SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
December 7, 1998
Date of Report
(Date of earliest event reported)
FLEMING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 1-8140 48-0222760
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification)
6301 Waterford Boulevard, Box 26647
Oklahoma City, Oklahoma 73126
(Address of Principal Executive Offices)
(405) 840-7200
Registrant's telephone number,
including area code
<PAGE>
Item 5. Other Events.
On December 7, 1998, Fleming issued the following press release:
FLEMING WILL IMPLEMENT STRATEGIC PLAN TO IMPROVE PERFORMANCE
Plan Focuses Resources to Better Serve Customers & to Increase Earnings;
$667 Million Pre-Tax Fourth Quarter 1998 Charge to Support Initiatives
Oklahoma City, December 7, 1998 -- Fleming (FLM: NYSE)
announced today the company is fundamentally shifting its business
to focus on core strategic assets in its wholesale and retail
operations. This comprehensive plan is designed to improve the
competitiveness of the retailers Fleming serves and the company's
performance by building stronger operations that can better support
long-term growth.
"We must focus Fleming's resources more intensely than ever
before to help our customers win in an increasingly competitive
marketplace," said Chairman and CEO Mark Hansen. "We're
repositioning for growth by creating a more efficient operation
that leverages Fleming's strengths and delivers reliable and
responsive service for our customers. Our commitment is to bring
our customers a more powerful wholesale system to support their
success in the marketplace."
"In addition to focusing our resources to improve performance
in our wholesale and retail operations, we intend to take steps to
pursue a targeted growth strategy and to reduce overhead expenses.
We are confident this strategic plan offers a well-defined path to
improved performance for our customers, company and shareholders,"
he added.
Fleming board member Edward C. Joullian III, who recently
served as interim chairman, said, "The strategic plan has been well
thought out. In addition to the hundreds of hours spent on the plan
by company management and Bain & Company, the board met many times
over the past eight months to work closely with them on the plan's
development. The board stands fully behind the strategic plan.
With the plan's successful execution now in the capable hands of
our new CEO, we are convinced it will help Fleming turn the corner
on the issues it has faced and will provide a great platform that
repositions the company for growth."
The new plan culminates an intensive, eight-month study of all
facets of Fleming's operations by the board, senior management and
Bain & Company. To support these plans, Fleming will take a pre-tax
charge of approximately $667 million in the fourth quarter 1998, of
which only $45 million will be cash.
Wholesale Consolidations to Improve Efficiency
President and Chief Operating Officer Bill Dowd, who managed
the company's strategic planning process, said, "We will be
optimizing our wholesale operations to more effectively and
efficiently support Fleming's retail customers."
"We simply must create a lower-cost system for our customers.
We must provide them with the competitive benefits of greater
economies of scale by increasing sales volumes and capacity
utilization at each product supply center. We also must improve our
productivity for our customers while assuring quality service to
meet their needs."
"Our first priority is to seamlessly transfer our current
customers' business to the product supply centers that are best
positioned to serve them. We want to ensure they continue to
receive high-quality support from us during the transition and in
the future," said Dowd. "We have carefully chosen the facilities
that are best equipped to meet the needs of our customers whose
product supply and services support will be relocated."
By mid-1999, customers at seven product supply centers that
will be sold or closed will be serviced primarily by Fleming's
distribution divisions in Nashville, TN; Memphis, TN; Massillon,
OH; Lincoln, NE; Kansas City, MO; La Crosse, WI; and Garland and
Lubbock, TX. The locations to be divested are: Huntingdon, PA;
Laurens, IA; Johnson City, TN; Sikeston, MO; and, as previously
announced, El Paso and Houston, TX; and Portland, OR.
Dowd added, "We are also committed to raising our service and
productivity levels as we move forward. To lead our performance
improvement programs, we recently appointed a Vice President,
Customer Satisfaction Lou Degginger. His mission is to ensure that
we satisfy our customers and support their success with efficient,
service-oriented operations."
Strategic Wholesale Growth Plans
Another key part of the strategic plan involves an
aggressive new business development program that will leverage
the power of Fleming's refocused wholesale operations to earn a
greater share of business from existing customers and to attract
new customers. Capital investments also will be increased
dramatically over the next five years to support the growth of
our wholesale operations in targeted markets.
Hansen said, "We're bullish about the sales and growth
opportunities we see for our customers and our company. Based on
the detailed market-by-market studies done over the last several
months and the competitive advantages we're creating, we're
convinced that substantial opportunities exist. Specific growth
strategies have been developed for each of our targeted markets.
Sales and marketing initiatives to help our customers increase
their share of market are already under way."
More Focused Retail Operations
In its company-owned retail operations, Fleming will
concentrate on developing its top-performing chains and groups,
which include Baker's, Rainbow Foods and SuperSaver/Sentry
Foods.
Retail groups and stores that do not meet Fleming's
performance standards will be divested. This includes selling the
Hyde Park Market chain in Florida.
"To strengthen our retail operations, we will be infusing
winning marketing concepts in the Fleming Retail Group with
additional capital for new store development," said Dowd. "We
will also intensify our efforts to increase same-store sales."
"Finding ways to better align our retail and wholesale
operations is also vital. Where it is possible to do so, we will
be looking for synergies between our retail customers and our
company-owned retail chains to create more powerful marketing and
procurement programs for all involved. By working together, all
Fleming-served customers can compete more successfully," Dowd
added.
Reducing Overhead Expenses
To support improved operating efficiency, overhead expenses
will be reduced systemwide. Staff functions at all levels of the
organization will be examined and appropriately reset to reflect
the new configuration for Fleming's wholesale and retail business.
Anticipated Financial Impact
The company's primary financial objectives are to earn a
return on capital which exceeds the cost of capital, produce net
earnings which approach 1% of net sales, and achieve more than
$3.00 in earnings per share by the year 2003, all in the context of
a growing business. The new strategic plan is an all-encompassing
effort to maximize the company's ability to meet or exceed these
goals.
As a consequence of the board's endorsement of the plan,
Fleming expects to record in the fourth quarter 1998 a charge of
approximately $667 million pre-tax, which includes charges related
to the sale or closing of the seven named product supply centers
and the transfer of business to nearby centers, the divestiture of
the eleven Hyde Park Market retail stores, and write-downs of other
assets. The charge is comprised of non-cash write-downs of asset
values totaling $622 million ($394 million for goodwill and $228
million for other assets) and $45 million of cash costs for
restructuring and other disposition costs. The estimated after-tax
impact of the charge in 1998 is $558 million.
Fleming expects to incur additional charges of approximately
$114 million pre-tax over the next four years for restructuring and
other disposition costs which can not yet be recognized for
accounting purposes.
Therefore, total charges for the fourth quarter 1998 through
2002 are estimated to be $781 million pre-tax. Total charges
include provisions related to certain other Fleming wholesale,
retail and staff operations for which options are being explored.
While strategic plan initiatives will be implemented over the next
24 months, the additional charges are anticipated to be expended
over the next four years. The sales growth plan extends over the
next five years.
Management believes Fleming possesses the financial strength,
including adequate liquidity and cash flows, to implement the
strategic plan initiatives. Reported earnings per share for the
full year 1998 before the fourth quarter charge are expected to
range between $0.85 to $1.00. The charge to be taken in the 1998
fourth quarter will reduce per share results by approximately
$14.56. The attached financial addendum provides more descriptive
information concerning the charges described above, including the
pro forma effect of the 1998 fourth quarter charge on the company's
balance sheet.
Total company net sales are estimated to be between $15
billion and $15.2 billion for the full year 1998. Sales are
projected to decrease by $1 billion over the next two years due
primarily to the anticipated move to full self-distribution in 1999
of Randall's Food Markets, Inc., the sale of the El Paso
distribution center to Furr's Supermarkets, Inc., and the strategic
plan initiatives.
Thereafter, total company net sales are expected to grow between
1 percent and 4 percent per year. EBITDA for 1998 is expected to be
$420 million to $440 million. For 1999, EBITDA is expected to decline
to $380 million to $400 million; however, EBITDA is positioned for
growth thereafter.
Capital expenditures are expected to be $190 million to $205
million for 1998 and approximate that range through 2003. Because
Fleming will have fewer operating units, maintenance capital
expenditures will be lower. This will provide more capital
expenditure dollars to support growth.
Fleming is one of the nation's leading food marketing and
distribution companies, serving approximately 3,000 supermarkets in
42 states. The company operates approximately 280 company-owned
stores.
This release, including the financial addendum, includes
statements that (a) predict or forecast future events or results,
(b) depend on future events for their accuracy, or (c) embody
projections and assumptions which may prove to have been
inaccurate, including estimated results for 1998 and expectations
for years 1999 and beyond. The projections were not prepared with
a view to compliance with the guidelines established by the
American Institute of Certified Public Accountants regarding
projections. These projections, forward-looking statements, and the
company's business and prospects are subject to a number of factors
which could cause actual results to differ materially, including:
adverse effects of the changing industry environment and increased
competition; continuing sales declines and loss of customers;
exposure to litigation and other contingent losses; failure to
implement the strategic initiatives according to plan or to achieve
the expected results of such plan; failure of the company to
achieve necessary cost savings; failure to develop and implement
year-2000 system solutions; and negative effects of the company's
substantial indebtedness and the limitations imposed by restrictive
covenants contained in the company's debt instruments. These and
other factors are described in the company's periodic reports
available from the Securities and Exchange Commission, including
the company's 1997 Form 10-K and subsequent quarter Form 10-Qs.
Additionally, statements are made in this release regarding
targeted earnings and other financial objectives concerning net
earnings as a percent of net sales and return on capital relative
to cost of capital. These statements are reflections of company
goals and are not intended as projections or forecasts.
<TABLE>
Fleming Companies, Inc. (NYSE: FLM)
Analysis of Impairment and
Restructuring Charges and
Pro Forma Impact on the Consolidated Condensed Balance Sheet
(In millions of dollars)
Analysis of Impairment and Restructuring Charges:
(All amounts are estimates) Total for yrs.
<CAPTION>
1998 1999 2000 2001 2002 1998 - 2002
<S> <C> <C> <C> <C> <C> <C>
Impairment of assets:
Goodwill $394 $ 0 $0 $0 $0 $394
Other assets 249 26 0 0 0 275
Total impairment of
assets 643 26 0 0 0 669
Other restructuring
charges 20 13 16 0 0 49
Total impairment
and restructuring charges 663 39 16 0 0 718
Other periodic disposition
and exit costs 4 29 12 13 5 63
Total charges before taxes 667 68 28 13 5 781
Income tax benefit 109 27 11 5 2 154
Total charges after taxes $558 $41 $17 $8 $3 $627
Non-cash charges (pre-tax)$622 $36 $ 0 $0 $0 $658
Cash charges (pre-tax) 45 32 28 13 5 123
Total $667 $68 $28 $13 $5 $781
Cash expended $9 $38 $41 $17 $8 $113
</TABLE>
<TABLE>
Impact on the Consolidated Condensed Balance Sheet as of October 3, 1998:
<CAPTION>
Actual 4th Quarter Pro Forma
10/03/98 1998 Charge 10/03/98
<S> <C> <C> <C>
Current assets $1,585 $2 $1,587
Investments and other assets 557 (63) 494
Net property and equipment 929 (145) 784
Goodwill, net 943 (394) 549
Total assets $4,014 $(600) $3,414
Current liabilities $1,230 $24 $1,254
Long-term debt 1,130 1,130
Long-term obligations under
capital leases 364 364
Deferred taxes and
other liabilities 164 (66) 98
Total shareholders' equity 1,126 (558) 568
Total liabilities and
shareholders' equity $4,014 $(600) $3,414
</TABLE>
<TABLE>
Fleming Companies, Inc. (NYSE: FLM)
Estimates of Selected Income Statement Items
(In millions of dollars)
<CAPTION>
For the years
1997 1998
Actual Estimated Range
<S> <C> <C>
Net Sales:
Food distribution $11,914 $11,400 to $11,700
Retail food $3,459 $3,500 to $3,600
Total company $15,373 $15,000 to $15,200
Total Company (before charge):
Operating earnings $236 $220 to $230
EBITDA $435 $420 to $440
Diluted earnings (loss) per share:
Before extraordinary charge $1.02 $0.85 to $1.00
Charge - $14.56
Extraordinary charge $0.35 -
After charges $0.67 $(13.56) to $(13.71)
Diluted weighted average shares 37,862 38,100
</TABLE>
<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 hereunto duly authorized.
FLEMING COMPANIES, INC.
KEVIN TWOMEY
Kevin Twomey
Vice President-Controller
Date: December 7, 1998
