-----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, KucXrVWOyshqxx82phm7nWoXulfNZp4kdxOZNqkrZDXx3kAyq9BA5vH9iryNGQaC RYSA4rOxWqh5W3Ej2I6SYQ== 0000948688-95-000012.txt : 19951004 0000948688-95-000012.hdr.sgml : 19951004 ACCESSION NUMBER: 0000948688-95-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950701 FILED AS OF DATE: 19951002 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: 1934 Act SEC FILE NUMBER: 000-12923 FILM NUMBER: 95577975 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 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 1, 1995 Commission File Number 0-12923 Delchamps, Inc. -------------------------------------------------- (Exact name of registrant as specified in its charter)
Alabama 63-0245434 - -------------------------------------- ---------------------------- (State or 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 - -------------------------------------- (Registrant's 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 _____ 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-affilates ( affiliates being directors, executive officers and holders of more than 5% of the Company's common stock) of the Registrant at September 18, 1995 was approximately $80,000,000. The number of shares of Registrant's common stock, par value one cent ($.01) per share, outstanding at September 18, 1995, was 7,108,781. Documents incorporate by reference: Parts II and IV incorporate by reference portions of the Company's Annual Report to shareholders for 1995. The Company's definitive Proxy Statement dated September 18, 1995 is incorporated by reference into Part III. The exhibit Index is located on page 34 of this document. Page 1 of 57 PART I ______ Item 1. Business - ------- -------- (a) The Registrant, Delchamps, Inc. ("the Company") is a corporation which 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. The number of supermarkets operated by the Company has changed from 112 at June 29, 1991 to 118 at July 3, 1993 and 118 at July 1, 1995. 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 July 1, 1995, the Company closed 20 outdated or un- profitable stores and opened 28 new stores that are all considerably larger than the stores that were closed. The Company also remodeled and expanded 25 stores that were closed. The company also remodeled and expanded 22 stores during the same 5 year period. The Company, in addition to operating supermarkets, operates -2- twelve liquor stores in the State of Florida. The Company's wholly-owned subsidiary, Supermarket Cigarette Sales, Inc., 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 July 1, 1995 range in size from 12,000 square feet to 61,980 square feet, and average 41,478 square feet. The average square footage of selling area per supermarket increased from ap- proximately 29,304 square feet at June 29, 1991, to approximately 31,805 at July 1, 1995, and the total sales area in all stores increased from 3,282,000 to 3,753,000 square feet during the same period. The Company's new stores will range from approximately 35,000 to 48,000 square feet in size ( and from approximately 26,000 to 36,000 square feet of selling space) depending upon the size of the store's market area. The Company plans to continue to expand the supermarket chain through the addition of new supermarkets in its present areas of operation, through expansion of existing stores, and through renovation of existing stores. The Company opened ten supermarkets (of which seven were purchased from the Kroger Co.) during fiscal year 1995, closed twelve supermarkets (of which two were sold to the Kroger Co.) , and has plans to open two additional supermarkets during fiscal year 1996. Five stores were expanded during the 1995 fiscal year, and the Company plans to expand one existing supermarket and renovate up to forty supermarkets in fiscal 1996. -3- 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 ---------------------------------------------------------- July 1, July 2, July 3, June 27, June 29, 1995 1994 1993 1992 1991 52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks _________ _________ _________ _________ _________ Sales (in thousands) $1,054,088 $1,067,191 $1,034,531 $949,849 $959,169 Number of supermarkets: Opened in period 10 3 4 6 5 Closed in period 12 1 1 3 3 Total 118 120 118 115 112 Average sales per supermarket (in thousands) $ 8,858 $ 8,968 $ 8,880 $ 8,369 $ 8,641 Total square feet of selling space (in thousands): Opened in period 362 155 167 241 178 Closed in period 348 22 19 65 53 Total 3,753 3,739 3,606 3,458 3,282 Total square feet of selling space per supermarket 31,805 31,158 30,559 30,070 29,304 Average sales per square foot of selling space $ 281 $ 291 $ 293 $ 282 $ 300
- ------------------------- At the end of period Sales for the period divided by the average number of supermarkets for the period Sales for the period divided by the average square feet of selling space for the period. -4- The Company believes that a vital factor in a successful supermarket expansion program is the careful selection of store locations. The Company analyzes prospective locations on a continuous basis, both internally and with assistance of outside consultants, and locates stores primarily in suburban shopping centers in areas with stable or growing middle and upper-middle class populations. The Company enlarges, modernizes, relocates or closes stores in light of their past performance and the Company's assessment of their future potential. (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) Merchandising is the responsibility of the Senior Vice President Sales and Merchandising who supervises the directors of the five merchandising departments: Grocery; Meat; Produce; Deli/bakery; and General Merchandise and Health and Beauty Care. The department directors, in turn, supervise the twelve category managers responsible for purchasing and merchandising various lines of products. The Company's principal merchandising strategies are to maintain an overall value image and to achieve high sales volume by offering quality products and services at competitive prices. Since the Company's stores carry many of the same products, centralized purchasing and distribution facilities are essential. All purchases are made by specialized category managers under central buying procedures, rather than on a store-by-store basis, which allows the Company to maintain -5- quality control of its products and to take advantage of volume discounts. Inventories are adjusted on a frequent basis to take into account seasonal changes in consumer demand. 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 offstreet parking facilities. Except in selected locations, 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 have contained salad bars, bakeries, delicatessens, service meat departments, seafood departments, video departments and offer prepared ready-to-eat foods. The Company also operates four pharmacies and may add pharmacies to selected locations. The Company's supermarkets offer a selection of national and regional brand-name products, generic products and products bearing brand names of Topco Associates, Inc. ("Topco"), a cooperative purchasing organization of which the Company is a shareholding member. -6- 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 buying 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 FY 94, the Company began using a Delchamps label to replace these TOPCO labels on certain products. The Company's purchases from or through Topco were approximately 19% of total inventory purchases in fiscal year 1995, 20% in 1994, and 23% in 1993. Advertising and promotion are important factors in the Company's merchandising strategy. In fiscal year 1995, the Company's advertising expenditures, including television, radio, newspaper, magazine and circular advertising, were .98% of sales. The Company's advertising program features a quality image, emphasizing value with competitive prices and "bonus buys" (merchandise purchased at reduced prices from vendors and featured for resale with favorable retail prices). The Company does not issue trading stamps at any of it stores and does not expect to do so in the future. Store operations are the responsibility of the Senior Vice President, Operations, who supervises the Company's two Zone Managers, who in turn supervise the Company's seven District -7- Managers. Each District Manager is responsible for approximately 12 to 18 supermarkets in his area. District Managers regularly visit the supermarkets under their jurisdiction, thereby providing continuous, direct supervision of day-to-day store operations, including such matters as quality of merchandise, adequacy of staffing levels and adherence to Company policies. Each supermarket is individually supervised by a store manager, assistant store managers, and department managers. The Company's management monitors the results of operations of each supermarket through the close and direct supervision of the Zone Managers and District Managers. 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. Additionally, it is the Company's policy to have a management or supervisory associate respond personally to customer complaints and comments. 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. -8- The Company was among the first grocery chains operating in the Southeast to install computerized scanning check-out equipment in its stores and now has such equipment in all of its stores. A computerized order entry system is used at each of the Company's supermarkets to record merchandise orders and transmit them electronically to the Company's central distribution facilities. Restocking is achieved through frequent deliveries from the Company's central distribution centers and from local suppliers, thus minimizing the space required at each store for warehousing inventory. A computerized direct store delivery system has been implemented in all of the Company's stores. This system improves accounting for and control of the merchandise delivered directly to the Company's supermarkets by suppliers, which represented 30% of total merchandise inventory purchases in fiscal year 1995. In addition, an electronic time, attendance and work scheduling system, utilizing the same hardware as the direct store delivery system, has been installed in the Company's supermarkets. This latter system assists the Company in controlling labor costs through more efficient use of manpower. Advances in technology are important to the Company's ability to improve productivity and keep costs in line and emphasis will continue to be placed on innovations in this area. The Company's supermarket products are purchased from over -9- 1,000 suppliers, of which Topco is by far the most significant, supplying approximately 19% of the Company's total inventory purchases during fiscal year 1995. No other supplier accounted for more than 5% of the Company's purchases during the fiscal year. During fiscal year 1995, approximately 70% of inventories (valued at cost) were supplied to the Company's stores through its central distribution facilities in Mobile and 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. The Company's central distribution facilities are serviced by rail and truck and are operated 24 hours per day, 7 days per week. The majority of supermarkets receive deliveries 7 days per week from the Mobile and Hammond facilities through a transportation fleet leased by the Company. The Company believes that its distribution system has an effective range of approximately 350 miles in all directions. (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. -10- (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 percent 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, Bruno's, Inc., The Kroger Co. 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. -11- 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. Kroger has stores in Central and Southwestern Louisiana. Delchamps supermarkets also compete with local supermarkets, specialty and convenience food stores and local chains that have significant market shares in limited aeas, 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 1995, 1994, and 1993. (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. (xii) At the end of fiscal year 1995, the Company had approximately 3,929 full-time and 4,468 part-time employees, none of whom is covered by a collective bargaining agreement. -12- (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 $7.60 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. One of the Company's store leases is scheduled to expire during the 1996 fiscal year, and no more than five leases will expire in any one year there after until the year 2005. When a store is closed, the Company attempts to sublease or assign its lease. The Company is presently paying $343,940 in aggregate monthly rentals on seventeen leases of closed stores that have not yet been sublet or assigned. The Company owns the furnishings and fixtures in all -13- supermarkets. It is anticipated that the Company will own the furnishings and fixtures in its stores presently under construction. The Company owns two warehouses in Mobile containing an aggregate of 232,000 square feet of storage space formerly used for dry groceries, dairy products, meats and perishables. Both buildings are currently being offered for sale or lease; however, the Mobile facilities are also being used to warehouse merchandise inventories bought "on deal" under the Company's forward buying program. 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. 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. The Company also owns an undeveloped 6.8 acre parcel of real estate and a 3 acre parcel upon which a Company -14- supermarket is located; both were acquired from Western Supermarkets in 1987 and are located near Birmingham, Alabama. In addition, the company owns a one-half interest in a partnership which has developed a 22 acre site near Mobile; the site cur- rently has a Company supermarket, K-Mart, and other shops. Further, the Company owns a one-half interest in land located in Panama City, Florida. The Company intends to develop this land for resale. Item 3. Legal Proceedings - ------- ----------------- The Company is 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 July 1, 1995. Item 4. (a) Executive Officers of the Registrant - ----------- ------------------------------------ All Executive Officers are appointed by the Board of -15- 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 - ---- --------------------------- --- David W. Morrow Chairman of the Board and Chief Executive 63 Richard W. La Trace President 58 Frank L. Bennen Senior Vice President, Operations 55 Patrick J. Curran Senior Vice President, Sales and Merchandising 43 Timothy E. Kullman Senior Vice President, Chief Financial Officer 39 Treasurer and Secretary V. Lawrence Abreo Vice President 42 Management Information Services Heidi E. Finchem Vice President, Public Relations and 37 Assistant Secretary Larry S. Griffin Vice President, Real Estate 53 William D. Kruse Vice President and Zone Manager 51 Thomas R. Trebesh Vice President, Human Resources 46
David W. Morrow began employment with the Company in April, 1995 and serves as Chairman of the Board and Chief Executive Officer. Prior to Delchamps, Mr. Morrow served as Chairman, President, and Chief Executive Officer of Pueblo XTRA International. Richard W. La Trace began employment with the Company in June, 1995 and serves as President. Prior to Delchamps, Mr. La Trace served as President and Chief Operating Officer of XTRA Super Foods, Inc. -16- Mr. La Trace's experience also includes serving as President of Corporate Retail at Wetterau, Inc. and Senior Vice President of Operations at ABCO Markets, Inc. 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. Patrick J. Curran began employment with the Company in April, 1994 and serves as Senior Vice President, Sales and Merchandising. Prior to Delchamps. Mr. Curran was employed by Acme Supermarkets in Philadelphia, Pennsylvania, Bi-Lo Supermarkets in the Carolina and Georgia markets, and Jewel Food Stores in Chicago, Illinois. 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. 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 -17- time, Mr. Abreo was Director of Management Information Services. Heidi E. Finchem has been employed by the Company since 1982. She serves and Vice President, Public Relations and Assistant Secretary, and was appointed to that position in July 1995. Prior to that time, Mrs. Finchem served as Vice President, Benefits and Corporate Secretary. 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. William D. Kruse has been employed by the Company since 1960. He serves as Vice President and Zone Manager, and was appointed to that position in July 1995. Mr. Kruse served as Vice President, Retail Operations in June 1993 and Director, Retail Operations prior to June 1993. Thomas R. Trebesh has been employed by the Company since 1978. He serves as 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. -18- PART II Item 5. Market for the Registrant's Common Stock and Related Matters - ------- ------------------------------------------------------------ "Management's Report on Dividends and Stock Prices" on page 6 of the Company's Annual Report to Shareholders for 1995 is incorporated herein by reference. As of August 5, 1995, there were 1,295 shareholders of record of the Company's common stock. 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. 1995 1994 ---- ---- 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 paying of dividends are set forth in Note 5 of the Company' financial statements on page 11 of the Company's 1995 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data - ------- ----------------------- The selected financial data of the Company are set forth -19- under the caption "Five Year Financial Highlights" included in the Company's Annual Report to Shareholders for 1995 and are incorporated herein by reference. Such financial data should be read in conjunction with the financial statements and accompanying notes included under item 8, below. Item. 7. Management's Discussion and Analysis of Results of Operations and Financial Condition - -------- -------------------------------------------------- Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 14, 15, and 16 of the 1995 Annual Report to Shareholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- The Company's financial statements, including the notes thereto, and the report of KPMG Peat Marwick LLP are contained on pages 6 through 14 of the Company's Annual Report to Shareholders for 1995 and are incorporated herein by reference. 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 July 1, 1995. -20- PART III Item 10. Directors and Executive Officers of the Registrant - -------- -------------------------------------------------- Information about nominees for election as Director and the Directors of the Company appears on pages 1, 2, and 3 of the Company's definitive Proxy Statement dated September 18, 1995, under the caption "Election of Directors" and is incorporated herein by reference. Certain information concerning the Company's Executive Officers is included in Item 4 (a) of Part I of this report. Item 11. Executive Compensation - -------- ---------------------- Information concerning executive compensation is contained on pages 5 and 6 of the Company's definitive Proxy Statement dated September 18, 1995, under the caption "Executive Compensation", and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- Information concerning certain beneficial owners of the Company's stock appears on pages 4 and 5 of the Company's definitive Proxy Statement dated September 18, 1995, under the subcaption "Security Holdings of Certain Beneficial Owners"; information as to security ownership of management is contained on page 4 of the Company's definitive Proxy Statement dated September 18, 1995, under the subcaption "Security Holdings of Directors and Executive Officers". All such information is in- -21- corporated herein by reference. Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- Information concerning certain relationships and related transactions appears on page 7 of the Company's definitive Proxy Statement dated September 18, 1995, under the caption "Compensation Committee Interlocks and Insider Participation." -22- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports and Form 8-K - -------- ----------------------------------------------------------------- (a) Documents filed as part of this report: (1) Financial Statements The financial statements of Delchamps, Inc. listed below are incorporated by reference from the Company's 1995 Annual Report to Shareholders.
Page In Annual Report ------- Report of KPMG Peat Marwick LLP 6 Consolidated Balance Sheets as of 7 July 1, 1995 and July 2, 1994 Consolidated Statements of Earnings 8 for the fiscal years ended July 1, 1995, July 2, 1994 and July 3, 1993 Consolidated Statements of Stockholders' 8 Equity for the fiscal years ended July 1, 1995, July 2, 1994 and July 3, 1993 Consolidated Statements of Cash Flows 9 for the fiscal years ended July 1, 1995, July 2, 1994 and July 3, 1993 Notes to Consolidated Financial Statements 10
(2) Financial Statement Schedules. Schedules are omitted as the required information is inapplicable or the information is presented in the statements of the related notes. (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: -23- (b) Reports on Form 8-K - There were no reports filed on Form 8-K during the quarter ended July 1, 1995. Exhibit No. - ----------- 3(a) Articles of Amendment to the Articles of Incorporation and Restated Articles of Incorporation of the Company, each dated October 5, 1984. (Exhibit 3 (a) to Form 10-K for fiscal year ended June 29, 1985.) 3(b) The Company's By-Laws, as amended on July 28, 1989 (Exhibit 3 (b) to Form 10-K for fiscal year ended July 1, 1989.) 4(a) Specimen of Common Stock Certificate (Exhibit 4(a) to 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 10 (i) to Form 10-K for fiscal year ended July 2, 1988). 10(c) Indemnity Agreement dated November 24, 1987 between Delchamps, Inc. and First Alabama Bank (Exhibit 10 (o) to Form 10-K for fiscal year ended July 2, 1988). 10(d) Guaranty Agreement dated November 24, 1987 between Delchamps, Inc. and First Alabama (Exhibit 10(p) to Form 10-K for fiscal year ended July 2, 1988). 10(e) The Company's Share Purchase Rights Plan (Exhibit 1 to Report on Form 8-K filed with the Securities and Exchange Commission October 20, 1988.) 10(f) Form of Change of Control Severance Agreement between the Company and certain of its officers and employees dated September 11, 1989 (exhibit 10 (n) to Form 10-K for fiscal year ended July 1, 1989). 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. 13(a) The Company's Annual Report to Shareholders for 1995 included as an exhibit (Deemed filed as to only those portions specifically incorporated herein by reference).* 21 Subsidiary of the Registrant.* -24- 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/ David W. Morrow _______________________ Chairman of the Board, Sept. 12, 1995 David W. Morrow Chief Executive Officer
-25- 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. La Trace _______________________ President Sept. 12, 1995 Richard W. La Trace
-26- 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 Vice President, Sept. 12, 1995 Timothy E. Kullman Chief Financial Officer, Treasurer & Secretary
-27- Pursuant to the requirements of the Securities Exchange Act of 1934, this report as 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/ J. Thomas Arendall, Jr. Director Sept. 12, 1995 _____________________ J. Thomas Arendall, Jr.
-28- Pursuant to the requirements of the Securities Exchange Act of 1934, this report as 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/ Carl F. Bailey Director Sept. 15, 1994 _____________________ Carl F. Bailey
-29- Pursuant to the requirements of the Securities Exchange Act of 1934, this report as 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. 15, 1994 _____________________ E. Eugene Bishop
-30- Pursuant to the requirements of the Securities Exchange Act of 1934, this report as 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/ John A. Caddell Director Sept. 15, 1994 _____________________ John A. Caddell
-31- Pursuant to the requirements of the Securities Exchange Act of 1934, this report as 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/ James M. Cain Director Sept. 15, 1994 _____________________ James M. Cain
-32- Pursuant to the requirements of the Securities Exchange Act of 1934, this report as 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. 15, 1994 _____________________ William W. Crawford
-33- KPMG Peat Marwick LLP 303 Peachtree Street, N.S. Telephone 404 222 3000 Telefax 404 222 3050 Suite 2000 Atlanta, GA 30308 Independent Auditors' Report The Stockholders and Board of Directors Delchamps, Inc.: Under date of August 4,1 995, we reported on the consolidated balance sheets of Delchamps, Inc. and subsidiary as of July 1, 1995 and July 2, 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended July 1, 1995, as contained in the 1995 annual report to stockholders. These finanical statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1995. In connection with our audits of the aforementioned consolidated financial statements, we have also audited the related supplementary financial statement schedules are the responsibility of the Company's management. OUr responsibility is to express an opinion on these supplementary financial statement schedules based on our audits. In our opinion, such supplementary financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP August 4, 1995 -34- E X H I B I T I N D E X
Sequentially Exhibit Number Number Description Page - ------- ------------------------------------------ ------------ 13 (a) The Company's Annual Report to Shareholder 37 for 1995 (Deemed filed as to only those portions specifically incorporated herein by reference). 22 Subsidiary of the Company 58
-35- EX-13 2 FIVE YEAR FINANCIAL HIGHLIGHTS (In thousands except per share amounts)
FISCAL YEAR ENDED ----------------------------------------------------- JULY 1, JULY 2, JULY 3, JUNE 27, JUNE 29, STATEMENT OF EARNINGS DATA: 1995 1994 1993 1992 1991 (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) - ------------------------------------------------------------------------------------------------------------------- Sales $1,054,088 $1,067,191 $1,034,531 $949,849 $959,169 Operating (loss) income (34,991) 22,019 27,907 12,885 28,703 (Loss) earnings before income taxes and cumulative effect of changes in accounting principles (40,266) 17,858 22,738 8,005 23,299 Net (loss) earnings (25,666) 10,951 14,373 5,799 15,247 Net (loss) earnings per common share (3.61) 1.54 2.02 0.81 2.14 Dividends per common share 0.44 0.44 0.44 0.44 0.43 Weighted average shares outstanding 7,113 7,114 7,114 7,126 7,132 BALANCE SHEET DATA: - ------------------------------------------------------------------------------------------------------------------- Working Capital $ 22,920 $ 54,926 $ 49,511 $ 38,448 $ 41,793 Total assets 269,412 263,269 252,052 246,725 223,857 Long-term debt and obligations under capital leases, excluding current installments 25,745 32,169 39,503 42,214 36,062 Stockholders' equity 110,042 136,300 126,262 112,800 107,873
Delchamps, Inc., founded in 1921, operates 116 grocery stores in Alabama, Florida, Louisiana and Mississippi. The Company also operates 10 liquor stores in Florida. Distribution centers are located in Hammond, Louisiana and Mobile, Alabama. Delchamps employs 8,900 people. The Company's stock is traded on the Nasdaq National Market, under the symbol DLCH. - --------------------------------------------------------------------------- On Front Cover - From Left: Thomas R. Trebesh, V. Lawrence Abreo, Larry S. Griffin, Timothy E. Kullman, Heidi E. Finchem, William D. Kruse, David W. Morrow, Frank L. Bennen, Richard W. La Trace, Patrick J. Curran, Kevin Burckhardt - --------------------------------------------------------------------------- TO OUR STOCKHOLDERS: As we enter our seventy-fifth year of operation, we are excited about the changes underway throughout our Company. Although the financial results for the year were less favorable than we are accustomed to, fourth quarter trends indicate that our aggressive restructuring and business plan are having a positive impact. Total sales for the year were $1,054,088,000, 1.2% less than the previous year. Net losses for the year were $25,666,000. Same store sales were 3.69% behind last year, however, fourth quarter same store sales were 2.94% ahead of last year's comparable quarter, ending four consecutive quarters of declining same store sales. This is an encouraging step at the end of a difficult year. During the year just ended, Delchamps experienced a number of changes in our management group. In April, Randy Delchamps stepped down as Chairman of the Board, President and Chief Executive Officer. Joining our executive management were: Frank L. Bennen , Senior Vice President, Operations; Timothy E. Kullman, Senior Vice President , Chief Financial Officer, Secretary and Treasurer; Richard W. La Trace, President and myself as your Chairman of the Board and Chief Executive Officer. No strangers to the grocery industry, our new executives have 157 years combined manage- ment experience in the industry. We have undertaken a very aggressive restructuring plan at Delchamps. The changes can be seen in our corporate offices, our stores and our distribution centers. We've changed the way we do business: from the way we merchandise to the way we unload a truck; from our distribution operations to the appearance of our stores. These changes will improve our efficiency and reduce our cost of doing business. As part of our overall restructuring plan, several stores were closed in Fiscal 1995. Four stores along the Mississippi Gulf Coast, located near the stores acquired from Kroger, were closed - consolidating our operations in the area. One antiquated store in Biloxi, Mississippi was replaced by a new store. Four stores in Louisiana, two stores in Florida (including the adjacent liquor stores), and one store in Alabama, all unprofitable operations, were closed. These closings were the first moves in a comprehensive plan to restore Delchamps to profitability. We recognize that such turnarounds seldom happen overnight. Understanding the challenge ahead, our management is charged with the greatest sense of urgency to return the Company to the level of profitability expected by our shareholders. Equally important in our business plan is a return to Delchamps' tradition of low prices. We expect this change will increase store traffic by attracting many new customers as well as satisfying our current ones. Our new advertising campaign highlights our return to low prices and exceptional value. As part of the capital investment strategy, in addition to major remodels and expansions, we will renovate and re-decor forty stores in Fiscal 1996. These stores have not undergone renovation in as many as ten years. We anticipate that this renovation program, in conjunction with our low price position, will help improve our market share and improve the sales in each of the forty stores we update. We have restructured our organization with an eye to productivity, efficiency and accountability. We were successful in hiring several senior executives with proven track records in the grocery industry. Their combined expertise and experience will provide leadership and training opportunities for our employees. In summary, we have dedicated ourselves to providing value; value for the customers and value for our shareholders. We are encouraged by the prospects and our vision for the future of our Company. At the same time, we fully recognize the magnitude of the challenge before us. I am confident that with our new management and our sharpened business focus, Delchamps will rise to its preeminent position of preferred grocer in the Gulf-Southeast. We are looking forward to our seventy-fifth year of excellence and tradition and are grateful for the continued support of our employees and shareholders. David W. Morrow Chairman of the Board and Chief Executive Officer A CHANGE IN BUSINESS FOCUS We have changed our business focus and sharpened our marketing approach. Our focus for Fiscal 1996 is Value. Value to our customers in the form of low prices, superior selection and high service levels; Value to our shareholders in the form of increased profitability and return on investment. At Delchamps our competitive advantage has always been our people. This continues to be the case. We have added specialists in several business areas to help us improve our quality control and training. We have increased the responsibilities of our District Managers, placing more eyes on our business and improving service and efficiency. Our added merchandising, training and quality control specialists will greatly enhance our efforts in preparing our employees for all aspects of their jobs with the goal of dramatically enhancing our customer service. Our focus on customer value is the theme of our new advertising campaign. As our slogan says, "So many things for so much less." We have developed a new marketing approach that puts emphasis on our low prices and recognizes local market preferences and tastes of products carried in our stores. Prices, and with them margins, have been reduced on thousands of products, discounts offered on pre-priced merchandise and coupons doubled up to fifty cents, all to increase store traffic. In support of our low price theme, we have added "comparable market basket" price information to our advertising campaign. By comparing our prices with our competitors, we are able to demonstrate to our customers that Delchamps is dedicated to re-establishing a lower price image. We have continued our newsprint, electronic media and direct mail advertising in all our market areas. Outdoor advertising, store signage and "point of sale" hand bills were redesigned to incorporate our new advertising slogans. We are excited about all of the changes at Delchamps and proud of the progress already made. We are looking forward to Fiscal 1996 as we prepare for our seventy-fifth year of operations and continue to position ourselves for the twenty-first century. This chart is a bar graph of sales by year for the years 1991 through 1995. In the years 1991, 1992, 1993, 1994 and 1995 sales were $959 million, $950 million, $1,035 million, $1,067 and $1,054 million, respectively. OUR NEW LOOK FOR 1996 During Fiscal 1995, we opened three new stores. These new store units are located in Spanish Fort, Alabama and Biloxi and Pass Christian, Mississippi. We also purchased seven stores from Kroger, Inc., thus eliminating a competitor along the Gulf Coast of Mississippi and in central and southern Alabama. In addition to new stores opened, we remodeled and expanded five stores during Fiscal 1995. These newly remodeled and expanded stores are located in Fairhope, Bay Minette, and Birmingham, Alabama; and New Orleans and Slidell, Louisiana. Our program of expanding and remodeling existing store units has been extremely successful, adding an average 35% same store sales increase to a well established store base. For Fiscal 1996, our business plan calls for an extremely aggressive forty store re-decor and renovation program. Forty units over ten years in age, that have not undergone renovation, are targeted in this program. This program will take place over the next twelve months and will feature a new interior decor package offering a bright and fresh look. Our goal is to increase same store sales, as a result of these renovations for these specific stores, by as much as 10%. A major renovation and expansion of a store in Theodore, Alabama is currently underway. This renovation will be completed later in the fiscal year, adding over 20,000 square feet to the facility, thereby increasing its size to 49,259 square feet. Two new stores are planned for the current fiscal year. One store in Pensacola, Florida will be 45,978 square feet in size with an adjacent 4,000 square foot liquor store. A second new store will open in Robertsdale, Alabama later this year approximating 30,000 square feet in size. This chart is a bar graph of stores opened and closed by year for the years 1991 through 1995 and an estimate for the 1996 year. In 1991 three stores were closed and five were opened, in 1992 three stores were closed and six were opened, in 1993 one store was closed and four were opened, in 1994 one store was closed and three were opened, in 1995 twelve stores were closed and ten were opened. It is estimated in 1996 that no stores will be closed and two stores will be opened. NEW FACES In addition to the changes in the Company's executive group, four new management level individuals have joined the Company. Kenneth A. Easton, Director of Distribution and Transportation, has assumed the responsibility for the Company's distribution, transportation and warehouse operations in the Hammond Distribution Center and the Mobile forward buying warehouse facilities. New to our merchandising operations are: Louis Kertesz, Director of Produce Merchandising, and Donald E. Admire, Director of Deli-Bakery Merchandising. Both have a wealth of experience in supermarket merchandising and offer fresh and creative approaches to our merchandising efforts. George W. Yurcisin joined Delchamps' management as Corporate Advertising Manager. A former advertising agency associate, he has been instrumental in delivering our new low price message and is an integral part of our new advertising campaign. A new management level has been added to support our retail stores and district managers. Two zone managers, one based in our western operations and one based in our eastern operations will supervise all retail efforts. William D. Kruse has been given the responsibilities for our Louisiana and Mississippi operations and Kevin E. Burckhardt is responsible for our Alabama and Florida operations. This chart is a bar graph of net earnings (loss) per common share by year for the years 1991 through 1995. In 1991, 1992, 1993 and 1994 net earnings were $2.14, $.81, $2.02, $1.54, respectively. In 1995 the net loss was $3.61. The first chart is a bar graph of capital structure of total shareholder investment, capital leases and long-term debt by year for the years 1991 through 1995. In 1991 total shareholder investments were 75%, capital leases 12% and long-term debt 13%. In 1992 total shareholder investments were 73%, capital leases 10% and long-term debt 17%. In 1993 total shareholder investments were 76%, capital leases 8% and long- term debt 16%. In 1994 total shareholder investments were 81%, capital leases 7% and long-term debt 12%. In 1995 total shareholder investments were 81%, capital leases 8% and long-term debt 11%. The second chart is a bar graph of total number of food stores at year end by year for the years 1991 through 1995 and an estimate for the 1996 year. In 1991, 1992, 1993, 1994 and 1995 total number of food stores were 112, 115, 118, 120 and 118, respectively. It is estimated that in 1996 there will be a total of 120 food stores. The third chart is a bar graph of net earnings (loss) in millions by year for the years 1991 through 1995. In 1991, 1992, 1993, 1994 net earnings were $15.25 million, $5.80 million, $14.37 million and $10.95 million, respectively. In 1995 net losses were $25.67. The fourth chart is a bar graph of total square feet of selling space in thousands by year for the years 1991 through 1995 and an estimate for the 1996 year. In 1991, 1992, 1993, 1994 and 1995 total square feet of selling space was 3,282, 3,458, 3,606, 3,739 and 3,753, respectively. It is estimated that in 1996 there will be 3,815 total square feet of selling space. 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 July 1,1995 and July 2, 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended July 1, 1995. 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 July 1, 1995 and July 2, 1994 and the results of their operations and their cash flows for each of the years in the three-year period ended July 1, 1995, in conformity with generally accepted accounting principles. As discussed in note 9 to the consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1994 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." As discussed in note 10 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1994 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." August 4, 1995 KPMG PEAT MARWICK LLP 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. Their audits provide an independent review of Management's discharge of its responsibilities for reporting the Company's financial condition and results of operations. 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. MANAGEMENT'S REPORT ON 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 Inital 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 July 1, 1995 High Low First Quarter 24 21.5 Second Quarter 21 14.5 Third Quarter 18.5 14.75 Fourth Quarter 22.5 17.75 Fiscal Year Ended July 2, 1994 High Low First Quarter 24 19 Second Quarter 24.5 20.5 Third Quarter 24 20.75 Fourth Quarter 22.5 20.5 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 August 5, 1995, there were approximately 1,295 shareholders of record. DELCHAMPS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS July 1, 1994 and July 2, 1994 (in thousands except share data)
- ---------------------------------------------------------------------------------- Assets 1995 1994 - ---------------------------------------------------------------------------------- Current assets: Cash and cash equivalents (note 2) $ 15,906 15,378 Trade and other accounts receivable 9,214 9,475 Merchandise inventories (note 3) 93,808 105,663 Prepaid expenses 1,420 443 Income taxes receivable (note 10) 6,549 58 Deferred income taxes (note 10) 2,045 1,529 -------- -------- Total current assets 128,942 132,546 -------- -------- Property and equipment (notes 4 and 5) Land 13,312 6,312 Buildings and improvements 56,632 51,742 Fixtures and equipment 220,903 198,746 Construction in progress 2,649 4,972 -------- -------- 293,496 261,772 Less accumulated depreciation and amortization 155,411 138,643 -------- -------- Net property and equipment 138,085 123,129 -------- -------- Cost in excess of fair value of assets acquired, net of accumulated amortization of $1,062 in 1994 --- 5,210 Other assets 2,385 2,384 -------- -------- Total assets $ 269,412 263,269 ======== ======== - --------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 1995 1994 - --------------------------------------------------------------------------------- Current liabilities: Current installments of obligations under capital leases (note 4) $ 665 1,576 Current installments of long-term debt (note 5) 3,760 3,760 Notes payable (note 6) 30,000 11,574 Current installments of guaranteed ESOP debt (note 7) 2,000 2,000 Current installments of restructure reserve (note 12) 6,364 --- Accounts payable 45,063 43,578 Accrued expenses: Salaries and wages 3,019 2,007 Licenses and other taxes 7,738 7,185 Other 7,413 5,940 -------- -------- Total accrued expenses 18,170 15,132 -------- -------- Total current liabilities 106,022 77,620 -------- -------- Obligations under capital leases, excluding current installments (note 4) 11,147 11,811 Long-term debt, excluding current installments (note 5) 14,598 18,358 Guaranteed ESOP debt, excluding current installments (note 7) --- 2,000 Restructure reserve, excluding current installments (note 12) 19,219 --- Deferred income taxes (note 10) 5,464 14,154 Other Liabilities 2,920 3,026 -------- -------- Total Liabilities 159,370 126,969 -------- -------- 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 7,108,781 shares in 1995 and 7,113,581 shares 1994 71 71 Additional paid-in capital 19,603 19,731 Retained earnings 92,637 121,434 -------- -------- 112,311 141,236 Less: Guaranteed ESOP debt (note 7) 2,000 4,000 Unamortized restricted stock award compensation (note 8) 269 936 -------- -------- Total stockholders' equity 110,042 136,300 -------- -------- Commitments and contingencies (notes 4, 8, and 13) Total Liabilities and stockholders' equity $ 269,412 263,269 ======== =======
See accompanying notes to consolidated financial statements. DELCHAMPS, INC. AND SUBSIDIARY Consolidated Statements of Earnings Years ended July 1, 1995 and July 2, 1994 and July 3, 1993 (in thousands except share data)
- -------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------- Sales $ 1,054,088 1,067,191 1,034,531 Cost of Sales (note 3) 798,537 796,364 770,457 --------- --------- --------- Gross Profit 255,551 270,827 264,074 Selling, general and administrative expenses ("S G & A"): Restructuring charge (note 12) 28,779 --- --- Other S G & A 261,763 248,808 236,167 --------- --------- --------- Total S G & A 290,542 248,808 236,167 --------- --------- --------- Operating (loss) income (34,991) 22,019 27,907 --------- --------- --------- Interest (expense) income: Interest Expense (5,375) (4,298) (5,389) Interest Income 100 137 220 --------- --------- --------- (5,275) (4,161) (5,169) --------- --------- --------- (Loss) earnings before income taxes and cumulative effect of changes in accounting principles (40,266) 17,858 22,738 Income tax expense (benefit) (note 10) (14,600) 6,207 8,365 --------- --------- --------- (Loss) earnings before cumulative effect of changes in accounting principles (25,666) 11,651 14,373 Cumulative effect of change in accounting for income taxes (note 10) --- 900 --- Cumulative effect of change in accounting for postemployment benefits (net of income tax benefits of $1,000) (note 9) --- (1,600) --- --------- --------- --------- Net (loss) earnings $ (25,666) 10,951 14,373 ========= ========= ========= (Loss) earnings per common share: (Loss) earnings before cumulative effect of changes in accounting principles $ (3.61) 1.64 2.02 Cumulative effect of change in accounting for income taxes --- 0.12 --- Cumulative effect of change in accounting for postemployment benefits --- (0.22) --- --------- --------- --------- Net (loss) earnings per common share $ (3.61) 1.54 2.02 ========= ========= ========= Weighted average number of common shares 7,113 7,114 7,114 ========= ========= =========
See accompanying notes to consolidated financial statements. Consolidated Statements of Stockholders' Equity Years ended July 1, 1995 and July 2, 1994 and July 3, 1993 (in thousands)
============================================================================================================================= Common Stock --------------- Issued Additional Restricted Total --------------- Paid-In Retained Guaranteed Stock Stockholders' Shares Amount Capital Earnings ESOP Debt Awards Equity - ----------------------------------------------------------------------------------------------------------------------------- Balances at June 27, 1992 7,114 $71 $19,731 $102,368 $(8,000) $(1,370) $112,800 Amortization of restricted stock awards --- --- --- --- --- 219 219 Reduction of guaranteed ESOP debt --- --- --- --- 2,000 --- 2,000 Net earnings --- --- --- 14,373 --- --- 14,373 Dividends declared of $.44 per share --- --- --- (3,130) --- --- (3,130) ------ ----- ------- -------- ------- ------- ------- Balances at July 3, 1993 7,114 71 19,731 113,611 (6,000) (1,151) 126,262 Amortization of restricted stock awards --- --- --- --- --- 215 215 Reduction of guaranteed ESOP debt --- --- --- --- 2,000 --- 2,000 Net earnings --- --- --- 10,951 --- --- 10,951 Dividends declared of $.44 per share --- --- --- (3,128) --- --- (3,128) ------ ----- ------- -------- ------- ------- ------- Balances at July 2, 1994 7,114 71 19,731 121,434 (4,000) (936) 136,300 Amortization of restricted stock awards --- --- --- --- --- 539 539 Forfeiture 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 ====== ===== ======= ======== ======= ======= =======
See accompanying notes to consolidated financial statements. DELCHAMPS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended July 1, 1995 and July 2, 1994 and July 3, 1993 (in thousands) - ------------------------------------------------------------------------------------------------- 1995 1994 1993 - ------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) earnings $ (25,666) 10,951 14,373 Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: Depreciation and amortization 19,472 18,770 18,099 Write-off of cost in excess of fair value of assets acquired 5,050 --- --- (Loss) gain on sale of property and equipment 231 (115) 12 Restricted stock award amortization 667 215 219 Deferred income tax (benefit) expense (9,206) (631) 2,117 Cumulative effect of change in accounting for income taxed --- (900) --- Cumulative effect of change in accounting for postretirement benefits --- 1,600 --- Decrease (increase) in merchandise inventories 11,855 (8,580) (1,663) Increase (decrease) in accounts payable, accrued expenses and current installments of restructure reserve 10,887 501 (884) (Decrease) increase in income taxes, net (6,491) (889) 1,760 Increase (decrease) in other liabilities and restructure reserve 19,113 700 (1,131) Increase in other assets (716) --- --- ------- ------ ------ Net cash flows provided by operating activities 25,196 21,622 32,902 Cash flows from investing activities: Additions to property and equipment (35,239) (17,705) (20,824) Proceeds from sale of property and equipment, net 611 256 507 ------- ------ ------ Net cash used in investing activities (34,628) (17,449) (20,317) Cash flows from financing activities: Principal payments on obligations under capital leases (1,576) (1,705) (1,812) Principal payments on long-term debt and notes payable (15,333) (7,606) (39,118) Proceeds from issuance of long-term debt and notes payable 30,000 11,574 32,222 Dividends paid (3,131) (3,128) (3,130) ------- ------ ------ Net cash provided by (used in) financing activities 9,960 (865) (11,838) Net increase in cash and cash equivalents 528 3,308 747 Cash and cash equivalents at beginning of year 15,378 12,070 11,323 ------- ------ ------ Cash and cash equivalents at end of year $ 15,906 15,378 12,070 ======= ====== ======
See accompanying notes to consolidated financial statements. DELCHAMPS, INC. AND SUBSIDIARY Notes To Consolidated Financial Statements July 1, 1995, July 2, 1994, and July 3, 1994 =========================================================================== (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 1995 and 1994 comprised 52 weeks while fiscal year 1993 comprised 53 weeks. (c) Principles of Consolidation The consolidated financial statements include the acconts of Delchamps, Inc. and its wholly owned wholesale subsidiary. All significant intercompany balances and transactions were eliminated in consolidation. (d) Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instuments purchased with a maturiity 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 87% of inventories in 1995 and in 1994, and 85% in 1993. 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 55% of total inventories in 1995, 50% in 1994, and 52% in 1993. (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 depre- ciating and amortizing property and equipment: Buildings...................................................... 10-50 years Leasehold improvements.............................................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. Since the acquisition in fiscal year 1988, the acquired property has not achieved 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 of $5.1 million in the fourth quarter of fiscal year 1995. (h) Income Taxes Deferred income taxes are recognized for all significant temporary differences between the tax basis and financial statement amount of assets and liabilities. The tax consequences of those differences expected to occur in the subsequent year are classified as a current asset or liability. Job credits are recorded as a reduction of the pro- vision for Federal income taxes in the year realized. In February 1992, the Financial Accounting Standards Board ("FASB") issued Statement of Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS no. 109") which supersedes SFAS No. 96. Under the asset and liability method of SFAS NO. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to tax- able income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In fiscal year 1994, the Company adopted SFAS No. 109, and has reported the cumulative effect of that change in the method of accounting for income taxes in the 1994 consoli- dated statements of earnings. (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) Recent Accounting Pronouncements In December 1993, Statement of Position 93-7, "Reporting on Advertising Costs," became effective which requires certain accounting treatment for advertising costs. In June 1993, SFAS No. 116, "Accounting for Contributions Received and Contributions Made" became effective which requires certain accounting treatment for contributions. The Company believes that results of operations will not be significantly impacted from the above pronouncements. (2) Cash Equivalents Cash equivalents are stated at cost which approximates market value. Cash equivalents at July 1, 1995 and July 2, 1994 consisted of the following: (In thousands) 1995 1994 ---- ---- Euro Dollar Time Deposits $6,995 --- Marketable Unit Investment Fund 928 933 Cash Management Tax Exempt Fund 36 171 ----- ----- $7,959 1,104 ===== ===== (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 $13,358,000 at July 1, 1995 and $13,012,000 at July 2, 1994 if all of the Company's inven- tories were stated at cost determined by the first-in, first-out method. Further, net earnings would increase by approxi- mately $322,000 in fiscal year 1995, decrease by $24,000 in fiscal year 1994, and increase by $130,000 in fiscal year 1993, 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 asso- ciation from which it purchases private label merchandise for resale and certain store equipment. Merchandise inven- tories purchased from this cooperative association approxi- mated 19% of total inventory purchases in 1995, 20% in 1994, and 23% in 1993. (4) Leases The Company leases certain store properties and equipment under capital leases that expire over the next 12 years. The Company also leases warehouses, store proper- ties, and store equipment under noncancellable operating leases that expire over the next 22 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) 1995 1994 ------ ------ Buildings $13,998 13,998 Fixtures and equipment 19,040 19,040 ------ ------ 33,038 33,038 Less accumulated amortization 26,197 24,975 ------ ------ $ 6,841 8,063 ====== ======
Future minimum lease payments under noncancellable operating leases and the present value of future minimum capital lease payments as of July 1,1995 are as follows:
(In thousands) Capital Operating Fiscal Year Leases Leases -------- --------- 1996 $ 2,079 39,611 1997 2,081 38,843 1998 2,081 37,948 1999 2,081 37,387 2000 2,081 36,754 Later years 11,009 303,671 ------ ------- Total minimum lease payments 21,412 494,214 Less amount representing interest 9,600 ======= ------ Present value of net minimum capital lease payments 11,812 Less current installment of obligations under capital leases 665 ------ Long-term obligations under capital leases $11,147 ======
Rental expense and contingent rentals for operating leases are as follows:
(In thousands) 1995 1994 1993 -------- ------- ------- Minimum rentals $ 43,552 40,979 38,201 Contingent rentals 99 110 105 -------- ------- ------- $ 43,651 41,089 38,306 ======== ======= =======
Most of the Company's leases stipulate that the Company pay taxes, maintenance, insurance, and certain other operating expenses applicable to the leased property. As of July 1, 1995 the Company had entered into additional lease commitments for 4 store properties. The following table summarizes the approximate rentals which will be required of the store property leases for the next 20 years.
(In thousands) Fiscal year Rent ----------- -------------- 1996 $1,045 1997 1,045 1998 1,045 1999 1,045 2000 1,045 2001-2015 15,675
(5) Long-term Debt Long-term debt as of July 1, 1995 and July 2, 1994 consisted of the following:
(In thousands) 1995 1994 ---- ---- 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 $ 17,858 21,430 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 500 688 ------ ------ Total long-term debt 18,358 22,118 Less current installments 3,760 3,760 ------ ------ Long-term debt, excluding current installments $ 14,598 18,358 ====== ======
Agreements underlying the long-term debt contain restrictive covenants which limit the payment of dividends, additional debt, lease rental, and transactions with affiliates, and require maintenance of certain working capital and equity levels. At July 1, 1995, the Company was in compliance with all covenants. At July 1,1995, approximately $5,309,000 of the Company's retained earnings was available for the payment of dividends under such restrictive provisions. Cash payments for interest were approximately $5,368,000, $4,312,000, and $5,383,000 in 1995, 1994 and 1993, respectively. Aggregate annual maturities on long-term debt for fiscal years after July 1, 1995 are approximately as follows:
(In thousands) Fiscal year Annual maturities ----------- ----------------- 1996 $ 3,760 1997 3,760 1998 3,696 1999 3,571 2000 3,571 ------ $ 18,358 ======
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 July 1, 1994 approximates the carrying value. (6) Notes Payable Notes payable as of July 1, 1995 and July 2, 1994 consisted of the following:
(In thousands) 1995 1994 ---- ---- Revolving loan commitments, due on various dates throughout fiscal 1996, with interest rates based on LIBOR + 1.25%, secured by all of the Company's merchandise inventories $ 30,000 --- Unsecured borrowings under lines of credit, due on various dates throughout fiscal 1995, with floating interest rates that are currently less than the prime rate --- 11,574 ------- ------- $ 30,000 11,574 ======= =======
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 a commitment fee of .45 of 1% on the unused portion. At the Company's option, interest under the agreement may be based on LIBOR or the prime rate. The credit agreement requires the Company to maintain minimum levels of earnings and to comply with stated debt covenants. At July 1, 1995, 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 approxi- matley 1,097,000 shares of the Company's common stock. The common stock is held by the ESOP trustee in a "suspense account" and these shares serve as collateral for the loan. Each year the Company will make a contribution to the ESOP which the trustee will use to make principal payments. With each loan payment a portion of the common stock is released from the "suspense account" and allocated to participating employees. The Company is 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. The loan is repayable in 10 equal annual installments of principal, with the final installment due in June 1996. Interest is payable quarterly at a rate equal to 80% of the prime rate. The loan obligation of the ESOP is considered an unearned employee profit sharing trust con- tribution and is recorded as a reduction of the Company's stockholders' equity. Both the loan obligation and the unearned employee profit sharing trust contribution are reduced by the amount of any loan repayments made by the ESOP. (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 Code. The plan provides for a matching contribution by the Company. The total annual contributions of these plans for fiscal years 1995, 1994, and 1993 were as follows:
(In thousands) 1995 1994 1993 ----- ----- ----- Employee Stock Ownership Plan $ 2,000 2,000 2,000 Profit Sharing Plan 1,421 --- --- ----- ----- ----- $ 3,421 2,000 2,000 ===== ===== =====
The Company has an incentive compensation plan for certain management personnel tied to the Company's overall performance. There was no charge to operations for this plan in 1995 and 1994, and $2,274,000 was charged to operations in 1993. In fiscal 1988, the Company adopted, with stock- holder 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 difference between the market value and the purchase price 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 $667,000 in 1995 (of which $374,000 was charged against the restructuring reserve), $215,000 in 1994, and $219,000 in 1993. (9) Postemployment Benefits Other Than Pensions Effective for fiscal year 1994 the Company adopted Statement of Financial Accounting Standards No. 112, ("SFAS No. 112"), Employers' Accounting for Postemployment Benefits." Under SFAS No. 112, the cost of employment benefits must be recognized on an accrual basis as employees perform services to earn the benefits. The Company provides a postemployment longevity bonus to associates who leave employment after either attaining age 55 or completing 25 years of service. The amount of longevity bonus is based on length of service. The Company previously expensed the cost of these benefits as paid. The Company has elected to recognize this change in accounting principle on the immediate recog- nition basis. The cumulative effect for fiscal year 1994 of adopting SFAS No. 112 was an increase in accrued postemploy- ment benefit costs of $2,600,000 ($1,600,000 after the income tax benefit or $.22 per share). (10) Income Taxes As discussed in note 1, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109") for fiscal 1994. The cumulative effect of this change in accounting for income taxes of $900,000 is determined as of July 4, 1993 and is reported separately in the consolidated statements of earnings for the year ended July 2, 1994. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109. The components of income tax (benefit) expense are as follows:
(In thousands) Current Deferred Total ------- -------- ------- 1995 Federal $(4,746) (8,101) (12,847) State (648) (1,105) (1,753) ------ ------ ------ $(5,394) (9,206) (14,600) ====== ====== ====== 1994 Federal $ 5,304 176 5,480 State 706 21 727 ------ ------ ------ $ 6,010 197 6,207 ====== ====== ====== 1993 Federal $ 5,519 1,869 7,388 State 729 248 977 ------ ------ ------ $ 6,248 2,117 8,365 ====== ====== ======
The actual income tax expense differs from the statutory tax rate for all years (computed by applying the U.S. Federal corporate rate to earnings before income taxes and cumulative effect of changes in accounting principles) as follows:
(In thousands) 1995 1994 1993 ---- ---- ---- Statutory tax rate $(13,690) 6,072 7,731 Increase (reduction) in income taxes resulting from: State income taxes, net of Federal income tax benefit (2,219) 480 645 Targeted jobs tax credits (385) (507) (157) Cost in excess of fair value of assets acquired 1,771 53 53 Other, net (77) 109 93 Actual tax (benefit) expense $(14,600) 6,207 8,365 ======= ====== ====== Effective tax rate 36.3% 34.8 36.8 ======= ====== ======
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at July 1, 1995 are as follows (in thousands):
1995 1994 ---- ---- Deferred Tax Assets: Restructure reserve $ 9,977 --- Capital lease obligation 1,939 2,043 Accrued self-insurance 1,937 1,391 Accrued postemployment benefits 1,026 998 Other accrued liabilites 1,779 1,825 ------ ----- Net deferred tax assets 16,658 6,257 ------ ------ Deferred Tax Liabilities: Accelerated depreciation 19,915 18,723 Other 162 159 Total gross deferred liabilities 20,077 18,882 ------ ------ Net deferred tax liability $ 3,419 12,625 ====== ======
No valuation allowance was recorded against the deferred tax assets at July 1, 1995. The Company's manage- ment 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. The sources of deferred income taxes and their tax effects are as follows:
(In thousands) 1993 --------------- Excess tax depreciation over financial statement depreciation $ 1,658 Excess financial statement interest and amortization over tax rent expense on capitalized leases 203 Accrued expenses recognized for financial statement purposes, but not for tax purposes 258 Other (2) ------ $ 2,117 ======
Cash payments for income taxes were approximately $1,437,000, $5,741,000, and $5,452,000 in 1995, 1994, and 1993, 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 Participat- ing 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% ownership 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 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, $3.2 million of costs and payments have been charged against the reserve as of the end of fiscal year 1995. (13) Commitments and Contingencies The Company is a defendant in various claims and legal actions considered to be in the normal course of busi- ness. Management intends to vigorously default 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 man- agement. 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 employment. The agreements also pro- vide 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 $10,000,000. (14) Selected Quarterly Financial Data (unaudited) Selected quarterly financial data for the years ended July 1, 1995 and July 2, 1994 is summarized as follows:
(In thousands except per share amounts) Fiscal quarters ----------------------------------- 1995 Fourth Third Second First ------ ----- ------ ----- Sales $ 271,839 255,592 260,452 266,205 Gross profit 63,881 60,956 64,912 65,802 (Loss) earnings before tax (22,945) (19,752) 202 2,229 Net (loss) earnings (15,664) (11,645) 168 1,475 Net (loss) earnings per common share $ (2.20) (1.64) 0.02 0.21 Dividends declared per common share $ 0.11 0.11 0.11 0.11
(In thousands except per share amounts) Fiscal Quarters ----------------------------------- 1994 Fourth Third Second First ------ ----- ------ ----- Sales $ 260,969 265,146 274,506 266,570 Gross profit 66,961 67,739 67,367 68,760 Earnings before income taxes and cumulative effect of changes in accounting principles 3,558 5,420 3,787 5,093 Earnings before cumulative effect of changes in in accounting principles 2,397 3,562 2,471 3,221 Cumulative effect of change in accounting for income taxes - - - 900 Cumulative effect of change in accounting for postemployment benefits - - - (1,600) Net earnings 2,397 3,562 2,471 2,521 Earnings per common share: Earnings before cumulative effect of changes in in accounting principles $ 0.34 0.50 0.35 0.45 Cumulative effect of change in accounting for income taxes - - - 0.12 Cumulative effect of change postemployment benefits - - - (0.22) Net earnings per common share 0.34 0.50 0.35 0.35 Dividends declared per common share $ 0.11 0.11 0.11 0.11
================================================================= Management's Discussion and Analysis of Results of Operations and Financial Condition ================================================================= The following discussion should be read in con- junction with the financial statement and notes thereto contained herein. RESULTS OF OPERATIONS At the end of the 1995 fiscal year Delchamps operated 118 supermarkets in Alabama Florida, Mississippi and Louisiana, compared with 120 at the end of the 1994 fiscal year and 118 at the end of fiscal year 1993. The Company also operated twelve liquor stores in Florida at the end of fiscal year 1995 and 1994 and ten liquor stores at the end of the 1993 fiscal year. Results of operations set forth in the following tables and narrative are for 52-week periods in fiscal years 1995 and 1994 and for a 53-week period in fiscal year 1993. The Company's fiscal year ends on the Saturday closest to June 30.
Sales (dollars in thousands) 1995 1994 1993 ---- ---- ---- Sales $1,054,088 1,067,191 1,034,531 Decrease (increase) from prior year (13,103) 32,660 84,682 Percentage decrease (increase) from prior year (1.2%) 3.2% 8.9% Percentage decrease (increase) in same store sales (3.7%) 1.2% 3.2%
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 operning new supermarkets and expanding existing supermarkets. In order to improve same stores sales trends, the Company implemented a new strategic plan titled "Strategy 2000" in the fourth quarter of fiscal 1995. The "Strategy 2000" program included retail price reductions on thousands of items, an increase in the amount of which coupons are doubled (from $.49 to $.50), and a new advertising campaign to promote these changes. Same store sales in the fourth quarter increased 2.9% compared to decreases of 3.1%, 7.8%, and 6.3% for the first, second, and third quarters of fiscal 1995, respectively. Sales increased in 1994 because of the addition of new supermarkets (three were opened in 1994 and four were opened in 1993), the expansion of supermarkets (four were expanded in 1994 and seven were expanded in 1993), and same store sales increased 1.2% based on a compa- rable 52 week period in fiscal year 1993. Same store sales increased because of supermarket expansions and increased sale from promotional activities. Promo- tional activities include increased "Bonus Buy" promotions (in which certain products are featured at reduced retail prices), implementing a dish program which promoted dinner plates, soup bowls and other dinnerware at discount prices and introducing a line of soft drink products with Delchamps as the brand name. In addition, there was significant growth in the existing Cash Back For School program (in which the Company makes cash donations to schools equal to 1% of the total cash register receipts collected by each school). Sales increased in 1993 because of the addition of new supermarkets (four were opened in 1993 and six were opened in 1992), the expansion of supermarkets (seven were expanded in 1993 and five were expanded in 1992), the extra week in the 1993 53-week period compared to the 1992 52-week period, and same store sales increased 3.2% based on a comparable 53-week period for fiscal year 1992. Same store sales increased in 1993 because of supermarket expansions and success from promotional activities. Promo- tional activities included Double Coupons (implemented during fiscal year 1992 under which the Company doubled coupons which have a face value of up to sixty cents), Triple Coupons (implemented in selected markets during fiscal year 1993 under which the Company tripled coupons which have a face value of up to thirty-four cents), and Cash Back For Schools (implemented during fiscal year 1992).
Gross Profit (dollars in thousands) 1995 1994 1993 ------- ------- ------- Gross profit $ 255,551 270,827 264,074 Gross profit percentage 24.2% 25.4% 25.5% (Decrease) increase from prior year (1.2%) (0.1%) 0.7%
Gross profit percentage decreased in 1995 primarily because of retail price reductions on thouands of items as part of the "Strategy 2000" program noted above. Gross profit percentage decreased slightly in 1994 because of increased markdowns (retail price reductions) from the "Bonus Buy" promotional program. Gross profit percentage increased in 1993 because of increased buying allowances, increased sales of higher margin products located in the specialty departments of the Company's newer and expanded supermarkets, and increased sales of private label products (which have higher margins than brand name products.)
Selling, General and Administrative Expenses (dollars in thousands) 1995 1994 1993 ---- ---- ---- Selling, general and administrative ("S G &A") $ 290,542 248,808 236,167 Increase from prior year 41,734 12,641 13,068 S G & A as a percentage of sales 27.6% 23.3% 22.8% Increase (decrease) in percentage from prior year 4.3% 0.5% 0.7%
S G & A expense increased in 1995 because restructuring charges of $28.8 million were recorded which resulted primarily from closed stores that could not be subleased in whole or in part, goodwill of $5.1 million was written-off (which related to an acquisition in fiscal 1988) because the acquired assets were consistently producing negative results, and the Company implemented a 401(k) program in fiscal 1995 which required Company contributions of $1.4 million. S G & A expense increased in 1994 because of increased supermarket expenses which occurred primarily as a result of new and expanded supermarkets. Supermarket expenses which increased over the 1993 period include the following: wages and salaries increased $3.5 million, utilities increased $1.2 million, expenses relating to the Double Coupon program and dish program (described in the sales section) increased $2.2 million, and building rent increased $2.7 million. Wages and salaries, utilities and rent increased because of new and expanded supermarkets. Expenses for double coupons and the dish program increased because of the implementation of the dish program in 1994. S G & A increased as a percentage of sales over the 1993 fiscal year because the 1993 period included 53-weeks; therefore, in 1993 fixed costs such as rent and depreciation were divided into sales for a 53-week period. S G & A expense increased in 1993 because of added costs of new and expanded supermarkets and the extra week in the 1993 53-week period compared to the 1992 52-week period. S G & A as a percentage of sales decreased in 1993 as a result of the additional week in 1993. The decline was also attributable to savings from an ongoing cost con- trol program which improved labor scheduling, reduced advertising and improved the utilization of supplies.
Interest Expense and Income (in thousands) 1995 1994 1993 ---- ---- ---- Interest expense $5,375 4,298 5,389 Increase (decrease) from prior year 1,077 (1,091) 131 Interest income 100 137 220 Decrease from prior year (37) (83) (158)
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 reserve incurred in fiscal 1995. Interest expense decreased in 1994 primarily because the Company refinanced $25 million of long-term debt at the end of the 1993 fiscal year. The interest rate on this debt was reduced to 5.51% from 7.70% The decrease in interest expense was also caused by lower levels in indebtedness and a general decline in interest rates. Interest expense increased in 1993 because of increased levels of short-term indebtedness under the Company's lines of credit. Interest income decreased in the 1995, 1994, and 1993 periods. These decreases resulted from lower levels of invested cash and reductions in interest rates.
Income Taxes (dollars in thousands) 1995 1994 1993 ---- ---- ---- Income tax (benefit) expense $(14,600) 6,207 8,365 Income tax effective rate 36.3% 34.8% 36.8% Increase (decrease) in rate from prior year 1.5% (2.0%) 9.2%
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 is not deductible for income tax purposes) and positively affected by targeted jobs tax credits. In fiscal year 1994, the Company's effective income tax rate decreased from the 1993 level because earnings decreased (in 1994 the majority of earnings were taxed at a Federal rate of 34% and in 1993 the majority of earnings were taxed at a Federal rate of 35%) and targeted jobs tax credits were reinstated by the Revenue Reconciliation Act of 1993. In fiscal year 1993, the Company's efffective income tax rate increased because of the expiration of targeted jobs tax credits. The effective rate in 1993 approximates the combined Federal and states statutory rates.
Cumulative Effect of Changes in Accounting Principles (in thousands) 1995 1994 1993 ---- ---- ---- Cumulative effect of change in accounting for income taxes - $ 900 - Cumulative effect of change in accounting for postemployment benefits - (1,600) -
The Financial Accounting Standards Board issued Statement of Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS No. 109") which supersedes SFAS No. 96. The Company implemented SFAS No. 109 in fiscal year 1994. The cumulative effect of implementing SFAS No. 109 was to increase earnings $900,000. The Financial Accounting Standards Board issued Statement of Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," ("SFAS No. 112") which the Company implemented in fiscal year 1994. SFAS No. 112 requires that postemployment longevity bonus, be recognized on an accrual basis. The cumulative effect of adopting SFAS No. 112 was to decrease earnings $1,600,000.
Net Earnings (dollars in thousands) 1995 1994 1993 ---- ---- ---- Net (loss) earnings $(25,666) 10,951 14,373 (Decrease) increase from prior year (36,617) (3,422) 8,574 Percentage (decrease) increase from prior year (334.4%) (23.8%) 147.9% Net (loss) earnings percentage of sales (2.4%) 1.0% 1.4%
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. Net earnings decreased in 1994 from 1993 because same store sales growth decreased (to 1.2% in 1994 from 3.2% in 1993) and the Company experienced an increased rate of growth in S G & A expenses (to 23.3% of sales in 1994 from 22.8% of sales in 1993.) Net earnings for 1993 increased because of improved sales, an increase in gross profit margin, and ongoing monitoring of S G & A expenses through a cost control program.
Other (dollars in thousands) 1995 1994 1993 ---- ---- ---- Provision for LIFO expense (benefit) $ 536 (38) 210 Inflation index 1.00375 .99960 1.00222
In fiscal years 1995 and 1993, the rate of inflation was less than one-half of 1%. In fiscal year 1994, there was slight deflation. The effect of inflation on the Company's operating earnings is considered to be minimal. Mangaement 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- five 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.
1995 1994 1993 ---- ---- ---- Inventory turnover (annual) 8.0 times 7.9 times 8.0 times Increase (decrease) from prior year 0.1 (0.1) 0.4
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 com- pared to $105.7 million for fiscal year 1994. The reduction in merchan- dise inventory was due to management implementing a plan to reduce inventory levels at the Company's warehouses. Inventory turnover decreased slightly in 1994 compared to 1993 because the 1994 period was a 52-week fiscal year compared to the 1993 period which was a 53-week fiscal year. In 1993, inventory turnover increased because the 1993 period was a 53-week fiscal year compared to the 1992 period which was a 52-week fiscal year.
(dollars in thousands) 1995 1994 1993 ---- ---- ---- Dividends paid $ 3,131 3,128 3,130 Dividends per share 0.44 0.44 0.44 Dividends as a percentage of net (loss) earnings (12.2%) 28.6% 21.8%
For fiscal years 1995, 1994 and 1993, the Company paid annual dividends totaling $.44 per share. LIQUIDITY AND CAPITAL RESOURCES Capital Spending The following table shows capital expenditures during the last three fiscal years and planned capital expen- ditures during the 1996 fiscal year.
Plan Actual ---- ------------------------ Fiscal Year 1996 1995 1994 1993 ---- ---- ---- ---- Capital expenditures (millions) $ 25.0 35.2 17.7 20.8 Supermarkets opened 2 10 3 4 Supermarkets closed 0 12 1 1 Remodels: Expansions completed 1 5 4 7 Renovations completed 40 - - -
The Company's plans with respect to store construction, acquisition, remodeling and expansion are frequently reviewed and revised in light of changing conditions. In addition, the Company's ability to proceed with projects, or to complete projects during a particular period, is subject to successful negotiation of satisfactory contractual arrangements, and the timing of projects is subject to normal construction Financing and Liquidity Although the Company's supermarket locations are leased, the Company makes substantial expenditures to equip new and expanded supermarkets. The cost to equip a new supermarket is approximately $2.3 million while the cost to equip an expanded supermarket is approximately $1.7 million. In addition, the Company makes substantial expenditures for distribution center facilities and equipment. The Company plans to finance its capital expenditures with funds provided by operations. However, if an insuffi- cient amount of funds is generated, the Company may obtain long-term financing or draw on a revolving loan. The Company may borrow up to $75.0 million under the revolving loan and has currently borrowed $30.0 million under this loan agreement. The revolving loan is committed to the Company through June 1998. Working capital decreased $32,006,000 to $22,920,000 to July 3, 1994 to July 1, 1995. Additions to property and equipment were $35,239,000 during fiscal 1995 and consisted primarily of purchases of fixtures and equipment for new and remodeled stores and equipment for distribution center facilities.
OFFICERS, BOARD AND CORPORATE INFORMATION OFFICERS CORPORATE INFORMATION - -------- --------------------- DAVID W. MORROW CHAIRMAN OF THE BOARD & CHIEF EXECUTIVE OFFICER CORPORATE ADDRESS ----------------- RICHARD W. LA TRACE PRESIDENT DELCHAMPS, INC. 305 DELCHAMPS DRIVE FRANK L. BENNEN POST OFFICE BOX 1668 SENIOR VICE PRESIDENT, OPERATIONS MOBILE, ALABAMA 36633 TELEPHONE (334) 433-0431 PATRICK J. CURRAN SENIOR VICE PRESIDENT, SALES & MERCHANDISING TRANSFER AGENT, REGISTRAR AND TIMOTHY E. KULLMAN ----------------------------- SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER DIVIDEND DISBURSEMENT AGENT TREASURER & SECRETARY --------------------------- V. LAWRENCE ABREO FIRST ALABAMA BANK VICE PRESIDENT, MANAGEMENT INFORMATION SYSTEMS POST OFFICE BOX 5260 MONTGOMERY, ALABAMA 36103 HEIDI E. FINCHEM VICE PRESIDENT, PUBLIC RELATIONS AND STOCK LISTING ASSISTANT SECRETARY ------------- LARRY S. GRIFFIN NASDAQ NATIONAL MARKET SYSTEM VICE PRESIDENT, REAL ESTATE SYMBOL: DLCH WILLIAM D. KRUSE FORM 10-K VICE PRESIDENT AND ZONE MANAGER --------- THOMAS R. TREBESH A COPY OF THE COMPANY'S ANNUAL REPORT TO THE VICE PRESIDENT, HUMAN RESOURCES SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON SARAH F. WATSON WRITTEN REQUEST TO THE SENIOR VICE PRESIDENT, ASSISTANT SECRETARY CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY AT THE CORPORATE OFFICES. BOARD OF DIRECTORS - ------------------ ANNUAL MEETING J. THOMAS ARENDALL, JR. -------------- PRESIDENT ARENDALL AND ASSOCIATES, INC. THE ANNUAL MEETING OF STOCKHOLDERS OF DELCHAMPS, INC. WILL BE HELD IN THE CARL F. BAILEY ADAM'S MARK RIVERVIEW PLAZA HOTEL, RETIRED PRESIDENT AND CHIEF EXECUTIVE OFFICER 64 SOUTH WATER STREET SOUTH CENTRAL BELL MOBILE, ALABAMA AT 10 A.M. ON OCTOBER 24, 1995. E. EUGENE BISHOP RETIRED CHAIRMAN OF THE BOARD AUDITORS MORRISON RESTAURANTS, INC. -------- JOHN A. CADDELL KPMG Peat Marwick LLP PRESIDENT AND CHIEF EXECUTIVE OFFICER 303 PEACHTREE STREET N.E. CADDELL CONSTRUCTION COMPANY ATLANTA, GEORGIA 30308 JAMES M. CAIN MARKET MAKERS FOR RETIRED VICE CHAIRMAN ----------------- ENTERGY CORPORATION DELCHAMPS STOCK --------------- WILLIAM W. CRAWFORD RETIRED SENIOR VICE PRESIDENT AND SECRETARY J.C. BRADFORD & COMPANY KRAFT, INC. MORGAN, KEEGAN & COMPANY STERNE, AGEE & LEACH RICHARD W. LA TRACE TROSTER SINGER CORPORATION PRESIDENT MAYER & SCHWEITZER, INC. DELCHAMPS, INC. HERZOG, HEINE, GEDULD, INC. GOLDMAN, SACHS & COMPANY DAVID W. MORROW GABELLI & COMPANY, INC. CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER DELCHAMPS, INC.
EX-22 3 Exhibit 22 Percentage of Voting Securities Jurisdiction of Owned By Name Incorporation Registrant - --------------------------------- ------------------ ------------ Supermarket Cigarette Sales, Inc. Louisiana 100% EX-27 4
5 12-MOS JUL-01-1995 JUL-01-1995 15,906,000 0 9,214,000 0 93,808,000 128,942,000 293,496,000 155,411,000 269,412,000 106,022,000 44,964,000 71,000 0 0 112,240,000 269,412,000 1,054,088,000 1,054,088,000 798,537,000 290,542,000 5,275,000 0 0 0 (14,600,000) 0 0 0 0 (25,666,000) (3.61) 0
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