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The Chapter 11 Shoe Drops On Winn-Dixie

JACKSONVILLE, Fla. -- In a move that one analyst called a "great American business tragedy," Winn-Dixie Stores, Inc. succumbed to pressures of tightening trade credit from vendors, credit downgrades, and increased losses, and filed for reorganization under Chapter 11 of the U.S. bankruptcy code late Monday.

The company and 23 of its U.S. subsidiaries are included in the filings. All 920 Winn-Dixie stores in eight states and the Bahamas remain open at this point. (Winn-Dixie's subsidiary in the Bahamas was not included in the filing.)

"We intend to use this reorganization process to take the actions necessary to position Winn-Dixie for future success," said president and c.e.o. Peter Lynch, a former Albertsons exec who took the helm at Winn-Dixie last December, in a statement. "This includes achieving significant cost reductions, improving the merchandising and customer service in all locations, and generating a sense of excitement in the stores."

To fund its continuing operations during the restructuring, Winn-Dixie has secured an $800 million debtor-in-possession (DIP) financing facility from Wachovia Bank, N.A. Subject to court approval, the DIP credit facility, which replaces a previous $600 million credit line, will be used to supplement the company's cash flow during the reorganization process.

As part of the restructuring, Winn-Dixie expects to implement further asset rationalization, additional asset sales, and expense reduction plans. However, no final decisions regarding additional store closings or market departures have been made, the company said.

Analysts noted that there are few markets where Winn-Dixie still retains a clear-cut advantage. "The Montgomery, Alabama division had a great year for sales and profitability in 2004, but this year won't be so easy," retail consultant Burt Flickinger told Progressive Grocer. "Winn-Dixie also has been strong in the city of New Orleans, although Wal-Mart supercenters could have a devastating effect on its stores there." Additionally, there are about 20 stores doing well in a pocket from Biloxi, Miss. to Panama City, Fla., he added.

Ultimately, Winn-Dixie may have made too many wrong turns to allow for a successful comeback, Flickinger suggested. "They brought in too many carpetbagger executives that had no experience in dealing with Wal-Mart supercenters. Prior management made the mistake of firing the William Cook agency, which did great work in branding for Winn-Dixie. The stores used to be known for being low-price leaders -- now they're considered a high-price player."

Flickinger added, "This is one of the greatest American tragedies in business -- to see a bankruptcy like this that isn't tied to any financial fraud."

Ironically, one of Winn-Dixie's biggest mistakes may have been allowing Sam Walton to be on its board of directors, Flickinger added; Walton went on to use his learnings to catapult Wal-Mart as a leading grocery retailer.

Also as part of the restructuring, Winn-Dixie is taking steps to substantially reduce its lease obligations on previously closed stores. The company is seeking bankruptcy court approval to immediately terminate the leases of two warehouses and approximately 150 stores that were closed previously, which it expects to result in an annual cash savings of approximately $60 million.

Finally, the company said it would pursue all opportunities to further reduce annual expenses and to sell non-core assets, including all remaining manufacturing operations.

Winn-Dixie said it has filed more than 25 "First Day Motions" in the bankruptcy court in New York to support its associates and vendors, together with its customers and other stakeholders. The court filings include requests to ensure that the company will not have any interruption in maintaining the freshest products in its stores, honor its advertised and Customer Rewards Card specials, and ensure no disruption in its interaction with customers.

The New York Stock Exchange halted trading in Winn-Dixie shares yesterday, after the stock slumped to 73 cents on the Inet electronic brokerage system from a Friday NYSE close of $1.47.
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