-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ElmT4eis9+G6qQmolEsVVRUUpGZk919aAMPLShtiyZzwAQdvdeLRRV6I8YcxITZF xmgrNMPmKDhU9Jpd/jcL+A== 0000906280-97-000157.txt : 19970929 0000906280-97-000157.hdr.sgml : 19970929 ACCESSION NUMBER: 0000906280-97-000157 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELCHAMPS INC CENTRAL INDEX KEY: 0000729970 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 630245434 STATE OF INCORPORATION: AL FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12923 FILM NUMBER: 97686731 BUSINESS ADDRESS: STREET 1: 305 DELCHAMPS DR STREET 2: P O BOX 1668 CITY: MOBILE STATE: AL ZIP: 36602 BUSINESS PHONE: 2054330431 MAIL ADDRESS: STREET 1: 305 DELCHAMPS DR STREET 2: PO BOX 1668 CITY: MOBILE STATE: AL ZIP: 36602 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 28, 1997 Commission File Number 0-12923 Delchamps, Inc. ____________________________ (Exact name of registrant as specified in its charter) Alabama 63-0245434 _______________________________ (State of other jurisdiction of (I.R.S. Employer incorporation of organization) Identification Number) 305 Delchamps Drive Mobile, AL 36602 _______________________________ (Address of Principal executive (Zip Code) offices) (334) 433-0431 ______________________________ (Registrants telephone number including area code) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value. 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 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 ____ X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non- affiliates (affiliates being directors, executive officers and holders of more than 5% of the Company's common stock) of the Registrant at September 12, 1997 was approximately $126,000,000. The number of shares of Registrant's common stock, par value one cent ($.01) per share, outstanding at September 12, 1997, was 7,200,043. PART I Item 1. Business (a) Delchamps, Inc. (the "Company") is a corporation that was organized under the laws of the State of Alabama in 1946; from the Company's founding in 1921 until it was incorporated, it operated as a partnership. The Company operates a chain of supermarkets under the name "Delchamps" in Alabama, Florida, Louisiana and Mississippi and has operated continuously for over 70 years. In addition, the Company operates ten liquor stores in the State of Florida. On September 12, 1997, Delta Acquisition Corporation ("Sub"), a wholly-owned subsidiary of Jitney-Jungle Stores of America, Inc. ("Parent") acquired 5,317,510 shares of the Company's Common Stock, $.01 par value per share (the "Shares"), which Shares, representing approximately 73.9% of the outstanding Shares, were validly tendered by the Company's shareholders pursuant to Sub's cash tender offer commenced on July 14, 1997. The Company is now controlled by Parent, and its future operations, policies and strategies will be determined by Parent. The number of supermarkets operated by the Company were as follows: 118 at July 3, 1993, 118 at July 1, 1995 and 118 at June 28, 1997. In addition to regularly opening new stores, the Company expands and remodels existing units, and closes outmoded or unprofitable stores. During the five years ended June 28, 1997, the Company closed 17 outdated or unprofitable stores and opened 20 new stores. The Company also remodeled and expanded (which includes replacement of certain fixtures and equipment) 22 stores during the same five year period and renovated (which includes decor packages, new sign age and painting) 48 stores in 1996. Parent and the Company entered into a settlement agreement with the Federal Trade Commission under which the Company and Parent agreed, under the terms of a proposed consent agreement, to divest five of the Company's Stores to SUPERVALU, Inc. by February 12, 1998 or one month after the consent agreement becomes effective, whichever is later. Parent's management has determined to close thirteen of the Company's stores. Seven of such stores are located in Alabama, four are located in Louisiana, one is located in Mississippi and one is located in Florida. The Company has one wholly-owned subsidiary, Supermarket Cigarette Sales, Inc., which functions as the purchasing agent and distributor for cigarettes sold by the Company's supermarkets in Louisiana, Mississippi and Florida. The 118 supermarkets operated by the Company at June 28, 1997 range in size from 12,000 square feet to 61,980 square feet, and average 41,400 square feet. The average square footage of selling area per supermarket increased from approximately 30,559 square feet at July 3, 1993, to approximately 31,551 at June 28, 1997, and the total sales area in all stores increased from 3,606,000 to 3,723,000 square feet during the same period. During fiscal year 1997, the Company opened two supermarkets, and closed one supermarket and expanded five supermarkets. The following table sets forth certain statistical information with respect to the Company's operations for the period indicated: DELCHAMPS, INC. Selected Financial Information Fiscal Year Ended ---------------------------------------------------- June 28, June 29, July 1, July 2, July 3, 1997 1996 1995 1994 1993 52 Weeks 52 Weeks 52 Weeks 52 Weeks 53 Weeks -------- -------- -------- -------- -------- Sales (in thousands) 1,102,947 1,126,629 1,054,088 1,067,191 1,034,531 Number of supermarkets: Opened in period 2 1 10 3 4 Closed in period 1 2 12 1 1 Total (1) 118 117 118 120 118 Average sales per supermarket (in thousands) (2) 9,387 9,588 8,858 8,968 8,880 Total square feet of selling space (in thousands): Opened in period 35 39 362 155 167 Closed in period 19 86 348 22 19 Total 3,723 3,707 3,753 3,739 3,606 Total square feet of selling space per supermarket (1) 31,551 31,684 31,805 31,158 30,559 Average sales per square foot of selling space (3) 297 302 281 291 293 _____________________________ (1) At the end of period (2) Sales for the period divided by the average number of supermarkets for the period (3) Sales for the period divided by the average square feet of selling space for the period. (b) Financial information on industry segments and lines of business is omitted because, apart from its principal business of operating retail self-service food stores and liquor stores, the Company had no other lines of business or industry segments. (c)(i) Delchamps supermarkets operate on a self-service basis, and are open seven days per week, except Christmas and Thanksgiving. The supermarkets are clean, spacious, air-conditioned, well-lighted, colorfully decorated, well-stocked, equipped with modern features and adjacent to off street parking facilities. Customers carry their own purchases from the check-out counters to their automobiles unless they ask for special assistance. Delchamps supermarkets carry fresh meat and produce, frozen and other convenience foods, dairy products, specialty and gourmet products, and general grocery products, as well as selected lines of non-grocery merchandise. All stores opened and remodeled during the last several years contain bakeries, delicatessens, service meat departments, seafood departments, video departments and offer prepared ready-to-eat foods. The Company also operates seven pharmacies. The Company's supermarkets offer a selection of national and regional band-name products, generic products and products bearing brand names of Topco Associates, Inc. ("Topco"), a cooperative purchasing organization of which the Company is a share holding member. The Company's affiliation with Topco, the largest cooperative grocery products purchasing organization in the United States, enables it to procure quality merchandise on a competitive basis with larger, national food retailers. Topco's membership of 32 retail grocery chains and wholesalers located throughout the United States enables it to employ large volume techniques on behalf of its members. Topco products are sold under its own brand names, such as "Food Club," "Topco," "Top Fresh" and "Top Frost," or under generic labels. Effective in fiscal year 1994, the Company began using a Delchamps label to replace the Topco labels on certain products. The Company's purchases from or through Topco were approximately 19% of total inventory purchases in fiscal years 1997, 1996 and 1995. The Company stresses the importance of customer satisfaction with its associates and insists that associates provide courteous and efficient service. Customer satisfaction is also achieved through rapid response to changing consumer tastes and well-stocked stores. Technology also enables the Company to more efficiently serve its customers. The use of such technological advances as computerized scanning check-out equipment, direct store delivery systems, coupon scanning and time and attendance systems are designed to enhance customer satisfaction and employee productivity. During the last three fiscal years, the Company's supermarket products were purchased from over 1,000 suppliers, of which Topco was by far the most significant, supplying approximately 19% of the Company's total inventory purchases during fiscal year 1997. No other supplier accounted for more than 5% of the Company's purchases during the fiscal year. During fiscal year 1997, approximately 70% of inventories (valued at cost) were supplied to the Company's stores through its central distribution facilities in Hammond. The remaining items were furnished directly to the stores by local distributors. Major product lines supplied in this manner included beverages, bread and snack foods. Parent has announced plans to close the Company's central distribution facilities in Hammond. (ii) The Company has not publicly announced or otherwise made public information about any new product or industry segment that would require the investment of a material amount of the assets of the Company or which otherwise is material. (iii) Sources and availability of raw materials are factors that do not directly affect the Company's business. (iv) Patents and trademarks owned by the Company are not of material importance to its operations. (v) Seasonality does impact the Company, as sales tend to increase in the summer season because certain of its stores are located near Gulf Coast beaches. (vi) The Company has no unusual working capital requirements. (vii) 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 that equals 10% or more of the Company's consolidated revenue to any single customer or group of customers under common control or to any affiliated group of customers. (viii) Backlog ordering is not a factor in the business of the Company. (ix) 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. (x) The supermarket business is intensely competitive. The number of competitors and the amount of competition experienced by the Company's supermarkets vary by location. Principal competitive factors include store location, price, service, convenience, cleanliness and product quality and variety. Because the supermarket business is characterized by narrow profit margins, the Company's earnings depend primarily on the efficiency of its operations and its ability to maintain a large sales volume. The Company's principal competitors are the supermarket chains operated by Winn-Dixie Stores, Inc., The Great Atlantic and Pacific Tea Company ("A&P"), Bruno's Inc., and Albertson's Inc., and other large regional and national food store chains. Winn-Dixie, A&P, Wal-Mart, K-Mart and Sam's compete with the Company throughout Alabama, Florida, Louisiana and Mississippi. Bruno's supermarkets compete with the Company's Alabama, Florida and Mississippi Gulf Coast supermarkets. Albertson's competes with the Company in the Florida panhandle and certain locations in Louisiana. The Company's supermarkets also compete with local supermarkets, specialty and convenience food stores and local chains that have significant market shares in limited areas, such as the Schwegmann Brothers' Giant Supermarket chain in Southeastern Louisiana. Certain of the Company's major competitors have financial resources that are substantially greater than those of the Company. (xi) The Company did not spend a material amount on Company sponsored research and development activities or on customer sponsored research activities relating to the development of new products, services or techniques, or the improvement of existing products, services or techniques during fiscal years 1997, 1996 and 1995. (xii) The Company's compliance with federal, state and local provisions that 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 upon its capital expenditures, earnings or competitive position. (xiii) At the end of fiscal year 1997, the Company had approximately 3,337 full-time and 4,597 part-time employees, none of whom is covered by a collective bargaining agreement. (d) The Company does not engage in any operations in foreign countries, nor is any portion of its sales or revenue derived from customers in any foreign country. All sales by the Company occur at locations in Alabama, Florida, Louisiana and Mississippi. Item 2. Properties The Company leases all of its supermarkets under standard commercial leases, no one of which is material to the Company. Most of these leases are for a period of 20 years, and contain several renewal options. The leases provide for fixed rentals ranging from $2.10 to $14.15 per square foot, with an average rental of $7.55 per square foot. Nearly all of its leases, including most of the leases negotiated in the last five years, provide for the payment by the Company of taxes, insurance and certain maintenance expenses, as well as additional rental based on sales volume. Seven of the Company's store leases are scheduled to expire during the 1998 fiscal year, and no more than five leases will expire in any one year thereafter until the year 2005. When a store is closed, the Company attempts to sublease or assign its lease. The Company is presently paying $256,000 in aggregate monthly rentals on twenty leases of closed stores that have not yet been fully sublet or assigned. The Company owns the furnishings and fixtures in all supermarkets. It is anticipated that the Company will own the furnishings and fixtures in its stores presently under construction. The Company's central distribution center is on a 272-acre site in Hammond, Louisiana. The distribution facility comprises approximately 662,000 square feet and has fully automated dry grocery and frozen food warehouses. The center also contains a perishables warehouse, an ice manufacturing plant, a remote storage facility to house flammable items, and a transportation facility. Parent has announced plans to close this central distribution facility. The Company owns the 65,000 square foot building in which its corporate headquarters is situated at 305 Delchamps Drive, Mobile, Alabama, as well as a 2.7 acre parcel adjacent to the headquarters which may be used for future office expansion and parking. Parent has announced plans to close the Company's headquarters. Item 3. Legal Proceedings In March 1997, The Company settled five related lawsuits, each of which involved multiple plaintiffs alleging racially discriminatory practices in promotion and termination. The lead case styled Amanda Williams and Kenneth O. McLaughlin, on Behalf of Themselves and all Other Similarly Situated v. Delchamps was filed in August 1995 in the United States District Court for the Southern District of Alabama. The lead case sought certification of a class, but class certification was denied by the Federal District Court. The settlement required the Company to pay $4.3 million and to continue reviewing its existing employment practices with the assistance of independent consultants. The settlement agreement includes no admission of wrongdoing by the Company. The allegations in the cases discussed above are similar to certain allegations in a case styled Tracie Kennedy v. Delchamps, Inc., which was filed in January 1996 in the United States District Court for the Southern District of Alabama. The case alleges both race and gender discrimination and also sought certification of the class. In early May 1997, the Federal District Court denied certification of the Class. The Company believes that it has meritorious defenses to the claims involved in this case and plans to defend the case vigorously. The Company is also the defendant in a number of legal proceedings involving claims for money damages arising in the ordinary course of business which are either covered by insurance or are within the Company's self-insurance program, and in a number of other proceedings otherwise not deemed material. In the opinion of management, none of such litigation has resulted or will result in any materially adverse effect on the financial position or operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders The Company did not submit any matters to a vote of security holders during the fourth quarter of its fiscal year ended June 28, 1997. PART II Item 5. Market for the Registrant's Common Stock and Related Matters DIVIDENDS AND STOCK PRICES The common stock of Delchamps, Inc. is traded on the Nasdaq National Market under the symbol DLCH. Trading commenced with the Company's Initial Public Offering on November 23, 1983. The following information represents the high and low sales prices on the Nasdaq's National Market. Fiscal Year Ended June 28, 1997 High Low ---- --- First Quarter 25 1/4 18 1/4 Second Quarter 21 3/4 18 3/4 Third Quarter 25 1/8 18 7/8 Fourth Quarter 32 3/8 23 Fiscal Year Ended June 29, 1996 High Low ---- --- First Quarter 21 3/4 17 1/4 Second Quarter 20 3/4 16 3/4 Third Quarter 25 1/8 20 1/4 Fourth Quarter 24 1/2 20 1/2 The Company has paid a regular quarterly dividend of $.07 per share from November 1, 1983 through August 1988, $.09 per share from September 1988 through August 1989, $.10 per share from September 1989 through August 1990, and $.11 per share thereafter. As of September 24, 1997, there were approximately 1,334 shareholders of record. The following table sets forth the cash dividends declared on the Company's common stock for the two most recent fiscal years. Future dividends will depend on the Company's earnings, financial requirements and other relevant factors. 1997 1996 ---- ---- First Quarter $0.11 $0.11 Second Quarter 0.11 0.11 Third Quarter 0.11 0.11 Fourth Quarter 0.11 0.11 ----- ----- TOTAL $0.44 $0.44 ===== ===== Restrictions on the Company's ability to pay dividends are set forth in Note 5 of the Company's financial statements under Item 8 below. Item 6. Selected Financial Data FIVE YEAR FINANCIAL HIGHLIGHTS (In thousands except per share amounts)
FISCAL YEAR ENDED June 28, June 29, July 1, July 2, July 3, 1997 1996 1995 1994 1993 STATEMENT OF EARNINGS DATA: (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) Sales $1,102,947 $1,126,629 $1,054,088 $1,067,191 $1,034,531 Operating income (loss) 17,787 13,119 (34,991) 22,019 27,907 Earnings (loss) before income taxes and cumulative effect of changes in accounting principles 12,805 6,299 (40,266) 17,858 22,738 Net earnings (loss) 7,984 3,852 (25,666) 10,951 14,373 Net earnings (loss) per common share 1.12 0.54 (3.61) 1.54 2.02 Dividends per common share 0.44 0.44 0.44 0.44 0.44 Weighted average shares outstanding 7,116 7,110 7,113 7,114 7,114 BALANCE SHEET DATA: Working capital $ 29,140 $ 22,067 $ 22,920 $ 54,926 $ 49,511 Total assets 243,461 255,183 269,412 263,269 252,052 Long-term debt and obligations under capital leases, excluding current installments 16,698 21,237 25,745 32,169 39,503 Stockholders' equity 118,019 112,925 110,042 136,300 126,262 Delchamps, Inc. founded in 1921, operates 118 grocery stores in Alabama, Florida, Louisiana and Mississippi. The Company also operates 10 liquor stores in Florida. A distribution center is located in Hammond, Louisiana. Delchamps employs 8,000 people. The Company's stock is traded on the Nasdaq National Market, under the symbol DLCH.
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition DELCHAMPS, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion should be read in conjunction with the financial statements and notes thereto contained herein. ACQUISITION BY JITNEY-JUNGLE STORES OF AMERICA, INC. On July 8, 1997, the Company announced that it had entered into an agreement to be acquired by Jitney-Jungle Stores of America, Inc. The terms of the agreement are described in the Company's Schedule 14D-9, as amended, and in Jitney-Jungle's 14D-1, as amended, both of which have been filed with the Securities and Exchange Commission. Pursuant to the agreement, a wholly-owned subsidiary of Jitney-Jungle (the "Offeror") commenced a tender offer (the "Offer") for all outstanding shares of the Company's common stock at a price of $30 per share. The agreement provides, generally, that as soon as practicable after the consummation of the Offer and satisfaction or waiver of the other conditions set forth in the agreement, the Offeror will be merged with and into the Company (the "Merger"), and the Company will continue as the surviving corporation, and the remaining shareholders of the Company will receive $30 per share. The Company's Board of Directors unanimously approved the Offer, the Merger and the agreement, and determined that the consideration to be paid for the shares of the Company's common stock in the Offer and the Merger is fair to the Company's shareholders and that the Offer and the Merger are otherwise in the best interests of the Company and its shareholders. The Company's Board of Directors unanimously recommended that the Company's shareholders accept the Offer and tender their shares pursuant to the Offer and, if a shareholder vote on the Merger is required by Alabama law, vote in favor of the Merger. On September 12, 1997, Delta Acquisition Corporation ("Sub"), a wholly- owned subsidiary of Offeror, acquired 5,317,510 shares of the Company's Common Stock, $.01 par value per share (the "Shares"), which Shares, representing approximately 73.9% of the outstanding Shares, were validly tendered by the Company's shareholders pursuant to Sub's cash tender offer commenced on July 14, 1997. The Company is now controlled by Parent, and its future operations, policies, and strategies will be determined by Parent. RESULTS OF OPERATIONS At the end of the 1997 fiscal year the Company operated 118 supermarkets in Alabama, Florida, Mississippi and Louisiana, compared with 117 at the end of the 1996 fiscal year and 118 at the end of the 1995 fiscal year. The Company also operated ten liquor stores in Florida at the end of fiscal years 1997 and 1996 and twelve liquor stores at the end of fiscal year 1995. Results of operations set forth in the following tables and narrative are for 52-week periods in fiscal years 1997, 1996, and 1995. The Company's fiscal year ends on the Saturday closest to June 30. During the past three years, increasingly competitive markets have made it difficult for the Company to achieve comparable store sales gains and improve profitability. During the Company's last three fiscal years, competitors have opened approximately 82 new supermarkets in the Company's operating regions, approximately 21 of which were opened in fiscal 1997. In fiscal 1997, the Company experienced a 2.1% decline in net sales and a 3.5% decline in same store sales. Although net sales and same store sales declined, gross margin improved, primarily as a result of selective retail price increases. The Company can give no assurances that improvements in profitability can be achieved if net sales and same store sales continue to decline as a result of competitive pressures. Sales (Dollars in thousands) 1997 1996 1995 ---- ---- ---- Sales.......................... $ 1,102,947 1,126,629 1,054,088 (Decrease) increase from prior year.......... (23,682) 72,541 (13,103) Percentage (decrease) increase from prior year................. (2.1%) 6.9% (1.2%) Percentage (decrease) increase in same store sales................. (3.5%) 7.1% (3.7%) In 1997, total sales declined 2.1% and same store sales declined 3.5%. Same store sales increase (decrease) by quarter follows: .1% in the first quarter, (3.3%) in the second quarter, (3.5%) in the third quarter, and (7.2%) in the fourth quarter. The Company believes the declines in same store sales were because a significant number of new supermarkets were opened by competitors (approximately 21 new supermarkets were opened by competitors during fiscal 1997), and competitors increased levels of promotional activity (which included a competitor introducing a frequent shopper card). In addition, the Company was competing against strong sales levels from fiscal year 1996 (explanations for the strong 1996 sales levels are discussed below). Although sales and same store sales declined, the Company's gross margin improved during fiscal year 1997, primarily as a result of selective retail price increases (as discussed below). The Company can give no assurances that improvements in gross margins can be sustained if sales and same store sales continue to decline. Sales increased in 1996 because a new merchandising program was implemented during the fourth quarter of fiscal year 1995, a new supermarket renovation program was implemented, and new programs were implemented in supermarket operations which improved customer service. The new merchandising program included: 1) reduced retail prices on thousands of items, 2) the amount of which coupons are doubled was increased from $.49 to $.50, and 3) a new advertising campaign was implemented to promote these changes. The new supermarket renovation program affected 48 supermarkets and included, for the most part, new decor packages, new in-store signage, and painting, and for some stores, new fixtures, cases, and shelving. The new programs related to supermarket operations included: 1) implementation of new training programs for all levels of store personnel and 2) enhancement of a field specialist program in which field specialists (who have expertise in certain perishable departments) visit perishable departments in all supermarkets to improve quality and freshness of product, signage, and displays. Sales decreased in 1995 because the Company operated fewer supermarkets (118 at the end of fiscal 1995 compared to 120 at the end of fiscal 1994) and same store sales decreased 3.7%. The decrease in same store sales was primarily because of competitors opening new supermarkets and expanding existing supermarkets. Gross Profit (Dollars in thousands) 1997 1996 1995 ---- ---- ---- Gross profit.................. $ 272,069 263,240 255,551 Gross profit percentage.... 24.7% 23.4% 24.2% Increase (decrease) from prior year................ 1.3% (.8%) (1.2%) Gross profit percentage increased in 1997 primarily because of selective retail price increases (the Company believes its retail prices remain competitive and has continued the advertising campaign of "Low Price Leader, Overall") and increased levels of promotional and buying allowances from vendors (which resulted in a lower cost of merchandise). Gross profit percentage decreased in 1996 because a merchandising program, in which retail prices were reduced on thousands of items, was in place for all of 1996 (and was only in place for the last quarter of 1995). Gross profit percentage decreased in 1995 because a merchandising program, in which retail prices were reduced on thousands of items, was in place for the last quarter of 1995 and was not in place during the 1994 fiscal year. Selling, General and Administrative Expenses (Dollars in thousands) 1997 1996 1995 ---- ---- ---- Selling, general and administrative ("S G & A").............$ 254,282 250,121 290,542 Increase (decrease) from prior year......... 4,161 (40,421) 41,734 S G & A as a percentage of sales..... 23.1% 22.2% 27.6% Increase (decrease) in percentage from prior year................ .9% (5.4%) 4.3% S G & A expenses increased in 1997 as compared to 1996 because legal expenses increased $5.3 million (which resulted primarily from the settlement of five related lawsuits which alleged racially discriminatory practices in promoting and terminating) and incentive expense increased $1.7 million (which resulted from improved pretax earnings). S G & A was favorably impacted by a $2.1 million gain on the sale of real property (a former warehouse in Mobile, Alabama and land near Birmingham, Alabama). S G & A expense decreased in 1996 because the 1995 fiscal year included restructuring charges of $28.8 million which resulted primarily from closed stores that could not be subleased in whole or in part. The 1995 year also included a goodwill write-off of $5.1 million which resulted from acquired assets which were consistently producing negative results, and supermarket salaries and wages decreased $5.4 million which resulted from the implementation of a labor scheduling program. S G & A expense increased in 1995 because restructuring charges of $28.8 million were recorded (as described above), a goodwill write- off of $5.1 million was recorded (as described above), and the Company implemented a 401 (k) program in fiscal 1995 which required Company contributions of $1.4 million. Other Income and Expense (In thousands) 1997 1996 1995 ---- ---- ---- Interest expense.................. $ 5,215 7,169 5,375 (Decrease) increase from prior year............ (1,954) 1,794 1,077 Interest income............... 233 349 100 (Decrease) increase from prior year ............ (116) 249 (37) Interest expense decreased in 1997 as compared to 1996 because of lower levels of indebtedness under the Company's revolving credit line (which resulted in part from increased earnings and reduced levels of capital expenditures) and lower levels of long-term indebtedness. Interest expense increased in 1996 because the Company's restructure obligation was outstanding for all of 1996 and only outstanding during the fourth quarter of 1995. Interest expense increased in 1995 because of higher levels of indebtedness on the Company's credit lines which was caused primarily by increased capital expenditures ($35.2 million in 1995 compared to $17.7 million in 1994) and because of interest related to the restructure obligation incurred in the fourth quarter of 1995. Interest income decreased in 1997, increased in 1996, and decreased in 1995. These changes in interest income are a function of invested cash. Income Taxes (Dollars in thousands) 1997 1996 1995 Income tax expense ---- ---- ---- (benefit)...................$ 4,851 2,447 (14,600) Income tax effective rate... 37.9% 38.8% 36.3% (Decrease) increase in rate from prior year.......... (.9%) 2.5% 1.5% The income tax effective rate in 1997 approximates the combined Federal and state statutory rates. The income tax effective rate increased in 1996 as compared to 1995 because of the expiration of the targeted jobs tax credit. In fiscal year 1995, the Company recorded an income tax benefit as a result of the loss in earnings before taxes. The effective tax rate was negatively affected by the goodwill write-off of $5.1 million (goodwill expense was not deductible for income tax purposes) and positively affected by targeted jobs tax credits. Net Earnings (Dollars in thousands) 1997 1996 1995 ---- ---- ---- Net earnings (loss)................$ 7,954 3,852 (25,666) Increase (decrease) from prior year........................ 4,102 29,518 (36,617) Net earnings (loss) percentage of sales............. .7% .3% (2.4%) Net earnings increased in 1997 as compared to 1996 because of improved gross profit margins which resulted from selective retail price adjustments and increased levels of promotional and buying allowances. Net earnings increased in 1996 because of increased sales levels which resulted from positive customer response to merchandising programs and reduced expense levels which included decreased labor expense. In addition, the 1995 fiscal year included expenses resulting from a restructuring charge and goodwill write-off. Net earnings decreased in 1995 because of the decline in same store sales, a lower gross profit margin, and increased S G & A expenses resulting from a restructuring charge, a goodwill write-off, and costs for the implementation of a 401(k) benefit program. Other (Dollars in thousands) 1997 1996 1995 ---- ---- ---- Provision for LIFO expense (benefit)............... $ 391 422 536 Inflation index.................... 1.00425 1.00473 1.00375 In fiscal years 1997, 1996, and 1995, the rate of inflation was less than one-half of 1%. The effect of inflation on the Company's operating earnings is considered to be minimal. Management does not expect the Company to be adversely affected by future inflation because a large number of its stores are leased at fixed rents for up to twenty year periods and because increases in the cost of merchandise can be generally passed on through retail price increases. While inflation has not had a material impact on past operating results, there is no assurance that the Company will not be affected by inflation in the future. 1997 1996 1995 ---- ---- ---- Inventory turnover (annual) 9.2 times 9.4 times 8.0 times (Decrease) increase from prior year (.2) 1.4 .1 Inventory turnover decreased in 1997 as compared to 1996 because of decreased sales levels (same store sales decreased 3.5%). The effect of decreased sales was partially offset by reductions in merchandise inventory levels which decreased to $89.7 million in 1997 compared to $90.8 million in 1996. The reduction in merchandise inventory resulted from reduced inventory levels at the Company's warehouses. Inventory turnover increased in 1996 because of increased sales levels (same store sales increased 7.1%) combined with reductions in inventory levels. For fiscal year 1996 merchandise inventory was $90.8 million compared to $93.8 million for fiscal year 1995. The reduction in merchandise inventory was due to management's directive to reduce inventory levels in the Company's warehouses and supermarkets. Inventory turnover increased slightly in 1995 compared to 1994 because of decreases in the Company's merchandise inventories. For fiscal year 1995 merchandise inventory was $93.8 million compared to $105.7 million for fiscal year 1994. The reduction in merchandise inventory was due to management implementing a plan to reduce inventory levels at the Company's warehouses. (Dollars in thousands) 1997 1996 1995 ---- ---- ---- Dividends paid......................$ 3,131 3,130 3,131 Dividends per share................. 0.44 0.44 0.44 Dividends as a percentage of net earnings.................... 39.4% 81.3% (12.2%) For fiscal years 1997, 1996 and 1995, the Company paid annual dividends totaling $.44 per share. LIQUIDITY AND CAPITAL RESOURCES Cash flows generated by operating activities were $23.3 million in 1997 compared to $39.1 million in 1996 and $25.2 million in 1995. Cash flows from operating activities decreased in 1997 as compared to 1996 primarily because of lower levels of accounts payable. 1996 increased over 1995 primarily because of improved earnings. Historically, the Company has funded working capital requirements, capital requirements, and other cash requirements primarily through cash flows from operations. However, if an insufficient amount of cash flows are generated, the Company may borrow up to $75 million under the revolving loan of which, as of June 28, 1997, $70.4 million was available for future use. The revolving loan expires in June, 1998. Cash used in investing activities was $11.2 million in 1997 compared to $21.0 million in 1996 and $34.6 million in 1995. During 1997, the Company opened 2 new supermarkets and remodeled 5 supermarkets. During 1996, the Company opened 1 supermarket, remodeled 1 supermarket, renovated 42 super-markets, purchased technology to enhance debit and credit transactions, and purchased security systems for substantially all locations. During 1995, the Company purchased 7 supermarkets from the Kroger Co., opened 3 supermarkets, remodeled 5 supermarkets, and purchased equipment which had been previously leased at the Company's distribution facilities. Cash (used in) provided by financing activities was ($17.0) million in 1997 compared to ($23.5) million in 1996 and $10.0 million in 1995. The changes for all periods were the result of activity under the Company's revolving loan agreement. At June 28, 1997, the Company was in compliance with all financial covenants under the revolving loan agreement and its long-term debt agreement. As part of the acquisition of the Company by Parent, the Company entered into an Amended and Restated Revolving Credit Agreement by and among Parent, Sub, certain other subsidiaries of Parent and the Company, on the one hand, and Fleet Capital Corporation, as agent, on the other hand. For more information about the credit facility please see Parent's Schedule 14D-1, as amended, on file with the Securities and Exchange Commission. Item 8. Financial Statements and Supplementary Data DELCHAMPS, INC. AND SUBSIDIARY Reports of Independent Auditors and Management INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Delchamps, Inc.: We have audited the accompanying consolidated balance sheets of Delchamps, Inc. and subsidiary as of June 28, 1997 and June 29, 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended June 28, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Delchamps, Inc. and subsidiary at June 28, 1997 and June 29, 1996 and the results of their operations and their cash flows for each of the years in the three-year period ended June 28, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick, L.L.P. ------------------------------ KPMG Peat Marwick, L.L.P. August 8, 1997 Atlanta, Georgia MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The Management of Delchamps, Inc. and subsidiary (the "Company") is responsible for the preparation, integrity, and objectivity of the consolidated financial statements and related information appearing in the Annual Report. The consolidated financial statements were prepared in accordance with generally accepted accounting principles and include amounts and interpretations that are based on Management's best estimates and judgments. The Company maintains a system of internal accounting control which provides reasonable assurance that financial records are reliable for preparation of financial statements and that assets are properly accounted for and safeguarded. The consolidated financial statements were audited by KPMG Peat Marwick LLP, independent auditors appointed by the Stockholders of the Company upon the recommendation of the Board of Directors. The Audit and Finance Committee of the Board of Directors, the majority of whom are outside directors, meets periodically with the internal and independent auditors to review their accounting, financial and audit reports and any recommendations they have for improvements in the system of internal accounting control. DELCHAMPS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 28, 1997 and June 29, 1996 (In thousands except share data) - -------------------------------------------------------------------------------- Assets 1997 1996 - -------------------------------------------------------------------------------- Current assets: Cash and cash equivalents (note 2) $ 5,670 10,503 Trade and other accounts receivable 7,961 8,422 Merchandise inventories (notes 3 and 6) 89,726 90,797 Prepaid expenses 2,094 1,376 Income taxes receivable (note 10) - 764 Deferred income taxes (note 10) 6,525 3,878 ------- ------- Total current assets 111,976 115,740 ------- ------- Property and equipment (note 4): Land 13,744 15,210 Buildings and improvements 59,079 58,111 Fixtures and equipment 233,542 221,090 Construction in progress 2,626 9,771 ------- ------- 308,991 304,182 Less accumulated depreciation and amortization 179,672 166,931 ------- ------- Net property and equipment 129,319 137,251 ------- ------- Other assets 2,166 2,192 ------- ------- Total assets $ 243,461 255,183 ======= ======= - ------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 1997 1996 - ------------------------------------------------------------------------------- Current liabilities: Current installments of obligations under capital leases (note 4) $ 844 749 Current installments of long-term debt (note 5) 3,697 3,760 Notes payable (note 6) 4,600 14,000 Restructure obligation (note 12) 2,273 3,996 Accounts payable 41,571 48,308 Accrued expenses: Salaries and wages 7,026 4,603 Licenses and other taxes 7,778 8,017 Other 14,192 10,240 ------- ------- Total accrued expenses 28,996 22,860 ------- ------- Income taxes (note 10) 855 - Total current liabilities 82,836 93,673 ------- ------- Obligations under capital leases, excluding current installments (note 4) 9,556 10,398 Long-term debt, excluding current installments (note 5) 7,142 10,839 Restructure obligation (note 12) 13,453 15,668 Deferred income taxes (note 10) 10,211 9,225 Other liabilities 2,244 2,455 ------- ------- Total liabilities 125,442 142,258 ------- ------- Stockholders' equity (notes 5 and 11): Junior participating preferred stock of no par value. Authorized 5,000,000 shares; no shares issued - - Common stock of $.01 par value. Authorized 25,000,000 shares; issued 7,121,749 shares in 1997 and 7,112,320 shares in 1996 71 71 Additional paid-in capital 19,856 19,657 Retained earnings 98,182 93,359 ------- ------- 118,109 113,087 Less: Unamortized restricted stock award compensation (note 8) 90 162 ------- ------- Total stockholders' equity 118,019 112,925 ------- ------- Commitments and contingencies (notes 4, 8, 9, and 13) Total liabilities and stockholders' equity $ 243,461 255,183 ======= ======= See accompanying notes to consolidated financial statements.
DELCHAMPS, INC. AND SUBSIDIARY Consolidated Statements of Earnings Years ended June 28, 1997, June 29, 1996, and July 1, 1995 (In thousands except per share data) - ----------------------------------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Sales $ 1,102,947 1,126,629 1,054,088 Cost of sales (note 3) 830,878 863,389 798,537 --------- --------- --------- Gross profit 272,069 263,240 255,551 Selling, general and administrative expenses ("S G & A"): Restructuring charge (note 12) - - 28,779 Other S G & A 254,282 250,121 261,763 --------- --------- --------- Total S G & A 254,282 250,121 290,542 --------- --------- --------- Operating income (loss) 17,787 13,119 (34,991) --------- --------- --------- Other (expense) income: Interest expense (5,215) (7,169) (5,375) Interest income 233 349 100 --------- --------- --------- Total other (expense) income (4,982) (6,820) (5,275) --------- --------- --------- Earnings (loss) before income taxes 12,805 6,299 (40,266) Income tax expense (benefit) (note 10) 4,851 2,447 (14,600) --------- --------- --------- Net earnings (loss) $ 7,954 3,852 (25,666) ========= ========= ========= Net earnings (loss) per common share $ 1.12 0.54 (3.61) ========= ========= ========= Weighted average number of common shares 7,116 7,110 7,113 ========= ========= ========= See accompanying notes to consolidated financial statements.
DELCHAMPS, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years ended June 28, 1997, June 29, 1996, and July 1, 1995 (In thousands) Common Stock Issued Additional Restricted Total Paid-In Retained Guaranteed Stock Stockholders' Shares Amount Capital Earnings ESOP Debt Awards Equity ------ ------ ------- -------- ---------- ------ ------------- Balances at July 2, 1994 7,114 $ 71 19,731 121,434 (4,000) (936) 136,300 Amortization of restricted stock awards - - - - - 539 539 Retirement of restricted stock awards (5) - (128) - - 128 - Reduction of guaranteed ESOP debt - - - - 2,000 - 2,000 Net loss - - - (25,666) - - (25,666) Dividends declared of $.44 per share - - - (3,131) - - (3,131) ------ ------ ------ ------ ------ ------ ------ Balances at July 1, 1995 7,109 71 19,603 92,637 (2,000) (269) 110,042 Amortization of restricted stock awards - - - - - 21 21 Retirement of restricted stock awards (3) - (86) - - 86 - Reduction of guaranteed ESOP debt - - - - 2,000 - 2,000 Issuance of shares for director compensation 4 - 108 - - - 108 Stock options exercised (note 14) 2 - 32 - - - 32 Net earnings - - - 3,852 - - 3,852 Dividends declared of $.44 per share - - - (3,130) - - (3,130) ------ ------ ------ ------ ------ ------ ------ Balances at June 29, 1996 7,112 71 19,657 93,359 - (162) 112,925 Amortization of restricted stock awards - - - - - 72 72 Issuance of shares for director compensatio 8 - 167 - - - 167 Stock options exercised (note 14) 2 - 32 - - - 32 Net earnings - - - 7,954 - - 7,954 Dividends declared of $.44 per share - - - (3,131) - - (3,131) ------ ------ ------ ------ ------ ------ ------ Balances at June 28, 1997 7,122 $ 71 19,856 98,182 - (90) 118,019 ====== ====== ====== ====== ====== ====== ====== See accompanying notes to consolidated financial statements.
DELCHAMPS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended June 28, 1997, June 29, 1996, and July 1, 1995 (In thousands)
- ------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings (loss) $ 7,954 3,852 (25,666) Adjustments to reconcile net earnings to net cash (loss) provided by operating activities: Depreciation and amortization 23,719 21,771 19,472 Write-off of cost in excess of fair value of assets a - - 5,050 (Gain) loss on sale of property and equipment (2,054) (420) 231 Restricted stock award amortization 72 21 667 Non cash director compensation expense 167 108 - Deferred income tax (benefit) expense (1,661) 1,928 (9,206) Decrease in merchandise inventories 1,071 3,011 11,855 (Decrease) increase in accounts payable, accrued expenses, and current portion of restructure obligation (2,324) 5,567 10,887 Increase (decrease) in income taxes, net 1,619 5,785 (6,491) (Decrease) increase in other liabilities and restructure obligation (2,023) (1,653) 19,113 Increase in other assets (3,203) (890) (716) ------- ------- ------- Net cash flows provided by operating activities 23,337 39,080 25,196 Cash flows from investing activities: Additions to property and equipment (15,551) (21,671) (35,239) Proceeds from sale of property and equipment, net 4,387 710 611 ------- ------- ------- Net cash used in investing activities (11,164) (20,961) (34,628) Cash flows from financing activities: Principal payments on obligations under capital leases (747) (665) (1,576) Principal payments on long-term debt and notes payable (26,760) (25,239) (15,333) Proceeds from issuance of long-term debt and notes payable 13,600 5,480 30,000 Issuance of stock options 32 32 - Dividends paid (3,131) (3,130) (3,131) ------- ------- ------- Net cash (used in) provided by financing activities (17,006) (23,522) 9,960 Net (decrease) increase in cash and cash equivalents (4,833) (5,403) 528 Cash and cash equivalents at beginning of year 10,503 15,906 15,378 ------- ------- ------- Cash and cash equivalents at end of year $ 5,670 10,503 15,906 ======= ======= ======= See accompanying notes to consolidated financial statements.
DELCHAMPS, INC. AND SUBSIDIARY Notes To Consolidated Financial Statements June 28, 1997, June 29, 1996, and July 1, 1995 (1) Summary of Significant Accounting Policies (a) Description of Business Delchamps, Inc. and subsidiary (the "Company") are engaged in the business of retail food distribution through the Company's supermarkets located in Alabama, Florida, Louisiana, and Mississippi. (b) Definition of Fiscal Year The Company's fiscal year ends on the Saturday closest to June 30. Fiscal years 1997, 1996 and 1995 all comprised 52 weeks. (c) Principles of Consolidation The consolidated financial statements include the accounts of Delchamps, Inc. and its wholly owned wholesale subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. (d) Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. (e) Merchandise Inventories Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out ("LIFO") basis for 89% of inventories in 1997, and 88% in 1996 and 87% in 1995. With respect to the remaining inventories, primarily produce and market, cost is determined on the first-in, first-out ("FIFO") basis. Inventories developed from the retail method comprised approximately 59% of total inventories in 1997, 58% in 1996, and 55% in 1995. (f) Property and Equipment Property and equipment are stated at cost. Buildings and equipment acquired prior to July 1, 1984 are depreciated over the estimated useful lives of the respective assets using primarily the double-declining-balance method. Buildings and equipment acquired subsequent to July 1, 1984, are depreciated over the estimated useful lives of the respective assets using the straight-line method. Buildings and equipment under capital leases are stated at the lower of the present value of the minimum lease payments at the beginning of the lease term or fair value of the property at the inception of the lease. Assets leased under capital leases and leasehold improvements are amortized using the straight-line method over the lesser of the lease term or the estimated useful lives of the related assets. The Company uses the following periods for depreciating and amortizing property and equipment: Buildings...............................................10 - 50 years Leasehold improvement........................................10 years Fixtures and equipment...................................5 - 10 years (g) Cost in Excess of Fair Value of Assets Acquired Cost in excess of fair value of assets acquired arose from the purchase of three supermarkets and real estate in fiscal year 1988. For fiscal years 1988 through 1994, amortization was recorded over a 40 year period on a straight-line basis. The acquired property did not achieve sales and earnings projections prepared at the time of the acquisition. The primary cause of the shortfall in the Company's projections was because of competitors increasing promotional activity, competitors opening new supermarkets, and competitors expanding existing supermarkets. The Company determined, based on the trend of operating results for 1988 through 1995, that the projected results of the acquired property would not support the future amortization of the remaining balance of the cost in excess of fair value of assets acquired. Accordingly, the Company wrote-off its remaining balance of cost in excess of fair value of assets acquired of $5.1 million in the fourth quarter of fiscal year 1995. (h) Income Taxes Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The major temporary differences and their net effect are shown in the "Income Taxes" note. Job credits are recorded as a reduction of the provision for Federal income taxes in the year realized. (i) Earnings Per Share Earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding. (j) Management Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. (k) Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity of these items. (l) Impairment of Long-Lived Assets Effective June 30, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No.121 establishes accounting standards for the impairment of long- lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, or to be disposed of. The implementation did not have a significant impact on the Company's financial condition or results of operation. (m) Stock Compensation During fiscal year 1997, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which was effective for fiscal years beginning after December 15, 1995. The statement encourages the use of a fair-value-based method of accounting for stock-based awards under which the fair value of stock options is determined on the date of grant and expensed over the vesting period. Companies may, however, continue to measure compensation costs for those plans using the method prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Companies that continue to apply APB No. 25 are required to include pro forma disclosures of net earnings and earnings per share as if the fair-value-based method of accounting had been applied. The Company has elected to continue to account for such plans under the provisions of APB No. 25. Compensation expense computed under the fair-value- based method is not significant to the financial statements as a whole, therefore pro forma disclosures have not been included. (2) Cash Equivalents Cash equivalents are stated at cost which approximates market value. Cash equivalents at June 28, 1997 and June 29, 1996 consisted of the following: (In thousands) 1997 1996 ---- ---- Euro Dollar Time Deposits..................... $ 2 1,130 Marketable Unit Investment Fund............ 856 856 Cash Management Tax Exempt Fund........ 77 20 ----- ----- $ 935 2,006 ===== ===== (3) Merchandise Inventories The Company uses the LIFO method of valuing certain of its merchandise inventories to minimize inflation-induced inventory profits and to achieve a better matching of current costs with current revenues. Inventories would increase by approximately $14,171,000 at June 28, 1997 and $13,780,000 at June 29, 1996 if all of the Company's inventories were stated at cost determined by the first-in, first- out method. Further, net earnings would increase by approximately $240,000 in fiscal year 1997, $262,000 in fiscal year 1996, and $322,000 in fiscal year 1995, after applying the Company's marginal tax rate and without assuming an investment return on the applicable income tax savings. The Company is a member of a cooperative association from which it purchases private label merchandise for resale and certain store equipment. Merchandise inventories purchased from this cooperative association approximated 19% of total inventory purchases in 1997, 1996, and 1995. (4) Leases The Company leases certain store properties under capital leases that expire over the next 11 years. The Company also leases warehouses, store properties, and store equipment under noncancellable operating leases that expire over the next 20 years. Contingent rentals on store properties are paid as a percentage of sales in excess of a stipulated minimum. In the normal course of business, it is expected that most leases will be renewed or replaced by leases on other properties and equipment. Included in property and equipment are the following amounts applicable to capital leases: (In thousands) 1997 1996 ---- ---- Buildings.................................... $ 13,998 13,998 Fixtures and equipment..................... 19,040 19,040 ------ ------ 33,038 33,038 Less accumulated amortization............ 27,578 26,888 ------ ------ $ 5,460 6,150 ====== ====== Future minimum lease payments under noncancellable operating leases and the present value of future minimum capital lease payments as of June 28, 1997 are as follows: (In thousands) Capital Operating Leases Leases Fiscal Year ------ ------ 1998........................... $ 2,081 38,292 1999........................... 2,081 37,702 2000........................... 2,081 37,081 2001........................... 2,081 34,989 2002........................... 1,961 33,766 Later years.................... 6,968 241,182 ----- ------- Total minimum lease payments......... 17,253 423,012 ======= Less amount representing interest 6,853 ----- Present value of net minimum capital lease payments.......... 10,400 Less current installments of obligations under capital leases.................. 844 ----- Long-term obligations under capital leases ................................. $ 9,556 ===== Rental expense and contingent rentals for operating leases are as follows: (In thousands) 1997 1996 1995 ---- ---- ---- Minimum rentals............... $ 45,329 45,514 43,552 Contingent rentals.............. 129 66 99 ------ ------ ------ $ 45,458 45,580 43,651 ====== ====== ====== Most of the Company's leases stipulate that the Company pay taxes, maintenance, insurance, and certain other operating expenses applicable to the leased property. (5) Long-term Debt Long-term debt as of June 28, 1997 and June 29, 1996 consisted of the following: (In thousands) 1997 1996 ---- ---- 5.51% note payable, due in 84 monthly installments of $297,619 in principal plus interest, with the final installment due July 1, 2000, unsecured.......... $ 10,714 14,286 Note payable, with interest rates based on LIBOR + 1.5%, due in 60 monthly installments of $15,625 in principal plus interest, with the final installment due March 1, 1998, secured by deposit accounts with the lender ... 125 313 ------ ------ Total long-term debt............... 10,839 14,599 Less current installments............ 3,697 3,760 ------ ------ Long-term debt, excluding current installments.............. $ 7,142 10,839 ====== ====== Agreements underlying the notes payable contain restrictive covenants which limit the payment of dividends, additional debt, lease rentals, and transactions with affiliates, and require maintenance of certain working capital and equity levels. At June 28, 1997, the Company was in compliance with all covenants. At June 28, 1997, approximately $4,950,000 of the Company's retained earnings was available for the payment of dividends under such restrictive provisions. Cash payments for interest were approximately $5,268,000, $7,129,000, and $5,368,000 in 1997, 1996 and 1995, respectively. Aggregate annual maturities of long-term debt for fiscal years after June 28, 1997 are approximately as follows: (In thousands) Fiscal year Annual maturities ----------- ----------------- 1998 $ 3,697 1999 3,571 2000 3,571 -------- $ 10,839 ======== Based on the borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of the long-term debt outstanding at June 28, 1997 approximates the carrying value, with the exception of the 5.51% note payable which the fair value approximates $10.0 million at June 28, 1997 and $13.7 million at June 29, 1996. The fair value was estimated using a discounted cash flow analysis based on the Company's borrowing rate for similar liabilities. (6) Notes Payable Short-term borrowings as of June 28, 1997 and June 29, 1996 consisted of the following: (In thousands) 1997 1996 Revolving loan commitments, due on various dates throughout fiscal 1998 and fiscal 1997, respectively, with interest rates based on LIBOR + 1.25%, secured by all of the Company's inventory ............ $ 4,600 14,000 On June 29, 1995, the Company entered into a $75,000,000 revolving loan credit agreement. The revolving loan agreement is committed through June, 1998. There is an annual commitment fee of .25 of 1% on the unused portion. At the Company's option, interest under the agreement may be based on LIBOR or the prime rate. As of June 28, 1997, the Company is committed to LIBOR contracts which expire no later than July 28, 1997 and have a weighted average interest rate of 6.9375%. The credit agreement requires the Company to maintain minimum levels of earnings and to comply with stated debt covenants. At June 28, 1997, the Company was in compliance with all covenants. (7) Leveraged Employee Stock Ownership Plan In November 1987, the Company leveraged its existing Employee Stock Ownership Plan ("ESOP"). The ESOP used the proceeds of the loan to purchase approximately 1,097,000 shares of the Company's common stock. The common stock was held by the ESOP trustee in a suspense account and these shares served as collateral for the loan. Each year through fiscal year 1996, the Company made a contribution to the ESOP which the trustee used to make principal payments. With each loan payment a portion of the common stock was released from the suspense account and allocated to participating employees. The Company was required to pay interest on the loan in excess of any dividends received on unallocated shares. The Company guaranteed $20 million of ESOP debt under the loan agreement. On June 26, 1996, the ESOP loan was repaid in full. Therefore, as of June 28, 1997 and June 29, 1996, all shares have been allocated to participants and no shares remain in the "suspense account." (8) Employee Benefit and Incentive Plans The Company has an employee stock ownership plan and a profit sharing plan pursuant to section 401(k) of the Internal Revenue Code which cover substantially all employees who have completed two years of service. The profit sharing plan was implemented in fiscal year 1995. Participants may contribute a percentage of compensation, but not in excess of the maximum allowed under the Internal Revenue Code. The plan provides for a matching contribution by the Company. The total annual contributions to these plans by the Company for fiscal years 1997, 1996, and 1995 were as follows: (In thousands) 1997 1996 1995 ---- ---- ---- Employee stock ownership plan $ - 2,000 2,000 Profit sharing plan 1,055 1,157 1,421 ----- ----- ----- $ 1,055 3,157 3,421 The Company has an incentive compensation plan for certain management personnel tied to the Company's overall performance. Incentive compensation expense was $2,943,000 in 1997 and $1,252,000 in 1996. Incentive compensation was not paid in 1995. In fiscal 1988, the Company adopted, with stockholder approval, a restricted stock award plan. The plan provides that a maximum of 150,000 shares of common stock be awarded to key executives. During 1989, 138,000 shares were awarded to key executives at a price of $.01 per share. No shares have been awarded since 1989. These awarded shares are held by the Company for future distribution in accordance with the provisions of the plan. Total compensation expense to be charged to operations over the term of the plan is approximately $3,209,000. Total compensation expense associated with the plan was determined based on the market value of the stock at the date of award, and is being amortized on a straight-line basis over the period the restrictions lapse. Charges to operations for this plan were approximately $72,000 in 1997, $21,000 in 1996, and $293,000 in 1995. (9) Postemployment Benefits Other Than Pensions The Company provides a postemployment longevity bonus to associates that leave employment after either attaining age 55 or completing 25 years of service. The amount of longevity bonus is based on length of service and is recognized on an accrual basis as employees perform services to earn the benefits.. Longevity bonus expense was $304,000 in 1997 and 1996, and $276,000 in 1995. (10) Income Taxes The components of income tax expense (benefit) are as follows: (In thousands) Current Deferred Total 1997: Federal $ 5,750 (1,467) 4,283 State 762 (194) 568 ----- ----- ----- $ 6,512 (1,661) 4,851 ===== ===== ===== 1996: Federal $ 461 1,711 2,172 State 58 217 275 ----- ----- ----- $ 519 1,928 2,447 ===== ===== ===== 1995: Federal $ (4,746) (8,101) (12,847) State (648) (1,105) (1,753) ----- ----- ------ $ (5,394) (9,206) (14,600) ===== ===== ====== The actual income tax expense (benefit) differs from the statutory tax rate for all years (computed by applying the U.S. Federal corporate rate to earnings (loss) before income taxes) as follows: (In thousands) 1997 1996 1995 Statutory tax rate $ 4,354 2,142 (13,690) Increase (reduction) in income taxes resulting from: State income taxes, net of Federal income tax benefit 570 270 (2,219) Targeted jobs tax credits - (25) (385) Cost in excess of fair value of assets acquired - - 1,771 Other, net (73) 60 (77) Actual tax expense ----- ----- ------ (benefit) $ 4,851 2,447 (14,600) ===== ===== ====== Effective tax rate 37.9% 38.8% 36.3% ===== ===== ===== The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows: (In thousands) 1997 1996 Deferred tax assets: Restructure obligation.................. $ 6,054 7,531 Capital lease obligation................ 1,901 1,914 Accrued self-insurance.................. 4,515 2,879 Accrued postemployment benefits............................. 847 888 Other accrued liabilities............... 2,099 1,585 ------ ------ Net deferred tax assets................. 15,416 14,797 ------ ------ Deferred tax liabilities: Accelerated depreciation................ 18,942 19,985 Other................................... 160 159 Total gross deferred liabilities........................... 19,102 20,144 ------ ------ Net deferred tax liabilities.............. $ 3,686 5,347 ====== ====== No valuation allowance was recorded against the deferred tax assets at June 28, 1997. The Company's management believes the existing net deductible temporary differences comprising the total gross deferred tax assets will reverse during the periods in which the Company generates net taxable income. Cash payments for income taxes were approximately $5,454,000, $67,000, and $1,437,000 in 1997, 1996, and 1995, respectively. (11) Share Purchase Rights Plan In October 1988, the Company adopted a Share Purchase Rights Plan and declared a dividend distribution of one Right for each outstanding share of common stock. Under certain conditions, each Right may be exercised to purchase one one-hundredth of a share of Junior Participating Preferred Stock at a purchase price of $70, subject to adjustment. The Company will be entitled to redeem the Rights at $.01 per Right at any time prior to the earlier of the expiration of the Rights in October 1998 or ten days following the time a person or group acquires or obtains the right to acquire a 15% position in the Company. The Rights do not have voting or dividend privileges. Until such time as they become exercisable, the Rights have no dilutive effect on the earnings per share of the Company. (12) Restructuring Charge During fiscal year 1995, the Company recorded a pretax restructuring charge of $28.8 million. The charge reflected anticipated costs associated with a program to close certain underperforming stores which could not be subleased in whole or in part and, to a lesser extent, severance costs related to the termination of employment of former executives. Of the total $28.8 million restructuring reserve, $3.9 million, $5.9 million, and $3.2 million of costs and payments have been charged against the reserve for fiscal years 1997, 1996, and 1995, respectively. A detail of charges against the restructure obligation follows: (In thousands) 1997 1996 1995 ---- ---- ---- Lease payments...........................$ 3,045 3,691 1,421 Fixture and equipment write-offs....... 138 1,828 24 Severance payments...................... 755 400 1,752 ----- ----- ----- $ 3,938 5,919 3,197 ===== ===== ===== (13) Commitments and Contingencies The Company is a defendant in various claims and legal actions considered to be in the normal course of business. Management intends to vigorously defend these claims and believes that the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial condition. In fiscal 1989, and subsequently, the Company has entered into certain agreements with officers and key management. The agreements contain provisions entitling each officer or employee covered by these agreements to receive from 1 to 3 times his annual compensation (as defined) if there is a change in control of the Company (as defined) and a termination of his employment. The agreements also provide for severance benefits under certain other circumstances. The agreements do not constitute employment contracts and only apply in circumstances following a change in control of the Company. In the event of a change in control of the Company and termination of all persons covered by these agreements, the cost would be approximately $12,100,000. (14) Stock Incentive Plan Key employees of the Company (including officers and directors who are also full-time employees of the Company) are eligible to receive one or more of the following: incentive stock options and non-qualified stock options, stock awards, restricted stock, performance shares, and cash awards. Approximately 460,800 stock options have been granted of which approximately 351,550 shares are exercisable as of June 28, 1997. The stock options expire from December 2000 through October 2006. Approximately 2,000 options were exercised in each of fiscal years 1997 and 1996. Exercise prices range from $17.88 to $23.00 which was market value at date of grant. (15) Selected Quarterly Financial Data (Unaudited) Selected quarterly financial data for the years ended June 28, 1997, and June 29, 1996 is summarized as follows: (In thousands except per share amounts) Fiscal quarters ____________________________________________ 1997 Fourth Third Second First ------- ------- ------- ------- Sales................$ 266,893 273,753 272,602 289,699 Gross profit ......... 72,404 69,182 65,116 65,367 Earnings before tax.. 7,713 4,428 321 343 Net earnings.......... 4,854 2,720 176 204 Net earnings per common share..$ .68 .38 .03 .03 Dividends declared per common share............$ 0.11 0.11 0.11 0.11 (In thousands except per share amounts) Fiscal quarters ____________________________________________ 1996 Fourth Third Second First ------- ------- ------- ------- Sales.................$ 284,662 280,225 277,053 284,689 Gross profit ......... 68,171 65,684 64,915 64,470 Earnings (loss) before tax........ 4,236 1,897 1,290 (1,124) Net earnings (loss). 2,653 1,147 808 (756) Net earnings (loss) per common share.............$ 0.37 0.16 0.12 (0.11) Dividends declared per common share.............$ 0.11 0.11 0.11 0.11 (16) Subsequent Event On July 8, 1997, the Company announced that it had entered into an agreement to be acquired by Jitney-Jungle Stores of America, Inc. The terms of the agreement are described in the Company's 14D-9 and in Jitney-Jungle's 14D-1, both of which have been filed with the Securities and Exchange Commission. Pursuant to the agreement, Jitney-Jungle has begun an all-cash tender offer for all of the Company's outstanding common stock at a price of $30 per share. Following successful completion of the tender offer, Jitney-Jungle will acquire for the same cash price any shares that are not tendered by means of a merger of Delchamps with a wholly owned subsidiary of Jitney-Jungle. The Company's Board of Directors has approved the transaction unanimously and has recommended approval by the Delchamps' stockholders. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements on accounting principles or practices or financial statement disclosure between the Company and its independent certified public accountants within the twenty-four months prior to June 28, 1997. PART III Item 10. Directors and Executive Officers of the Registrant Current Directors of the Company Unless otherwise indicated, each director has been engaged in the principal occupation or employment shown for more than the past five years. First Serving Name, Age, Principal Occupation and Elected Term Directorships in other Public Companies Director Expiring --------------------------------------- -------- -------- Carl F. Bailey, 66(1)(2)(3) 1987 1999 Retired President and Chief Executive Officer, South Central Bell Telephone Company Retired Co-Chairman, BellSouth Telecommunications, Inc. E. E. Bishop, 66(1)(2)(4) 1989 1997 Member of Board of Directors, Morrison Fresh Cooking, Inc. (family restaurant chain) and Morrison Health Care, Inc. (food service provider for health care institutions) Bruce C. Bruckmann, 43 1997 1997 Director of the Parent since March 1996 and a principal in Bruckmann, Rosser, Sherrill & Co., Inc., LP. He was an officer and subsequently a Managing Director of Citicorp Venture Capital, Ltd. from 1983 through 1994. Member of the Board of Directors or Chairman of the Board of AmeriSource Distribution Corp., CORT Business Services Corp., Chromcraft Revington, Inc. and Mohawk Industries, Inc., Town Sport Inc., Anvil Knitwear Inc., as well as several private companies. William W. Crawford, 69(1)(2)(5) 1977 1998 Retired Senior Vice President and Secretary, Kraft, Inc. (food, consumer and commercial products company) Roger E. Friou, 62 1997 1997 Director of the Parent since June 1984. President of the Parent from March 1996 to May 1997. Prior to 1996, served as Vice Chairman, Chief Financial Officer, and Secretary of the Parent since 1991. Executive Vice President of the Parent from 1984 to 1991. Member of the Board of Directors of Parkway Properties Inc. Resigned May 1997 as President of the Parent, but remains as a Director of the Parent. W. H. Holman, Jr., 67 1997 1998 Chairman of the Board of the Parent since 1967. Chief Executive Officer of the Parent from 1967 until January 1997. Member of the Board of two private companies. Michael E. Julian, 46 1997 1998 President of the Parent since May 1997 and Chief Executive Officer of the Parent since January 1997. Director of the Parent since April 1996. From 1988 to January 1997, served as Chairman, President and Chief Executive Officer of Farm Fresh, Inc. Harold O. Rosser, II, 48 1997 1999 Director of the Parent since March 1996 and a principal in Bruckmann, Rosser, Sherrill & Co., Inc., LP. He was an officer and subsequently a Managing Director of Citicorp Venture Capital, Ltd. from 1987 through 1994. Member of the Board of Directors of Davco Restaurants, Inc., as well as a private company. Stephen C. Sherrill, 44 1997 1999 Director of the Parent since March 1996 and a principal in Bruckmann, Rosser, Sherrill & Co., Inc., LP. He was an officer and subsequently a Managing Director of Citicorp Venture Capital, Ltd. from 1983 through 1994. Member of the Board of Directors of Galey & Lord, Inc., and of several private companies. ___________________ (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) In October 1991, Mr. Bailey retired as President and Chief Executive Officer of South Central Bell Telephone Company and Co-Chairman of BellSouth Telecommunications, Inc. (4) Prior to June 1992, Mr. Bishop also served as Chief Executive Officer of Morrison Restaurants, Inc. (5) Prior to September 1988, Mr. Crawford also served as Kraft's general counsel. He retired from Kraft in December 1988. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and greater-than-10% shareholders to file with the Securities and Exchange Commission reports of beneficial ownership and changes in beneficial ownership of the Company's Common Stock. All such reports were timely filed. Current Officers of the Company Executive Officers of the Registrant - ------------------------------------ All Executive Officers are appointed by the Board of Directors and, except in certain circumstances following a change in control, may be removed at any time, with or without cause by the Board. NAME POSITIONS HELD WITH COMPANY AGE - ---- --------------------------- --- Michael E. Julian (1) Chief Executive Officer, Chairman of 46 the Board and Vice President Richard W. LaTrace President 60 Timothy E. Kullman Senior Vice President, Chief Financial 41 Officer Treasurer and Secretary Frank L. Bennen Senior Vice President, Operations 57 Thomas P. Robbins Senior Vice President, Marketing 53 V. Lawrence Abreo Vice President 44 Management Information Services Larry S. Griffin Vice President, Real Estate 55 Thomas R. Trebesh Vice President, Human Resources 48 David Black Vice President and Assistant Secretary 44 - -------------------- (1) Mr. David W. Morrow served as Chief Executive Officer of the Company and Chairman of the Board from April 1995 to September 19, 1997. Michael E. Julian was appointed a Vice President of the Company by the Board on September 12, 1997 at the request of Parent. Mr. Julian began serving as Chief Executive Officer and Chairman of the Board on September 19, 1997. Richard W. LaTrace began employment with the Company in June 1995 and serves as President. Prior to Delchamps, Mr. LaTrace served as President and Chief Operating Officer of XTRA Super Foods, Inc. Mr. LaTrace's experience also includes serving as President of Corporate Retail at Wetterau, Inc. and Senior Vice President of Operations at ABCO Markets, Inc. Timothy E. Kullman began employment in August 1994 and serves as Senior Vice President, Chief Financial Officer, Treasurer and Secretary. Mr. Kullman was previously with Farm Fresh, Inc., Norfolk, Virginia as Senior Vice President and Chief Financial Officer. He was also associated with Blue Cross/Blue Shield of Michigan as well as Deloitte, Haskins and Sells of Detroit, Michigan. Frank L. Bennen began employment with the Company in June 1995 and serves as Senior Vice President of Operations. Prior to Delchamps, Mr. Bennen served as President of Laneco, Inc., a chain of 52 retail stores. Mr. Bennen's experience also includes prior service with Skaggs Alpha Beta Company and Alpha Beta Company. Thomas P. Robbins began employment with the Company in October 1995. He serves as Senior Vice President, Marketing. Prior to Delchamps, Mr. Robbins served as Senior Vice President of Operations and Merchandising at Thriftway Food and Drug. Mr. Robbins' experience also includes prior service with Great Atlantic & Pacific Tea Company and Kroger Company. V. Lawrence Abreo has been employed by the Company since 1971. He serves as Vice President, Management and Information Services, and was appointed to that position in January 1992. Prior to that time, Mr. Abreo was Director of Management Information Services. Larry S. Griffin has been employed by the Company since 1964. In July 1995, Mr. Griffin was named Vice President, Real Estate. He was named Vice President, Planning and Development in April 1994, Senior Vice President, Merchandising in January 1992, and Vice President, Merchandising in July 1988. In March 1987, he was appointed Director, Merchandising and, prior to that time, served as Director of Grocery Merchandising. Thomas R. Trebesh has been employed by the Company since 1978. He serves as a Vice President, Human Resources, and was appointed to that position in July 1995. Prior to that time Mr. Trebesh served as Vice President, Personnel, and was appointed to that position in June 1993. David Black was appointed a Vice President and Assistant Secretary by the Board on September 12, 1997 at the request of Parent. Item 11. Executive Compensation Summary of Executive Compensation The following table sets forth information with respect to compensation paid by the Company for services rendered in all capacities during the fiscal years ended July 1, 1995, June 29, 1996 and June 28, 1997 to each person who served as the Chief Executive Officer during the last fiscal year and to each of the four other most highly compensated persons who served as executive officers of the Company during the last fiscal year and whose salary and bonus exceeded $100,000.
Long-Term Compensation ------------ Awards ------ Annual Compensation Securities ------------------- Underlying All Other Name and Principal Position Year Salary Bonus Options Compensation - --------------------------- ---- ------ ----- ------- ------------ David W. Morrow, Chairman of the Board and Chief Executive Officer (1) 1997 $400,000 $225,000 - - 1996 520,000 - 100,000 - 1995 112,000 - 100,000 - Richard W. LaTrace, President (2) 1997 315,000 177,188 25,000 - 1996 300,000 100,000 50,000 $32,000 Timothy E. Kullman, Senior Vice President, Chief Financial Officer, Treasurer and Secretary (3) 1997 177,500 73,219 5,000 - 1996 165,375 - 25,000 - 1995 131,149 - 5,000 43,500(4) Frank L. Bennen, Senior Vice President, Operations (5) 1997 175,000 72,188 5,000 - 1996 160,000 25,000 5,000 23,130(4) 1995 3,077 - - - Thomas P. Robbins, Senior Vice President, Sales and Marketing (6) 1997 175,000 72,188 5,000 - 1996 120,577 18,720 5,0001 8,760(4) ___________________ (1) Mr. Morrow served as Chairman and Chief Executive Officer from April, 1995 to September 19, 1997. (2) Mr. LaTrace joined the Company in June, 1995. (3) Mr. Kullman joined the Company in August, 1994. (4) Consists of reimbursement of relocation expenses. (5) Mr. Bennen joined the Company in June, 1995. (6) Mr. Robbins joined the Company in October, 1995.
Option Grants in Last Fiscal Year Individual Grants - ---------------------------------------------------------------------- Number of Percentage of Potential Realizable Value at Securities Total Options Assumed Annual Rates of Underlying Granted to Stock Price Appreciation Options Employees in Exercise Expiration for Option Term Granted(1) Fiscal Year Price Date 5% 10% ---------- ------------- -------- ---------- ---- ----- Richard W. LaTrace 25,000(2) 3.0% $23.00 07/29/01 158,750 351,000 Timothy E. Kullman 5,000(2) 7.8% $23.00 07/29/01 31,750 70,200 Frank L. Bennen 5,000(2) 7.8% $23.00 07/29/01 31,750 70,200 Thomas P. Robbins 5,000(2) 7.8% $23.00 07/29/01 31,750 70,200 _____________________ (1) The options are exercisable at any time before expiration. (2) The options become exercisable in one-third annual increments, unless the Compensation Committee elects to accelerate exercisability. In addition, the options automatically become exercisable in the event of a change of control of the Company.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values Shares Acquired Number of Unexercised Value of Unexercised on Value in-the-Money Options at in-the-Money Options at Name Exercise Realized Fiscal Year End Fiscal Year End ---- -------- -------- ------------------------ ------------------------ Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- David W. Morrow None $0 200,000 - 2,475,000 - Richard W. LaTrace None 0 33,335 41,666 425,021 406,242 Frank L. Bennen None 0 3,334 6,666 40,008 58,742 Timothy E. Kullman None 0 3,334 6,666 40,842 59,159 Thomas P. Robbins None 0 1,667 3,333 20,838 39,996 ____________________
Compensation of Directors During the last fiscal year each director not otherwise employed by the Company received an annual retainer of $18,000 as well as a fee of $1,500 for each Board meeting attended and $650 for each Audit or Compensation Committee meeting attended. A director may elect to defer his retainer and meeting fees until the earlier of the director's 70th birthday or the date the director ceases to be a member of the Board. Deferred amounts earn interest at a rate equal to the interest paid on 90-day U.S. Treasury bills. During the last fiscal year directors could also choose to use their retainer and meeting fees to purchase Company Common Stock at a 25% discount from its trading price. Compensation Committee Interlocks and Insider Participation During the last fiscal year, all members of the Board of Directors of the Company, other than David W. Morrow, Richard W. LaTrace and Timothy E. Kullman, served on the Compensation Committee. None of the members of the Compensation Committee have been officers or employees of the Company or any of its subsidiaries. No executive officer of the Company served in the last fiscal year as a director or a member of the compensation committee of another entity, one of whose executive officers served as a director or on the Compensation Committee of the Company. Compensation Committee Report on Executive Compensation Compensation Philosophy The Compensation Committee of the Board of Directors (the "Committee") has been responsible for review and administration of the Company's executive compensation program. The Committee's strategy has been to develop and implement an executive compensation program that allows the Company to attract and retain highly qualified persons to manage the Company in order to enhance shareholder value. The objectives of this strategy were to provide a compensation package that permitted the recognition of individual contributions and achievements as well as Company results. Within this strategy, the Committee considered it essential to the vitality of the Company to maintain levels of compensation opportunity that were competitive with similar companies in the grocery industry. The Committee has recommended to the entire Board salary levels for the executive officers of the Company in the past. The Committee also administered the Company's annual incentive plan and the 1993 Stock Incentive Plan. In its deliberations, the Committee has taken into account the recommendations of appropriate Company officials and independent professional compensation consultants. Under the Omnibus Budget Reconciliation Act ("OBRA") enacted in 1993, publicly held companies may be prohibited from deducting as an expense for federal income tax purposes total compensation in excess of $1 million paid to certain executive officers in a single year. However, OBRA provides an exception for compensation that qualifies as "performance based." The Committee has not taken any action to qualify any portion of executive compensation as performance based. Base Salaries Salaries for executive officers, including the Chief Executive Officer, have generally been based on evaluations of the executives' performance, their contributions to the performance of the Company, their responsibilities, experience and potential, and compensation practices for comparable positions at other companies in the grocery industry. The base salary opportunities have been targeted at the 50th percentile of a large group of both public and private supermarket chains. The comparison group included the companies that make up the Dow Jones Food Retailers Index but was weighted more heavily toward supermarket chains similar in size to the Company. Incremental amounts may have been earned above the 50th percentile for outstanding performance. Annual Incentive Compensation Executive officers have been eligible for annual incentive awards. These awards were not in addition to market level compensation but are designed to place a significant part of an executive's annual compensation at risk. The Chief Executive Officer's award was based on corporate performance measured against pre-tax profit objectives set by the Committee at the beginning of the year. Awards to other executive officers were based on the same corporate performance measure and on individual achievement of specified objectives established by the Chief Executive Officer at the beginning of the year. Targeted awards were a percentage of the executive officer's base salary ranging from 15% to 50% based on the officer's position and salary grade. Awards based on Company performance have ranged from 25% of target for exceeding a threshold profit level to a maximum award of 50% greater than target for achieving or exceeding a maximum pre-tax profit goal. At year-end, individual performance of the other executive officers has been evaluated against pre-established objectives. The combination of base salary and an annual incentive award were intended to provide an executive the opportunity to earn total compensation slightly above the 50th percentile of the competitive marketplace if Company and individual goals were achieved. Long-Term Incentive Plan To be consistent with the Company's executive compensation philosophy, the Committee has recommended that a significant portion of total executive compensation be tied directly to shareholders' results. Toward that end, the Board of Directors adopted the 1993 Stock Incentive Plan (the "Incentive Plan") and the Incentive Plan was approved by the Company's shareholders at the 1993 annual meeting. Stock options and other stock incentives have been an integral part of the Company's executive compensation program in order to align the interests of the executive officers with the interests of the Company's shareholders. The Committee granted stock options to the Company's executive officers in fiscal 1997 providing officers with the opportunity to buy and maintain an equity interest in the Company, thereby encouraging them to direct their efforts toward appreciation of the value of the Company's common shares. The number of options that a particular executive officer received was generally based upon the officer's base salary and level of responsibility. The options granted had an exercise price equal to the fair market value of the shares on the grant date and, to encourage a long-term perspective, generally vest over three years and have a ten-year term. Stock option compensation bears a direct relationship to corporate performance in that, over the long term, share price appreciation depends upon corporate performance, and without share price appreciation the options are of no value. With the acquisition of the Company by Parent and Sub, the Compensation philosophy of the Company is expected to be conformed to Parent's philosophy. Submitted by the Compensation Committee. Carl F. Bailey E. E. Bishop William W. Crawford Performance Graph The graph below compares the cumulative total shareholder return on the Company's Common Stock for the last five fiscal years with the cumulative total return on the S&P 500 Index and the Dow Jones Food Retailers Index, in each case assuming the investment of $100 on June 26, 1992 at closing prices on June 26, 1992 and the reinvestment of dividends. The Dow Jones Food Retailers Index consists of the following eleven companies and is published periodically in the Wall Street Journal: Albertson's, Inc., American Stores Company, Bruno's, Inc., Flemming Companies Inc., Food Lion, Inc., Giant Food Inc., The Great Atlantic & Pacific Tea Company, Inc., The Kroger Company, SUPERVALU INC., The Vons Companies, Inc. and Winn-Dixie Stores, Inc. COMPARISON OF DELCHAMPS, INC., S&P 500 AND DOW JONES FOOD RETAILERS INDEX CHART APPEARS HERE
Total Return for the Fiscal Year 1992 1993 1994 1995 1996 1997 Delchamps 100.00 98.13 115.10 97.47 122.79 155.70 S&P 500 100.00 110.39 108.85 133.47 164.75 217.40 Dow Jones Food Retailers Index 100 100.00 98.80 95.90 119.18 137.92 178.61
Item 12. Security Ownership of Certain Beneficial Owners and Management SECURITY HOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS Security Holdings of Directors and Executive Officers The following table sets forth certain information concerning the beneficial ownership of Common Stock of the Company by each director, by each of the Offeror designees, by each executive officer for whom compensation information is disclosed under the heading "Summary of Executive Compensation" and by all directors and current executive officers of the Company as a group, as of September 28, 1997, determined in accordance with Rule 13d-3 of the Securities and Exchange Commission. Unless otherwise indicated, the Common Stock shown is held with sole voting and investment power. Number of Percent Name of Beneficial Owner Shares of Class(1) ------------------------ --------- ----------- Current Directors: Bruce C. Bruckmann - * Carl F. Bailey - * E. E. Bishop - * William W. Crawford - * Roger P. Friou - * W. H. Holman, Jr. - * Michael E. Julian - * Harold O. Rosser, II - * Stephen C. Sherrill - * Named Executive Officers Who Are Not Also Directors or Nominees Frank L. Bennen - * Thomas P. Robbins - * Timothy E. Kullman - * Richard W. LaTrace - * David W. Morrow - * All directors and executive officers as a group - * ___________________ *Less than 1%. (1) Shares subject to options exercisable within 60 days are deemed to be outstanding for purposes of computing the percentage of the Common Stock owned by such person individually and by all directors and executive officers as a group but are not deemed to be outstanding for the purpose of computing the ownership percentage of any other person. ________________ Security Holdings of Certain Beneficial Owners Number of Percent Name and Address Shares of Class ---------------- --------- -------- Jitney-Jungle Stores of America, Inc.(1) 5,317,510 73.9% 1770 Ellis Avenue, Suite 200 Jackson, Mississippi 39204 Franklin Resources, Inc.(2) 405,679 5.63% 777 Marines Island Blvd. San Mateo, California 94404 __________________ (1) Bruckmann, Rosser, Sherrill & Co., L. P., the majority common shareholder of Jitney-Jungle, is a limited partnership, the sole general partner of which is BRS Partners, L.P. and the general mamager of which is BRS. The sole general partner of BRS Partners, L.P. is BRSE Associates, Inc. Bruce C. Bruckmann, Harold O. Rosser, II, Stephen C. Sherrill and Stephen F. Edwards are the only stockholders of BRS and BRSE Associates, Inc. The business address of each of the foregoing entities and persons is 126 East 56th Street, 29th Floor, New York, New York 10022. For purposes of Rule 13d-3 under the Exchange Act, the foregoing entities and persons may be deemed to share in the beneficial ownership of the Shares held by Jitney-Jungle, although the foregoing persons disclaim beneficial ownership of the Shares which may be deemed beneficially owned by BRS. (2) As reported on Schedule 13D dated July 9, 1997 and filed with the Securities and Exchange Commission. According to the Schedule 13D: One or more of the advisory clients of Franklin Mutual Advisors, Inc. ("FMAI") is the owner of 405,679 Shares. Since FMAI's advisory contracts with its clients grant to FMAI the sole voting and investment power over the securities owned by its advisory clients, FMAI may be deemed to be, for purposes of Rule 13d-3 under the Exchange Act, the beneficial owner of the securities covered by the Schedule 13D. FMAI is a wholly-owned subsidiary of Franklin Resaources, Inc. ("FRI"). Charles B. Johnson and Rupert H. Johnson, Jr. (the "Principal Shareholders") each own in excess of 10% of the outstanding common stock of FRI and are the principal shareholders of FRI. FRI and the Principal Shareholders therefore may be deemed to be, for purposes of Rule 13d-3 under the Exchange Act, the beneficial owners of securities held by persons and entities advised by FRI subsidiaries. However, no investment advisory personnel of FRI subsidiaries other than FMAI are involved in the investment management decisions of FMAI. Moreover, FMAI, FRI and the Principal Shareholders each disclaim any economic interest or beneficial ownership in any of the securities covered by the Schedule 13D owned by advisory clients of FRI subsidiaries. __________________ Item 13. Certain Relationships and Related Transactions Employment, Indemnity and Change of Control Agreements Employment Agreement The Company entered into an employment agreement with David W. Morrow dated as of January 1, 1997. The agreement is for a term of one year and is automatically superseded upon a change of control of the Company by his change of control agreement with the Company. Mr. Morrow is entitled under his employment agreement to a weekly salary of $7,692.31 ($400,000 for 52 weeks), plus a cash bonus under the Company's annual incentive award program (i) for the Company's fiscal year ended June 30, 1997 and (ii) on a prorated basis for the number of months in the Company's fiscal year ended June 30, 1998 during which he is employed by the Company. This Agreement has terminated by its terms due to the change of control. The Company has entered into an agreement for termination of employment with Mr. Morrow dated as of September 19, 1997. This agreement provides that Mr. Morrow is entitled to a termination payment of $2,623,664 (including $697,500 as a gross up payment for related excise taxes) in satisfaction of the Company's obligations pursuant to the employment and change of control agreements between Mr. Morrow and the Company. Additionally, the Company will pay Mr. Morrow $2,325,000, less applicable withholding taxes, in exchange for his outstanding stock options pursuant to a cash out agreement between Mr. Morrow and the Company. Indemnity Agreements The Company has entered into indemnity agreements with each of its directors pursuant to which the Company has agreed under certain circumstances to purchase and maintain directors' and officers' liability insurance, unless such insurance is not reasonably available or, in the reasonable judgment of the Board, there is insufficient benefit to the Company from such insurance. The agreements also provide that the Company will indemnify each director to the fullest extent permitted by law against any costs and expenses, judgments, settlements and fines incurred in connection with any claim involving him by reason of his position as director. Change of Control Agreements The Company has entered into change of control agreements with each of its executive officers. The purpose of the agreements is to diminish the inevitable distraction of executives by the personal economic concerns and anxieties that are created by the possibility, threat or occurrence of a change of control and, thereby, to encourage the continued dedication of the executives to advancing the Company's business interests during such periods of uncertainty. The agreements do not constitute employment contracts and only apply in circumstances following a change of control. The agreements provide that certain employment and severance arrangements become effective if a change of control, as defined in the agreements, occurs within three years from the date of the agreements, with automatic annual extensions unless terminated after notice by the Company. If a change of control occurs during the term of the agreements, the agreements provide for continued employment of the executives, in at least comparable positions with at least comparable compensation and benefits, for three years following the change of control. If the Company terminates an executive's employment during such three-year period other than for cause or disability or if the executive terminates employment for good reason, the executive is entitled to receive, in addition to other accrued amounts such as vacation pay, a lump sum in cash equal to three times his annual base salary and bonus. An executive who continues employment for one year after a change of control earns a special bonus equal to his annual salary and bonus. In addition, an executive who continues employment for such one-year period may terminate employment during the 30-day period immediately following without any reason and receive the same benefits as if he had terminated for good reason. The agreements further provide for payment to the executive of an amount equal to the excise tax, if any, payable by the executive on his severance benefits. Health and other welfare benefits continue, following termination, for the remainder of the three-year period. The acquisition of the Company by Parent and Sub is a change of control under these agreements. Director Compensation Plan In accordance with the Merger Agreement, the Company has amended the Director Compensation Plan to eliminate future issuances of stock. Share Purchase Rights Agreement Pursuant to the Rights Agreement, dated as of October 14, 1988, as amended by the Amendment to the Rights Agreement dated as of October 16, 1992 and a Second Amendment to the Rights Agreement dated as of July 8, 1997, each between the Company and the Rights Agent, the Rights defined in the Rights Agreement have expired upon the acceptance of the Shares for payment by the Parent and Sub. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports and Form (a) Documents filed as part of this report: (3) Exhibits The exhibits listed below and marked with an asterisk are filed herewith and are listed in the attached Exhibit Index; the other exhibits are incorporated herein by reference from the document indicated. (b) Reports on Form 8-K - There were no reports filed on Form 8- K during the quarter ended June 28, 1997. Exhibit No. 2 Agreement and Plan of Merger dated as of July 8, 1997 by and among the Company, Parent and Sub (Exhibit (2) to the Company's Form 8-K, dated July 8, 1997). 3(a) Composite of Amended and Restated Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Form 10-Q for the quarter ended September 28, 1996). 3(b) Composite of the Company's By-Laws (Exhibit 3.2 to the Company's Form 10-Q for the quarter ended September 28, 1996). 4(a) Specimen of Common Stock Certificate (Exhibit 4(a) to the Company's Form 10-K for fiscal year ended June 30, 1990). 10(a) Membership and Licensing Agreement dated August 1, 1973 between Topco Associates, Inc. and Delchamps, Inc. and attached copy of Articles of Incorporation and By-Laws of Topco Associates, Inc. (Exhibit 10(a) to Registration Statement on Form S-1, No. 2-86926). 10(b) 1987 Restricted Stock Plan, as amended (Exhibit (c)(a) to the Company's Form 14D-9 dated July 14, 1997) 10(c) Indemnity Agreement dated November 24, 1987 between Delchamps, Inc. and First Alabama Bank (Exhibit (c)(7) to the Company's Form 14D-9 dated July 14, 1997 10(d) Rights Agreement dated October 14, 1988 (Exhibit (1) to the Company's Form 8-A, dated October 4, 1992). 10(e) First Amendment to Rights Agreement dated October 16, 1992 (Exhibit (1) to the Company's Amendment No. 1 on Form 8, dated November 4, 1992 to Form 8-A, dated October 4, 1992). 10(f) Second Amendment to Rights Agreement dated July 8, 1997 (incorporated by reference to Exhibit (4) to the Company's Form 8-A/A dated July 8, 1997). 10(g) Loan agreement dated June 30, 1993 between Delchamps, Inc. and the Great West Life and Annuity, Mutual of Omaha Insurance Company, and United of Omaha Insurance Company (Exhibit 10(g) to the Company's Form 10-K for the year ended July 3, 1993). 10(h) Loan Agreement dated June 1995 between Delchamps, Inc. and Hibernia National Bank, as agent for itself and other banks (Exhibit 99 to the Company's Form 10-K for the year ended June 29, 1996). 10(j) Agreement for Termination of Employment dated as of September 19, 1997, between the Company and David W. Morrow.* 10(k) Form of Agreement between the Company and each officer and director of the Company relating to stock options.* 10(l) 1993 Stock Incentive Plan (Exhibit 4.3 to the Company's Form S-8 filed on October 25, 1993 (Registration No. 33- 70772)). 10(m) Directors' Stock Option Plan (Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 28, 1996). 10(n) Director Compensation Plan (Exhibit 4.3 to the Company's Form S-8 filed November 14, 1994 (Registration No. 33- 56447)). 10(o) Form of Director Indemnity Agreement (Exhibit 10 to the Company's Form 10-Q for the quarter ended September 28, 1996). 10(p) Management Incentive Compensation Plan (Exhibit (c)(8) to the Company's Schedule 14D-9 dated July 14, 1997). 10(q) Form of Amended and Restated Credit Agreement among Parent, the Company, certain other subsidiaries of Parent, certain lenders, DLJ Capital Funding, Inc., as documentation agent for the lenders and Fleet Capital Corporation as agent for the lenders, relating to certain borrowings in connection with the Offer and the Merger (Exhibit (b)(5) to Parent's Schedule 14D-1 (Amendment No. 8) dated September 16, 1997). 10(r) Form of Indenture by and among Parent, Sub, certain other subsidiaries of Parent and the Company, on the one hand, and Marine Midland Bank, as trustee, on the other hand, relating to the issuance and sale of $200 million aggregate principal amount of 10-3/8% Senior Subordinated Notes due 2007 (Exhibit (b)(4) to Parent's Schedule 14D-1 (Amendment No. 7) dated September 12, 1997). 21 Subsidiary of the Registrant.* 23.1 Consent of Independent Accountant.* SIGNATURES 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. Signature Title Date /s/ Michael E. Julian Chief Executive Officer and Sept. 26, 1997 - ---------------------- Chairman of the Board Michael E. Julian 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. Signature Title Date /s/ Richard W. LaTrace President Sept. 26, 1997 - ------------------- Richard W. La Trace 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. Signature Title Date /s/ Timothy E. Kullman Senior President Sept. 26, 1997 - ----------------------- Chief Financial Officer Timothy E. Kullman Treasurer & Secretary 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. Signature Title Date Director Sept.___, 1997 - ------------------- Carl F. Bailey 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. Signature Title Date /s/ E. Eugene Bishop Director Sept. 26, 1997 - --------------------- E. Eugene Bishop 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. Signature Title Date /s/ Bruce C. Bruckmann Director Sept. 26, 1997 - ----------------------- Bruce C. Bruckmann 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. Signature Title Date /s/ William W. Crawford Director Sept. 26, 1997 - ------------------------ William W. Crawford 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. Signature Title Date Director Sept.___, 1997 - ------------------- Roger E. Friou 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. Signature Title Date Director Sept.___, 1997 - --------------------- W.H. Holman, Jr. 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. Signature Title Date Director Sept.___, 1997 - ------------------------- Harold O. Rosser, II 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. Signature Title Date /s/ Stephen C. Sherrill Director Sept. 26, 1997 - ------------------------ Stephen C. Sherrill EXHIBIT INDEX Exhibit Number Description 10(j) Agreement for Termination of Employment dated as of September 19, 1997, between the Company and David W. Morrow 10(k) Form of Agreement between the Company and each officer and director of the Company relating to stock options. 21 Subsidiary of the Company 23.1 Consent of Independent Accountant EX-10.(J) 2 AGREEMENT FOR TERMINATION OF EMPLOYMENT Agreement by and between Delchamps, Inc., an Alabama corporation (the "Company"), and David M. Morrow ("Morrow"), dated as of September 19, 1997, with reference to the following recitals: Recitals 1. Morrow and the Company entered into an employment agreement dated as of January 1, 1997, pursuant to which Morrow agreed to serve as the Chief Executive Officer of the Company and Chairman of the Company's Board of Directors (the "Morrow Employment Agreement"). 2. Morrow and the Company entered into an agreement dated as of December 13, 1995 pursuant to which, among other things, the Company agreed to make certain payments and provide certain benefits to Morrow in the event of a Change of Control (as defined therein) (the "Morrow Change of Control Agreement"). 3. On or about September 15, 1997, a Change of Control occurred when Delta Acquisition Corporation, an Alabama corporation and wholly- owned subsidiary of Jitney-Jungle Stores of America, Inc., acquired a substantial percentage of the Company's outstanding shares of common stock via a tender offer. 4. The Morrow Employment Agreement terminated by its terms upon the Change of Control. 5. Morrow and the Company believe it is in their mutual best interests to enter into the following agreement with respect to the termination of Morrow's employment by the Company. NOW, THEREFORE, in consideration of the recitals and the respective covenants and agreements herein contained, and intending to be legally bound hereby, the parties agree as follows: 1. Termination of Morrow's Employment. Effective as of 5:00 p.m., Friday, September 19, 1997, Morrow's employment with the Company shall be permanently and irrevocably severed. 2. Termination Payment. Upon execution of this Agreement, the Company shall pay to Morrow, in immediately available funds, via wire transfer or other means acceptable to Morrow, the sum of $2,623,664 less applicable withholding taxes (the "Termination Payment"). 3. Satisfaction of Obligations Under the Morrow Change of Control Agreement. Morrow agrees, acknowledges and affirmatively represents that upon making the Termination Payment to Morrow, the Company shall have fully and completed, satisfied and discharged any and all obligations it has, or may be claimed to have, under the Morrow Employment Agreement and the Morrow Change of Control Agreement, and the Company agrees that Morrow shall have fully satisfied any and all obligations he has, or may be claimed to have, under the Morrow Employment Agreement and the Morrow Change of Control Agreement, except as follows (capitalized terms not defined in this Agreement and the paragraph references below are defined in or refer to the Morrow Change of Control Agreement): (a) The Company and Morrow shall have the continuing rights and obligations described in paragraph 6(a)(ii). (b) The provisions of paragraph 8 ("Full Settlement") shall survive. (c) The Termination Payment includes a Gross-Up Payment of $697,500, based on an Excise Tax of $279,000, which amounts have been calculated in good faith by the Company and which Morrow agrees satisfies the Company's obligation to calculate such amounts pursuant to paragraph 9(b). If there is an Underpayment or a claim by the Internal Revenue Service as described in paragraph 9, the rights and obligations of the Company and Morrow pursuant to paragraph 9 with respect thereto will continue to apply. (d) The provisions of paragraph 10 ("Confidential Information") shall survive. (e) The provisions of paragraphs 11 and 12(a), (b), (c), (d) and (e) shall survive, except that the address for notice to the Company shall be: Delchamps, Inc. 1770 Ellis Avenue, Suite 200 Jackson, MS 39204 ATTENTION: Michael E. Julian and the address for notice to Morrow shall be: Olympic Towers Condominium Apartment 5A Rodriguez Serra No. 1 Condabo, Puerto Rico 00907 Phone: (787) 721-3715 Fax: (787) 723-9863 4. Cash Out Agreement. On or before September 26, 1997, the Company shall pay to Morrow via wire transfer or other means acceptable to Morrow the sum of $2,325,000, less applicable withholding taxes, in full settlement of his cash-out agreement with the Company relating to all of his options to purchase shares of common stock of the Company. 5. Indemnification and Insurance. Notwithstanding anything herein to the contrary, Morrow shall retain all of his rights pursuant to Section 6.5 ("Directors' and Officers' Indemnification and Insurance") of the Agreement and Plan of merger by and among Delchamps, Inc., Delta Acquisition Corporation and Jitney-Jungle Stores of America, Inc. dated July 8, 1997 and all of his rights to indemnification with respect to his service as a director, officer or employee of the Company or its subsidiary to which he may be entitled pursuant to (a) his indemnification agreement with the Company, (b) the Company's or its subsidiary's articles or bylaws or (c) applicable law relating to indemnification obligations of corporations to their directors, officers and employees. 6. Company Benefit Plans. Morrow specifically acknowledges and understands that he is not entitled to any payment with respect to the Company's longevity bonus plan. The Company acknowledges and agrees that Morrow is entitled to the benefits provided by the terms of the Company's 401(k) plan applicable to employees whose employment has terminated. 7. Morrow's Obligations. Except as specifically provided herein, upon receipt of the Termination Payment, Morrow will have no further obligations to the Company. 8. Release. Except as specifically provided herein, upon receipt of the Termination Payment, Morrow, for himself and his successors, assigns and heirs, hereby forever releases, acquits and forever discharges the Company and any and all agents, officers, or employees thereof and any and all partnerships, associations or corporations who are, or who may be, in any manner whatsoever responsible for their acts, or the acts of any of them, from any and all claims, demands, actions, causes of action, suits and damages of every kind and nature whatsoever whether known or unknown, accrued or hereafter to accrue, arising out of or in any manner connected with the Morrow Employment Agreement, the Morrow Change of Control Agreement, or any investment in, employment or termination of employment with the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. DELCHAMPS, INC. By: /s/ Timothy E. Kullman ----------------------- Title: Senior Vice president and Chief Financial Officer /s/ David Morrow ---------------- DAVID M. MORROW EX-10.(K) 3 FORM OF AGREEMENT EXECUTED BY EACH OFFICER AND DIRECTOR Attachment A AGREEMENT The undersigned holder of stock options of Delchamps, Inc. ("Delchamps") hereby agrees as indicated below: Check one: X I hereby agree to the cancellation of all options to --- purchase common stock of Delchamps held by me in exchange for a cash payment as described in the memorandum dated July 22, 1997 provided to me by Delchamps. I hereby agree to exercise all currently exercisable options --- to purchase common stock of Delchamps held by me no later than August 1, 1997. To the extent that I fail to exercise all such exercisable options by August 1, 1997 and to the extent that I hold options to purchase Delchamps common stock that are not currently exercisable, I agree to the cancellation of all options to purchase common stock of Delchamps held by me in exchange for a cash payment as described in the memorandum dated July 22, 1997 provided to me by Delchamps. _____________ __________________________________ Date Name __________________________________ Signature * Return to Timothy Kullman no later than July 30, 1997 Agreed to and accepted: DELCHAMPS, INC. By: _________________________________ EX-21 4 Exhibit 21 Percentage of Voting Securities Jurisdiction of Owned By Name Incorporation Registrant Supermarket Cigarette Sales, Inc. Louisiana 100% EX-23.1 5 Exhibit No. 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333- 14747, 33-56447, 33-53653, and 33-70772) of our reports dated August 8, 1997, relating to the consolidated balance sheets of Delchamps, Inc. and subsidiary, as of June 28, 1997 and June 29, 1996 and the related consolidated financial statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended June 28, 1997. /s/ KPMG PEAT MARWICK LLP ------------------------- KPMG PEAT MARWICK LLP Atlanta, Georgia September 25, 1997 -----END PRIVACY-ENHANCED MESSAGE-----