winn-dixie stores 2001_Annual_Report


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winn-dixie stores 2001_Annual_Report

  2. 2. NEW WINN DIXIE THE NEW 2001 Financial Highlights 2 Letter to Shareholders 5 A Fresh Approach 9 Directors & Management 17 Financial Review 19
  3. 3. 2001 FINANCIAL HIGHLIGHTS PERCENTAGE F O R T H E F I S C A L Y E A R J U N E 2 7, 2 0 0 1 2000 (EXCLUDING N O N- R E C U R R I N G C H A R G E S ) CHANGE (Dollars in thousands except per share data) FINANCIAL INFORMATION (Excluding non-recurring charges) - 5.8 Sales 12,903,373 13,697,547 17.0 Per Store 11,600 11,600 No Change - 7.3 Gross Profit 3,454,027 3,727,050 RETURN ON AVERAGE EQUITY – 1.5 Percent To Sales 26.8 % 27.2 % 6.6 (In percentages) - 11.3 Operating & Administrative Expenses 3,180,297 3,586,351 - 5.7 Percent To Sales 24.7% 26.2 % 2000 2001 + 94.6 Operating Income 273,730 140,699 + 110.0 Percent To Sales 2.1 % 1.0 % + 15.1 EBITDA 457,289 397,370 457.3 + 157.6 Return On Average Equity 17.0 % 6.6 % 397.4 - 28.5 Depreciation & Amortization 183,559 256,671 EBITDA (In millions of dollars) - 4.1 Dividends Paid On Common Stock 142,853 148,966 AT YEAR END 2000 2001 + 792.0 Working Capital 449,294 50,369 + 40.0 Current Ratio 1.4 1.0 - 0.3 Total Shares Outstanding (000’s) 140,466 140,830 1.00 + 6.9 Stores In Operation 1,153 1,079 0.52 EARNINGS PER SHARE 2000 2001 2 3 WINN-DIXIE 2001 2001 WINN-DIXIE
  4. 4. During this past fiscal year, Winn-Dixie has taken a fresh approach to our business. Today’s Winn-Dixie is leaner, more efficient, and more agile than a year ago. Equally important, the company is totally dedicated to excellent customer service. We have made some dramatic changes in operations. It is especially satisfying to report that the restructuring program announced in April 2000 was substantially implemented, and we are achieving the desired results. In fact, its impact has already been reflected in reduced expenses and improved profitability. restructuring expenditures of $552.2 million by fiscal Several restructuring initiatives will have long-term year-end. Virtually all of the action items in the impact on the company, improving our retail stores and restructuring plan have been accomplished as of June increasing our overall efficiency. We are saving 27, 2001. Highlights include: approximately $400 million a year, having completed M E S S A G E T O O U R S H A R E H O L D E R S: • Sharpened focus on total customer satisfaction; • Centralized functions such as accounting, real estate, procurement and marketing for better control and efficiency; • Closed 112 stores and certain manufacturing and distribution centers, all of which had been underperforming assets; • Reformatted store layouts and retrofitted more than half the chain – “right-sizing” key departments to increase profitability; • Introduced new methods to better manage inventory; and • Revamped performance-based incentive plans. 5 2001 WINN-DIXIE
  5. 5. In short, with these steps complete, we have made In addition, as we move ahead with efforts to grow substantial progress. We have retained assets in our sales, our emphasis will shift to new, targeted traditional strengths while changing areas of operations marketing and promotional efforts. To this end, we that needed improvement. Going forward, our business recently retained Cramer-Krasselt, the nation’s fourth plan is to: largest independent marketing agency, as advertising • Be the best supermarket operator in the agency of record. A new television advertising campaign neighborhood; will be unveiled early in fiscal year 2002. • Provide the right products, excellent service and Of course, financial strength is an important part of low prices; our picture, ensuring we have the resources to grow Winn-Dixie to leverage its buying power, with benefits Our sincere appreciation is extended to the many • Run profitable stores targeted to our customers; through acquisition, capital investments, and aggressive such as lower cost of goods and reduced inventory. This loyal associates for their efforts to improve customer and marketing. In early 2001, we issued $300 million of project involved significant company resources, yet will service during a difficult time for the company. We are • Maintain strong market share in growing markets. 8.875% Senior Notes Due 2008. The net proceeds of this help improve margins and increase efficiency long-term. proud of the way they have responded to the greater offering, together with $400 million of net proceeds Centralized procurement is one of the new programs demands placed upon them. For example, we are cross- Winn-Dixie has a tremendous opportunity to grow both under our new $800 million credit facility, refinanced that also enables division management to focus more training associates in several departments to better the top- and bottom-line by making the most of our store indebtedness under Winn-Dixie’s existing credit facilities time and resources on their key jobs — providing serve customers, requiring more flexibility on network infrastructure. Therefore, a major emphasis for and the balance will be used for general corporate associates’ part than ever before. Their support in our purposes. “be the best supermarket operator commitment to build rapport with customers and Throughout the year we have continued to strengthen deliver consistently high service is invaluable. our management team to prepare for the future. Dennis in the neighborhood ” In conclusion, we would like to welcome two new M. Sheehan, a lifelong veteran of the grocery industry, members of the Board of Directors. Tillie K. Fowler is a joined as Senior Vice President of Real Estate, a position former member of the U.S. House of Representatives, critical to our expansion. Richard C. Judd joined us as excellent service, growing sales volume, and supporting and currently is a partner in the law firm of Holland & the past year has been on improving operations and Vice President of Warehousing and Distribution from store managers. The store manager position is becoming Knight LLP. Also, Ronald Townsend, a member of the creating efficiencies that will enable us to increase sales Fleming Companies, Inc., to enhance our logistics increasingly vital at our company. Therefore, it is broadcast industry for more than 35 years, is a per square foot of existing stores. Our retrofitted and capabilities. Dean Dell Antonia, Vice President, receiving more organizational support such as communications consultant who was formerly President redesigned stores better enable us to compete in key Performance & Reward Systems, came to us from Rite Aid additional training. An important management concept of Gannett Television Group. Both of these new directors markets, as they are more customer-friendly and cost- Corporation, where he was Managing Director of in Winn-Dixie’s culture is “Servant Leadership,” the idea bring new experience and perspective to our board. effective. Compensation and Benefits. Graeme M. Harper, a senior that all our internal resources support the stores in As a result of the changes made during the past fiscal As another example of doing business more effectively, consultant with Pricewaterhouse Coopers, was named better serving our customers. year, our business has been restructured and repositioned. we lowered our cost structure, providing cash that can Senior Director of Risk Management. A. Brent Kailing, Acquisitions played a key role in Winn-Dixie’s We have a modern store infrastructure in place and are be redeployed elsewhere in the business more profitably. previously Vice President of Operations at Smith’s Food strategy in 2001. They will continue to be an option, investing in the company’s human potential. We have And we have simplified our division structure to provide and Drugs, joined Winn-Dixie as Division Manager of Fort given the right opportunities. In the past year, we successfully reduced expenses and improved productivity. a better foundation for growth, including the benefits of Worth. Robert A. Rowe, Director of Special Projects, was acquired nine Gooding’s supermarkets in the Orlando Winn-Dixie is better prepared to meet the challenges of centralized administrative functions. elected Vice President in charge of the Save Rite area, a core market that offers the potential for sales the future. Our whole organization is now focused on Without doubt, one of the major achievements in FY division. Most recently, C. John Kistel, a vice president growth. Even more significantly, we acquired 68 stores delivering profitable growth for our shareholders in the 2001 has been the implementation of centralized of the Penn Traffic group, joined Winn-Dixie as Vice and 32 fuel centers owned by Mississippi-based Jitney years ahead. procurement. The new procurement system enables President of General Merchandise. Jungle. The acquisition was accretive to earnings and cash flow, and the other synergies were immediate. The acquired store base, which is served by two of our existing distribution centers, has been easily integrated into our existing division structure. Gooding’s and A. Dano Davis Allen R. Rowland Jitney Jungle join a family of brands that also include Chairman of the Board President and Winn-Dixie, Save Rite, Thriftway and City Markets. Chief Executive Officer 6 7 WINN-DIXIE 2001 2001 WINN-DIXIE
  6. 6. F R E S H I D E A S. Total Customer Satisfaction Delivering what the customer wants represents the future of Winn-Dixie. Customer service, attractive pricing, and modern store environments play vital roles in delivering a positive Winn-Dixie shopping experience. As part of our commitment to customer satisfaction, in the past fiscal year alone the company has ... 9 2001 WINN-DIXIE
  7. 7. • Introduced new training programs in customer service, food safety and sanitation. The First Class Service initiative is a major example of an exciting new program. The main goals of First Class Service are to make customers our friends and to make Winn-Dixie a fun, desirable place to work. New programs to measure F R E S H AT T I T U D E S. customer satisfaction and to provide reward and recognition for top-performing employees also have been put into place. • Empowered store managers and division management to act aggressively to meet local customer needs. • Improved labor productivity so that more associates are available to interact with customers, and to shorten waiting lines at peak “rush” hours. 10 WINN-DIXIE 2001
  8. 8. Many of the operational improvements this year strengthen our “speed to shelf” capabilities, providing the popular brands customers seek. We offer both national and regional brands, with many of the latter having cultural or ethnic appeal. A major growth opportunity for us is the Winn-Dixie line of store-brand products. These product lines carry higher margins than comparable national brands and promote customer loyalty. Winn-Dixie’s Chek soda, for example, holds a leading position in several markets, outselling prominent national brands. We have one of the leading F R E S H T H I N K I N G. store-brand programs in our industry. In fact, our high- quality manufacturing facilities are handling contract manufacturing for other companies. A long-standing Winn-Dixie strength has been our integrated supply line: manufacturing, distribution and retailing. The sweeping changes implemented in 2001 have bolstered this system and financial returns have shown it to be a highly effective business strategy for us. 13 2001 WINN-DIXIE
  9. 9. The New Look of Winn-Dixie Stores A pleasant customer shopping experience heavily depends on clean, well-stocked, customer-friendly retail stores. Creating a fresh look at Winn-Dixie stores, and updating this new look to keep it current, is a top priority for senior management. • Winn-Dixie’s store base has been revitalized, with more than 60% of our stores new or remodeled in the past five years. Approximately 50% of our stores have been improved in the past year alone. • We are already achieving increasingly accurate inventory tracking and greater purchasing leverage because of our new centralized procurement system. • As appropriate, new “store within a store” concepts will be added, such as pet centers, soft drink and snack • Product freshness - at the deli/bakery counter, the centers, household cleaning sections, or baby-needs meat and seafood departments, produce, the dairy centers. New growth opportunities for us range from shelves — is enhanced by new store formats and central A F R E S H L O O K. pharmacy operations in our stores to fuel centers such as procurement. Variety and quality are the hallmarks of our those acquired as part of Jitney Jungle. Also, the perishables departments. And our new store layouts company has seven profitable liquor stores in operation enable us to obtain the same amount of revenue in less and holds additional liquor licenses for future expansion. space, allowing more for grocery products and non-food merchandise. The goal is to ensure that First Class Service is a way of life at Winn-Dixie, bringing our retail customers back to us time and time again as their first shopping choice. 14 WINN-DIXIE 2001
  10. 10. & DIRECTORS MANAGEMENT Man ag e m en t an d yea rs o f s er v ic e: Vice Presidents/ Corporate Officers W. R. (Bob) Baxley, 2 Vice President Deli & Bakery Vice Presidents/ Division Managers D. Michael Byrum, 28 Vice President J. Darryl Fitzgerald, 30 Corporate Controller Charlotte Division Chief Accounting Officer 142 Stores Pictured from left to right: Carleton T. Rider, Julia B. North and Ronald Townsend Keith B. Cherry, 2 Michael J. Istre, 32 Vice President New Orleans Division Design & Construction 158 Stores Executive Committee G. E. (Mickey) Clerc, Jr., 40 A. Brent Kailing Vice President Allen R. Rowland, 2 Fort Worth Division Public Relations President 76 Stores Chief Executive Officer Dean Dell Antonia, 1 Chairman of the Executive Raymond C. Lunn, Jr., 32 Vice President Committee Miami Division Performance and Reward Systems Board of Directors 148 Stores Daniel G. Lafever, 34 Judith W. Dixon, 37 Senior Vice President A. Dano Davis Daniel J. Richardson, 35 Secretary Sales & Procurement Chairman Montgomery Division 190 Stores C. W. (Bill) Doolittle, 18 Richard P. McCook, 17 Allen R. Rowland Vice President Senior Vice President President Robert A. Rowe, 1 Security Chief Financial Officer Chief Executive Officer Save Rite Division 11 Stores Randall L. Hutton, 34 Dennis M. Sheehan, 1 Armando M. Codina Vice President Senior Vice President Chairman Mark A. Sellers, 28 Government Relations Real Estate Codina Group, Inc. Orlando Division 153 Stores Richard C. (Dick) Judd John R. Sheehan, 2 T. Wayne Davis Vice President Senior Vice President Chairman H. Matt Solana, Jr., 30 Pictured from left to right: T. Wayne Davis, Tillie K. Fowler, Charles P. Stephens and A. Dano Davis Warehousing and Distribution Operations Transit Group, Inc. Raleigh Division 127 Stores C. John Kistel, Jr. August B. Toscano, 2 Tillie K. Fowler Vice President Senior Vice President Partner Donald A. Weaver, 29 General Merchandise Human Resources Holland & Knight LLP Jacksonville Division 136 Stores Ted M. Moon, 33 E. Ellis Zahra, Jr., 6 Radford D. Lovett Vice President Senior Vice President Chairman Produce and Floral General Counsel Commodores Point Terminal Corporation Michael E. Nixon, 30 Vice President Julia B. North Information Systems Telecommunications Consultant Philip H. Payment, Jr., 30 Carleton T. Rider Vice President Senior Administrator Grocery Mayo Foundation Monty H. Powers, 30 Charles P. Stephens Vice President Vice President Meat & Seafood Norman W. Paschall Co., Inc. Kellie D. Ross, 2 Ronald Townsend Vice President Communications Consultant Strategic Planning Treasurer Pictured from left to right: Radford D. Lovett, Armando M. Codina and Allen R. Rowland Audit Committee Corporate Governance Committee Compensation Committee 17 2001 WINN-DIXIE
  12. 12. WINN-DIXIE STORES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, SUPPORTING SCHEDULES AND SUPPLEMENTAL DATA Selected Financial Data 20 Management’s Discussion and Analysis of Financial Condition and Results of Operations 22 Consolidated Financial Statements and Supplemental Data: Report of Management 26 Independent Auditors’ Report 27 Consolidated Statements of Operations, Years ended June 27, 2001, June 28, 2000 and June 30, 1999 28 Consolidated Balance Sheets, June 27, 2001 and June 28, 2000 29 Consolidated Statements of Cash Flows, Years ended June 27, 2001, June 28, 2000 and June 30, 1999 30 Consolidated Statements of Shareholders’ Equity, Years ended June 27, 2001, June 28, 2000 and June 30, 1999 31 Notes to Consolidated Financial Statements 32 19 2001 WINN-DIXIE
  13. 13. SELECTED FINANCIAL DATA Dollars in millions except per share data 1999* 2001 2000 1998 1997 Sales Net sales 13,617 13,219 $ 12,903 13,698 14,137 Percent (decrease) increase 3.0 2.0 (5.8 ) (3.1 ) 3.8 Average annual sales per store 11.7 11.3 11.6 $ 11.6 11.9 Earnings Summary Gross profit 3,729 3,411 3,454 $ 3,727 3,903 Percent of sales 27.4 25.8 26.8 27.2 27.6 LIFO (credit) charge (12) 3 (12 ) $ 15 4 Operating and administrative expenses 3,365 3,070 3,180 $ 3,586 3,577 Percent of sales 24.7 23.2 24.7 26.2 25.3 Restructuring and other non-recurring charges 18 - 147 $ 396 - Percent of sales 0.1 - 1.1 2.9 - Company owned life insurance (COLI) tax case (after tax) - - 3 $ 42 - Percent of sales - - 0.0 0.3 - Net earnings (loss) (229 ) 199 204 $ 45 182 Basic earnings (loss) per share (1.57) 1.34 1.36 $ 0.32 1.23 Diluted earnings (loss) per share (1.57) 1.33 1.36 $ 0.32 1.23 Percent of net earnings (loss) to sales 1.5 1.5 0.4 (1.7 ) 1.3 Percent of net earnings (loss) to average equity 14.7 15.3 5.5 (20.1) 13.1 Net earnings excluding COLI, restructuring and other non-recurring charges 210 204 $ 139 75 182 Basic earnings per share 1.41 1.36 $ 1.00 0.52 1.23 Diluted earnings per share 1.41 1.36 $ 0.99 0.52 1.23 Percent of net earnings to sales 1.5 1.5 1.1 0.5 1.3 Percent of net earnings to average equity 15.5 15.3 17.0 6.6 13.1 EBITDA 676.7 632.8 $ 310.0 1.3 618.5 EBITDAR 985.9 911.6 $ 658.1 325.8 961.4 EBITDA excluding restructuring and non-recurring charges 694.8 632.8 $ 457.3 397.4 618.5 EBITDAR excluding restructuring and non-recurring charges 1,004.0 911.6 $ 805.3 721.9 961.4 Dividends Dividends paid 150.9 144.2 $ 142.9 149.0 151.2 Percent of net earnings (loss) (65.1) 76.0 70.5 315.3 82.9 Per share (present rate $1.02) 1.02 0.96 $ 1.02 1.02 1.02 Common Stock (WIN) Total shares outstanding (000,000) 148.5 148.9 140.5 140.8 148.6 NYSE – Common stock price range - High 59.25 42.38 $ 33.12 41.94 52.19 - Low 33.69 29.88 $ 13.44 14.25 28.63 * 53 weeks 20 WINN-DIXIE 2001
  14. 14. SELECTED FINANCIAL DATA - continued Dollars in millions except per share data 1999* 2001 2000 1998 1997 Financial Data Cash flow information: 464.5 413.9 $ 743.3 436.4 Net cash provided by operating activities 244.9 (443.6 ) (325.9) (477.7 ) $ (196.1 ) (335.1) Net cash used in investing activities (129.2 ) 45.7 $ (542.3) (100.0) Net cash provided by (used in) financing activities 290.2 368.6 423.1 $ 213.0 334.3 Capital expenditures, net 313.3 330.4 291.2 $ 256.7 292.4 Depreciation and amortization 183.6 262.6 220.1 $ 50.4 285.0 Working capital 449.3 1.4 1.2 1.0 1.2 Current ratio 1.4 3,069 2,921 $ 2,747 3,149 Total assets 3,042 49 54 $ 32 38 Obligations under capital leases 29 2,389 2,048 $ 2,408 2,575 Present value of future rentals under operating leases 2,550 34 25 $ 220 35 Long-term rental obligations on closed stores 154 - - $ - - Long-term debt 697 2,472 2,127 $ 2,660 2,648 Total long-term obligations (Long-term debt + leases) 3,430 1.8 1.6 $ 3.1 1.9 Long-term obligations to equity ratio 4.4 199.4 206.4 $ (232.0) 182.6 Comprehensive income (loss) 43.7 1,369 1,337 $ 868 1,411 Shareholders’ equity 772 9.22 8.98 $ 6.16 9.50 Book value per share 5.52 2.3 2.5 ** 2.1 Ratio of earnings to fixed charges 1.2 2.4 2.5 1.5 2.1 Adjusted ratio of earnings to fixed charges 1.8 Taxes 302 285 $ 123 308 Federal, state and local 215 2.03 1.90 $ 0.85 2.07 Per diluted share 1.53 Stores 1,168 1,174 1,079 1,188 In operation at year-end 1,153 84 83 34 79 Opened and acquired during year 94 90 87 32 59 Closed or sold during year 19 - - 111 - Closed due to restructuring 1 136 79 42 64 Enlarged or remodeled during year 11 912 805 790 908 New/enlarged/remodeled in last five years 706 78.1 68.6 73.2 76.4 Percent to total stores in operation 61.2 49.6 47.8 48.1 52.0 Year-end retail square footage (000,000) 51.1 42.4 40.7 44.6 43.7 Average store size at year-end (000) 44.3 Other Year-end Data 139 136 120 132 Associates (000) 119 52.0 55.2 45.7 48.1 Shareholder accounts (000) 48.8 45 47 42 40 Shareholders per store 42 * 53 weeks ** For fiscal year ended June 28, 2000, earnings were inadequate to cover fixed charges due to non-recurring charges totaling $405 million relating to the restructuring and other non-recurring charges. The dollar amount of the coverage deficiency for the year ended June 28, 2000 was $302 million. 21 2001 WINN-DIXIE
  15. 15. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS operating and administrative expenses were 24.7%, 26.2% and Results of Operations 25.3% in fiscal 2001, 2000 and 1999, respectively. The decrease Sales for fiscal 2001, a 52-week year, were $12.9 billion, in operating and administrative expenses was primarily due to a compared to fiscal 2000, $13.7 billion, a 52-week year, and fiscal decrease in retail and administrative operating expenses, such as 1999, $14.1 billion, a 53-week year. This reflects a decrease of payroll, depreciation, rent and leasehold improvement 5.8% for fiscal 2001, a decrease of 3.1% for fiscal 2000 and an amortization. The expense reduction was an expected result of increase of 3.8% in 1999. Average store sales decreased 0.6% for the restructuring and came primarily from the elimination of high the current year, decreased 1.2% in fiscal 2000 and increased labor cost service departments and expense reductions from the 2.1% in fiscal 1999. Identical store sales decreased 4.4%, 2.7% retrofit activity, certain labor efficiency initiatives adopted by and 0.9% for 2001, 2000 and 1999, respectively. the Company and from the closing of the division offices and Identical sales decreased largely as a result of the elimination retail stores. of unprofitable sales departments (deli/cafes, melon bars, salad Interest expense totaled $52.8 million, $47.1 million and bars, dry cleaners and selected floral, seafood and pharmacy $29.6 million in fiscal 2001, 2000 and 1999, respectively. departments), the elimination of unprofitable sales items in Interest expense is primarily interest on short-term and long- remaining departments, a reduction in the number of 24-hour term debt and interest on capital lease obligations. Interest stores and construction disruptions from numerous store expense also reflects accrued interest relating to an unfavorable modifications (retrofits). The Company has substantially opinion from the U.S. Tax Court in October 1999 relating to completed its planned store retrofits and believes that this Company Owned Life Insurance (“COLI”) (see Note 7 - Income program has resulted in labor savings and other efficiencies. The Taxes). Year-to-date, the interest expense on the COLI reserve Company believes that the store retrofits have enhanced the totaled $5.5 million as compared to $19.7 million for the Company’s competitive position and, in turn, will positively previous year. Excluding interest on the COLI reserve, interest impact the Company’s sales during fiscal 2002. expense has increased in the current year as compared to the For the 52 weeks ended June 27, 2001, the Company opened previous year due to an increase in the amount of total debt 94 new stores, averaging 38,500 square feet, closed 20 stores, outstanding and an increase in interest rates in fiscal 2001. averaging 34,800 square feet and enlarged or remodeled 11 store The Company capitalized interest totaling $5.9 million for the locations, for a total of 1,153 locations in operation on June 27, year, related to construction of new stores and a warehouse 2001, compared to 1,079 as of June 28, 2000. As of June 27, facility in Baldwin, Florida. 2001, retail space totaled 51.1 million square feet, a 6.2% Earnings (loss) before income taxes were $73.6 million, increase over the prior year. The 94 store openings include 68 $(302.4) million and $296.5 million in fiscal 2001, 2000 and Jitney Jungle stores and nine Gooding’s stores that were 1999, respectively. The increase in pretax earnings for fiscal 2001 purchased during fiscal 2001. The 20 store closings include one is primarily due to the restructuring charge recorded in fiscal store that closed in the second quarter of fiscal 2001, as part of 2000, and a decrease in operating and administrative expenses in management’s plan of restructuring. fiscal 2001. The effective income tax expense (benefit) rates As a percent of sales, gross profit margins were 26.8%, 27.2% were 38.5%, (24.3)% and 38.5% for fiscal 2001, 2000 and 1999, and 27.6% in fiscal 2001, 2000 and 1999, respectively. Gross respectively. The effective tax rate for fiscal 2000 reflects the profit dollars have decreased in the current year partially as a effects of certain restructuring expenses and COLI adjustments. result of the closing of 112 stores as part of management’s plan Net earnings (loss) amounted to $45.3 million, or $0.32 per of restructuring. In addition, gross profit has been negatively diluted share for 2001, $(228.9) million, or $(1.57) per diluted impacted by the elimination of high gross profit, yet share for 2000 and $182.3 million, or $1.23 per diluted share for unprofitable, sales departments. Higher cost of goods sold was 1999. The LIFO reserve adjustment increased net earnings by incurred during the Company’s transition to centralized $7.4 million, or $0.05 per diluted share in 2001, increased the merchandise procurement at the beginning of the fiscal year. net loss by $9.3 million, or $0.06 per diluted share in 2000, and Since the first quarter, gross profit margins on a FIFO basis have decreased net earnings by $2.7 million, or $0.02 per diluted improved. A continued focus on the Company’s shrink reduction share in 1999. initiatives is expected to add to the improvements during fiscal The following tables show the effect of the COLI adjustment, 2002. restructuring and other non-recurring charges on the quarter and Approximately 84% of the Company’s inventories are valued year. under the LIFO (last-in, first-out) method. The LIFO reserve adjustment resulted in a pre-tax increase in gross profit of $12.0 million in 2001, a decrease of $15.1 million in 2000 and a decrease of $4.4 million in 1999. Operating and administrative expenses decreased $406.1 million in fiscal 2001 and increased $9.1 million and $212.2 million in 2000 and 1999, respectively. As a percent of sales, 22 WINN-DIXIE 2001
  16. 16. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Quarter ending June 27, 2001 As Reported Non-recurring Excluding Dollar amounts in thousands except per share data Charges Non-recurring $ 2,989,861 - 2,989,861 Net sales 2,157,676 - 2,157,676 Cost of sales 832,185 - 832,185 Gross profit on sales 739,776 - 739,776 Operating and administrative expenses 56,497 56,497 - Restructuring and other non-recurring charges 35,912 (56,497 ) 92,409 Operating income 14,800 887 13,913 Interest expense 21,112 (57,384 ) 78,496 Earnings before income tax 8,107 (22,049 ) 30,156 Income tax $ 13,005 (35,335 ) 48,340 Net earnings $ 0.09 (0.25 ) 0.34 Basic earnings per share $ 0.09 (0.25 ) 0.34 Diluted earnings per share Year ending June 27, 2001 As Reported Non-recurring Excluding Dollar amounts in thousands except per share data Charges Non-recurring $ 12,903,373 - 12,903,373 Net sales 9,449,346 - 9,449,346 Cost of sales 3,454,027 - 3,454,027 Gross profit on sales 3,180,297 - 3,180,297 Operating and administrative expenses 147,245 147,245 - Restructuring and other non-recurring charges 126,485 (147,245 ) 273,730 Operating income 52,843 5,512 47,331 Interest expense 73,642 (152,757 ) 226,399 Earnings before income tax 28,331 (58,768 ) 87,099 Income tax $ 45,311 (93,989 ) 139,300 Net earnings $ 0.32 (0.68 ) 1.00 Basic earnings per share $ 0.32 (0.67 ) 0.99 Diluted earnings per share Liquidity and Capital Resources $196.1 million and $335.1 million in fiscal 2001, 2000 and 1999, Cash and cash equivalents amounted to $121.1 million, $29.6 respectively. The increase in the current year was due to an million and $24.7 million at the end of fiscal years 2001, 2000 increase in capital expenditures and the acquisition of 77 retail and 1999, respectively. Cash provided by operating activities locations. Net capital expenditures totaled $313.3 million, amounted to $244.9 million in 2001, $743.3 million in 2000 and $213.0 million and $334.3 million in fiscal 2001, 2000 and 1999, $436.4 million in 1999. The reduction in net cash provided by respectively. These expenditures were for new store locations, operations is largely due to the increase in merchandise remodeling and enlarging of store locations and maintenance and inventories and cash payments related to the restructuring. expansion of support facilities. The Company has no material Inventories increased due in part to additional inventory construction or purchase commitments outstanding as of June purchased for the stores acquired in the current year. 27, 2001. Working capital amounted to $449.3 million, $50.4 million and Net cash provided by (used in) financing activities was $290.2 $285.0 million in fiscal 2001, 2000 and 1999, respectively. The million, $(542.3) million and $(100.0) million in 2001, 2000 and increase was due in part to the refinancing of the Company’s 1999, respectively. The increase in the current year was due short-term borrowings into long-term debt. primarily to the net proceeds from the $800 million senior Net cash used in investing activities totaled $443.6 million, secured credit facilities (the “New Facilities”), the issuance of 23 2001 WINN-DIXIE
  17. 17. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued Liquidity and Capital Resources - continued Notional Maturity Fixed Rate Amount $300 million in Senior Unsecured Notes (the “Notes”) and the (in thousands) suspension of the stock repurchase program in the current year. March 29, 2002 4.60 % $ 150,000 See Note 8 - Debt for further discussion on the New Facilities and March 29, 2003 4.81 % 150,000 Notes. March 29, 2004 5.03 % 100,000 The Company is a party to various proceedings arising under federal, state and local regulations protecting the environment. $ 400,000 Management is of the opinion that any liability that might result equal to the one-month LIBOR (3.75% as of June 27, 2001). from any such proceedings will not have a material adverse effect The fair value of the Company’s interest rate swaps is obtained on the Company’s financial condition or results of operations. from dealer quotes. These values represent the estimated amount the Company would receive or pay to terminate the agreement, Impact of Inflation taking into consideration the difference between the contract Winn-Dixie’s primary costs, inventory and labor, increase with rate of interest and rates currently quoted for agreements of inflation. Recovery of these costs has to come from improved similar terms and maturities. At June 27, 2001, the fair value of operating efficiencies — including improvements in merchandise the Company’s interest rate swaps resulted in an unrealized loss procurement — and, to the extent permitted by the competition, of $2.6 million ($1.6 million after tax). The Company recorded through improved gross profit margins. the unrealized loss in accumulated other comprehensive income in shareholders’ equity. During the next 12 months, the Company Quantitative and Qualitative Disclosures About Market Risk will incur interest expense including the effect of interest rate As part of the New Facilities (see Note 8 - Debt), the Company swaps at a weighted average rate of 7.54% on the $400 million obtained a $400 million six-year term loan with a variable outstanding in variable rate debt. interest rate based on the one-month LIBOR. The Company The Company measures effectiveness by the ability of interest utilizes derivative financial instruments to reduce its exposure to rate swaps to offset cash flows associated with changes in the market risks from changes in interest rates. The instruments one-month LIBOR. To the extent that any of these contracts are primarily used to mitigate these risks are interest rate swaps. All not considered effective, any changes in fair value relating to the derivative instruments held by the Company are designated as ineffective portion of these contracts are immediately recognized highly effective cash flow hedges of interest rate risk on variable in income. However, all of the contracts were effective during the rate debt and, accordingly, the change in fair value of these period and no gain or loss was reported in earnings. instruments is recorded as a component of other comprehensive The following table presents the future principal cash flows and income. weighted-average interest rates expected on the Company’s The Company is exposed to credit-related losses in the event existing long-term debt instruments and interest rate swap of nonperformance by counterparties to these financial agreements. Fair values have been determined based on quoted instruments. However, counterparties to these agreements are market prices as of June 27, 2001. major financial institutions and the risk of loss due to nonperformance is considered by management to be minimal. The Company does not hold or issue interest rate swaps for trading purposes. The Company has entered into three interest rate swap agreements to hedge the interest rate risk associated with the $400 million outstanding in variable rate debt. The purpose of these swaps is to fix interest rates on variable rate debt and reduce certain exposures to interest rate fluctuation. At June 27, 2001, the Company had interest rate swaps with a notional amount of $400 million. The notional amounts do not represent a measure of exposure to the Company. The maturity and interest rate on the interest rate swaps are shown in the following table. The Company will pay the counterparty interest at a fixed rate as noted and the counterparty will pay the Company interest at a variable rate 24 WINN-DIXIE 2001
  18. 18. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued EXPECTED MATURITY DATE Dollar amounts in thousands 2002 2003 2004 2005 2006 Thereafter Total Fair Value Liabilities: Long-term debt Fixed rate $ $ $ $ $ $ 300,280 $ 301,705 $ 305,920 291 288 285 282 279 Average interest rate 9.40 % 9.40 % 9.40 % 9.40 % 9.40 % 8.88 % 8.88 % Variable rate $ $ $ $ $ $ 380,000 $ 400,000 $ 400,000 4,000 4,000 4,000 4,000 4,000 Average interest rate 6.70 % 7.90 % 8.74 % 9.09 % 9.29 % 9.44 % 9.38 % Interest rate derivatives Interest rate swaps: $ (2,580) Notional amount $ 150,000 $ 150,000 $ 100,000 $ $ $ $ 400,000 - - - Average pay rate 4.60 % 4.81 % 5.03 % - - - 4.79 % Average receive rate 3.95 % 5.15 % 5.99 % - - - 4.70 % Cautionary Statement Regarding Forward-Looking • changes in federal, state or local legislation or regulations Information and Statements affecting food manufacturing, food distribution, or food This Annual Report contains certain information that retailing, including environmental compliance; constitutes “forward-looking statements” within the meaning of • the availability and terms of financing, including in the Private Securities Litigation Reform Act, which involves risks particular the possible impact of changes in the ratings and uncertainties. Actual results may differ materially from the assigned to the Company by nationally recognized rating results described in the forward-looking statements. When used agencies; and in this document, the words “estimate,” “project,” “intend,” • general business and economic conditions in our operating “believe” and other similar expressions, as they relate to the regions, including the rate of inflation/deflation and Company, are intended to identify such forward-looking changes in population, consumer demands and spending, statements. types of employment and number of jobs. Such statements reflect the current views of the Company and are subject to certain risks and uncertainties that include, but are Please refer to discussions of these and other factors in this not limited to: Annual Report and other Company filings with the Securities and Exchange Commission. The Company disclaims any intent or • the Company’s ability to achieve successfully the long-term obligation to update publicly these forward-looking statements, benefits contemplated from the restructuring of operations whether as a result of new information, future events or adopted by the Board of Directors on April 19, 2000, and otherwise. which has been substantially completed; • heightened competition, including specifically the intensification of price competition, the entry of new competitors, or the expansion of existing competitors in one or more operating regions; 25 2001 WINN-DIXIE