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 July 13, 1996
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 August 10, 1996 is as follows:
Class Shares Outstanding
Common stock, $2.50 par value 37,788,000
<PAGE>
INDEX
Page
Number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements of Earnings -
12 Weeks Ended July 13, 1996, and July 15, 1995
Consolidated Condensed Statements of Earnings -
28 Weeks Ended July 13, 1996, and July 15, 1995
Consolidated Condensed Balance Sheets -
July 13, 1996, and December 30, 1995
Consolidated Condensed Statements of Cash Flows -
28 Weeks Ended July 13, 1996, and July 15, 1995
Notes to Consolidated Condensed Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Consolidated Condensed Statements of Earnings
For the 12 weeks ended July 13, 1996, and July 15, 1995
(In thousands, except per share amounts)
=============================================================================
<CAPTION>
Second Interim Period 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
Net sales $3,742,331 $4,000,070
Costs and expenses:
Cost of sales 3,397,509 3,676,391
Selling and administrative 298,402 264,817
Interest expense 34,330 40,046
Interest income (11,301) (14,393)
Equity investment results 4,099 3,074
- - -----------------------------------------------------------------------------
Total costs and expenses 3,723,039 3,969,935
- - -----------------------------------------------------------------------------
Earnings before taxes 19,292 30,135
Taxes on income 9,858 15,399
- - -----------------------------------------------------------------------------
Net earnings $ 9,434 $ 14,736
=============================================================================
Net earnings per share $.25 $.39
Dividends paid per share $.02 $.30
Weighted average shares outstanding 37,788 37,546
=============================================================================
</TABLE>
Fleming Companies, Inc. See notes to consolidated condensed financial
statements.
<PAGE>
<TABLE>
Consolidated Condensed Statements of Earnings
For the 28 weeks ended July 13, 1996, and July 15, 1995
(In thousands, except per share amounts)
=============================================================================
<CAPTION>
Year to Date 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
Net sales $8,910,565 $9,459,052
Costs and expenses:
Cost of sales 8,108,623 8,696,909
Selling and administrative 699,925 628,898
Interest expense 90,090 96,443
Interest income (26,725) (33,874)
Equity investment results 7,264 9,547
Facilities consolidation - (8,982)
- - -----------------------------------------------------------------------------
Total costs and expenses 8,879,177 9,388,941
- - -----------------------------------------------------------------------------
Earnings before taxes 31,388 70,111
Taxes on income 16,039 35,827
- - -----------------------------------------------------------------------------
Net earnings $ 15,349 $ 34,284
=============================================================================
Net earnings per share $.41 $.91
Dividends paid per share $.32 $.60
Weighted average shares outstanding 37,760 37,518
=============================================================================
</TABLE>
Fleming Companies, Inc. See notes to consolidated condensed financial
statements.
<PAGE>
<TABLE>
Consolidated Condensed Balance Sheets
(In thousands)
=============================================================================
<CAPTION>
July 13, December 30,
Assets 1996 1995
<S> <C> <C>
- - -----------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 46,437 $ 4,426
Receivables 322,243 340,215
Inventories 1,018,796 1,207,329
Other current assets 86,707 98,801
- - -----------------------------------------------------------------------------
Total current assets 1,474,183 1,650,771
Investments and notes receivable 275,020 271,763
Investment in direct financing leases 215,311 225,552
Property and equipment 1,534,597 1,527,526
Less accumulated depreciation
and amortization (585,861) (532,364)
- - -----------------------------------------------------------------------------
Net property and equipment 948,736 995,162
Other assets 161,576 132,338
Goodwill 1,003,488 1,021,099
- - -----------------------------------------------------------------------------
Total assets $4,078,314 $4,296,685
=============================================================================
Liabilities and Shareholders' Equity
- - -----------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 863,813 $1,001,123
Current maturities of long-term debt 96,925 53,917
Current obligations under capital leases 20,152 19,452
Other current liabilities 200,385 211,863
- - -----------------------------------------------------------------------------
Total current liabilities 1,181,275 1,286,355
Long-term debt 1,241,338 1,347,987
Long-term obligations under
capital leases 358,869 368,876
Deferred income taxes 42,863 40,179
Other liabilities 164,689 169,966
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value per share 94,520 94,291
Capital in excess of par value 502,883 501,474
Reinvested earnings 504,574 501,214
Cumulative currency
translation adjustment (4,650) (4,549)
- - -----------------------------------------------------------------------------
1,097,327 1,092,430
Less ESOP note (8,047) (9,108)
- - -----------------------------------------------------------------------------
Total shareholders' equity 1,089,280 1,083,322
- - -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $4,078,314 $4,296,685
=============================================================================
</TABLE>
Fleming Companies, Inc. See notes to consolidated condensed financial
statements.
<PAGE>
<TABLE>
Consolidated Condensed Statements of Cash Flows
For the 28 weeks ended July 13, 1996, and July 15, 1995
(In thousands)
=============================================================================
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating activities $174,948 $263,184
Cash flows from investing activities:
Collections on notes receivable 37,385 57,452
Notes receivable funded (35,158) (53,822)
Notes receivable sold - 77,063
Purchase of property and equipment (69,408) (59,148)
Proceeds from sale of
property and equipment 8,985 21,056
Investments in customers (156) (8,761)
Proceeds from sale of investment 1,665 16,331
Proceeds from sale of businesses 9,244 -
Other investing activities (2,511) (1,069)
- - -----------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (49,954) 49,102
- - -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 128,000 -
Principal payments on long-term debt (191,641) (315,066)
Principal payments on capital
lease obligations (10,879) (8,904)
Sale of common stock under incentive
stock and stock ownership plans 1,808 3,982
Dividends paid (11,876) (22,329)
Other financing activities 1,605 3,933
- - -----------------------------------------------------------------------------
Net cash used in
financing activities (82,983) (338,384)
- - -----------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 42,011 (26,098)
Cash and cash equivalents,
beginning of period 4,426 28,352
- - -----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 46,437 $ 2,254
=============================================================================
Supplemental information:
Cash paid for interest $84,626 $96,459
Cash paid for taxes $22,112 $2,668
=============================================================================
</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 July 13, 1996, and the
consolidated condensed statements of earnings and cash flows for the 12-week
and 28-week periods ended July 13, 1996, and July 15, 1995, 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 July 13, 1996,
and the results of operations and cash flows for the periods presented have
been made. All such adjustments are of a normal, recurring nature. Earnings
per share are computed based on net earnings divided by the weighted average
shares outstanding. The impact of common stock options on earnings per share
is immaterial. Certain reclassifications have been made to the prior year
amounts to conform to the current year's classification.
2. The statement of earnings for the 28 weeks ended July 15, 1995 reflects the
effect of the change in management's estimate of the cost associated with the
general merchandising portion of the facilities consolidation plan. The
estimate reflects reduced expense and cash outflow. Accordingly, the company
reversed $9 million of the provision for restructuring during the first
quarter of 1995. The reversal is shown as a credit to the facilities
consolidation expense line in the accompanying financial statements.
3. 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 1995 annual
report on Form 10-K.
4. The LIFO method of inventory valuation is used for determining the cost of
most grocery and certain perishable inventories. The excess of current cost
of LIFO inventories over their stated value was $23 million at July 13, 1996
and $22 million at December 30, 1995.
5. The company and several other defendants have been named in two suits filed
in U.S. District Court in Miami, Florida. The plaintiffs predicate liability
on the part of the company as a consequence of an allegedly fraudulent scheme
conducted by Premium Sales Corporation ("Premium") 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. This case
was certified by the court as a class action on June 27, 1996. The other
suit is by the receiver/trustee of the estates of Premium and certain of its
affiliated entities. Plaintiffs seek actual damages, treble damages,
attorneys' fees, costs, expenses and other appropriate relief. Plaintiffs
claim approximately $300 million in actual losses as the result of the
allegations contained in the complaints.
On August 22, 1996, four former employees of the company and others were
variously indicted for alleged conspiracy to commit wire fraud, wire fraud
and tax fraud arising out of the facts surrounding the cases by a U.S. grand
jury sitting in the Southern District of Florida.
The litigation is complex 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 result could have a material adverse effect on the
company. The company is vigorously defending the actions. The plaintiffs and
certain other defendants involved in the litigation have settled the claims of
the plaintiffs for varying amounts, subject to court approval. Trial is
currently scheduled to begin in October 1996 with respect to the remaining
defendants including the company, two other grocery defendants and a local
bank.
The company, one of its former subsidiaries, and a retired executive officer
were named in a lawsuit filed in District Court in Johnson County, Texas
(David's Supermarkets, Inc. v. Fleming Companies, Inc. ("David's")) which was
tried before a jury in February and March 1996. Plaintiff sought substantial
actual damages, treble damages, exemplary damages, attorneys' fees, interest
and costs against the company for allegedly overcharging the plaintiff for
products over a two-year period. The company considered the claims to be
without merit. However, following a four-week trial the jury found against
the company for $72.5 million for breach of contract, $201 million for fraud
and $207.5 million for violation of the Texas Deceptive Trade Practices Act
("DTPA"), and against the executive for $51 million for fraud and $72.6
million for violation of the DTPA. On April 12, 1996, judgment was entered
against the company in the amount of $207.5 million for violation of the
DTPA plus pre-judgment interest of $3.7 million and post-judgment interest
at the rate of 10% per annum. Judgment jointly and severally against the
executive was entered for $72.6 million plus pre-judgment and post-judgment
interest. The company bonded the judgment with a $230 million supersedeas
bond partially secured by letters of credit in the amount of $135 million.
On May 10, 1996, the company filed a motion for a new trial on grounds, among
others, that the trial judge had failed to disclose certain financial
relationships with the plaintiff and others associated with the plaintiff.
On May 13, 1996, the judge recused himself from the case by reason of his
failure to disclose the relationships with the plaintiff and others.
Another judge has been assigned to the case.
On June 24, 1996, a new trial was granted. Concurrently, the plaintiff's
judgment was vacated, and the defendants and their sureties were discharged
from all liability on the supersedeas bond. As a result, the letters of
credit for $135 million were canceled, thereby increasing the company's
available bank credit.
The new trial is scheduled for January 1997. Defendants have moved for a
change of venue from Johnson County. Plaintiff alleges liability on the
part of the company and the same co-defendant as the result of breach of
contract, fraud and violation of the DTPA and seeks substantial actual
damages, treble damages, exemplary damages, attorneys' fees, interest and
costs, totaling hundreds of millions of dollars.
Based on the vacation of the judgment in the first case, the approximately
$7 million charge recorded in the first quarter was reversed during the
second quarter. Although the company denies any wrongdoing, the company
has been unable to locate certain documents evidencing that the price
paid by the plaintiff conforms to the terms of its agreement with the company.
Accordingly, during the second quarter the company recorded a charge of
approximately $650 thousand which includes approximately $200 thousand of
disputed overcharges, interest, fees and other sums. Management is unable
to predict the potential range of additional monetary exposure, if any, to
the company. However, an unfavorable outcome in the retrial could have a
material adverse effect on the company.
Assertions similar to those in the David's litigation have been made in three
other pending cases (including the Megafoods case described below) and could
occur in future litigation. Management is unable to predict the potential
range of monetary exposure, if any, to the company in such cases. However, if
plaintiffs in any of those cases are successful, the outcome could have a
material adverse effect on the company.
The company and certain of its present and former officers, including the
chief executive officer, have been named as defendants in nine purported
class action lawsuits filed by certain of its stockholders and one purported
class action lawsuit filed by a noteholder, each in the U.S. District Court
for the Western District of Oklahoma, alleging the company failed to properly
disclose and account for the risk associated with the David's litigation.
The plaintiffs in five of the stockholder cases also claim the company
failed to disclose that it was engaged in a deceptive course of business
with its customers that exposes it to substantial legal liability which
would severely impair the financial condition, performance and value of the
company. The plaintiffs seek undetermined but significant damages. Motions
to consolidate some or all of the cases are pending before the court. The
company denies these allegations and intends to vigorously defend the
actions. Management is unable to predict a potential range of monetary
exposure, if any, to the company from these actions. However, an unfavorable
outcome in any of them could have a material adverse effect on the company.
Megafoods Stores, Inc. ("Megafoods") and certain of its affiliates filed
Chapter 11 bankruptcy proceedings in Arizona in August 1994. The company
filed claims, including a claim for indebtedness for goods sold on open
account, equipment leases and secured loans totaling approximately $28
million. The debtor filed an adversary proceeding against the company seeking
subordination of the company's claims, return of an approximate $12 million
deposit and affirmative relief for damages which included allegations similar
to those in the David's litigation described above. The company took charges
of $6.5 million in 1994, approximately $3.5 million in 1995 and $2.4 million
year to date in 1996.
On August 12, 1996, the bankruptcy judge conditionally approved a settlement
of the debtor's adversary proceeding against the company subject to approval
by the creditors of a revised reorganization plan which will encompass the
settlement. A vote is expected in the fall of 1996. Under the terms of the
settlement, the company will retain its $12 million working capital deposit,
relinquish its secured and unsecured claims and pay the debtor $2.5 million in
exchange for the furniture, fixtures and equipment from seventeen Megafoods
stores and two warehouses. The debtor has agreed to lease back the furniture,
fixtures and equipment in fourteen of the stores to the reorganized debtor for
nine years at an annual rental totaling $18 thousand. In addition, the company
will receive 10% of the common stock in the reorganized debtor and has entered
into a shareholder voting trust agreement which provides that any shares of
the reorganized debtor that the company holds will be voted in the same
proportion as the reorganized debtor's other shares are voted. The company
expects to record a charge of approximately $2 million related to the
settlement agreement in the third quarter.
6. The senior notes issued in 1994 are guaranteed by all direct and indirect
subsidiaries of the company (except for certain inconsequential subsidiaries),
all of which are wholly owned. The guarantees are joint and several, full,
complete and unconditional. There are no restrictions on the ability of the
subsidiary guarantors to transfer funds to the company in the form of cash
dividends, loans or advances. Full financial statements for the subsidiary
guarantors are not presented herein because management does not believe such
information would be material.
The following summarized financial information, which includes allocations of
material corporate-related expenses, for the combined subsidiary guarantors
may not necessarily be indicative of the results of operations or financial
position had the subsidiary guarantors been operated as independent entities.
<TABLE>
<CAPTION>
July 13, July 15,
(In millions) 1996 1995
----------------------------------------------------
<S> <C> <C>
Current assets $25 $664
Noncurrent assets $61 $521
Current liabilities $9 $949
Noncurrent liabilities $1 $20
28 weeks ended
July 13, July 15,
(In millions) 1996 1995
----------------------------------------------------
Net sales $177 $1,944
Costs and expenses $180 $1,920
Net earnings (loss) $(1) $(12)
</TABLE>
During 1996 and 1995, a significant number of subsidiaries were merged into
the parent company, resulting in a substantial reduction in the amounts
appearing in the summarized financial information.
7. The accompanying earnings statements include the following:
<TABLE>
<CAPTION>
28 weeks 12 weeks
(In thousands) 1996 1995 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation and
amortization
(includes amortized
financing costs) $97,681 $98,392 $42,030 $42,803
Amortized financing
costs (part of
interest expense) $3,867 $3,571 $1,792 $1,526
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition And
Results of Operations
General
In 1994, the company embarked upon a plan to restructure its organizational
alignment, reengineer its operations and consolidate its distribution
facilities. The company's objective is to lower the net acquisition cost of
product to retail customers while providing the company with a fair and
adequate return for its products and services. To achieve this objective,
management has made major organizational changes, implemented the Fleming
Flexible Marketing Plan ("FFMP") in approximately 40% of its food distribution
sales base, or 17 of its 35 operating units, and increased its investment in
technology. The actions contemplated by the reengineering plan will affect
the company's food and general merchandise wholesaling operations as well as
certain retail operations. Although a significant number of reengineering
initiatives have been completed, more are planned. The period of time
required to complete these remaining initiatives has been lengthened while the
company refocuses on financial performance and refines FFMP, as a consequence
of responses from customers and vendors. Accordingly, completion dates are
not known.
As part of the reengineering plan, the company closed four distribution
centers and plans to close one additional facility. In addition, since the
Scrivner acquisition in July 1994, the company has closed nine former Scrivner
distribution centers.
Results of Operations
Set forth in the following table is information for the second interim and
year-to-date periods of 1996 and 1995 regarding components of the company's
earnings expressed as a percentage of net sales.
<TABLE>
=============================================================================
<CAPTION>
Second Interim Period 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.00% 100.00%
Gross margin 9.21 8.09
Less:
Selling and administrative expense 7.97 6.62
Interest expense .92 1.00
Interest income (.30) (.36)
Equity investment results .11 .08
- - -----------------------------------------------------------------------------
Total expenses 8.70 7.34
- - -----------------------------------------------------------------------------
Earnings before taxes .51 .75
Taxes on income .26 .38
- - -----------------------------------------------------------------------------
Net earnings .25% .37%
=============================================================================
=============================================================================
Year to Date 1996 1995
- - -----------------------------------------------------------------------------
Net sales 100.00% 100.00%
Gross margin 9.00 8.06
Less:
Selling and administrative expense 7.86 6.65
Interest expense 1.01 1.02
Interest income (.30) (.36)
Equity investment results .08 .10
Facilities consolidation - (.09)
- - -----------------------------------------------------------------------------
Total expenses 8.65 7.32
- - -----------------------------------------------------------------------------
Earnings before taxes .35 .74
Taxes on income .18 .38
- - -----------------------------------------------------------------------------
Net earnings .17% .36%
=============================================================================
</TABLE>
Net sales. Sales for the second quarter (12 weeks) of 1996 decreased by $.3
billion, or 6%, to $3.7 billion from $4.0 billion for the same period in
1995. Year to date, sales decreased by $.5 billion or 6%, to $8.9 billion
from $9.5 billion for the 28 weeks in 1995. Sales from 71 supermarkets (now
58 supermarkets) acquired from ABCO Markets, Inc. ("ABCO") through foreclosure
in January 1996, were present in both 1996 periods, but not 1995 as ABCO
was consolidated beginning in late 1995. Several factors, none of which
are individually material, adversely affected net sales in both the
quarter and year to date periods, including: sales lost through normal
attrition which were not replaced; the sale or closing of certain corporate
stores; loss of business from Megafoods; stricter credit policies; certain
customers making selective purchases from competitors; sales lost through the
recent service charge increase and the publicity surrounding the David's
verdict; and certain existing customers utilizing the concepts of Efficient
Consumer Response and purchasing product directly from the food
manufacturer.
Net sales have trended downwards since 1994 adversely affecting earnings. The
company organized a national sales force in the first quarter of 1996 which is
focusing on developing prospects for new business. In addition, modifications
to the FFMP are being developed and implemented that should mitigate several
of the concerns of prospective and existing customers and thereby improve the
potential for increased sales. However, the company believes these efforts
have been hindered by the publicity surrounding the David's verdict.
In June 1995, Megafoods moved the majority of its business in the Arizona
market (approximately $150 million of annualized sales) to another supplier.
In November 1995, at the company's request, Megafoods moved the balance of its
business. See note 5. to the Notes to Condensed Consolidated Financial
Statements for further discussion of Megafoods.
Retail sales generated by the same stores for the second quarter and year-to-
date periods in 1996 compared to the same period in 1995 increased slightly.
Net losses associated with the sale or closing of certain corporate
stores, classified as net sales, were $1 million during the second quarter
of 1996 and $4 million year to date.
Fleming measures inflation using data derived from the average cost of a ton
of product sold by the company. Year to date in 1996, food price inflation
was 2.3%, significantly higher than in 1995.
Gross margin. Gross margin for the second quarter of 1996 increased by $21
million, or 7%, to $345 million from $324 million for the same period of 1995
and increased as a percentage of net sales to 9.21% from 8.09% for the same
period in 1995. Year to date, gross margin increased by $40 million, or 5%, to
$802 million from $762 million for the same period of 1995. As a percentage
of net sales, gross margin was 9.00% versus 8.06% in 1995. The increase in
gross margin was principally due to the addition of retail operations,
including ABCO. Retail operations typically have a higher gross margin and
higher selling expenses than food distribution operations. During the first
quarter of 1996, the company implemented increases in certain charges to its
customers and vendors, increasing gross margin comparisons for both the second
quarter and year-to-date periods. Product handling expenses, consisting of
warehouse, transportation and building expenses, were lower as a percentage of
net sales in 1996 compared to 1995, reflecting the cost controls and the
benefits of the company's consolidations occurring in 1995. The company also
achieved productivity increases during 1996. Food price inflation resulted in
a LIFO charge in 1996 of $.7 million for the quarter and $1.5 million year to
date compared to income of $.3 million for the quarter and a charge of $.9
million year to date in 1995.
Selling and administrative expenses. Selling and administrative expenses for
the second quarter of 1996 increased by $34 million, or 13%, to $298 million
from $265 million for the same period in 1995 and increased as a percentage of
net sales to 7.97% for 1996 from 6.62% in 1995. Year to date, selling and
administrative expenses increased by $71 million, or 11%, to $700 million from
$629 million in 1995 and increased as a percentage of net sales to 7.86% for
1996 from 6.65% in 1995. The increase was principally due to higher retail
expenses resulting from additional retail operations, primarily ABCO, and a
provision for the divestiture of certain retail stores. During the second
quarter of 1996, the $4 million charge (included in selling and administrative
expense) related to the David's judgment (recorded in the first quarter of
1996) was reversed as the result of the vacation of the judgment in June 1996.
Also reversed was the $3 million related portion recorded as interest expense.
A new charge of approximately $650 thousand was recorded in the second quarter.
See note 5. to the Notes to Condensed Consolidated Financial Statements for
further discussion of David's. During the second quarter of 1995 a $4 million
gain for the sale of certain notes receivable was recorded; no such sale took
place in 1996. The company is offering for sale approximately $50 million
of notes receivable. Additionally, higher legal expenses compared to the 1995
period also contributed to the increase.
As more fully described in the 1995 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 and unsecured loans to certain customers.
In addition, the company guarantees debt and lease obligations of certain
customers. Usually, these capital investments are made in and guarantees
extended to customers with whom the company enjoys long-term supply
agreements.
Credit loss expense is included in selling and administrative expenses and for
the second quarter of 1996 increased by $1 million to $7 million from $6
million for the comparable period in 1995. Year to date, credit losses
decreased by $1 million to $15 million from $16 million in 1995. Tight credit
practices and reduced emphasis on credit extensions to and investments in
customers have resulted in less exposure and a decrease in credit loss
expense. While 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 position, the results thus far from these
practices and emphasis have been positive when compared to prior years'
experience. The increase during the 1996 quarter was due to $1.6 million of
credit losses related to Megafoods reflecting the estimated deterioration in
the company's collateral. Year to date, credit losses related to Megafoods
were $2.4 million. See note 5. to the Notes to Consolidated Condensed Financial
Statements for further discussion related to Megafoods.
Interest expense. Interest expense for the second quarter of 1996 decreased $6
million to $34 million from $40 million for the same period in 1995. Year to
date, interest expense decreased $6 million to $90 million from $96 million
for the comparable period in 1995. During the second quarter of 1996, the $3
million interest component of the charge recorded in the first quarter of 1996
related to the David's judgment was reversed. Lower average borrowing levels
in the 1996 periods compared to the same periods in 1995 primarily accounted
for the remaining improvement.
In August 1996, Moody's Investors Service ("Moody's") lowered its credit
ratings on the company's senior unsecured debt from Ba1 to Ba3. Standard &
Poor's Ratings Group ("Standard & Poor's") rating is BB-, which management
believes is a comparable rating. The downgrade will result in a .25%
increase in the company's bank debt borrowing margin, which will increase
interest expense on borrowings under the bank credit agreement at an
estimated annualized cost of up to $2 million.
The company enters into interest rate hedge agreements to manage interest
costs and exposure to changing interest rates. The credit agreement with the
company's bank group 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 $850 million
aggregate principal amount of floating rate indebtedness. The company's
hedged position exceeds the hedge requirements set forth in the company's bank
credit agreement.
The interest rate on the company's floating rate indebtedness is equal to the
London interbank offered interest rate ("LIBOR") plus a margin. The average
fixed interest rate paid by the company on the interest rate swaps is 6.95%,
covering $600 million of floating rate indebtedness. The interest rate swap
agreements, which were implemented through seven counterparty banks and have
an average remaining life of 2.2 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 from two counterparty banks. The agreements cap
LIBOR at 7.33% over the next 2.4 years. Payments made or received are
accounted for as interest expense. For the second quarter and year to date in
1996, the interest rate hedge agreements added $2 million and $5 million,
respectively, to interest expense.
With respect to the interest rate hedging agreements, the company believes its
exposure to potential loss due to counterparty nonperformance is minimized
primarily due to the relatively strong credit ratings of the counterparty
banks for their unsecured long-term debt (A- or higher from Standard & Poor's
and A2 or higher from Moody's) and 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 maturity.
Interest income. Interest income for the second quarter of 1996 decreased by
$3 million to $11 million from $14 million for the same period in 1995. Year
to date, interest income decreased by $7 million to $27 million from $34
million in 1995. The decrease is primarily due to the notes receivable sale
in the second quarter of 1995 when the company sold $77 million of notes
receivable with limited recourse. The sale reduced the amount of notes
receivable available to produce interest income. The company is currently
offering for sale approximately $50 million of notes receivable.
Equity investment results. The company's portion of operating losses from
equity investments for the second quarter of 1996 increased by $1 million to
$4 million from $3 million for the same period in 1995. Year to date, losses
generated by equity investments have decreased by $2 million to $7 million
from $9 million in 1995. The results of operations of ABCO, accounted for
under the equity method during most of 1995, are not included in the 1996
equity investment results line due to the acquisition described above,
resulting in an improvement in both 1996 periods compared to 1995. Results of
certain equity investment entities declined during the second quarter when
compared to 1995. The improvement realized year to date is based on improved
results of operations in the underlying equity investment entities as well as
the absence of ABCO equity results.
Facilities consolidation. In the first quarter of 1995, management changed
its restructuring estimates with respect to the general merchandising
operations portion of the restructuring plan. The revised estimate reflects
reduced expense and cash outflow. Accordingly, during the 1995 quarter the
company reversed $9 million of the provision for restructuring.
Taxes on income. The estimated effective tax rate for both periods in 1996
and 1995 was 51.1%.
Other. See Part I., Item 1. Financial Statements - Notes to Consolidated
Condensed Financial Statements and Part II., Item 1. Legal Proceedings for
further discussion of certain litigation.
The company and several other defendants have been named in two suits filed in
U.S. District Court in Miami, Florida. The plaintiffs predicate liability on
the part of the company as a consequence of an allegedly fraudulent scheme
conducted by Premium Sales Corporation ("Premium") and others in which large
losses in the Premium-related entities occurred to the detriment of a pur-
ported class of investors which has brought one of the suits. This case was
certified by the court as a class action on June 27, 1996. The other suit
is by the receiver/trustee of the estates of Premium and certain of its
affiliated entities. Plaintiffs seek actual damages, treble damages,
attorneys' fees, costs, expenses and other appropriate relief. Plaintiffs
claim approximately $300 million in actual losses as the result of the
allegations contained in the complaints.
On August 22, 1996, four former employees of the company and others were
variously indicted for alleged conspiracy to commit wire fraud, wire fraud
and tax fraud arising out of the facts surrounding the cases by a U.S. grand
jury sitting in the Southern District of Florida.
The litigation is complex 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 result could have a material adverse effect on the
company. The company is vigorously defending the actions. The plaintiffs and
certain other defendants involved in the litigation have settled the claims of
the plaintiffs for varying amounts, subject to court approval. Trial is
currently scheduled to begin in October 1996 with respect to the remaining
defendants including the company, two other grocery defendants and a local
bank.
The company, one of its former subsidiaries, and a retired executive officer
were named in a lawsuit filed in District Court in Johnson County, Texas
(David's Supermarkets, Inc. v. Fleming Companies, Inc. ("David's")) which was
tried before a jury in February and March 1996. Plaintiff sought substantial
actual damages, treble damages, exemplary damages, attorneys' fees, interest
and costs against the company for allegedly overcharging the plaintiff for
products over a two-year period. The company considered the claims to be
without merit. However, following a four-week trial the jury found against
the company for $72.5 million for breach of contract, $201 million for fraud
and $207.5 million for violation of the Texas Deceptive Trade Practices Act
("DTPA"), and against the executive for $51 million for fraud and $72.6 million
for violation of the DTPA. On April 12, 1996, judgment was entered against
the company in the amount of $207.5 million for violation of the DTPA plus
pre-judgment interest of $3.7 million and post-judgment interest at the rate
of 10% per annum. Judgment jointly and severally against the executive was
entered for $72.6 million plus pre-judgment and post-judgment interest.
The company bonded the judgment with a $230 million supersedeas bond partially
secured by letters of credit in the amount of $135 million.
On May 10, 1996, the company filed a motion for a new trial on grounds, among
others, that the trial judge had failed to disclose certain financial
relationships with the plaintiff and others associated with the plaintiff. On
May 13, 1996, the judge recused himself from the case by reason of his failure
to disclose the relationships with the plaintiff and others. Another judge
has been assigned to the case.
On June 24, 1996, a new trial was granted. Concurrently, the plaintiff's
judgment was vacated, and the defendants and their sureties were discharged
from all liability on the supersedeas bond. As a result, the letters of
credit for $135 million were cancelled, thereby increasing the company's
available bank credit.
The new trial is scheduled for January 1997. Defendants have moved for a
change of venue from Johnson County. Plaintiff alleges liability on the part
of the company and the same co-defendant as the result of breach of contract,
fraud and violation of the DTPA and seeks substantial actual damages, treble
damages, exemplary damages, attorneys' fees, interest and costs, totaling
hundreds of millions of dollars.
Based on the vacation of the judgment in the first case, the approximately
$7 million charge recorded in the first quarter was reversed during the second
quarter. Although the company denies any wrongdoing, the company has been
unable to locate certain documents evidencing that the price paid by the
plaintiff conforms to the terms of its agreement with the company. According-
ly, during the second quarter the company recorded a charge of approximately
$650 thousand which includes approximately $200 thousand of disputed over-
charges, interest, fees and other sums. Management is unable to predict
the potential range of additional monetary exposure, if any, to the company.
However, an unfavorable outcome in the retrial could have a material adverse
effect on the company.
Assertions similar to those in the David's litigation have been made in three
other pending cases (including the Megafoods case described below) and could
occur in future litigation. Management is unable to predict the potential
range of monetary exposure, if any, to the company in such cases. However,
if plaintiffs in any of those cases are successful, the outcome could have a
material adverse effect on the company.
The company and certain of its present and former officers, including the
chief executive officer, have been named as defendants in nine purported class
action lawsuits filed by certain of its stockholders and one purported class
action lawsuit filed by a noteholder, each in the U.S. District Court for the
Western District of Oklahoma, alleging the company failed to properly disclose
and account for the risk associated with the David's litigation. The
plaintiffs in five of the stockholder cases also claim the company failed to
disclose that it was engaged in a deceptive course of business with its
customers that exposes it to substantial legal liability which would severely
impair the financial condition, performance and value of the company. The
plaintiffs seek undetermined but significant damages. Motions to consolidate
some or all of the cases are pending before the court. The company denies
these allegations and intends to vigorously defend the actions. Management is
unable to predict a potential range of monetary exposure, if any, to the
company from these actions. However, an unfavorable outcome in any of them
could have a material adverse effect on the company.
Megafoods Stores, Inc. ("Megafoods") and certain of its affiliates filed
Chapter 11 bankruptcy proceedings in Arizona in August 1994. The company
filed claims, including a claim for indebtedness for goods sold on open
account, equipment leases and secured loans totaling approximately $28
million. The debtor filed an adversary proceeding against the company seeking
subordination of the company's claims, return of an approximate $12 million
deposit and affirmative relief for damages which included allegations similar
to those in the David's litigation described above. The company took charges
of $6.5 million in 1994, approximately $3.5 million in 1995 and $2.4 million
year to date in 1996.
On August 12, 1996, the bankruptcy judge conditionally approved a settlement
of the debtor's adversary proceeding against the company subject to approval
by the creditors of a revised reorganization plan which will encompass the
settlement. A vote is expected in the fall of 1996. Under the terms of the
settlement, the company will retain its $12 million working capital deposit,
relinquish its secured and unsecured claims and pay the debtor $2.5 million in
exchange for the furniture, fixtures and equipment from seventeen Megafoods
stores and two warehouses. The debtor has agreed to lease back the furniture,
fixtures and equipment in fourteen of the stores to the reorganized debtor for
nine years at an annual rental totaling $18 thousand. In addition, the company
will receive 10% of the common stock in the reorganized debtor and has entered
into a shareholder voting trust agreement which provides that any shares of
the reorganized debtor that the company holds will be voted in the same
proportion as the reorganized debtor's other shares are voted. The company
expects to record a charge of approximately $2 million related to the
settlement agreement in the third quarter.
Several factors negatively affecting earnings in 1996 are likely to continue
for the near term. Management believes that these factors include lower
sales, operating losses in certain company-owned retail stores and litigation-
related costs.
Segment information. Sales and operating earnings for the company's food
distribution and retail food segments are presented below.
<TABLE>
=============================================================================
<CAPTION>
Second Interim Period
(In millions) 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
Sales:
Food distribution $2,892 $3,247
Retail food 850 753
- - -----------------------------------------------------------------------------
Total sales $3,742 $4,000
=============================================================================
Operating earnings:
Food distribution $73 $67
Retail food 5 14
Corporate (32) (22)
- - -----------------------------------------------------------------------------
Total operating earnings $46 $59
=============================================================================
Year to Date
(In millions) 1996 1995
- - -----------------------------------------------------------------------------
Sales:
Food distribution $6,873 $7,698
Retail food 2,038 1,761
- - -----------------------------------------------------------------------------
Total sales $8,911 $9,459
=============================================================================
Operating earnings:
Food distribution $162 $165
Retail food 20 31
Corporate (80) (63)
- - -----------------------------------------------------------------------------
Total operating earnings $102 $133
=============================================================================
</TABLE>
Operating earnings for industry segments consist of net sales less related
operating expenses. Operating expenses exclude interest expense, interest
income, equity investment results, facilities consolidation and taxes on income.
General corporate expenses are not allocated to food distribution and retail
food segments. The transfer pricing between segments is at cost.
Liquidity and Capital Resources
Set forth below is certain information regarding the company's capital
position at the end of the second quarter of 1996 and at the end of fiscal
1995:
<TABLE>
=============================================================================
<CAPTION>
Capital Structure (In millions) July 13, 1996 December 30, 1995
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $1,338 47.7% $1,402 48.8%
Capital lease obligations 379 13.5 388 13.5
- - -----------------------------------------------------------------------------
Total debt 1,717 61.2 1,790 62.3
Shareholders' equity 1,089 38.8 1,083 37.7
- - -----------------------------------------------------------------------------
Total capital $2,806 100.0% $2,873 100.0%
=============================================================================
</TABLE>
The company's current capital structure includes a $800 million six-year
amortizing term loan with final maturity in June 2000, a $596 million five-
year revolving credit facility with final maturity in July 1999, $300 million
of 10.625% seven-year senior notes, $200 million of floating rate seven-year
senior notes, each of which matures December 2001, $99 million of medium-term
notes, $7 million of 9.5% debentures and $10 million of other debt.
The company's senior unsecured debt is rated Ba3 by Moody's Investors Service
("Moody's") and BB- by Standard & Poor's Ratings Group ("Standard & Poor's").
The rating by Moody's reflects a downgrade announced in August 1996.
Moody's actions result from their announced concerns over structural changes
in the industry and lower sales, earnings and cash flow. Standard & Poor's
has the company's rated debt on CreditWatch with negative implications.
Pricing under the bank credit agreement automatically increases or decreases
with respect to certain credit rating declines or improvements, respectively,
based upon Moody's and Standard & Poor's ratings of the company's senior
unsecured debt.
The company's principal sources of liquidity are cash flows from operating
activities and borrowings under the bank credit agreement. At second quarter
end 1996, $617 million was borrowed on the six-year amortizing term loan.
Also, $78 million of letters of credit had been issued (reducing bank credit
capacity on a dollar-for-dollar basis) and $110 million was borrowed under
the $596 million five-year revolving credit facility.
The bank credit agreement and the indentures for the senior notes contain
customary covenants associated with similar facilities. The bank credit
agreement currently contains the following more significant covenants:
maintenance of a consolidated debt-to-net worth ratio of not more than 2.25 to
1; maintenance of a minimum consolidated net worth of at least $892 million;
maintenance of a fixed charge coverage ratio of at least 1.1 to 1; a
limitation on dividend payments of $.08 per share, per quarter; and
limitations on capital expenditures. Covenants associated with the senior
notes are generally less restrictive than those of the bank credit agreement.
At second quarter end 1996, the company would have been allowed to borrow an
additional $408 million under the company's revolving credit facility
contained in the bank credit agreement. Under the company's most restrictive
borrowing covenant, which is the fixed charge coverage ratio, $32 million of
additional fixed charges could have been incurred. The company is currently
in compliance with all covenants under the bank credit agreement and senior
notes. Because the David's judgment was vacated, the supersedeas bond
was canceled, and $135 million of collateral (in the form of letters of
credit issued by participants in the company's credit facility) was returned
thereby increasing the company's available credit.
In March 1996, the Board of Directors declared a quarterly cash dividend of
$.02 per share for the second quarter of 1996, a reduction of $.28 per share.
In July 1996, the Board of Directors declared a quarterly cash dividend of
$.02 per share for the third quarter of 1996.
Operating activities generated $175 million of net cash flows for the first 28
weeks in 1996 compared to $263 million in the comparable period in 1995. The
decrease is due to lower earnings, lower decreases in inventory and higher
decreases in accounts payable, all in 1996 as compared to the same period in
1995. Working capital was $293 million at second-quarter end 1996, a decrease
from $364 million at year-end 1995. The current ratio decreased to 1.25 to 1
at second-quarter end 1996, from 1.28 to 1 at year-end 1995.
Capital expenditures year to date in 1996 were approximately $69 million.
Management expects that 1996 capital expenditures, excluding acquisitions, if
any, will approximate $130 million.
Management believes that the cash flows from operating activities and the
company's ability to borrow under the bank credit agreement will be adequate
to meet working capital needs, capital expenditures and other cash needs for
the next twelve months.
The debt-to-capital ratio at the end of the second quarter of 1996 was 61.2%,
a decrease from year-end 1995, reflecting payments made on long-term debt
ahead of schedule. The company's long-term target ratio is approximately 50%.
Total capital was $2.8 billion at quarter end, lower than at year-end 1995 due
in part to debt repayments.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(1) Tropin v. Thenen, et al., Case No. 93-2502-CIV-Moreno, United States
District Court, Southern District of Florida.
Walco Investments, Inc., et al. v. Thenen, et al., Case No. 93-2534-CIV-
Moreno, United States District Court, Southern District of Florida.
The company and several other defendants have been named in two suits filed in
U.S. District Court in Miami, Florida. The plaintiffs predicate liability on
the part of the company as a consequence of an allegedly fraudulent scheme
conducted by Premium Sales Corporation ("Premium") 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. This case
was certified by the court as a class action on June 27, 1996. The other
suit is by the receiver/trustee of the estates of Premium and certain of its
affiliated entities. Plaintiffs seek actual damages, treble damages,
attorneys' fees, costs, expenses and other appropriate relief. Plaintiffs
claim approximately $300 million in actual losses as the result of the
allegations contained in the complaints. The plaintiffs and certain other
defendants involved in the litigation have settled the claims of the
plaintiffs for varying amounts, subject to court approval. Trial is currently
scheduled to begin in October 1996 with respect to the remaining defendants
including the company, two other grocery defendants and a local bank. On
August 22, 1996, four former employees of the company and others were variously
indicted for alleged conspiracy to commit wire fraud, wire fraud and tax fraud
arising out of the facts surrounding the cases by a U.S. grand jury sitting
in the Southern District of Florida.
(2) David's Supermarkets, Inc. vs. Fleming Companies, Inc., et al. Case No.
246-93, In the District Court of Johnson County, Texas.
On April 12, 1996, a judgment in the amount of $207.5 million plus pre-
judgment interest of $3.7 million and post-judgement interest at the rate of
10% per annum was rendered in the David's litigation. The company posted a
supersedeas bond, commenced appeal of the judgment and filed a motion for a
new trial and the recusal of the trial judge on the grounds, among others,
that the judge failed to disclose previous financial relationships with the
plaintiff and others.
The judge recused himself, a new judge was assigned to the case and in
June 1996 the court vacated the judgment and granted the company a new
trial, set to begin in January 1997. Defendants have moved for a change of
venue from Johnson County. Plaintiff alleges liability on the part of the
company and the same co-defendant as the result of breach of contract, fraud
and violation of the DTPA. Plaintiff alleges substantial actual damages,
treble damages, exemplary damages, attorneys' fees, interest and costs,
totaling hundreds of millions of dollars. Although the company denies
any wrongdoing, the company has been unable to locate certain documents
evidencing that the price paid by the plaintiff conforms to the terms of
its agreement with the company. Accordingly, during the second quarter the
company recorded a charge of approximately $650 thousand which includes
approximately $200 thousand of disputed overcharges, interest, fees and
other sums.
(3) In re: Megafoods Stores, Inc. and related proceedings, Case No. B-94-
07411-P8X-RTB, U.S. Bankruptcy Court for the district of Arizona.
Megafoods and certain of its affiliates filed Chapter 11 bankruptcy
proceedings in Arizona in August 1994. The company filed claims, including a
claim for indebtedness for goods sold on open account, equipment leases and
secured loans totaling approximately $28 million. The debtor filed an
adversary proceeding against the company seeking subordination of the
company's claims, return of an approximate $12 million deposit and affirmative
relief for damages which included allegations similar to those in the David's
litigation described above. The company took charges of $6.5 million in 1994,
approximately $3.5 million in 1995 and $2.4 million year to date in 1996.
On August 12, 1996, the bankruptcy judge conditionally approved a settlement
of the debtor's adversary proceeding against the company subject to approval
by the creditors of a revised reorganization plan which will encompass the
settlement. A vote is expected in the fall of 1996. Under the terms of the
settlement, the company will retain its $12 million working capital deposit,
relinquish its secured and unsecured claims and pay the debtor $2.5 million in
exchange for the furniture, fixtures and equipment from seventeen Megafoods
stores and two warehouses. The debtor has agreed to lease back the furniture,
fixtures and equipment in fourteen of the stores to the reorganized debtor for
nine years at an annual rental totaling $18 thousand. In addition, the company
will receive 10% of the common stock in the reorganized debtor and has entered
into a shareholder voting trust agreement which provides that any shares
of the reorganized debtor that the company holds will be voted in the
same proportion as the reorganized debtor's other shares are voted. The
company expects to record a charge of approximately $2 million related to the
settlement agreement in the third quarter.
(4) Richard E. Ieyoub, Attorney General ex rel., State of Louisiana v. The
American Tobacco Company, et al., Case No. 96-1209, 14th Judicial District
Court, Parish of Calcasieu, State of Louisiana.
In August 1996, the registrant was served in this case brought by the
Attorney General of the State of Louisiana against numerous named tobacco
companies and distributors (including Malone & Hyde, Inc., a former subsidiary
which has been merged into the registrant) claiming that the defendants'
products and conduct were the cause of thousands of deaths, injuries and
illnesses and millions of dollars of state health-care and related expenditures.
The registrant has been indemnified by one of the tobacco companies and will
vigorously defend the case.
(5) Steiner, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-
480-M, United States District Court, Western District of Oklahoma.
Hollin, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-484-M,
United States District Court, Western District of Oklahoma.
Goldstein, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-510-M,
United States District Court, Western District of Oklahoma.
General Telecom Money Purchase Pension Plan & Trust, et al. v. Fleming
Companies, Inc., et al., Case No. CIV-96-593-M, United States District Court,
Western District of Oklahoma.
Bright Trading, Inc., et al. v. Fleming Companies, Inc., et al., Case No.
CIV-96-830-M, United States District Court, Western District of Oklahoma.
City of Philadelphia, et al. v. Fleming Companies, Inc., et al., Case No.
CIV-96-853-M, United States District Court, Western District of Oklahoma.
Pindus, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-869-M,
United States District Court, Western District of Oklahoma.
Hinton, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-942-C,
United States District Court, Western District of Oklahoma.
Wells, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-993-L,
United States District Court, Western District of Oklahoma.
Mark, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-506-M,
United States District Court, Western District of Oklahoma.
The company and certain of its present and former officers, including the
chief executive officer, have been named as defendants in nine purported
class action lawsuits filed by certain of its stockholders and one purported
class action lawsuit filed by a noteholder, each in the U.S. District Court
for the Western District of Oklahoma from March 28, 1996 through June 24,
1996, alleging the company failed to properly disclose and account for the risk
associated with the David's litigation. The plaintiffs in five of the stock-
holder cases also claim the company failed to disclose that it was engaged in
a deceptive course of business with its customers that exposes it to sub-
stantial legal liability which would severely impair the financial condition,
performance and value of the company. The plaintiffs seek undetermined but
significant damages. Motions to consolidate some or all of the cases are
pending before the court. The company denies these allegations and intends
to vigorously defend the actions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Page Number
<S> <C>
12 Computation of Ratio of Earnings
to Fixed Charges
27 Financial Data Schedule
</TABLE>
(b) Report on Form 8-K
On July 2, 1996, registrant filed under Item 5. disclosing the granting of a
new trial in the David's litigation and that the March 1996 judgment had been
set aside and vacated.
<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: August 27, 1996 KEVIN J. TWOMEY
Kevin J. Twomey
Vice President-Controller
(Principal Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Method of Filing
- - ------- ----------------
<S> <C> <C>
12 Computation of Ratio of Earnings Filed herewith electronically
to Fixed Charges
27 Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE>
Fleming Companies, Inc.
Computation of Ratio of Earnings to Fixed Charges
<CAPTION>
28 Weeks Ended
July 13, July 15,
(In thousands of dollars) 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
Earnings:
Pretax income $ 31,388 $ 70,111
Fixed charges, net 114,268 116,627
- - -----------------------------------------------------------------------------
Total earnings $145,656 $186,738
Fixed charges:
Interest expense $ 90,090 $ 96,443
Portion of rental charges
deemed to be interest 23,983 20,008
Capitalized interest 11 630
- - -----------------------------------------------------------------------------
Total fixed charges $114,084 $117,081
Ratio of earnings
to fixed charges 1.28 1.59
</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.
The pro forma ratio of earnings to fixed charges is omitted as it is not
applicable.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE FISCAL QUARTER ENDED JULY 13, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000352949
<NAME> FLEMING COMPANIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUL-13-1996
<CASH> 46,437
<SECURITIES> 0
<RECEIVABLES> 365,554
<ALLOWANCES> 43,311
<INVENTORY> 1,018,796
<CURRENT-ASSETS> 1,474,183
<PP&E> 1,534,597
<DEPRECIATION> 585,861
<TOTAL-ASSETS> 4,078,314
<CURRENT-LIABILITIES> 1,181,275
<BONDS> 1,241,338
0
0
<COMMON> 94,520
<OTHER-SE> 994,760
<TOTAL-LIABILITY-AND-EQUITY> 4,078,314
<SALES> 8,910,565
<TOTAL-REVENUES> 8,910,565
<CGS> 8,108,623
<TOTAL-COSTS> 8,774,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,953
<INTEREST-EXPENSE> 90,090
<INCOME-PRETAX> 31,388
<INCOME-TAX> 16,039
<INCOME-CONTINUING> 15,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,349
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
