The retroactive increase in the federal corporate income tax rate from 34% to 35%, enacted on August 10, 1993 and effective on January 1, 1993, resulted in additional income tax expense in fiscal 1994. This increase in income tax expense was offset by an increase in prepaid income taxes resulting from the federal corporate income tax rate increase as required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
The effective tax rate during the fourth quarter of fiscal 1995 reflects the final settlement with the Internal Revenue Service of transactions pursuant to Section 1804(e)(4) of the Tax Reform Act of 1986 whereby certain subsidiaries of the Company were able to utilize the benefits of the net operating losses of certain unaffiliated corporations.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred liabilities at June 26, 1996, June 28, 1995 and June 29, 1994 are presented below:
1996 1995 1994 Amounts in thousands Deferred tax assets: Reserve for insurance claims and self-insurance $ 58,501 60,050 61,766 Reserve for vacant store leases 10,319 7,738 11,248 Unearned promotional allowance 7,568 3,642 3,909 Reserve for accrued vacations 9,278 8,827 8,021 State net operating loss carry forwards 6,962 7,174 6,683 Excess of book over tax depreciation 10,026 9,088 9,283 Excess of book over tax rent expense 1,133 923 902 Excess of book over tax retirement expense 10,750 8,046 7,127 Uniform capitalization of inventory 5,181 4,602 4,418 Other, net 25,464 14,824 13,406 Total gross deferred tax assets 145,182 124,914 126,763 Less: Valuation allowance 6,896 6,487 6,325 Net deferred tax assets 138,286 118,427 120,438 Deferred tax liabilities: Excess of tax over book depreciation (18,514) (16,036) (8,811) Bahamas subsidiary foreign earnings (11,506) (11,535) (9,375) Other, net (13,429) (3,717) (4,753) Total gross deferred tax liabilities (43,449) (31,288) (22,939) Net deferred tax assets $ 94,837 87,139 97,499
Current deferred income taxes of $72,105,000 and $58,114,000 for 1996 and 1995, respectively, are included in the prepaid expenses in the accompanying consolidated balance sheets.
The Company believes the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
6. Financing.
(a) Credit Arrangements: The Company has available a $300.0 million Commercial Paper Program. As of June 26, 1996, there was $110.0 million outstanding as compared to $125.0 million outstanding on June 28, 1995. The average interest rate on the commercial paper outstanding on June 26, 1996 was 5.5% as compared to 6.1% on June 28, 1995. The Company also has short-term lines of credit totaling $340.0 million. The lines of credit are available when needed during the year and are renewable on an annual basis. The Company is not required to maintain compensating bank balances in connection with these lines of credit. As of June 26, 1996, there were no amounts outstanding under these bank lines of credit, compared to $5.0 million outstanding on June 28, 1995.
(b)Interest Rate Swap: The Company has entered into interest rate swap agreements to reduce the impact of changes in rental payments on retail locations, distribution facilities and manufacturing facilities that have a lease term of 25 years and whose primary rent expense fluctuates with the commercial paper interest rate. At June 26, 1996, the Company had outstanding four interest rate swap agreements, having a notional principal amount of $50 million each, with an investment bank. These agreements effectively change the Company's exposure on its leased real estate with floating rental payments to fixed rental payments based on a 7.7% interest rate. The interest rate swap agreements mature on June 30, 1996, 1998, 2002 and 2004. In addition, the Company has entered into two additional interest rate swap agreements, having a notional principal amount of $50 million each, that do not become effective until the termination date of the interest rate swap agreements that mature on June 30, 1996 and June 30, 1998. The Company is exposed to credit loss in the event of nonperformance by the other party to these interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterpart.
Since current short-term interest rates at June 26, 1996, are below the 7.7% rate of these contracts, the estimated negative value of these swaps was approximately $7.5 million.
7. Common Stock.
The Company has a stock purchase plan in effect for associates. Under the terms of the Plan, the Company may grant options to associates to purchase shares of the Company's common stock at a price not less than the greater of 85% of the fair market value at the date of grant or $1.00. During fiscal year 1996, 1,069,251 shares of common stock were sold to associates at an aggregate price of $54,531,801. There are 392,626 shares of the Company's common stock available for the grant of options under the Plan.
Under FASB Statement No. 123, purchase discounts granted to associates are recognized as compensation cost over the vesting period. The 1996 compensation cost that has been charged against net income was $2.0 million. Under APB Opinion 25, no compensation cost was recorded in 1995 or 1994.
8. Stock Options.
On October 7, 1992, the shareholders approved an amendment to the Company's Key Employee Stock Option Plan to increase the number of shares of common stock available for issuance to 1,000,000 shares. Under this plan adopted by the Board of Directors on June 22, 1992, options to acquire 226,000 shares of common stock were granted to key employees at an exercise price of $21.063 per share. Of the options granted, 113,000 became exercisable on June 30, 1993. The remaining 113,000 became exercisable on June 29, 1994. Options under this plan expire on December 31, 1998.
8. Stock Options, continued.
On June 22, 1994, the Board of Directors adopted an amendment to the Company's Key Employee Stock Option Plan to increase the number of shares of common stock available for issuance to 2,000,000 shares. This amendment was approved by shareholders on October 5, 1994. Under this plan, options to acquire 466,000 shares at an exercise price of $22.438 per share were granted to key employees. Of the options granted, 233,000 shares became exercisable on June 28, 1995 and the remaining 233,000 shares are exercisable on June 27, 1996, if earned. These options expire on January 15, 2001. Also, an additional option to acquire 8,000 shares at $27.938 was granted on June 21, 1995. This option is exercisable on June 27, 1996, if earned, and will expire on January 15, 2001.
Changes in options under these plans during the years ended June 26, 1996, June 28, 1995 and June 29, 1994 were as follows:
Number of Option Price Shares Per Share
Outstanding - June 30, 1993 490,000 $14.250-21.063 Granted 466,000 $22.438 Exercised - - Canceled - - Outstanding - June 29, 1994 956,000 $14.250-22.438 Granted 8,000 $27.938 Exercised (58,000) $14.250-21.063 Canceled (30,000) $22.438 Outstanding - June 28, 1995 876,000 $14.250-27.938 Granted - $ - Exercised (236,000) $14.250-22.438 Canceled (10,000) $22.438 Outstanding - June 26, 1996 630,000 $21.063-27.938 Exercisable - June 26, 1996 389,000 $21.063-22.438 Shares available for additional grant 928,000
Options granted under the Company's Key Employee Stock Option Plan are exercisable upon the achievement of specified operating results. The Company's adoption of FASB Statement No. 123 in fiscal 1996 did not materially impact the Company's financial statements, which historically have reflected compensation expense under APB Opinion 25.
9. Leases.
(a) Leasing Arrangements: There were 1,432 leases in effect on store locations and other properties at June 26, 1996. Of these 1,432 leases, 52 store leases and 2 warehouse and manufacturing facility leases are classified as capital leases. Substantially all store leases will expire during the next twenty years and the warehouse and manufacturing facility leases will expire during the next twenty-five years. However, in the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.
The rental payments on substantially all store leases are based on a minimum rental plus a contingent rental which is based on a percentage of the store's sales in excess of stipulated amounts. Most of the Company's leases contain renewal options for five-year periods at fixed rentals.
9. Leases, continued.
(b) Leases: The following is an analysis of the leased property under capital leases by major classes:
Asset balances at June 26, 1996 June 28, 1995 Amounts in thousands
Store facilities $ 65,933 74,653 Warehouses and manufacturing facilities 15,722 25,661 81,655 100,314 Less: Accumulated amortization 37,373 40,779 $ 44,282 59,535
The following is a schedule by year of future minimum lease payments under capital and operating leases, together with the present value of the net minimum lease payments as of June 26, 1996.
Capital Operating Amounts in thousands Fiscal Year: 1997 $ 11,345 265,851 1998 11,140 258,856 1999 10,731 254,271 2000 10,539 250,010 2001 10,545 243,925 Later years 77,949 2,341,514 Total minimum lease payments 132,249 3,614,427
Less: Amount representing estimated taxes, maintenance and insurance costs included in total minimum lease payments 3,707
Net minimum lease payments 128,542 Less: Amount representing interest 64,715 Present value of net minimum lease payments $ 63,827
Rental payments under operating leases including, where applicable, real estate taxes and other expenses are as follows:
1996 1995 1994 Amounts in thousands
Minimum rentals $ 254,705 218,921 190,830 Contingent rentals 3,320 3,323 3,352 $ 258,025 222,244 194,182
10. Commitments and Contingent Liabilities.
(a) Associate Benefit Programs: The Company has noncontributory, trusteed profit sharing retirement programs which are in effect for eligible associates and may be amended or terminated at any time. Charges to earnings for contributions to the programs amounted to $62,200,000, $55,250,000 and $54,225,000 in 1996, 1995 and 1994, respectively.
In addition to providing profit sharing benefits, the Company makes group insurance available to early retirees from the time they retire until age 65 when they qualify for Medicare/Medicaid. Currently, the early retiree group constitutes 140 associates. This group of retirees bear the entire costs of this plan, which is maintained totally separate from the Company's regular group insurance plan. The Company reserves the right to modify these benefits.
(b) Defined Benefit Plan: The Company has a Management Security Plan (MSP), which is a non-qualified defined benefit plan providing disability, death and retirement benefits to 578 qualified associates of the Company. Total MSP cost charged to operations was $4,942,000, $4,979,000 and $4,557,000 in 1996, 1995 and 1994, respectively. The projected benefit obligation at June 26, 1996 was approximately $35,146,000. The effective discount rate used in determining the net periodic MSP cost was 8.0% for 1996, 1995 and 1994.
Life insurance policies, which are not considered as MSP assets for liability accrual computations, were purchased to fund the MSP payments. These insurance policies are shown on the balance sheet at their cash surrender values, net of policy loans aggregating $154,438,000 and $141,416,000 at June 26, 1996 and June 28, 1995, respectively.
The Company holds life insurance on a broad-based group of qualified associates. These insurance policies are shown on the balance sheet at their cash surrender value, net of policy loans aggregating $459,583,000 at June 26, 1996 and $367,423,000 at June 28, 1995.
(c) Litigation: There are pending against the Company various claims and lawsuits arising in the normal course of business, including suits charging violations of certain civil rights laws. In addition, the Company is a party to various proceedings arising under federal, state or local regulations protecting the environment. Management is of the opinion that any liability which might result from any such claim, lawsuit or proceeding will not have a material adverse effect on the Company's consolidated earnings or financial position.
11. Related Party Transactions.
The Company is self-insured for purposes of employee group life, medical, accident and sickness insurance, with American Heritage Life Insurance Company, a related party, providing administrative services and expenses for medical and accident claims. American Heritage Life Insurance Company also financed the development and expansion of certain retail stores. Total payments aggregating $25,001,000, $13,442,000 and $15,109,000 were made in 1996, 1995 and 1994, respectively.
12. Quarterly Results of Operations (Unaudited).
The following is a summary of the unaudited quarterly results of operations for the years ended June 26, 1996, June 28, 1995 and June 29, 1994:
12. Quarterly Results of Operations (Unaudited), continued.
During 1996, 1995 and 1994, the fourth quarter results reflect a change from the estimate of inflation used in the calculation of LIFO inventory to the actual rate experienced by the Company of 1.2% to 0.8%, 1.6% to 0.6% and 1.0% to (0.1)%, respectively.
Fourth Quarter Results of Operations
June 26, 1996 June 28, 1995 June 29, 1994 (12 weeks) (12 weeks) (12 weeks)
Amounts in thousands Net sales $ 3,012,644 2,883,813 2,585,252 Cost of sales 2,286,091 2,202,982 1,977,224 Gross profit on sales 726,553 680,831 608,028 Operating and administrative expenses 647,429 607,460 522,057 Operating income 79,124 73,371 85,971 Cash discounts and other income, net 30,473 25,749 19,166 Interest expense (1,640) (2,083) (1,411) Earnings before income taxes 107,957 97,037 103,726 Income taxes 33,912 29,303 39,373 Net earnings $ 74,045 67,734 64,353
The effective tax rate during the fourth quarter of fiscal 1995 reflects the final settlement with the Internal Revenue Service of transactions pursuant to Section 1804(e)(4) of the Tax Reform Act of 1986 whereby certain subsidiaries of the Company were able to utilize the benefits of the net operating losses of certain unaffiliated corporations.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Shareholders and Board of Directors Winn-Dixie Stores, Inc.:
Under date of July 29, 1996, we reported on the consolidated balance sheets of Winn-Dixie Stores, Inc. and subsidiaries as of June 26, 1996 and June 28, 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended June 26, 1996, as contained in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in the accompanying index on page 12 of the annual report on Form 10-K for the year 1996. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP Certified Public Accountants
Jacksonville, Florida July 29, 1996
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Schedule II
WINN-DIXIE STORES, INC. AND SUBSIDIARIES Consolidated Valuation and Qualifying Accounts Years Ended June 26, 1996, June 28, 1995 and June 29, 1994 (Amounts in thousands)
Balance at Additions Deductions Balance beginning charged to from at end Description of year income reserves of year
Year ended June 26, 1996: Reserves deducted from assets to which they apply: Allowance for doubtful receivables $ 1,105 20,150 19,395 1,860
Reserves not deducted from assets: Reserves for insurance claims and self-insurance: -Current $ 59,373 85,744 83,357 61,760 -Noncurrent 103,384 2,039 8,214 97,209 $162,757 87,783 91,571 158,969
Year ended June 28, 1995: Reserves deducted from assets to which they apply: Allowance for doubtful receivables $ 834 12,783 12,512 1,105
Reserves not deducted from assets: Reserves for insurance claims and self-insurance: -Current $ 60,510 81,323 82,460 59,373 -Noncurrent 105,417 - 2,033 103,384 $165,927 81,323 84,493 162,757
Year ended June 29, 1994: Reserves deducted from assets to which they apply: Allowance for doubtful receivables $ 732 12,126 12,024 834
Reserves not deducted from assets: Reserves for insurance claims and self-insurance: -Current $ 65,134 77,488 82,112 60,510 -Noncurrent 100,169 5,248 - 105,417 $165,303 82,736 82,112 165,927
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