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