SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-8140
FLEMING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 48-0222760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6301 Waterford Boulevard, Box 26647
Oklahoma City, Oklahoma 73126
(Address of principal executive offices) (Zip Code)
(405) 840-7200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The number of shares outstanding of each of the issuer's
classes of common stock, as of October 28, 1993 is as follows:
Class Shares Outstanding
Common stock, $2.50 par value 37,404,000
<PAGE>
FLEMING COMPANIES, INC.
INDEX
Page No.
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements of Earnings -
12 Weeks Ended October 1, 1994,
and October 2, 1993 3
Consolidated Condensed Statements of Earnings -
40 Weeks Ended October 1, 1994,
and October 2, 1993 4
Consolidated Condensed Balance Sheets -
October 1, 1994, and December 25, 1993 5
Consolidated Condensed Statements of Cash Flows -
40 Weeks Ended October 1, 1994,
and October 2, 1993 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
Consolidated Condensed Statements of Earnings
For the 12 weeks ended October 1, 1994, and October 2, 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Third Interim Period 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Net sales $4,141,538 $2,936,010
Costs and expenses:
Cost of sales 3,818,129 2,767,074
Selling and administrative 289,449 125,106
Interest expense 37,498 17,796
Interest income (18,821) (14,885)
Equity investment results 5,130 2,952
------------ -----------
Total costs and expenses 4,131,385 2,898,043
------------ -----------
Earnings before taxes 10,153 37,967
Taxes on income 7,437 17,662
------------ -----------
Net earnings $ 2,716 $ 20,305
============ ===========
Net earnings per share $.07 $.55
Dividends paid per share $.30 $.30
Weighted average shares outstanding 37,332 36,833
- -----------------------------------------------------------------
</TABLE>
Sales to customers accounted for under the equity method were
approximately $308 million and $291 million in 1994 and 1993,
respectively.
Fleming Companies, Inc. See notes to consolidated condensed
financial statements.
<PAGE>
Consolidated Condensed Statements of Earnings
For the 40 weeks ended October 1, 1994, and October 2, 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Year to Date 1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Net sales $11,057,167 $9,945,559
Costs and expenses:
Cost of sales 10,295,126 9,357,706
Selling and administrative 635,141 417,365
Interest expense 75,692 59,081
Interest income (46,885) (47,902)
Equity investment results 11,027 5,824
Facilities consolidation --- 6,500
------------ ------------
Total costs and expenses 10,970,101 9,798,574
------------ ------------
Earnings before taxes 87,066 146,985
Taxes on income 41,356 62,469
------------ ------------
Net earnings $ 45,710 $ 84,516
============ ============
Net earnings per share $1.23 $2.30
Dividends paid per share $.90 $.90
Weighted average shares outstanding 37,204 36,773
- ---------------------------------------------------------------
</TABLE>
Sales to customers accounted for under the equity method were
approximately $1.1 billion in 1994 and 1993.
Fleming Companies, Inc. See notes to consolidated condensed
financial statements.
<PAGE>
Consolidated Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
October 1, December 25,
Assets 1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,625 $ 1,634
Receivables 406,860 301,514
Inventories 1,312,369 923,280
Other current assets 134,363 134,229
----------- -----------
Total current assets 1,859,217 1,360,657
Investments and notes receivable 418,281 309,237
Investment in direct financing leases 234,590 235,263
Property and equipment 1,394,381 1,061,905
Less accumulated depreciation
and amortization 458,290 426,846
----------- -----------
Property and equipment, net 936,091 635,059
Other assets 186,118 90,633
Goodwill 989,416 471,783
----------- -----------
Total assets $4,623,713 $3,102,632
=========== ===========
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------
Current liabilities:
Accounts payable $1,046,144 $ 682,988
Current maturities of
long-term debt 94,302 61,329
Current obligations under capital
leases 15,163 13,172
Other current liabilities 250,012 161,043
----------- -----------
Total current liabilities 1,405,621 918,532
Long-term debt 1,601,402 666,819
Long-term obligations under capital
leases 352,894 337,009
Deferred income taxes 67,873 27,500
Other liabilities 117,253 92,366
Shareholders' equity:
Common stock, $2.50 par value per
share 93,361 92,350
Capital in excess of par value 493,372 489,044
Reinvested earnings 504,647 492,250
Cumulative currency translation
adjustment (663) (288)
----------- -----------
1,090,717 1,073,356
Less guarantee of ESOP debt 12,047 12,950
----------- -----------
Total shareholders' equity 1,078,670 1,060,406
----------- -----------
Total liabilities and shareholders'
equity $4,623,713 $3,102,632
=========== ===========
</TABLE>
Receivables include $36.7 million and $48.3 million in 1994 and
1993, respectively, from customers accounted for under the equity
method.
Fleming Companies, Inc. See notes to consolidated condensed
financial statements.
<PAGE>
Consolidated Condensed Statements of Cash Flows
For the 40 weeks ended October 1, 1994, and October 2, 1993
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating
activities $ 325,027 $246,409
Cash flows from investing activities:
Collections on notes receivable 62,341 68,111
Notes receivable funded (93,316) (116,794)
Purchase of property and equipment (85,448) (35,835)
Proceeds from sale of property
and equipment 5,467 1,493
Investments in customers (12,764) (23,398)
Proceeds from sale of investment 4,665 6,054
Businesses acquired (387,488) (50,812)
Proceeds from sale of businesses 6,682 ---
Other investing activities (1,584) (692)
---------- ---------
Net cash used in investing
activities (501,445) (151,873)
---------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings 1,665,751 331,502
Principal payments on long-term
debt (1,425,563) (387,484)
Principal payments on capital
lease obligations (9,916) (8,309)
Sale of common stock under incentive
stock and stock ownership plans 5,339 5,921
Dividends paid (33,314) (33,087)
Other financing activities (21,888) (2,213)
----------- ----------
Net cash provided by (used in)
financing activities 180,409 (93,670)
---------- ----------
Net increase in cash and cash
equivalents 3,991 866
Cash and cash equivalents, beginning
of period 1,634 4,712
----------- ----------
Cash and cash equivalents, end of
period $ 5,625 $ 5,578
=========== ==========
Supplemental information:
Cash paid for interest $58,431 $56,908
Cash paid for taxes $36,504 $67,906
- -----------------------------------------------------------------
</TABLE>
Fleming Companies, Inc. See notes to consolidated condensed
financial statements.
<PAGE>
Notes to Consolidated Condensed Financial Statements
1. The consolidated condensed balance sheet as of October 1,
1994, and the consolidated condensed statements of earnings
and cash flows for the 12- and 40-week periods ended October
1, 1994, and October 2, 1993, have been prepared by the
company, without audit. In the opinion of management, all
adjustments necessary to present fairly the company's
financial position at October 1, 1994, and the results of
operations and cash flows for the periods presented have been
made. All such adjustments are of a normal, recurring
nature. Primary earnings per common share are calculated
using the weighted average shares outstanding. The impact of
outstanding stock options on primary earnings per share is
not material.
2. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. These consolidated condensed financial
statements should be read in conjunction with the
consolidated financial statements and related notes included
in the company's 1993 annual report on Form 10-K.
3. The LIFO method of inventory valuation is used for
determining the cost of substantially all grocery and certain
perishable inventories. The excess of current cost of LIFO
inventories over their stated value was $14.8 million at
October 1, 1994, and $12.5 million at December 25, 1993.
4. On July 19, 1994, Fleming acquired Haniel Corporation, the
parent of Scrivner, Inc. Fleming paid $388 million in cash
for the stock of Haniel and refinanced substantially all of
Haniel's and Scrivner's pre-existing debt (approximately $680
million in aggregate principal amount and premium). The
acquisition has been accounted for under the purchase method
of accounting. The results of operations reflect the
operations of Scrivner since the beginning of the third
quarter. The initial purchase price allocation as of October
1, 1994 has resulted in an excess of purchase price over net
assets acquired of approximately $535 million. Property and
equipment appraisals are in process.
The following pro forma summary of consolidated results of
operations is prepared as though the acquisition had occurred
at the beginning of the periods presented.
<TABLE>
<CAPTION>
40 Weeks Ended
-------------------------
1994 1993
---- ----
(In millions, except per share amounts)
<S> <C> <C>
Net sales $14,281 $14,553
Net earnings $33 $64
Net earnings per share $.89 $1.73
</TABLE>
5. In December 1993, the company and numerous other defendants
were named in two suits filed in U.S. District Court in Miami.
The plaintiffs allege liability on the part of a subsidiary of
the company as a consequence of an alleged fraudulent scheme
conducted by Premium Sales Corporation and others in which
large losses in the Premium-related entities occurred to the
detriment of a purported class of investors which has brought
one of the suits. The other suit is by the receiver/trustee
of the estates of Premium and certain of its affiliated
entities. Plaintiffs seek damages, treble damages, attorneys'
fees, costs, expenses and other appropriate relief. While the
amount of damages sought under most claims is not specified,
plaintiffs allege that hundreds of millions of dollars were
lost as the result of the allegations contained in the
complaint.
The litigation is in its preliminary stages and the ultimate
outcome cannot presently be determined. Furthermore,
management is unable to predict a potential range of monetary
exposure, if any, to the company. Based on the large recovery
sought, an unfavorable judgment could have a material adverse
effect on the company. Management believes, however, that a
material adverse effect on the company's consolidated
financial position is not likely. The company intends to
vigorously defend the actions.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Fleming's capital structure changed significantly as a result of
the July 19, 1994 acquisition of Haniel Corporation, the owner of
all the outstanding stock of Scrivner, Inc. and its subsidiaries
(collectively the "Scrivner group"). The acquisition was
financed and certain Fleming debt was refinanced through a $2.2
billion credit facility with a group of banks led by Morgan
Guaranty Trust Company of New York as managing agent (the "credit
agreement"). Pursuant to the credit agreement, the company
pledged the stock of its wholly owned subsidiaries and
substantially all of the inventory and accounts receivable of the
company and its subsidiaries. The company's credit ratings for
its unsecured long-term debt were downgraded from investment
grade to Ba1 and BB+ by Moody's and Standard & Poors,
respectively, as a result of the additional debt incurred in the
acquisition.
The company's principal sources of liquidity are cash flows from
operating activities and the credit agreement. Borrowings under
the three tranches of the credit agreement as of the end of the
third quarter totaled $1.45 billion: the $800 million six-year
amortizing term loan and $500 million two-year term loan were
fully drawn, and $150 million was drawn on the $900 million five-
year revolving credit facility. When the credit agreement was
signed, the company terminated its $400 million and $200 million
credit facilities. In late October 1994, the company acquired
$33 million of its outstanding medium-term notes pursuant to an
offer to purchase which was triggered by the Scrivner group
acquisition and the resulting downgrade of the company's long-
term credit ratings. This redemption was funded by additional borrowings
under the revolving facility.
The company has filed a registration statement with the
Securities and Exchange Commission to sell $500 million of senior
notes. When the sale of the notes is completed, the company
plans to retire the $500 million two-year loan tranche of the
credit agreement.
Operating activities generated $325 million of cash flows for the
first 40 weeks of 1994 compared to $246 million in the same
period of 1993. The increase is principally due to lower
inventory levels combined with higher accounts payable before the
effects of the Scrivner group acquisition.
Management believes that cash flows from operating activities and
the company's ability to borrow under the credit agreement will be adequate
to meet working capital needs.
Working capital was $454 million at quarter end, a slight
increase from year-end 1993. The current ratio decreased to 1.32
to 1, from 1.48 to 1 at year-end 1993. The total debt-to-capital
ratio was 66%, a significant increase from the 50% ratio at year-
end 1993. The increase was caused by the financing of the
acquisition of the Scrivner group. Total debt and capital leases
increased by $985 million from year-end 1993 to $2.06 billion at
October 1, 1994 as a result of the acquisition.
Capital expenditures year to date were approximately $82 million.
Management expects that 1994 capital expenditures, excluding
acquisitions, will approximate $150 million.
The credit agreement contains customary covenants associated with
similar facilities, including, without limitation: maintenance of
a specified borrowed funds to net worth ratio of not more than 2.45 to 1;
maintenance of a minimum consolidated net worth of at least $851 million;
maintenance of a specified fixed charge coverage ratio of at least 1.40 to
1; a limitation on restricted payments (including dividends and company
stock repurchases); prohibition of certain liens; prohibitions of
certain mergers, consolidations and sales of assets; restrictions on the
incurrence of debt and additional guarantees; limitations on transactions
with affiliates; limitations on acquisitions and investments; limitations on
capital expenditures; and limitations on payment restrictions
affecting subsidiaries. The company is currently in compliance
with all financial covenants under the credit agreement. As of
October 1, 1994 the restricted payments test would have allowed the
company to pay dividends or repurchase capital stock in the aggregate
amount of $17 million. The borrowed funds to net worth test would
have allowed the company to borrow an additional $545 million. The
fixed charge coverage test would have allowed the company to incur
an additional $33 million of annual interest expense.
Results of Operations
General. As discussed below, earnings for the third quarter
declined by 87% compared to the same period in 1993. Several
factors contributed to the decline and include: lack of sales growth
(before the Scrivner group), increased operating losses from
company-owned retail stores and retail equity investments, increased
credit loss expense (including a $6.5 million loss due to the
bankruptcy of a large customer), higher interest expense, an adverse
LIFO effect and a higher effective tax rate.
Net sales. Net sales for the third quarter and year to date
periods ended October 1, 1994 increased by 41% and 11%,
respectively, compared to the same periods in 1993. The reason
for the increases was $1.35 billion of sales generated by
Scrivner group operations since the acquisition. Without sales
from the Scrivner group, sales would have declined by 5% and 2%
for the quarter and year to date, respectively.
The decline (without the Scrivner group) was due to the expected
loss of the Albertson's business when its distribution center
came on line, the loss of a large customer at one of the
company's distribution centers, the loss of business due to the
bankruptcy of Megafoods Stores, Inc. ("Megafoods") (see below),
and the sale of the Royal New Jersey facility. None of these was
individually material to sales. The company estimated that its
annualized sales to Megafoods prior to the bankruptcy were
approximately $335 million although the company currently
estimates its annualized sales to Megafoods at $170 million
pursuant to a short-term arrangement. Lost business was
partially offset by additional business from Randall's/Tom Thumb,
Kmart and Florida retail operations acquired in the fourth
quarter of 1993 ("Hyde Park").
Fleming measures inflation using data derived from the average
cost of a ton of product sold by the company. This measure
resulted in slight estimated product inflation in 1994 compared
to slight deflation in 1993. Tonnage declined, without measuring
the Scrivner group impact, by 9% and 6% for the quarter and year
to date periods, respectively, due to the net decrease in sales
discussed above and the difficult retail environment. Consistent
tonnage statistics for the Scrivner group are not available.
Gross margin. Gross margin for the quarter improved by $154
million, or 206 basis points, over 1993, increasing to 7.81% as a
percentage of net sales. Without Scrivner group operations,
gross margin would have been 6.31% as a percentage of net sales.
The 179 retail stores acquired with the Scrivner group
as well as the 21 Hyde Park stores and 24 Consumers
stores were the most significant components of the improvement.
The company's retail food operations have a higher gross margin
than wholesale operations. Also contributing to higher gross
margin were improved differences between the company's
acquisition cost of product and the unadjusted selling price,
referred to as acquisition margin, and lower product handling
expenses, which are warehouse, transportation and building costs.
Adversely affecting margin was LIFO expense in 1994 versus LIFO
income in 1993.
Year to date, gross margin improved by $174 million, or 98 basis
points, rising to 6.89% as a percentage of net sales. Without
Scrivner group operations, gross margin would have been 6.33% as
a percentage of net sales. Consistent with the quarter results,
retail stores' gross margin performance was the most significant
component of the improvement. Also improving in the year to date
period were lower product handling expenses and higher fees
charged to certain of the company's customers. The company
experienced a LIFO charge in 1994 versus LIFO income in 1993
which adversely affected margin.
Selling and administrative expenses. Selling and administrative
expenses increased by $164 million for the quarter and $218 million year
to date compared to the respective periods in 1993. The
acquisition of the Scrivner group and its retail operations were
the primary reasons for the increase. Also contributing to the
increase were the presence of Hyde Park and Consumers stores
which were not in the prior year periods.
As more fully described in its 1993 Annual Report on Form 10-K,
the company has a significant amount of credit extended to its
customers through various methods. These methods include
customary and extended credit terms for inventory purchases,
secured loans with terms generally up to ten years, and equity
investments in and secured loans to certain customers. In
addition, the company guarantees debt and lease obligations of
certain customers. These capital investments are usually made in
and guarantees extended to customers with whom the company has
long-term supply agreements.
Credit loss expense, which includes the impairment of equity
investments, is included in selling and administrative expenses
and was $22 million and $49 million, or 52 basis points and 45
basis points, for the 12- and 40-week periods, respectively, in
1994. Credit losses in the comparable 1993 periods were $9
million and $30 million, or 32 basis points and 30 basis points,
for the quarter and year to date, respectively.
Megafoods, a large customer, filed Chapter 11 bankruptcy
proceedings on August 17, 1994. As of that date, Megafoods'
total indebtedness to the company for goods sold on open account,
equipment leases and loans aggregated approximately $20 million.
The company holds collateral with respect to a substantial portion
of these obligations. Megafoods is also liable to the company under
store sublease agreements for approximately $37 million, and the com-
pany is contingently liable on certain lease guarantees given by the
company on behalf of Megafoods. The company is partially secured
as to these obligations. The debtor has alleged claims against
the company arising from breach of contract, tortious
interference with contracts and business relationships and
wrongful set-off of a $12 million cash security deposit and has
threatened to seek equitable subordination of the company's
claims. The company denies these allegations and will vigorously
protect its interests. Based on this information, the company
recorded a $6.5 million provision for its estimated net credit
exposure. However, the exact amount of the ultimate loss may
vary depending upon future developments in the bankruptcy
proceedings, including those related to collateral values,
priority issues and the company's ultimate expense, if any,
related to certain store leases. An estimate of additional
possible loss, or the range of additional losses, if any, cannot
be made at this early stage of the proceedings.
The remaining increased credit losses above the prior year
quarter and year to date are consistent with those experienced in
the first half of the year, with retailers being affected by the
difficult retail environment and low levels of food price
inflation. Although the company has begun to de-emphasize credit
extensions to and investments in customers and has adopted more
stringent credit practices, there can be no assurance that credit
losses from existing or future investments or commitments will
not have a material adverse effect on results of operations or
financial condition.
Selling and administrative expenses also increased by reason of
the provision for additional goodwill amortization during the
quarter, principally related to the Scrivner group.
Interest expense. Interest expense increased $20 million, or
111% for the quarter, and $17 million, or 28% year to date,
due to additional debt incurred to finance the Scrivner group
acquisition and the higher interest rate imposed on the company
as the result of the downgrade of the company's credit ratings.
Without these factors related to acquisition indebtedness,
interest expense for the quarter and year to date 1994 is
estimated to have been approximately the same as 1993 levels.
The company enters into financial derivatives as a method of
hedging its interest rate exposure. During July 1994, management
terminated all of its outstanding derivative contracts at an
immaterial net gain, which is being amortized over the original
term of each derivative instrument. The credit agreement
requires the company to provide interest rate protection on a
substantial portion of the indebtedness outstanding thereunder.
The company has entered into interest rate swaps and caps
covering $1 billion aggregate principal amount of floating rate
indebtedness. This amount exceeds the requirements set forth in
the credit agreement.
The average fixed interest rate paid by the company on the
interest rate swaps is 6.794%, covering $750 million of floating
rate indebtedness priced at the London interbank offered interest
rate ("LIBOR") plus a margin. The interest rate swap agreements,
which were implemented through eight counterparty banks, and
which have an average remaining life of 3.6 years, provide for
the company to receive substantially the same LIBOR that the
company pays on its floating rate indebtedness. For the
remaining $250 million, the company has purchased interest rate
cap agreements covering $250 million of its floating rate
indebtedness priced at LIBOR plus a margin. The cap agreements
provide for the company to receive LIBOR from the two
counterparty banks if LIBOR exceeds 7.33% over the next 4.2
years. The company's payment obligations under the interest rate
swap and cap agreements meet the criteria for hedge accounting
treatment. Accordingly, the company's payment obligations are
accounted for as interest expense.
With respect to the interest rate hedging agreements, the company
believes its exposure to potential loss is minimized primarily
due to (a) the relatively strong credit ratings of the
counterparties for their unsecured long-term debt (A+ or higher
from Standard & Poor's Ratings Group or A1 or higher from Moody's
Investors Service, Inc.) and (b) the size and diversity of the
counterparty banks. The hedge agreements are subject to market
risk to the extent that market interest rates for similar
instruments decrease, and the company terminates the hedges prior
to their maturity. However, the company believes this risk is
minimized as it currently foresees no need to terminate the hedge
agreements prior to their maturity.
On an annualized basis, the $1 billion of interest rate hedge
agreements will account for $53 million of fixed annual interest
expense. For the quarter ended October 1, 1994, the interest
rate hedge agreements contributed $8 million to interest expense.
The estimated fair value of the hedge agreements at October 1,
1994 is $13 million.
Interest income. Interest income increased by $4 million, or
26%, for the quarter, but declined $1 million, or 2%, year to
date compared to the respective 1993 periods. Interest income on
notes receivable and direct financing leases of retail stores
generated by the Scrivner group operations is the primary reason
for the increase during the quarter. The year to date decline is
due to a lower average level of notes receivable and direct
financing leases in 1994, partially offset by higher average
interest rates. The company has sold certain notes receivable
with recourse in prior years and may do so again in the future.
Equity investment results. Equity investment losses increased by
$2 million and $5 million, a significant increase compared to the
12- and 40-week periods in 1993. The company's business
development ventures improved during both 1994 periods. However,
losses from other retail stores accounted for under the equity
method more than offset business development venture improvement.
Equity investment results from Scrivner group operations did not
have a material effect.
Taxes on income. The company's estimated annual effective tax
rate recorded through the third quarter 1994 was 47.5%, up 3.4%
from the estimate made for the second quarter of 1994. The
increase is due primarily to the increased goodwill amortization
with no related tax deduction, Scrivner group operations in
higher tax-rate states, and lower than expected pretax earnings.
The third quarter 1994 rate of 73.2% results principally from
recording during the quarter the effects of the higher estimated
annual rate. The increase over 1993's year to date rate is due
to the reasons set forth above and a higher initial 1994
estimated effective rate. The company's ultimate tax rate for
1994 will depend on annual earnings and may be higher than 47.5%.
Net earnings. Earnings for the 12 weeks were $3 million, down
87% from the same period in 1993. Year to date, earnings were
$46 million, a decrease of 46% compared to 1993. Earnings per
share for the 12 and 40-week periods were 7 cents and $1.23 in
1994 compared to $.55 and $2.30, respectively in 1993.
Facilities consolidation and restructuring. The company's
facilities consolidation and restructuring plan (the "plan") is
being executed consistent with the actions initially
contemplated. As previously disclosed, regional operations were
eliminated in early 1994, and the five regional offices have been
closed, with approximately 100 jobs eliminated. Facilities
consolidation efforts have resulted in closing of four of the
five planned distribution centers: Ft. Worth, Texas; Topeka,
Kansas; Joplin, Missouri and Tupelo, Mississippi. The closures
have resulted in approximately 700 associate terminations. No
material reduction of revenues has resulted. Increases in gross
margin, specifically a reduction in product handling expenses,
have resulted from the facilities consolidation actions. It is
not practical to separately quantify the benefit resulting from
the plan.
The July 1994 Scrivner group acquisition has resulted in the
rescheduling of certain aspects of the plan. The effort required
to integrate this significant acquisition is the direct reason for the
delay. No fundamental changes to the plan have occurred. However,
the reengineering actions that will result in a significant reduction
of employees is not expected to occur until 1995. Management expects
that all actions originally contemplated in the plan will be completed.
The table presented below reflects changes to the reserves
recorded in the statements of financial position related to
facilities consolidation and restructuring.
<TABLE>
<CAPTION>
Engineering/ Consolidation
Severance Costs/Asset
Total Costs Impairments
------- ------- -----------
(In millions)
<S> <C> <C> <C>
Charges for year ended
December 28, 1991 $67.0 $11.0 $56.0
Expenditures and write-offs (13.0) - (13.0)
Balance, December 28, 1991 54.0 11.0 43.0
Expenditures and write-offs (24.1) (2.8) (21.3)
Balance, December 26, 1992 29.9 8.2 21.7
Charged to costs and
expenses 107.8 25.0 82.8
Expenditures and write-offs (52.2) (8.1) (44.1)
Balance, December 25, 1993 85.5 25.1 60.4
Expenditures and write-offs (25.2) (2.6) (22.6)
Balance, October 1, 1994 $60.3 $22.5 $37.8
====== ====== ======
</TABLE>
Management believes that the costs and benefits to operating
results that will be realized by re-engineering will also apply
to the Scrivner group. However, re-engineering efforts with
respect to the Scrivner group will not begin until late 1995.
Cash payments related to the facilities consolidation and
restructuring plan have been approximately $14 million year to
date in 1994. The company has adequate liquidity to provide for
such cash payments.
Other. On October 29, 1994 the company acquired all of the stock
of Consumers Markets, Inc., the operator of 24 supermarkets located in
Missouri, Arkansas and Kansas with annual sales of $225 million.
The company previously owned a 79% interest in Consumers' parent.
Results of operations and financial position of Consumers are not
material.
A subsidiary of the company has been named in two related legal
actions, each alleging, among other things, that certain former
employees of subsidiaries of the company participated in
fraudulent activities by taking money for confirming "diverting"
transactions (a practice involving arbitraging in food and other
goods to profit from price differentials given by manufacturers
to different retailers and wholesalers) which had not occurred.
The allegations include, among other causes of action, common law
fraud, breach of contract, negligence, conversion and civil
theft, and violation of the federal Racketeer Influenced and
Corrupt Organizations Act and comparable state statutes.
Plaintiffs seek damages, treble damages, attorneys' fees, costs,
expenses and other appropriate relief. While the amount of
damages sought under most claims is not specified, plaintiffs
allege that hundreds of millions of dollars were lost as a result
of the allegations contained in the complaint. The company
denies the allegations of the complaint and will vigorously
defend the actions. The litigation is in its preliminary stages,
and the ultimate outcome cannot be determined. Furthermore, the
company is unable to predict a potential range of monetary
exposure to the company. Based on the recovery sought, an
unfavorable judgment could have a material adverse effect on the
company.
Management believes that several factors affecting earnings in
the third quarter are likely to continue and will depress
results in the fourth quarter of 1994 and beyond. Such factors
include: flat wholesale sales; lack of food price inflation;
operating losses in company-owned retail sites; increased
interest expense, goodwill amortization and integration costs
related to the Scrivner acquisition; and a higher effective tax
rate.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number Page Number
12 Computation of Ratio of Earnings 18
to Fixed Charges
27 Financial Data Schedule 19
(b) Reports on Form 8-K:
Form 8-K dated September 23, 1994 disclosed that the company
expected lower earnings for the third quarter of 1994.
Form 8-K dated October 19, 1994 disclosed the company's
earnings for the third quarter of 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FLEMING COMPANIES, INC.
(Registrant)
Date November 15, 1994 /s/ Donald N. Eyler
Donald N. Eyler
Senior Vice President-Controller
(Chief Accounting Officer)
<PAGE>
Exhibit 12
Fleming Companies, Inc.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Year Ended
40 Weeks Ended The Last Saturday in December
--------------------- -------------------------------------------------------
October 1, October 2,
1994 1993 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income $139,480 $164,501 $104,329 $194,941 $ 72,078 $ 87,066 $146,985
Fixed charges, net 120,769 117,877 117,865 105,726 102,303 97,111 77,667
Total earnings $260,249 $282,378 $222,194 $300,667 $174,381 $184,177 $224,652
======== ======== ======== ======== ======== ======== ========
Fixed charges:
Interest expense $ 96,425 $ 93,643 $ 93,353 $ 81,102 $ 78,029 $75,692 $59,081
Portion of rental
charges deemed to
be interest 22,945 22,836 22,907 23,027 22,969 21,169 17,646
Capitalized interest
and debt issuance
cost amortization 2,163 1,250 1,464 1,287 1,005 254 705
Total fixed charges $121,533 $117,729 $117,724 $105,416 $102,003 $97,115 $77,432
======== ======== ======== ======== ======== ======= =======
Ratio of earnings
to fixed charges 2.14 2.40 1.89 2.85 1.71 1.90 2.90
==== ==== ==== ==== ==== ==== ====
</TABLE>
"Earnings" consists of income before income taxes and fixed
charges excluding capitalized interest. Capitalized interest
amortized during the respective periods is added back to
earnings.
"Fixed charges, net" consists of interest expense, an estimated
amount of rental expense which is deemed to be representative of
the interest factor and amortization of capitalized interest and
debt issuance cost.
The pro forma ratio of earnings to fixed charges is omitted as it
is not applicable.
<PAGE>
Exhibit 27
Fleming Companies, Inc.
Financial Data Schedule
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] QTR-3 9-MOS
[FISCAL-YEAR-END] DEC-31-1994 DEC-31-1994
[PERIOD-END] OCT-01-1994 OCT-01-1994
[CASH] 0 5,625
[SECURITIES] 0 0
[RECEIVABLES] 0 500,070
[ALLOWANCES] 0 (93,210)
[INVENTORY] 0 1,312,369
[CURRENT-ASSETS] 0 1,859,217
[PP&E] 0 1,394,381
[DEPRECIATION] 0 (458,290)
[TOTAL-ASSETS] 0 4,623,713
[CURRENT-LIABILITIES] 0 1,405,621
[BONDS] 0 1,601,402
[COMMON] 0 93,361
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[OTHER-SE] 0 985,309
[TOTAL-LIABILITY-AND-EQUITY] 0 4,623,713
[SALES] 4,141,538 11,057,167
[TOTAL-REVENUES] 4,141,538 11,057,167
[CGS] 3,818,129 10,295,126
[TOTAL-COSTS] 3,818,129 10,295,126
[OTHER-EXPENSES] 0 0
[LOSS-PROVISION] 21,580 49,385
[INTEREST-EXPENSE] 37,498 75,692
[INCOME-PRETAX] 10,153 87,066
[INCOME-TAX] 7,437 41,356
[INCOME-CONTINUING] 2,716 45,710
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] 2,716 45,710
[EPS-PRIMARY] .07 1.23
[EPS-DILUTED] .07 1.23
</TABLE>