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Case 3-04-cv-00071-VMC-MCR Document 73 Filed 06/08/2007
UNITED STATES DISTRICT COURTMIDDLE DISTRICT OF FLORIDA
JACKSONVILLE DIVISION
Case No. 3:04-cv-71-J-33MCRIN RE: WINN-DIXIE STORES, INC. )SECURITIES LITIGATION ) CLASS ACTION
JURY TRIAL DEMANDED
CONSOLIDATED CLASS ACTION COMPLAINT
INTRODUCTION
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Lead Plaintiff National Asbestos Workers Pension Fund ("Plaintiff'), individually and on
behalf of a proposed class (the "Class") of all purchasers of the publicly traded securities of
Winn-Dixie Stores Incorporated ("Winn-Dixie" or the "Company") between August 7, 2002 and
January 29, 2004, inclusive (the "Class Period"), by and through their undersigned counsel,
allege the following against Allen Rowland ("Rowland"), Frank Lazaran ("Lazaran"), and
Richard P . McCook ("McCook") ("Defendants") seeking remedies under the Securities
Exchange Act of 1934 (the "Exchange Act"). The claims asserted herein arise under Sections
10(b) and 20(a) of the Exchange Act (15 U.S.C. § 78j(b) and 78t(a)) and Rule lOb-5
promulgated thereunder (17 C.F. R. § 240 . 1Ob-5).
NATURE OF THE ACTION
1. During the late 1990's, Winn-Dixie, one of the country's largest supermarket
chains, had been caught in a "death spiral." Severely hampered by an inefficient decentralized
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operating structure, and unable to compete successfully with other retailers such as Wal-Mart
and Publix, the Company had been teetering on the edge of a financial meltdown.
2. Against this backdrop, Rowland came aboard as Chief Executive Officer ("CEO")
in 1999 and initiated several measures designed to change the way that Winn-Dixie had been
operating. The primary initiative spearheaded by Rowland involved the centralization of the
Company's major functions, including procurement, marketing, merchandising and
transportation, which historically had been performed at the local level. By transplanting these
functions from the local or divisional level to the corporate offices, Rowland expected that the
Company would realize the benefits of improved efficiency, lower costs and increased
purchasing power. Further, in implementing this centralization effort, Rowland was keenly
aware that the investment community would also expect significant improvements in the
Company's financial position.
3. Consequently, during the Class Period, Defendants repeatedly touted that the
Company' s centralization efforts were a significant driver of earnings and gross margin
improvement. That is because, according to Defendants, the centralization of primary corporate
functions did, in fact, lead to reduced expenses and a lower cost of goods.
4. These representations were false and misleading because, according to numerous
former employees, Defendants omitted and actively concealed that the Company's centralization
initiatives were a complete failure. For example, these former employees, some of whom had
been with the Company for over 30 years, revealed that centralization of procurement did not
enable the Company to achieve lower cost of goods, reduced expenses, and related efficiencies.
In fact, these witnesses expressed that, given the lack of commitment and focus shown by
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management, the centralization efforts "never had a chance," despite what Defendant had told
the market.
5. Similarly, the Company's newly empowered Marketing Department created "one
size fits all" marketing plans that were ineffective because they did not consider the
demographics of the communities where the Company's stores were located. In fact, these
marketing plans seemed at odds with the Company's stated strategic vision: "Our commitment to
each neighborhood is to run the right store for each neighborhood."
6. Not surprisingly, the Company's centralization efforts did not lead to improved
financial performance, but rather the Company's financial condition deteriorated significantly
during the Class Period. Nonetheless, Lazaran, who took over as CEO for Rowland during the
Class Period, assured investors that the Company was "committed to this [strategic] plan," which
was "the right strategy" for the Company to "achieve[] [its] desired results."
7. Unbeknownst to the Company's public shareholders, Lazaran's statements were
knowingly false and misleading because Lazaran and his management team knowingly
concealed that they were not committed to following through on the Company' s existing
strategic plan, but instead they were in the midst of "a comprehensive review of [the Company's]
entire business model" that would ultimately lead to a major shake-up of the Company.
8. Indeed, on January 30, 2004, just a few short months after publicly affirming that
the Company was on the correct path, Lazaran shocked the market by revealing that the internal
"comprehensive review" had taken place and, as a result, the Company would embark on a
"series of major actions that will change the way we do business and help us shape the future of
this Company." The response to this announcement was swift and severe as shares of Winn-
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Dixie common stock dropped 27.8%, or $2.53 per share, to close at $6.56 on extremely heavy
trading volume.
9. Shockingly, on January 30, 2004, Defendants also announced that dividends
would be suspended indefinitely, after assuring investors only a few days prior (on January 20,
2004) that the Company's dividend would be paid and that the Company was moving forward
with its business plan.
10. The "major actions" initiated by Lazaran did not stem Winn-Dixie's financial
slide subsequent to the Class Period. Amid mounting losses, on December 10, 2004, the
Company replaced Lazaran as CEO. Shortly thereafter, on February 21, 2005, the Company
filed for bankruptcy protection.
JURISDICTION AND VENUE
11. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule lOb-5 promulgated thereunder (17
C.F.R. §240.10b-5).
12. This Court has jurisdiction over the subject matter of this action pursuant to §27
of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. § 1331.
13. Venue is proper in this district pursuant to §27 of the Exchange Act (15 U.S.C.
§78aa and 28 U.S.C. §1391(b)). Many of the acts and transactions alleged herein, including the
preparation and dissemination of materially false and misleading information, occurred in
substantial part in this district. Additionally, the Company maintains a principal executive office
in this district.
14. In connection with the acts , conduct and other wrongs alleged in this complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
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including but not limited to, the United States mails, telephone communications and the facilities
of a national securities exchange.
PARTIES
15. Plaintiff was appointed by the Court on August 31, 2004 to serve as Lead Plaintiff
in this securities fraud class action. Plaintiff bought shares of Winn-Dixie during the Class
Period at artificially inflated prices, as set forth in the certification accompanying Plaintiff's
motion for appointment as Lead Plaintiff, and suffered economic losses when the true facts about
the Company' s business condition were publicly disclosed.
16. Rowland was the Company's CEO, President, and Director until June 26, 2003.
17. Lazaran was the Company's CEO, President, and Director from June 26, 2003
until he was replaced on December 10, 2004 . Prior to serving as CEO, he served as the
Company's Chief Operating Officer and Executive Vice-President at all relevant times.
18. McCook was the Company's Chief Financial Officer and Senior Vice President
until he resigned on March 8, 2004.
19. Winn-Dixie is a Florida corporation that maintains its principal place of business
at 5050 Edgewood Court, Jacksonville, Florida. Winn-Dixie was named as a defendant in
various complaints filed in this district resulting from the unlawful conduct alleged herein. As a
result of the Company's Chapter 11 bankruptcy filing, all litigation against Winn-Dixie was
stayed. On November 9, 2006, the Bankruptcy Court entered an order confirming a joint plan or
reorganization for Winn-Dixie and its affiliated debtors, which became effective on November
21, 2006. On December 14, 2006, the Bankruptcy Court entered an order disallowing a claim
filed by Plaintiff against Winn-Dixie in the bankruptcy proceedings, extinguishing Winn-Dixie's
liability to Plaintiff and the Class in this action. Accordingly, Winn-Dixie is no longer a
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defendant in this action. Nonetheless, Winn-Dixie is, or has been, responsible for maintaining
appropriate director and officer liability insurance coverage for any act or omission of
Defendants occurring during the Class Period.
CLASS ACTION ALLEGATIONS
20. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of the Class, consisting of all those who purchased or
otherwise acquired the publicly traded securities of Winn-Dixie between August 7, 2002 and
January 29, 2004, inclusive, and who were damaged as a result of Defendants' fraudulent
scheme. Excluded from the Class are Defendants, the officers and directors of the Company,
members of their immediate families and their legal representatives, heirs, successors or assigns
and any entity in which Defendants have or had a controlling interest.
21. Because, prior to bankruptcy, the Company had millions of shares of common
stock outstanding, and because the Company's common stock was actively traded on the New
York Stock Exchange ("NYSE") during the Class Period, members of the Class are so numerous
that joinder of all members is impracticable. While the exact number of Class members is
unknown to Plaintiff at this time and can only be ascertained through appropriate discovery,
Plaintiff believes that there are thousands of geographically dispersed members in the proposed
Class.
22. Plaintiff's claims are typical of the claims of the members of the Class because
Plaintiff and all of the Class members were similarly affected by and sustained damages arising
out of Defendants' wrongful conduct complained of herein.
23. Plaintiff will fairly and adequately protect the interests of the Class members and
has retained counsel who are experienced and competent in class actions and securities fraud
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litigation. Plaintiff has no interests that are contrary to or in conflict with the members of the
Class Plaintiff seeks to represent.
24. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether Defendants implemented the manipulative devices or engaged in
the wrongful scheme alleged herein;
(b) whether Defendants' statements omitted material facts necessary to make
the statements made, in light of the circumstances under which they were made, not misleading;
(c) whether Defendants' misrepresented material facts;
(d) whether the Exchange Act was violated by Defendants' acts alleged
herein;
(e) whether Defendants knew or were severely reckless in disregarding that
the statements made by them were false and misleading;
(f) whether the prices of Winn Dixie's publicly traded securities were
artificially inflated; and
(g) the extent of damage sustained by Class members and the appropriate
measure of damages.
25. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual members of the Class may be relatively small, the expense
and burden of individual litigation make it impossible for the members of the Class to
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individually redress the wrongs done to them. There will be no difficulty in the management of
this action as a class action.
SUBSTANTIVE ALLEGATIONS
A. Background
26. Winn-Dixie is a food and drug retailer operating throughout the Southeastern
United States. Prior to its bankruptcy filing, the Company operated approximately 1,073 retail
stores under one of its two formats: combination food and drug stores or grocery warehouse
stores. According to the Company, the supermarket industry is highly and increasingly
competitive and generally characterized by high inventory turnover and narrow profit margins.
In addition to retail grocery operations, the Company conducted various operations for the
purchase, manufacture and processing of private-label products sold in its retail stores.
27. Prior to its bankruptcy, the Company's strategic vision was to be the best
supermarket in every neighborhood in which it operates by offering the best value, freshest
products and outstanding customer service every day, while enhancing shareholder value. In
reality, however, Winn-Dixie was a company suffering through an identity crisis due to its
positioning between upscale operators, such as Publix, and discount chains, such as Wal-Mart.
28. Indeed, on one hand, the Company struggled to compete with Publix, a
supermarket chain with stores located throughout Florida. Through its reputation for high
quality products and superior customer service, Publix has become the top grocer in the markets
in which it operates, even though it generally charges higher prices than Winn-Dixie and other
grocery chains.
29. On the other hand, Winn-Dixie faced intense competition from Wal-Mart, a mass
merchandiser that has been rapidly expanding into the grocery business throughout the
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Southeast. Through its "supercenter" format, Wal-Mart sells its grocery products at discounted
prices and, as a result, had significantly cut into Winn-Dixie's market share as a low-price
grocery retailer. Indeed, according to a former accounts payable analyst,' despite attempts to
lower prices in response to the competitive threat from Wal-Mart, the Company could not
successfully compete with Wal-Mart on price. In fact, due to the competitive pressure created
from Wal-Mart, the Company announced, in mid-2002, that it planned to exit its Texas and
Oklahoma operations, which resulted in the closure of 76 stores, a distribution center and a dairy
plant.
30. Moreover, Winn-Dixie's position in the highly competitive supermarket
landscape had been further hampered by its antiquated and inefficient operational structure.
Historically, many of the Company' s essential functions were performed at the division level
with limited oversight from the corporate headquarters. The Company also lacked an
information technology platform that could enable it to effectively communicate with its
divisions and operate more efficiently. According to a former accounts payable accountant,2
Winn-Dixie did not have "the personnel or the systems that could provide accurate, up-to-date
information." For example, the Company's "underlying computer systems did not provide the
timely accurate information that we needed" because the Company "relied too heavily on manual
entry." This witness further added that "the numbers could have been off by millions of dollars
but we had no idea how to determine if that was the case."
1 The former accounts payable analyst worked at Winn-Dixie from July 2000 until October
2004 and was responsible for processing various payables incurred at Winn-Dixie's
Manufacturing Division.
2 The former accounts payable accountant worked at Winn-Dixie from June 2002 untilFebruary 2004 in various capacities, but was primarily responsible for processing invoices forthe payment of perishable goods that the Company purchased from vendors for the retail stores.
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B. Winn-Dixie Implements Sweeping Changes
31. At the time Rowland took over as CEO in 1999, the Company was floundering.
Faced with declining market share, rising expenses and decreasing profitability, Rowland "began
making sweeping changes at Winn-Dixie," according to a former retail operations vice
president.' A former division produce merchandiser4 added: "From the day Rowland took over,
Winn-Dixie was run strictly for the stock analysts." To that end, Rowland spearheaded several
broad initiatives that were designed to change the way that the Company operated. The witness
explained that "Rowland took orders from no one" as he was given "carte blanche" by the Board
of Directors to "do what he had to do" to fix the Company. Based on this control and hands-on
approach, "nobody made a move without [Rowland] knowing about it."
32. This former employee stated that Rowland's immediate solution to Winn-Dixie's
financial problems was to cut expenses by eliminating payroll and to raise revenue by increasing
retail prices. At the local level, the Company terminated a large number of employees and
eliminated or consolidated certain departments, such as the deli and bakery departments. In
addition, Rowland ordered the termination long-tenured executives and replaced them with hand-
picked individuals who had previously worked with him at other grocery chains. This practice
essentially ended Winn-Dixie 's long- standing policy of promoting from within.
3 The former retail operations vice president worked at Winn-Dixie for almost 40 yearsuntil March 2004 and, during the Class Period, was responsible for supervising retail operationsat the 150 retail stores located throughout Alabama.
4 The former division produce merchandiser worked at Winn-Dixie for approximately 33years until January 2003 and, during the Class Period, was responsible for implementingcorporate programs related to the procurement and sale of produce and floral products.
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33. A former company brands manager 5 corroborated these statements regarding the
Company 's operations after Rowland became CEO. The former company brands manager stated
that "Rowland's goal was to make Winn-Dixie's retail stores profitable" by increasing the retail
prices of the products sold to customers. According to this witness, this increased emphasis on
the Company 's retail stores profitability represented a significant shift in focus for the Company.
This long-tenured witness explained that, as a result of the slim profit margins that characterize
the retail grocery industry, "Winn-Dixie's business philosophy was for its retail stores to break-
even and for the manufacturing plants to generate profits." The witness attributed the reduced
emphasis on the manufacturing plants to the lack of experience of Rowland and his executives in
running a grocery chain with separate and viable manufacturing operations. Thus, not
surprisingly, the manufacturing plants "didn't fit into their plans." In fact, according to a former
production superintendent,6 production at the Company's Miami, Florida dairy manufacturing
plant significantly declined during the Class Period when Defendants reduced the hours of, or
otherwise terminated, a large number of employees who worked at the plant.
34. In addition to these changes, Rowland's primary attempt to achieve long-term
profitability was to centralize the Company's core operations. Indeed, Rowland implemented
several measures designed to update the overall structure of business, including, most
prominently, centralizing numerous functions that had been performed at the regional or
divisional level. By streamlining operations, Rowland sought to reduce costs and increase
5 The former company brands manager worked at Winn-Dixie for approximately 44 yearsuntil August 2003 and, during the Class Period, was responsible for selling excess products fromthe Company's manufacturing plants to non-Winn-Dixie brand retail stores.
6 The former production superintendent worked at Winn-Dixie from April 1994 until
January 2004 and, during the Class Period, was responsible for supervising the production and
distribution of dairy and juice products to the Company's retail stores in South Florida.
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efficiency at the corporate and local level. Rowland's centralization initiatives represented a
significant departure from how the Company had been operated, but were viewed by Rowland
and his management team as a necessary step to make Winn-Dixie more competitive.
35. The former retail operations vice president indicated that the most dramatic of
these changes involved the centralization of procurement. This former employee described that,
prior to 1999, approximately 90% of the Company's procurement functions were handled at the
regional or divisional level. The divisions essentially operated independently and employed their
own merchandisers and/or buyers who were responsible for procurement decisions. As a result
of this localized system, the Company had developed strong business and personal relationships
with regional vendors and farmers. However, according to a former procurement sourcing
manager,' the Company' s decentralized purchasing/procurement model frequently led the
Company to enter into "poor commitments" because the local buyers lacked purchasing
"expertise." In addition, the former procurement sourcing manager indicated that these
purchasing decisions were not coordinated with other Company departments, such as Marketing,
to ensure that such decisions conformed to specific marketing campaigns or initiatives.
36. Rowland's centralization initiative shifted the procurement functions from the
local level to the Company's Central Procurement Department located at the corporate
headquarters in Jacksonville. Because the Central Procurement Department would make
purchasing decisions on behalf of all of the Company's stores, Rowland believed that the
increased buying power would enable the Company to obtain lower prices or better discounts
from its vendors. The former procurement sourcing manager explained that the Central
7 The former procurement sourcing manager worked at Winn-Dixie from January 2003
until August 2003 and was responsible for procuring packaging materials for various products
produced at 8 of the Company's manufacturing plants.
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Procurement Department was viewed as "the future of the Company" and the employees within
the department believed that they could greatly enhance the Company's efficiency and
profitability through their purchasing expertise.
37. In addition to centralized procurement, Rowland also centralized several other
functions that had been performed locally. Most notably, the Company transferred marketing
and merchandising responsibilities, among others, from the divisional level to the Marketing and
Merchandising Departments located at the corporate headquarters in Jacksonville, Florida.
C. The Failure of Winn-Dixie's Centralization Efforts
38. Although Defendants repeatedly issued statements throughout the Class Period
touting the significant benefits and operational efficiencies gained through the Company's
centralization initiatives, several former employees characterized the Company's centralization
efforts as a complete failure because it was unable to achieve a lower cost of goods, reduced
expenses , and related efficiencies from the transfer of such functions to the corporate offices. A
former senior procurement manager' indicated that "there were many reasons" why the benefits
and objectives to be derived from Winn-Dixie's centralization initiatives "didn't happen."
1. Winn-Dixie's Management Lacked Commitmentto the Centralization Efforts
39. The former senior procurement manager explained that centralization was
"doomed" from the start because the Company's management was not sufficiently committed to
the process. The witness stated that, for an undertaking of this scope, which was designed to
alter the Company's long-standing "corporate culture," it was critical that management focused
on ensuring that the centralization initiatives were successful. After all, the Company would be
8 The former senior procurement manager worked at Winn-Dixie for approximately 30years until August 2003 and, during the Class Period, was responsible for overseeing internalprocurement systems and related supplier and supply chain initiatives.
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consolidating the operations of 12 separate divisions to the corporate headquarters, with a
significant impact on the Company's operational and financial reporting.
40. Instead, under Rowland's stewardship, the Company became engaged in many
different projects that, according to the former senior procurement manager, took the focus off
the centralization efforts. This witness indicated that Rowland began "bringing in consultants"
to work on numerous projects and initiatives unrelated to centralized procurement, such as the
creation of the Save-Rite division. As a result of so many concurrent undertakings that
consumed "focus and resources," the witness said that Winn-Dixie's centralization initiatives
"never had a chance."
41. As one example, the former senior procurement manager noted that, in taking
away procurement responsibilities from the divisions, Defendants did not properly develop the
systems to support the changes. The witness stated that management did not "spend the time in
accounting to develop scan cards to support [the centralization effort]." "Scan cards" were the
means by which personnel were "measured." The witness explained that, when procurement
was centralized, "they changed the metrics," but did not change the scan cards used to measure
personnel performance. Similarly, this former employee indicated that the Company did not
focus its efforts on developing "good price checks" and more of a "retail and cost focus."
Further, as the former procurement sourcing manager added, despite the Company's attempted
centralization efforts, Winn-Dixie had failed to develop a "professional" purchasing system. The
former senior procurement manager concluded that these projects "should have been a focus,
[but] became just one of many projects" undertaken by management.
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2. The Centralization Efforts Created Significant Problems
42. According to the former retail operations vice president, the Central Procurement
Department dictated the products that could be sold at the stores without regard for actual
consumer demand. In fact, each week, the Central Procurement Department sent a "survey" to
the divisions that identified specific pre-selected products from which the divisions had to
choose . From this list, the division managers selected the products they believed they could sell,
but had no control over the price that was dictated or the volume of products received. As a
result, the stores were forced to suffer the losses if and when the products did not sell.
43. A former division produce merchandiser confirmed the significant problems faced
by the Company involving the distribution of centrally procured goods to the retail stores. In
fact, this witness corroborated the Company's efforts to implement a "survey system" through
which the retail store managers were expected to choose the type and volume of products to be
distributed from the Company's manufacturers to the stores. The witness stated that this "survey
system" failed because the volume of products that the retail stores requested "were always far
below expectations" of the Central Procurement Department due to low consumer demand. As a
result, the corporate office "began bullying the store managers by making them order more
products" than they needed. This circumstance led to bloated inventories and increased spoilage.
Eventually, the retail stores were forced to lower prices below cost to reduce excess inventory
and offset spoilage losses.
44. Moreover, due to centralization, the former retail operations vice president was
instructed to discontinue long-standing vendor relationships at the regional level. However,
according to the former procurement sourcing manager, despite the termination of these
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relationships, the Company's centralization efforts were hampered by "dangling commitments"
with vendors that obligated the Company to continue purchasing certain materials.
45. For example, on the "indirect" side of operations, the former procurement
sourcing manager described a typical problem with the procurement of packaging materials for
the Company's high-end Prestige brand of ice cream. Because of the emphasis on the Prestige
brand, the witness indicated that additional purchases of packaging materials for the lower-priced
Winn-Dixie and Thrifty-Maid ice cream brands should have been curtailed since the Company
did not intend to purchase these brands. However, due to a lack of coordination, the witness
learned that a local manufacturing facility had committed to a several month supply of packaging
materials for the Thrifty-Maid brand for which the Company had no use. Thus, the failure to
understand Rowland's strategic plan led to "over-buying" and the Company was often stuck with
worthless excess inventory.
46. The former retail operations vice president stated that the local buyers were
terminated or replaced by individuals with less control and responsibility who acted as liaisons to
the corporate office. Although, under certain circumstances, the divisions retained the ability to
select certain products appropriate to their geographic locale , they had to obtain approval from
the corporate office before a deal could be finalized.
47. According to this former employee, centralized procurement had a negative effect
on the Company's financial results. In particular, in the Montgomery, Alabama division, the
former retail operations vice president noticed that, after procurement became centralized, the
costs of goods were actually higher than the costs that the Montgomery division had previously
paid for the same products. The higher cost of goods forced the Company to increase the retail
prices of the products sold to customers. This, in turn, adversely impacted the performance of
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the Montgomery division as reported in the divisional P&L statements. The witness reviewed
the financial statements for the Montgomery division during the Class Period and did not see the
financial benefits that centralized procurement was supposed to produce. Instead, the
Montgomery division's performance deteriorated due centralization of procurement.
48. In addition to the higher costs and retail prices, the former retail operations vice
president noticed that losses due to the spoilage of perishable goods increased significantly once
procurement had been centralized. This former employee attributed these losses to a decline in
the quality of the perishables received by the stores because those products had to be shipped
farther distances to reach the stores. When procurement was handled locally, the witness stated
that perishables remained fresher for longer periods because the distribution process was shorter
in time and distance.
49. Despite the centralization efforts, this witness stated that the Charlotte Division
never realized the promised benefits of streamlined operations, lower costs or higher profits.
According to this witness, in some respects, the Company's central procurement initiative really
did not change how the Company operated. For example, certain "direct shipment delivery"
companies, such as Coca-Cola, Pepsi Cola, Frito Lay and Little Debbie, had established local
distribution companies to deal directly with the local retail stores. Although centralizing
procurement gave the Company "slightly more control" over discussions with "direct shipment
delivery" companies, Winn-Dixie still had to negotiate with these vendors on a local, rather than
national, level, which reduced the efficiencies that were expected from centralized procurement.
50. The former senior procurement manager confirmed that the centralized
procurement strategy disregarded or otherwise failed to take into account specific regional needs.
Consequently, "sales suffered" because the corporate headquarters made procurement decisions
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that were inappropriate for specific local needs. According to this witness, it was definitely "a
reality" that the corporate procurement group purchased items that were not sufficiently
promoted or correctly discounted at the local or regional level.
51. Finally, in implementing its central procurement initiative, the Company moved
several divisional employees to the corporate headquarters so that all of the central procurement
employees could be in one place. The former division produce merchandiser indicated that this
process was "costly" and "unnecessary." Similarly, the former senior procurement manager
noted that the Company was "firing division managers," stopped building new stores and was
"re-thinking everything" in terms of how the Company handled its business and operations.
52. In addition to the failure of centralized procurement, the Company also
experienced significant problems in its centralized marketing and merchandising efforts.
According to the former retail operations vice president, the centralized marketing effort was
"ineffective" because the Company's Marketing Department lacked the knowledge and
understanding necessary to develop a marketing plan tailored to a specific geographic region.
53. Indeed, this former employee expressed that the Marketing Department developed
strategies and advertising that were aimed at promoting the Company generally, but had little
regard for the demographics of the communities where its stores were located. For example, the
Marketing Department created an in-store "Wall of Value" campaign through which the
Company would identify for customers certain products that were on sale . The products
contained on the "Wall of Value," however, were the same for every Winn-Dixie store,
regardless of whether the product sold well in a particular region. As the former retail operations
vice president noted, the Marketing Department "disregarded actual consumer demand" because
"not all goods were good sellers in every market."
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54. Eventually, according to this witness, the Marketing Department recognized the
failure of its programs and requested that the divisions "give pushback" (i.e., make suggestions)
on the type of advertising that would generate sales . The witness stated that "giving pushback"
was similarly ineffective because "the Marketing Department was slow to act, if at all."
55. Additionally, the Company's Merchandising Department failed to develop plans
that were tailored to the particular attributes of the stores for which they were designed. More
specifically, through the merchandising plan, the Merchandising Department would instruct the
division supervisors and store managers where to place particular products in each retail store.
However, the former retail operations vice president stated, for certain stores within his region,
the Merchandising Department sent merchandising plans for a 45,000 square foot store that were
expected to be implemented in 15,000 square foot stores. As a result, the witness was often left
to guess as to how the Company wanted its stores to be organized.
3. Defendants Discussed Problems with Centralizationat Period Review Meetings
56. The former senior procurement manager stated that the problems associated with
Winn-Dixie's centralization initiatives did not "suddenly" materialize, but were "already in
place" and well known to Defendants prior to and during the Class Period.
57. To be sure , this former employee stated that the numerous problems with
centralized procurement were discussed regularly and in great detail "every 30 to 60 days" at
"period review meetings." During these meetings, which were attended by Defendants as well as
various vice presidents and senior vice presidents, "the numbers" related to various operating
areas of the Company, including centralized procurement, were "discussed in the open." More
specifically, the witness described that the meetings focused on comparing performance
forecasted for a particular period with the actual results. If a particular line of business, such as
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centralized procurement, did not meet its objectives, there would be a "deficit" between the
forecast and the actual results. The witness explained that, throughout the Class Period,
Defendants knew that "the numbers" for centralized procurement "were not [being] made."
58. The former senior procurement manager further commented that the
centralization efforts were hampered by the fact that "management changed a lot" during the
implementation period. The witness indicated that when Lazaran became COO, "it only added
to the confusion" because with Lazaran as COO, it was obvious that Rowland's "days were
numbered." According to the witness, as COO, Lazaran was involved in implementing the
centralization initiatives, and he "didn't get thrown into the fray." Therefore, Lazaran learned of
the problems long before he became CEO.
DEFENDANTS' FALSE AND MISLEADING STATEMENTSMADE DURING THE CLASS PERIOD
59. The Class Period commences on August 7, 2002. On that date, the Company
issued a press release touting its sales and results of operations for its fourth quarter and fiscal
year ended June 26, 2002, including substantial increases in net earnings and sales. Commenting
on these results, Rowland stated:
We are pleased to see positive identical store sales of 1.2% for the fourth quarter.Our focus on sales includes our commitment to operate the best store in theneighborhood, provide value to our customers, and attract customers throughexciting marketing programs, including our Customer Reward Card. For fiscal2003 we will continue to concentrate on the total shopping experience for ourcustomers, as well as our own operational efficiencies.
60. On the following day, August 8, 2002, the Company hosted a conference call to
discuss its financial results for the fourth quarter of fiscal year 2002. In his opening remarks,
Rowland stated:
We are excited about improved sales in profits in fiscal 2002. [With] therestructure completed during the previous two years, we shifted focus to
20
61. In his discussion of the Company's financial performance, McCook added:
Increased gross profit is largely a result of improvements and procurementsobtained from lower cost of product and implementing competitive retail pricingstrategy.... Continued improvement in gross profit dollars is anticipated throughenhanced procurement practices and promotional activities.
62. During the subsequent question-and-answer period, Rowland expounded on the
Company's gross margin performance:
Q: Just finally, I guess question investors have, people are trying tofigure out whether your excellent gross margin performance is sustainable.I understand you said it comes from procurement and private label andmix increase and shrink reduction. So, brings it to a head. Is there anyreason why the gross margin performance wouldn't be sustainable giventhe factors behind it?
A: I see no reason our gross profit is not sustainable.
63. The market reacted positively to Defendants' statements. For example, on August
9, 2002, Deutsche Bank issued a report reiterating its "Market Perform" rating and stating that
"[a]ll in all, a solid quarter" and noting that "Winn-Dixie has benefited from this management
team's fresh approach to the business."
64. On August 27, 2002, the Company filed its Form 10-K with the SEC for the fiscal
year ended June 26, 2002, which was signed by Rowland and McCook, among others. This
Form 10-K contained financial statements and other financial information which were
substantially identical to the financial statements and other financial information contained in the
August 7, 2002 press release . Significantly, in the 2002 Annual Report to shareholders, Rowland
stated:
We are pleased to report Winn-Dixie delivered significantly improved financialperformance for the fiscal year ended June 26, 2002. Having completed ourrestructuring program over the previous two years, we have shifted our focus toprofitable growth. Winn-Dixie is committed to continued operational
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improvement and to being a premier grocer store operator. The financial resultsshow that customers are noticing. Despite the current economic downturn, yourcompany achieved year-to-year revenue and operating income improvementsfrom continuing operations of 0.8% and 106.0%, respectively. At the same time,we continue to strengthen our financial position through debt reduction and assetmanagement.
Substantial achievements were made in 2002, and customer response has beentremendously positive. We are especially pleased to see identical store salesincreasing. This indicates our new marketing efforts and improved storeconditions are bringing people into our stores. Average sales per customer alsoare up, indicating we are competitive on price with in-stock merchandise.
65. The statements contained in paragraphs 59 through 62 and 64 were materially
false and misleading because, as detailed in paragraphs 38 through 58 above, Defendants omitted
and actively concealed that:
(a) the Company 's centralization efforts, which were initiated by Rowland,
were a failure and did not lead to reduced expenses or operational efficiencies;
(b) the Company's management was not sufficiently committed to the success
of the centralization initiatives because they were focused on several concurrent projects and did
not commit adequate resources to ensure that the centralization initiatives were properly
implemented;
(c) the Company's centralized procurement of goods led to bloated
inventories and increased spoilage, forcing retail stores to lower prices below cost to reduce
excess inventory and offset spoilage losses, which had a negative impact on the Company's
financial performance;
(d) the Company 's centralized marketing strategies were ineffective because
they were not tailored to the specific geographic regions and stores for which they were designed
and thus disregarded actual consumer demand; and
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(e) as a result of the failed centralization initiative, the Company had
increased its retail prices which led to a loss of customers, a decrease in sales, and a further
reduction in gross margins.
66. On October 9, 2002, Winn-Dixie announced sales and results of operations for its
first quarter of fiscal 2003. Mores specifically, the Company reported significant increases in net
earnings and sales for the quarter. The Company stated that "[i]ncreased earnings were primarily
due to improved sales and gross margins as a result of the Company's marketing initiatives,
improvements in procurement and shrink reduction initiatives." Commenting on the positive
results, Rowland stated:
Our increase in identical store sales, in the face of a weak economy, is evidencethat we are improving operations and that our marketing efforts are in tune withour customers' needs. This is particularly rewarding when many of our majorcompetitors' results are negative. We are committed to a strategic plan thatprovides for sustainable, profitable growth.
67. Also on October 9, 2002, Winn-Dixie filed its quarterly report with the SEC on
Form 10-Q, which was signed by McCook and reaffirmed the Company's previously announced
financial results.
68. On October 10, 2002, the Company hosted a conference call to discuss its
quarterly financial results . In discussing the Company's positive results , McCook noted:
We have been able to maintain this improved gross profit over the last severalquarters by obtaining lowered cost of product and implementing a competitiveretail strategy....
Maintaining these margin levels can be achieved through improved procurementpractices, sustained promotional activities, continued focus on company brands,as well as strength reduction initiatives.
69. In addition, in response to an analyst's question regarding the components of the
Company's gross margin improvement during the quarter, McCook acknowledged the
significant contributions of centralized procurement to the Company's financial success: "And
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the reason is as we continue to buy better, do other things at central procurement, we're
continuing to, you know, use that to help drive the top line." McCook also discussed a series of
technological initiatives designed to improve efficiency, including "putting in a new buying
system," "putting in perpetual inventory systems," and "putting in ... a newer version of labor
scheduling."
70. The market reacted positively to Defendants' statements. For example:
(a) On October 9, 2002, Deutsche Bank commented on how the "the company
management's team seems to be making an underperforming asset base more profitable." It
further stated that this was "Good News for Shareholders" and that the Company had "Great
Comps." Moreover, on October 11, 2002, following the conference call, Deutsche Bank
reported that "[e]arnings were driven by solid gross margin improvements" and that the comp
"results were very uplifting." It added: "We applaud many of the ideas (price impact stores,
loyalty programs, private brands, market segmentation) that this management team has brought
to Winn-Dixie and are pleased to see that the company is executing on them."
(b) In addition, Lehman Brothers upgraded its investment rating for the
Company to "equal-weight" from "underweight," indicating that it believed that the grocery
chain was making progress in turning around its business.
71. As a result of Defendants' misrepresentations, and resulting analyst affirmation,
Winn-Dixie's stock rose from $12.98 on October 8, 2002 to an artificially inflated price of
$15.05 by the end of trading on October 11, 2002.
72. On October 21, 2002, Winn-Dixie declared a cash dividend of 5 cents per share
on the Company's common stock for the quarter ended September 18, 2002. The dividend was
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payable on November 15, 2002, to shareholders of record at the close of business November 1,
2002. Commenting on this, Rowland stated:
On October 9, 2002, we reported significantly improved results for our firstquarter of fiscal 2003, including positive identical store sales of 2%. In light ofthese results, we are pleased to pay our first quarter dividend. Our financialposition continues to strengthen as a result of strong cash flow and our operationsare improving each and every day. The declaration of the dividend by the Boardshows confidence that the Company is meeting its planned results.
73. The statements contained in paragraphs 66 through 69 and 72 were materially
false and misleading because, as detailed in paragraphs 38 through 58 above, Defendants omitted
and actively concealed that:
(a) the Company' s centralization efforts, which were initiated by Rowland,
were a failure and did not lead to reduced expenses or operational efficiencies;
(b) the Company's management was not sufficiently committed to the success
of the centralization initiatives because they were focused on several concurrent projects and did
not commit adequate resources to ensure that the centralization initiatives were properly
implemented;
(c) the Company's centralized procurement of goods led to bloated
inventories and increased spoilage, forcing retail stores to lower prices below cost to reduce
excess inventory and offset spoilage losses, which had a negative impact on the Company's
financial performance;
(d) the Company 's centralized marketing strategies were ineffective because
they were not tailored to the specific geographic regions and stores for which they were designed
and thus disregarded actual consumer demand; and
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(e) as a result of the failed centralization initiative, the Company had
increased its retail prices which led to a loss of customers, a decrease in sales, and a further
reduction in gross margins.
74. On December 20, 2002, the Moody's Investors Service revised its outlook for
Winn-Dixie from "negative" to "stable" because "the company has stabilized operating
performance" and its "expectation that the company will continue to modestly improve its
financial and operational profile."
75. On December 31, 2002, Merrill Lynch raised its forecast of Winn-Dixie's
earnings for fiscal year 2004 to $1.60 a share from $1.57 based on its opinion that Winn-Dixie
"is turning into a more stable and predictable company."
76. On January 21, 2003, Winn-Dixie declared a cash dividend of 5 cents per share on
the Company's common stock for the quarter ended January 8, 2003. The press release quoted
Rowland as stating: "[W]e are pleased to pay a second quarter dividend. We continue to make
progress in improving retail operations. The declaration of the dividend by the Board shows
confidence that the Company is meeting its planned results."
77. On January 29, 2003, Winn-Dixie announced sales and results of operations for
its second quarter of fiscal 2003, which included significant increases in net earnings and sales.
Commenting on the positive results, Rowland stated:
We are pleased to have achieved positive identical store sales of 1.3% at a timewhen many of our competitors are reporting negative identical store sales.Identical store sales growth and increased profitability must be balanced in thesetimes of challenging economic conditions and aggressive pricing by competitors.We continue to focus on consistent execution of the basics of supermarketoperations, while investing in effective marketing programs and experimentingwith new departments and formats. The early results from these new initiativesare encouraging. Also, we prepaid the $143 million remaining balance of our six-year term loan earlier today.
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78. On January 29, 2003, Winn-Dixie filed its quarterly report with the SEC on Form
10-Q, which was signed by McCook and reaffirmed the Company's previously announced
financial results.
79. On January 30, 2003, the Company hosted a conference call to discuss its
earnings for the second quarter of fiscal year 2003. Commenting on the Company's efforts to
"balance the top line growth with continued profitability," Rowland stated:
[we] remain committed to the consistent execution of our operations, bydelivering the best balance of price, freshness and service to our customers, aswell as reducing costs through improved procurement, reduced shrink andenhanced operational efficiencies.
Finally, an analysis of our technology infrastructure has been performed. We areupdating several of our systems in areas of buying, inventory management andlabor management.
80. Commenting on the significant improvements in the second quarter gross profit,
McCook stated:
We have been able to maintain this improved gross margin over the last severalquarters by obtaining lowered cost of product and implementing a competitiveretail strategy....
These margin levels can be maintained through improved procurement practices,sustained promotional activities, continued focus on company brands, as well asstrength reduction initiatives. Any additional improvements in these areas canthen be reinvested in driving top line.
81. Responding to questions regarding the impact of centralized procurement on the
improvement of the Company' s gross margin percentage , McCook noted that "as far as central
procurement, we feel like we've made significant strides in the area." When asked which, if any,
factors "dominate[d]" the improvement, McCook responded that "[w]e think we've done a good
job in our central procurement and won't quantify beyond that point."
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82. On or around March 3, 2003, McCook spoke at the 2003 Consumer & Industrial
Growth Leveraged Finance Conference regarding the Company's completion of its restructuring
efforts. McCook acknowledged that the Company lost market share during three years of
restructuring, but expressed satisfaction now that the restructuring was complete. McCook
indicated that "with new stores and better execution, we will gain back some of the share we've
lost."
83. The statements contained in paragraphs 76 through 82 were materially false and
misleading because, as detailed in paragraphs 38 through 58 above, Defendants omitted and
actively concealed that:
(a) the Company 's centralization efforts, which were initiated by Rowland,
were a failure and did not lead to reduced expenses or operational efficiencies;
(b) the Company's management was not sufficiently committed to the success
of the centralization initiatives because they were focused on several concurrent projects and did
not commit adequate resources to ensure that the centralization initiatives were properly
implemented;
(c) the Company's centralized procurement of goods led to bloated
inventories and increased spoilage, forcing retail stores to lower prices below cost to reduce
excess inventory and offset spoilage losses, which had a negative impact on the Company's
financial performance;
(d) the Company' s centralized marketing strategies were ineffective because
they were not tailored to the specific geographic regions and stores for which they were designed
and thus disregarded actual consumer demand; and
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(e) as a result of the failed centralization initiative, the Company had
increased its retail prices which led to a loss of customers, a decrease in sales, and a further
reduction in gross margins.
84. On April 21, 2003, Winn-Dixie declared a cash dividend of 5 cents per share on
the Company's common stock for the quarter ended April 2, 2003. The dividend was payable on
May 15, 2003, to shareholders of record at the close of business May 1, 2003 . Commenting on
this, Rowland stated: "[W]e are pleased to pay our third quarter dividend. We continue to make
progress in improving retail operations. The declaration of the dividend by the Board shows
confidence that the Company is making progress towards its financial goals."
85. On April 23, 2003, Winn-Dixie announced sales and results of operations for its
third quarter of fiscal 2003, which included slight decreases in net earnings and sales.
Commenting on these results, Rowland stated:
Given the difficult challenges that our economy and our industry face, we areencouraged with our ability to maintain profitability at 1.8% of sales this quarter.The timing of Easter as well as economic uncertainty and aggressive pricing andpromotion by our competitors impacted the results of the quarter. Although wedid invest in some strategic price reductions in the quarter, we maintained ourtargeted gross margin level through efficiencies in our centralized procurement. Inaddition, we reduced our labor costs through improved scheduling of our storeassociates while continuing to provide service to our customers. Our focus willcontinue to be on balancing profitability and top line growth.
86. On April 23, 2003, Winn-Dixie filed its quarterly report with the SEC on Form
10-Q. The Company's Form 10-Q was signed by McCook and reaffirmed the Company's
previously announced financial results.
87. On April 24, 2003, Winn-Dixie hosted a conference call to discuss its financial
results for the third quarter of fiscal year 2003. In discussing the Company's "focus[] on
balancing the top line growth while improving profitability," Rowland stated:
29
Our cost cutting initiatives focused on both operations as well as all back stageand other support functions. We fine tuned our labor scheduling to insure wehave the right associate's working at the right time of day to meet our customers'needs.
McCook further added:
We continue to achieve our improved gross margin target by obtaining a lowercost of product and implementing competitive retail strategies.... We plan tomaintain these margin levels through continuous improvement and procurementpractices, sustained promotional activity, continued focus on company brands aswell as strength reduction initiatives.
88. The statements contained in paragraphs 84 through 87 were materially false and
misleading because, as detailed in paragraphs 38 through 58 above, Defendants omitted and
actively concealed that:
(a) the Company' s centralization efforts, which were initiated by Rowland,
were a failure and did not lead to reduced expenses or operational efficiencies;
(b) the Company's management was not sufficiently committed to the success
of the centralization initiatives because they were focused on several concurrent projects and did
not commit adequate resources to ensure that the centralization initiatives were properly
implemented;
(c) the Company's centralized procurement of goods led to bloated
inventories and increased spoilage, forcing retail stores to lower prices below cost to reduce
excess inventory and offset spoilage losses, which had a negative impact on the Company's
financial performance;
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(d) the Company 's centralized marketing strategies were ineffective because
they were not tailored to the specific geographic regions and stores for which they were designed
and thus disregarded actual consumer demand; and
(e) as a result of the failed centralization initiative, the Company had
increased its retail prices which led to a loss of customers, a decrease in sales, and a further
reduction in gross margins.
89. On May 2, 2003, Winn-Dixie announced that Rowland would retire as CEO and
that Lazaran would become the new CEO effective June 26, 2003. Commenting on Rowland's
resignation, the Company stated: "In his three-and-a-half years[,] Al has improved our store
operations and enhanced our financial position." Rowland was given a termination payment of
$7.7 million.
90. On June 11, 2003, the Company announced that it was lowering estimates for its
fourth quarter of fiscal year 2003 due to continued softness in sales . The Company expected a 3-
4% decline in same store sales and earnings between $0.28 and $0.31 per share down from its
previous guidance of earnings between $0.35 and $0.39. The Company also revealed that it was
taking a $5 million severance charge related to the retirement of Rowland, who was scheduled to
receive $7.7 million in cash, stock and options pursuant to his employment agreement.
91. Subsequent to this announcement, Winn-Dixie common stock price fell
approximately 13%, from $14.76 to $12.75.
92. On June 12, 2003, Winn-Dixie held a conference call to discuss its announcement
concerning the lowered guidance for the fourth quarter of fiscal year 2003. Despite the
revisions, Rowland affirmed that "[d]ue to the successful implementation of cost reduction
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initiatives, over the past year, we have maintained profitability levels despite a downturn in
sales ." Incoming CEO Lazaran added:
Our cost reduction initiatives enable us to sustain profitability levels and to investin technology for our future even when sales slightly soften. We continue to fine-tune our labor scheduling to ensure that we have the right associates working atthe right time of the day to meet our customers' needs. This is just one of theoperational efficiencies that have been successfully implemented.
93. During the question-and-answer session, Lazaran further expounded on the
benefits of the Company's centralized procurement practices:
Q: I understand that you don't want to comment too much about the grossmargin, but would you say that now that you've moved to the centralprocurement model that you are getting more support from vendors to dowhat you need to do in terms of aggressive ads and your card than you gotin the past were the same or less?
A: (Lazaran): I think that we have gotten more. I think the fact that we arecontinuing to show the trade that we are using those efficiencies to alsohelp their efficiencies and in the business environment we operate intoday. They are looking to save money on the supply chain side just likewe are and if we can show that we can save them money there and workwith them to pass those savings along to us. So my sense on that is thatwe are seeing more and we are seeing it because we are partnering withthe vendors better than we have in the past.
94. In commenting on the Company's ability to control expenses to offset the
negative impact of sales , McCook stated:
I mean our company is now more into the growth mode than we have been in thepast now that all the restructuring and all that, has completed. And there is nodoubt that when we came out of restructuring we've come out in somewhat of asoft economy and I think that's what reflected in our numbers.... Our expensesare really in control. We're doing a good job there. It just a matter we did not getthe topline, which flow through to the bottom.
95. The statements contained in paragraphs 90 and 92 through 94 were materially
false and misleading because, as detailed in paragraphs 38 through 58 above, Defendants omitted
and actively concealed that:
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(a) the Company 's centralization efforts, which were initiated by Rowland,
were a failure and did not lead to reduced expenses or operational efficiencies;
(b) the Company's management was not sufficiently committed to the success
of the centralization initiatives because they were focused on several concurrent projects and did
not commit adequate resources to ensure that the centralization initiatives were properly
implemented;
(c) the Company's centralized procurement of goods led to bloated
inventories and increased spoilage, forcing retail stores to lower prices below cost to reduce
excess inventory and offset spoilage losses, which had a negative impact on the Company's
financial performance;
(d) the Company' s centralized marketing strategies were ineffective because
they were not tailored to the specific geographic regions and stores for which they were designed
and thus disregarded actual consumer demand;
(e) as a result of the failed centralization initiative, the Company had
increased its retail prices which led to a loss of customers, a decrease in sales, and a further
reduction in gross margins; and
(f) Defendants recognized the need for major changes within the Company as
they had commenced a "comprehensive review" of the Company's business strategy that they
knew would significantly impact the future direction of the Company.
96. On July 21, 2003, Winn-Dixie declared a cash dividend of 5 cents per share on
the Company's common stock for the quarter ended June 25, 2003. The dividend was payable
on August 15, 2003, to shareholders of record at the close of business August 1, 2003.
Commenting on this, Lazaran stated: "We are pleased to pay our fourth quarter dividend. The
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supermarket industry continues to be competitive throughout the southeastern United States. In
spite of this competitive environment, our balance sheet continues to strengthen as we make
progress towards our financial goals."
97. On August 7, 2003, Winn-Dixie announced sales and earnings for its fourth
quarter and fiscal year ended June 25 , 2003, which included an increase in net earnings.
Commenting on the results, Lazaran stated:
During the fourth quarter we experienced an increase in competitive activity thatnegatively impacted our identical store sales. Many of our competitors loweredtheir earnings estimates over the past few months in order to significantly increasetheir promotional activity. In addition, military troop deployments and generaleconomic conditions contributed to weaker sales in the fourth quarter. We haveadjusted our earnings estimate for fiscal 2004 to reflect a more aggressive pricingand promotional stance going forward using our reward card to deliver thosesavings. We are also making improvements in our shrink and in-stock conditions.
98. In response to this announcement, shares of Winn-Dixie stock dropped 15% to
$9.98 per share. In addition, Merrill Lynch cut its rating of Winn-Dixie from "neutral" to "sell,"
citing disappointing sales performance and outlook.
99. On August 7, 2003, Winn-Dixie filed its annual report with the SEC on Form 10-
K, which was signed by Lazaran and McCook and reaffirmed the Company's previously
announced financial results.
100. On August 8, 2003, Winn-Dixie held a conference call to discuss its financial
results for the fourth quarter of fiscal year 2003. In his opening remarks, Lazaran stated:
As part of the funding of these initiatives, we will streamline our backstageoperations. We continue to fine-tune our store labor scheduling to ensure we havethe right associates working at the right time of day to meet our customers' needs.We continue to take costs out of our supply chain so that the savings might bepassed on to the customer. As part of our strategic sourcing function, we'reminimizing our cost-of-supplies and other indirect spend.
These are just some examples of operational efficiencies being successfullyimplemented. Understanding the needs of our customers and ensuring that wehave the right mix merchandise for their respective neighborhoods are important
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strategies for us. We have made some key changes in our merchandising area inorder to succeed in achieving these goals. As we fine-tune our centralprocurement function, we're evaluating every process to enable us to maximizethe return on our promotional investments.
101. In discussing the success of the Company's cost-cutting initiatives, McCook
added:
I think in the last couple of years we have done a very good job as far as getting alot of costs out....
I think the restructuring from a cost standpoint, we're in very good shape andwhat we're at for this point is getting our sales back, and as we do, start driving it,and I think over the next several years as we start driving customers, you will seeus keep getting more price competitive and start driving gross profit percentage ofsales down and, as we leverage those expenses, you know, the last couple ofyears, we were going the opposite way. Now, we're going to start driving sales,continuing to lower prices, we have a good handle on expenses and that's the waywe'll build profitability on the cash flow of the business.
102. The statements contained in paragraphs 96 through 97 and 99 through 101 were
materially false and misleading because, as detailed in paragraphs 38 through 58 above,
Defendants omitted and actively concealed that:
(a) the Company 's centralization efforts, which were initiated by Rowland
and continued by Lazaran, were a failure and did not lead to reduced expenses or operational
efficiencies;
(b) the Company's management was not sufficiently committed to the success
of the centralization initiatives because they were focused on several concurrent projects and did
not commit adequate resources to ensure that the centralization initiatives were properly
implemented;
(c) the Company's centralized procurement of goods led to bloated
inventories and increased spoilage, forcing retail stores to lower prices below cost to reduce
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excess inventory and offset spoilage losses, which had a negative impact on the Company's
financial performance;
(d) the Company 's centralized marketing strategies were ineffective because
they were not tailored to the specific geographic regions and stores for which they were designed
and thus disregarded actual consumer demand;
(e) as a result of the failed centralization initiative, the Company had
increased its retail prices which led to a loss of customers, a decrease in sales, and a further
reduction in gross margins; and
(f) Defendants recognized the need for major changes within the Company as
they had been conducting an ongoing "comprehensive review" of the Company's business
strategy that they knew would significantly impact the future direction of the Company.
103. On October 8, 2003, Winn-Dixie announced sales and earnings for its first quarter
of fiscal 2004, which included a sharp decrease in net earnings. Commenting on these results,
Lazaran stated:
Our previously reported earnings guidance of breakeven reflected ourcommitment to invest promotional dollars to increase sales. During the quarter,we initiated a plan to increase sales and improve earnings for the remainder of thefiscal year. The plan includes increased promotional activity, lowered pricing,improved friendly service, clean stores, improved in-stock conditions,neighborhood-specific marketing and increased capital expenditures forremodeling, especially expenditures for in-store lighting improvements. We arecommitted to executing and following through on the plan. Our results willdepend on our execution, competitors' response and customer acceptance of ourplan over the remainder of the year.
104. On October 9, 2003, Winn-Dixie held a conference call to discuss its financial
results for the first quarter of fiscal year 2004. Lazaran discussed the Company's plans "to
increase sales and improve the bottom line for the remainder of the fiscal year." McCook added:
Because the plan is still being implemented, it is not possible to confirm at thistime whether the Company's execution, competitors' response and customer
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acceptance of this plan will lead to increased sales and earnings in the secondquarter. For this reason, we have elected not to provide earnings guidance for thesecond quarter and for fiscal 2004. Therefore, we are withdrawing our annualearning guidance of $1 to $1.10 per diluted share for fiscal 2004.
105. Nonetheless, Lazaran told the market that, despite the sharp drop in net income,
the Company remained committed to its strategic plan:
Just one comment I'd like to add is, it's just that; we are committed to this plan.We believe that we have the right strategy, and if it means taking additionalexpenditures into the third or fourth quarters, we're just not going to shut the planoff until we achieved our desired results. So, it's hard to speculate how much andwhat quarters it's going to drag into, but this is the plan and we're staying thecourse.
106. Commenting on the Company's customer service levels, Lazaran stated:
As far as our customer service in the stores right now, it's not where we want it tobe. We have improved, but we believe we have a ways to go there, and that'swhat we're working on.
I also think that from an additional labor perspective in the stores that where weare right now in terms of labor dollars, we are comfortable; it's more in the storesalso trying to move that mix around to make sure we're scheduling the right timesof day, we have the right people there when the customers are there. That's thepart of the initiative that we are rolling as it relates to some of the IT investmentthat we're doing. So we're not anticipating a dramatic labor spike in the stores inthe second quarter.
McCook added:
As far as expenses, we think we have good control on our expenses, as far as thedollars throughout the quarter. But as we stated earlier we are not givingguidance on earnings or absolute percentages because it's based on the sales levelachievement on the expense percentage.
107. On October 10, 2003, Winn-Dixie filed its quarterly report with the SEC on Form
10-Q. The Company's Form 10-Q was signed by McCook and reaffirmed the Company's
previously announced financial results.
108. On October 20, 2003, Winn-Dixie declared a cash dividend of 5 cents per share
on the Company's common stock for the quarter ended September 17, 2003. The dividend was
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payable on November 17, 2003, to shareholders of record at the close of business November 3,
2003. Commenting on this , Lazaran stated:
On October 8, 2003, we reported relatively flat earnings of $0.01 per share....Increased sales and earnings have to come from the execution of our sales andmarketing plan, but are dependent on customer acceptance. Dividends are paidout of current results. The Board of Directors will closely monitor the payout ratiothroughout the remainder of the fiscal year. The declaration of the dividend by theBoard shows confidence in the Company.
109. On January 20, 2004, Winn-Dixie declared a cash dividend of 5 cents per share on
the Company's common stock for the quarter ended January 7, 2004. Commenting on this,
Lazaran stated:
We are pleased to pay our second quarter dividend . . . We are aggressivelyaddressing significant operational and marketing issues through the execution ofour business plan. Payment of the dividend is an indication of our Board ofDirectors's support for our long-term strategic plan.
110. The statements contained in paragraphs 103 through 109 were materially false
and misleading because, as detailed in paragraphs 38 through 58 above, Defendants omitted and
actively concealed that:
(a) the Company' s centralization efforts, which were initiated by Rowland
and continued by Lazaran, were a failure and did not lead to reduced expenses or operational
efficiencies;
(b) the Company's management was not sufficiently committed to the success
of the centralization initiatives because they were focused on several concurrent projects and did
not commit adequate resources to ensure that the centralization initiatives were properly
implemented;
(c) the Company's centralized procurement of goods led to bloated
inventories and increased spoilage, forcing retail stores to lower prices below cost to reduce
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excess inventory and offset spoilage losses, which had a negative impact on the Company's
financial performance;
(d) the Company' s centralized marketing strategies were ineffective because
they were not tailored to the specific geographic regions and stores for which they were designed
and thus disregarded actual consumer demand;
(e) as a result of the failed centralization initiative, the Company had
increased its retail prices which led to a loss of customers, a decrease in sales, and a further
reduction in gross margins; and
(f) Defendants recognized the need for major changes within the Company as
they had been conducting an ongoing "comprehensive review" of the Company's business
strategy that they knew would significantly impact the future direction of the Company.
(g) by January 20, 2004, Defendants knew that the Company was not
committed to its existing "long-term strategic plan," but instead they were preparing to unveil an
entirely new strategic plan that would significantly impact the future direction of the Company.
THE TRUTH IS REVEALED
111. On January 30, 2004, Winn-Dixie announced sales and results of operations for
its second quarter of fiscal year 2004. The Company attributed its second quarter loss to several
factors, including the impact of its aggressive pricing programs on gross profit margins and the
increasingly competitive environment in the grocery industry. Lazaran commented:
We are obviously disappointed in this quarter's results and we recognize that wecannot continue down this path. . . . For the last six months, I have led oursenior management team in a comprehensive review of our entire businessmodel. As a result, we are announcing today a series of major actions that willchange the way we do business and help us to shape the future of thisCompany.
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112. Consequently, Lazaran announced that the following initiatives were being
immediately implemented by the Company:
Brand Positioning
Lazaran announced that the Company has retained V1VL, an experienced brandmarketing consulting firm, to conduct consumer research and review its businessstrategies and marketing programs. `The key to retailing is delivering sales andgrowing market-share,' Lazaran said. `VML understands that and is helping us todevise strategies to increase sales.' In conjunction with VML, the Company isreviewing customer preference research to establish strategic priorities. Over thenext few months, the Company will announce additional steps being taken toestablish a clearly differentiated Winn-Dixie brand position based on price,service, convenience and product assortment.
Substantial Expense Reduction
Lazaran announced a substantial expense reduction plan. `The impact of expensereduction will begin immediately,' Lazaran said . `We will achieve a $100.0million annual expense reduction rate based on current expense levels by July 1,2004. We understand that we need to be an efficient company to be a competitivecompany .' Expense reduction will be the result of, among other things , betterbuying practices, reduced internal corporate services , asset sales and reductions inpayroll expense.
Core Market Analysis/Asset Rationalization Review
The Company is initiating a market positioning process through which it willevaluate every market in which it operates based on market share, operatingresults, competitive positioning and activity, growth potential and other factors.Through this process, the Company will identify core markets targeted for futureinvestment and growth and non-core markets to be evaluated for sale or closure.In conjunction with this effort, the Company will conduct an asset rationalizationreview of all store, manufacturing and distribution facilities.
Image Makeover Program
`We need to change the consumer's opinion of Winn-Dixie,' said Lazaran, `andthe place to begin that effort is in our stores.' The Company is aggressivelyrolling out an image makeover program, focusing on interior and exterior decor,lighting and the Company's new produce layout. Ninety eight image makeovershave been completed and approximately an additional 600 stores are targeted forimage makeovers over the next 12 months at a total cost of approximately $165.0million. Additional capital spending will be allocated in core markets asidentified in the market positioning analysis to grow share in these core markets.
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Comprehensive Process Re-engineering
The Company also announced a process re-engineering initiative that is intendedto enhance organizational effectiveness and accountability. This program isbeginning in the central procurement function. `We understand that the types ofchanges we are making cannot be accomplished through strategic design alone.We must execute,' Lazaran said. `When the Company centralized theprocurement function, it brought all the people into one place but did notchange processes and did not achieve the desired results. This time, we are re-engineering our processes to ensure that we are organized in the most functionalway so that we can deliver on the strategy we have developed.'
`As we implement our plan, we will make many significant decisions that we willannounce in due course,' Lazaran said. `We will announce as many of thesedecisions prior to or during our next earnings report in April. We are committedto increased transparency throughout this process with our investors, customersand associates.'
Based on the current operating results and the expected funding needs foradditional capital expenditures, the Company has decided to suspend indefinitelythe declaration of future quarterly dividends.
113. The admission that (1) key, high-level management, including Defendants, had
recognized the need for sweeping changes in the Company's operations and had been conducting
an ongoing "comprehensive review;" (2) the Company had to "re-engineer" centralized
procurement because previously it "did not change the processes and did not achieve the desired
results;" and (3) the indefinite suspension of quarterly dividends just 10 days after declaring a
dividend due to the "Board of Directors's support of our long-term strategic plan" caused the
price of the Company's stock to drop 27.8%, or $2.53 per share, to close at $6.56 on January 30,
2004, on extremely heavy volume.
114. Prudential Equity Group Analyst Robert Campagnino said Winn-Dixie was "in a
fight for its life" and could see rising operating and administrative expenses in each of the next
two quarters as gross margins come under pressure.
115. According to a Florida Times-Union article published on January 31, 2004:
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Although Lazaran gave an optimistic assessment of Winn-Dixie's ability to
change, investors were not impressed. Winn-Dixie's stock fell as much as $2.96
to a low of $6.13 Friday, its lowest level since September 1982. It closed at
$6.56, down $2.53 on the day. Besides the drop in the stock price, long time
shareholders, who have expressed concern in the past about Winn-Dixie cutting
dividends, are sure to be upset about the suspension of the dividend announced
Friday. Winn-Dixie once had claimed a New York Stock Exchange record by
increasing its dividend every year for 54 years, before holding the dividend steady
in 1998. It then cut the dividend sharply in 2001, from an annual rate of $1.02 a
share to 20 cents. Now, shareholders will get no payments, and the company will
not say when it will resume dividends. Standard & Poor's yesterday lowered its
corporate credit rating in Winn-Dixie from BB to B and said it was putting the
company on its CreditWatch list with negative implications.
`The ratings actions reflect a severe and rapid deterioration in Winn-Dixie'soperating performance [as demonstrated by very poor results in the fiscal 2004second quarter] and concerns that a failure to improve the business could strainfinancial resources,' said a statement by S&P credit analyst Mary Lou Burde.
116. On March 8, 2004, McCook resigned from the Company effective immediately.
117. The Company's "major actions" did not stem the Company's deteriorating
financial condition. On August 31, 2004, the Company's shares plunged 19% on speculation
that the Company may be forced into bankruptcy. Gary Giblen, an analyst at C.L. King &
Associates, stated: "It's becoming evident that the results are going downhill and there is no
credible plan to arrest the meltdown of the company."
118. On October 20, 2004, the Company announced a net loss of $153.1 million
dollars as sales fell for the seventh straight quarter. As a result, shares dropped by as much as
14%. Giblen asserted: "It was just another horrible quarter. It's just hopeless."
119. On December 10, 2004, the Company announced that it forced out Lazaran and
named Peter L. Lynch, a former Albertsons Inc. executive , as his replacement . "The board
concluded that making this change was a necessary step toward achieving our objectives, and we
feel very fortunate to bring in a chief executive of Peter Lynch's caliber to lead the company
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through this challenging period," said H. Jay Skelton, chairman of Winn-Dixie's board of
directors.
120. On February 21, 2005, Winn-Dixie filed a voluntary petition under Chapter 11 of
Title 11 of the U.S. Code in U.S. Bankruptcy Court for the Southern District of New York. As a
result of this filing, an automatic stay of all litigation against the Company was imposed. On
November 21, 2006, Winn-Dixie's joint plan of reorganization became effective and on
December 14, 2006, the Bankruptcy Court entered an order disallowing Plaintiff's claim against
Winn-Dixie.
PRESUMPTION OF RELIANCE UNDER THEFRAUD-ON-THE-MARKET DOCTRINE
121. The market for Winn-Dixie's publicly traded securities was open, well-developed
and efficient at all relevant times. As a result of these materially false and misleading statements
and failures to disclose, Winn-Dixie's publicly traded securities traded at artificially inflated
prices during the Class Period. Plaintiff and other members of the Class purchased or otherwise
acquired Winn-Dixie's publicly traded securities relying upon the integrity of the market price of
those securities and market information relating to Winn-Dixie, and have been damaged thereby.
122. At all relevant times, the market for Winn-Dixie's publicly traded securities was
open, well-developed and efficient for the following reasons , among others:
(a) Winn-Dixie's stock met the requirements for listing, and was listed and
actively traded on the NYSE, a highly efficient and automated market;
(b) As a regulated issuer, Winn-Dixie regularly made public filings, including
its Forms 10-K, Forms 10-Q and related press releases, with the SEC and the NYSE;
(c) Winn-Dixie regularly communicated with public investors via established
market communication mechanisms, including regular disseminations of press releases on the
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national circuits of major newswire services and other wide-ranging public disclosures, such as
communications with the financial press and other similar reporting services; and
(d) Winn-Dixie was followed by several securities analysts employed by
major brokerage firms who wrote research reports, which were distributed to the brokerage
firms' sales force, their customers, and the public at large.
123. As a result of the foregoing, the market for Winn-Dixie's publicly traded
securities promptly digested current information regarding Winn-Dixie from all public sources
and reflected such information in the price of Winn-Dixie's securities.
124. As would be expected where a security is traded in an efficient market, material
news concerning Winn-Dixie' s business had an immediate effect on the market price of Winn-
Dixie's securities, as evidenced by the rapid decline in the market price in the immediate
aftermath of Winn-Dixie's corrective disclosures as described herein.
125. Under these circumstances, all purchasers of Winn-Dixie's publicly traded
securities during the Class Period suffered similar injury through their purchase of Winn-Dixie's
publicly traded securities at artificially inflated prices and a presumption of reliance applies.
126. At the times they purchased or otherwise acquired Winn-Dixie ' s securities,
Plaintiff and other members of the Class were without knowledge of the facts concerning the
wrongful conduct alleged herein and could not reasonably have discovered those facts. As a
result, the presumption of reliance applies. Plaintiff will also rely, in part, upon the presumption
of reliance established by a material omission.
127. In sum, Plaintiff will rely, in part, upon the presumption of reliance established by
the fraud-on-the-market doctrine in that:
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(a) Defendants made public misrepresentations or failed to disclose facts
during the Class Period;
(b) The omissions and misrepresentations were material;
(c) The Company's securities traded in an efficient market;
(d) The misrepresentations alleged would tend to induce a reasonable investor
to misjudge the value of the Company' s securities; and
(e) Plaintiff and the other members of the Class purchased the Company's
securities between the time Defendants misrepresented or failed to disclose material facts and the
time the true facts were disclosed, without knowledge of the misrepresented or omitted facts.
LOSS CAUSATION
128. As detailed in this Complaint, Defendants ' fraudulent scheme and false
statements artificially inflated Winn-Dixie's stock price by touting the Company's centralization
initiatives as a significant driver of earnings and gross margin improvement, but failing to
disclose that those initiatives were actually a complete failure. These false and misleading
statements and omissions, individually and collectively, concealed Winn-Dixie's true financial
circumstances and business prospects, resulting in the stock being artificially inflated until, as
indicated herein, the relevant truth about Winn-Dixie was revealed. While each of these
misrepresentations and omissions was independently fraudulent, they were all motivated by
Defendants' desire to artificially inflate Winn-Dixie's stock price and the image of its future
business prospects to give the market the false notion that the Company's centralization efforts
were leading to improved financial performance.
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129. Defendants' false and misleading statements had the intended effect and caused,
or were a substantial contributing cause of Winn-Dixie's stock trading at artificially inflated
levels throughout the Class Period.
130. The true picture of Winn-Dixie 's business , operations and finances was disclosed
to the market on January 30, 2004, when Lazaran revealed that he and his management team had
conducted a "comprehensive review" of the Company's business model and as a result the
Company would embark on a "series of major actions" to change the way Winn-Dixie did
business. In addition, the Company admitted thatit would have to "re-engineer" its central
procurement (and other) functions because, while publicly acknowledging significant changes,
the Company "did not change processes and did not achieve the desired results." Finally, the
Company announced that it was suspending its quarterly divided to shareholders indefinitely.
When Defendants provided the market with these revelations, it was an indication to the market
that Defendants' prior Class Period statements about Winn-Dixie's financial results and their
satisfaction with its centralization initiatives were false and misleading.
131. As a result of the information revealed to the market on January 30, 2004, doubt
was cast on the veracity of Defendants' prior statements, and Winn-Dixie's true financial and
operational circumstances , which were known to Defendants since the beginning of the Class
Period, were revealed causing Winn-Dixie's stock price to drop approximately 27.8% on
abnormally high trading volume.
132. Indeed the market reacted negatively to Defendants' shocking disclosures as
demonstrated in the stock chart below:
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30,000,000 -
25,000,000 -
20,000,000 -
15,000,000 -
10,000,000 -
5,000,000 -
$11.00
$10.00
$9.00
$8.00
$7.00
$6.00
$5.00
0 $4.00
00^ 00^ 00^ 00^ 0^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^ 00^'e, 1\ ^\O^L ^\^^L ^\^^^L ^\^^^L ^\^O^L ^\^6^L ^\^O^L ^\^\L 4 \^^^L ^\^6^L ^\^^^L ^\^O^L ^\^O^L ^\00^L ^^L ^^^L ^^^L ^O^L ^6^L
Volume 4 Price
133. The rapid decline in Winn-Dixie stock following the January 30, 2004 disclosure
was a direct result of the nature and extent of the revelations to investors and the market of the
impact on Winn-Dixie of the failed centralization initiatives that had been concealed or
misrepresented by Defendants. Thus, the revelation of the truth at the close of the Class Period
and the obvious market reaction demonstrate that the market understood that Defendants' prior
statements were materially false and misleading.
134. The timing and magnitude of Winn-Dixie's stock price decline negates any
inference that the loss suffered by Plaintiff and the Class was caused by changed market
conditions, macroeconomics, industry factors or Company-specific circumstances unrelated to
the Defendant's fraudulent conduct. The economic loss, i.e., damages, suffered by Plaintiff and
the Class was a direct and proximate result of Defendants' misrepresentations and omissions,
which artificially inflated Winn-Dixie's stock price, and the subsequent significant decline in
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Winn-Dixie's stock price when the truth concerning Defendants' prior misrepresentations and
fraudulent conduct entered the market place.
COUNT I
AGAINST ALL DEFENDANTS FOR VIOLATIONS OF SECTION 10(b) OF THEEXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER
135. Plaintiff repeats and reiterates the allegations set forth above as though fully set
forth herein. This claim is asserted against all Defendants.
136. During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and did: a) deceive the investing public, including Plaintiff and
other Class members, as alleged herein; b) artificially inflate and maintain the market price of
Winn-Dixie's publicly traded securities; and c) cause Plaintiff and other members of the Class to
purchase Winn-Dixie's publicly traded securities at artificially inflated prices. In furtherance of
this unlawful scheme, plan and course of conduct, Defendants took the actions set forth herein.
137. Defendants: a) employed devices, schemes, and artifices to defraud; b) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and c) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to
maintain artificially high market prices for Winn-Dixie's securities in violation of Section 10(b)
of the Exchange Act and Rule lOb-5. Defendants are sued as primary participants in the
wrongful and illegal conduct charged herein.
138. In addition to the duties of full disclosure imposed on Defendants as a result of
making affirmative statements and reports, or participation in the making of those statements and
reports to the investing public, they had a duty to promptly disseminate truthful information that
would be material to investors in compliance with the integrated disclosure provisions of SEC
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Regulation S-X (17 C.F.R. §210.01 et seq.) and S-K (17 C.F .R. §229.10 et seq. ) and other SEC
regulations, including accurate and truthful information about the Company's operations,
financial condition and performance so that the market prices of the Company's publicly traded
securities would be based on truthful, complete and accurate information.
139. Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce, engaged and participated in a continuous course of
conduct to conceal adverse material information about the business, practices, performance,
operations and future prospects of Winn-Dixie as specified herein.
140. Defendants employed devices, schemes and artifices to defraud while in
possession of material, adverse, non-public information and engaged in acts, practices, and a
course of conduct, as alleged herein, to assure investors of Winn-Dixie's value and performance
and continued substantial growth, which include the making of, or the participation in the
making of, untrue statements of material facts and omitting to state material facts necessary to
make the statements made about Winn-Dixie and its business operations and prospects in the
light of the circumstances under which they were made, not misleading, and engaged in
transactions, practices and a course of business which operated as a fraud and deceit upon the
purchasers of Winn-Dixie's securities during the Class Period.
141. Each of the Defendants' primary liability arises from the following facts: a)
Defendant were high-level executive and/or director at the Company during the Class Period; b)
Defendants, by virtue of his responsibilities and activities as a senior executive officer and/or
director of the Company, were privy to and participated in the creation, development and
reporting of the Company's internal budgets, plans, projections and/or reports; c) Defendants
enjoyed significant personal contact and familiarity with each other and were advised of and had
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access to other members of the Company's management team, internal reports, and other data
and information about the Company's financial condition and performance at all relevant times;
and d) Defendants were aware of the Company's dissemination of information to the investing
public which they knew or recklessly disregarded was materially false and misleading.
142. Defendants had actual knowledge of the misrepresentations and omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them. Such
Defendants' material misrepresentations and/or omissions were done knowingly or recklessly
and for the purpose and effect of concealing Winn-Dixie's operating condition, business
practices and business prospects from the investing public and supporting the artificially inflated
price of its securities. As demonstrated by Defendants' overstatements and misstatements of the
Company's financial condition and performance throughout the Class Period, Defendants, if they
did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in
failing to obtain such knowledge by deliberately refraining from taking those steps necessary to
discover whether those statements were false or misleading.
143. As a result of the dissemination of the materially false and misleading information
and failure to disclose material facts, as set forth above, the market price of Winn-Dixie's
securities was artificially inflated during the Class Period. Unaware that market prices of Winn-
Dixie's publicly traded securities were artificially inflated, and relying directly or indirectly on
the false and misleading statements made by Defendants, or upon the integrity of the market in
which the securities trade, and/or on the absence of material adverse information that was known
to or recklessly disregarded by Defendants but not disclosed in public statements by Defendants
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during the Class Period, Plaintiff and the other members of the Class acquired Winn-Dixie
securities during the Class Period at artificially high prices and were damaged thereby.
144. At the time of said misrepresentations and omissions, Plaintiff and other members
of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff, the other
members of the Class and the marketplace known of the true performance, business practices,
prospects and intrinsic value of Winn-Dixie, which were not disclosed by Defendants, Plaintiff
and other members of the Class would not have purchased or otherwise acquired their Winn-
Dixie securities during the Class Period, or, if they had acquired such securities during the Class
Period, they would not have done so at the artificially inflated prices which they paid.
145. By virtue of the foregoing, Defendants have each violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
146. As a direct and proximate result of Defendants' wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company's securities during the Class Period.
COUNT II
AGAINST ALL DEFENDANTS FOR VIOLATIONS OF SECTION 20(a) OF THEEXCHANGE ACT
147. Plaintiff repeats and reiterates the allegations as set forth above as if set forth fully
herein. This claim is asserted against all Defendants.
148. Defendants acted as a controlling person of Winn-Dixie within the meaning of
Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions with
the Company, participation in and/or awareness of the Company's operations and/or intimate
knowledge of the Company's actual performance, Defendants had the power to influence and
control and did influence and control, directly or indirectly, the decision-making of the
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Company, including the content and dissemination of the various false and misleading
statements. Defendants were provided with or had unlimited access to copies of the Company's
reports, press releases, public filings and other statements alleged to be misleading prior to
and/or shortly after these statements were issued, and had the ability to prevent the issuance of
the statements or cause the statements to be corrected.
149. In addition, Defendants had direct involvement in the day-to-day operations of the
Company and, therefore, is presumed to have had the power to control or influence the particular
transactions giving rise to the securities violations as alleged herein.
150. Defendants each violated Section 10(b) and Rule 10b-5 by their acts and
omissions as alleged in this Complaint. By virtue of their controlling positions, Defendants are
liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of
Defendants' wrongful conduct, Plaintiff and other members of the Class suffered damages in
connection with their purchases of the Company's securities during the Class Period.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff, on its own behalf and on behalf of the Class, requests for relief
and judgment, as follows:
(a) Declaring that this action may be maintained as a class action pursuant to
Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of the Class defined
herein;
(b) Awarding compensatory damages in favor of Plaintiff and the other Class
members against all Defendants, jointly and severally, for all damages sustained as a result of
Defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;
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(c) Awarding Plaintiff and the Class prejudgment and postjudgment interest,
as well as their reasonable costs, expenses, attorneys' and experts' witness fees and any other
fees incurred in this action; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated : June 8 , 2007 LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP
120 E. Palmetto Park Road, Suite 500Boca Raton, FL 33432-4809(561) 750-3000(561) 750-3364 (fax)
By: s/ Douglas WilensJack ReiseFlorida Bar No. 058149jreise(clerachlaw.comDouglas WilensFlorida Bar No. 0079987dwilensc(_,lerachlaw.com
SAXENA WHITE P.A.Maya SaxenaFlorida Bar No. [email protected] North Federal Highway, Suite 257Boca Raton, FL 33431(561) 394-3399(561) 394-3382 (fax)
Plaintiffs Lead Counsel
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CERTIFICATE OF SERVICE
I hereby certify that on June 8, 2007, I electronically filed the foregoing with the Clerk of
the Court using the CM/ECF system which will send notification of such filing to the e-mail
addresses denoted on the attached Service List.
s/ Douglas WilensDouglas Wilens
LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP
120 East Palmetto Park Road, Suite 500Boca Raton, FL 33432Telephone : 561-750-3000Facsimile : 561-750-3364
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SERVICE LIST
SAXENA WHITE P.A. KING & SPALDINGMaya Saxena M. Robert ThorntonFlorida Bar No. 0095494 Georgia Bar No. [email protected] [email protected] N. Federal Highway, Suite 257 Michael R. SmithBoca Raton, FL 33431 mrsmith a,kslaw.comTelephone: 561/394-3399 Benjamin Lee561/394-3382 (fax) [email protected]
Jason R. EdgecombeCo-Counselfor Lead Plaintiff [email protected]
1180 Peachtree Street, N.E.Atlanta, GA 30309-3521Telephone: 404/572-4600404/572-5100 (fax)
Co-Counselfor Defendants Allen Rowland andRichard P. McCook
LILES, GAVIN, COSTANTINO & VOLPE, BAJALIA, WICKES, ROGERSON,GEORGE GALLOWAY & WACHSRutledge R. Liles John T. Rogerson, IIIFlorida Bar No. 102805 Florida Bar No. 0832839
,1gcglaw.comrliles,na jrogerson(u^vbwr.comRobert B. George Timothy W. VolpeFlorida Bar No. 010899 Florida Bar No. 0358185reonrge2l c law.com tvolpe@,vbwr.com225 Water Street, Suite 1500 Matthew P. McLauchlinJacksonville, FL 32202 Florida Bar No. 484180Telephone: 904/634-1100 mmclauchlin czvbwr.com904/6341234 (fax) 1301 Riverplace Boulevard, Suite 1700
Jacksonville, FL 32207Co-Counselfor Defendants Allen Rowland Telephone: 904/355-1700
and Richard P. McCook 904/355-1797 (fax)
Counselor Defendant Frank Lazaran
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