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
DATE OF REPORT: February 10, 2000
(Date of earliest event reported) February 10, 2000
FLEMING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 1-8140 48-0222760
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) 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)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. OTHER EVENTS
The following is a descriptive narrative of Fleming Companies, Inc.'s
presentation to the Donaldson, Lufkin & Jenrette Retail Equity
Conference scheduled for February 10, 2000.
Slide Number 1) Fleming
Slide Description
-----------------
A Great Place to Work
A Great Place to Trade
A Great Place to Invest
Slide Number 2)
Slide Description
-----------------
Business Summary and Growth Strategy
- ------------------------------------
Mark S. Hansen
Chairman of the Board and Chief Executive Officer
Financial Review
- ----------------
Neal J. Rider
Executive Vice President and Chief Financial Officer
Narrative
---------
Good afternoon! It is a privilege to be with you today! We
appreciate being invited to participate in this conference.
My name is Mark Hansen, and with me today are Neal Rider,
Fleming's Executive Vice President and Chief Financial
Officer, Kevin Twomey, Fleming's Senior Vice President of
Finance, and Alan McIntyre, who is Vice President and
Treasurer.
I will present a summary of our business and growth
strategy, and Neal Rider will provide the financial review.
Slide Number 3)
Slide Description
-----------------
Mark S. Hansen
Fleming Yesterday
Fleming Today
Growth Strategy
Narrative
---------
Certain information contained in today's presentation
predicts or forecasts future events, or depends on future
events for their accuracy.
These are forward-looking statements which are subject to a
number of factors which could cause actual results to differ
materially.
Additional information is contained in our form 10-K and
form 10-Q reports, copies of which are available.
Slide Number 4) Fleming Yesterday
Narrative
---------
Let's start by looking at the Fleming of the past.
Slide Number 5) Fleming of Yesterday
Slide Description
-----------------
o Grocery Wholesaler to Independent Supermarkets, Regional
and Small Supermarket Chains
o Retail Operations Were Under-Performing Conventional
Retail Formats
o Sales Were Stagnant, Low-Growth or Decreasing
o Financial Results Did Not Cover Cost of Capital
Slide Number 6) Fleming Today
Slide Description
-----------------
o Let's consider where Fleming is today.
Slide Number 7) Fleming Today
Slide Description
-----------------
o Distribution with Major Presence
- Supermarkets
- Convenience Stores
- Supercenters
- Category Killers
- Non-Traditional Food Retailers
o Retail with Improved Economics
- High-Volume Regional Supermarket Chains
- Value Retail
o E-Commerce with Potential
- Grocery Fulfillment --- Tomorrow's Independent
- Visionet
Slide Number 8) Fleming Today - Earnings Per Share*
Slide Description
-----------------
Q3-98 $0.02
Q4-98 $0.06
Q1-99 $0.20
Q2-99 $0.26
Q3-99 $0.27
Q4-99 Est. $0.37e
Highest fourth quarter earnings in six years
*Adjusted to exclude strategic plan charges and gains on
sales of wholesale facilities
Narrative
---------
Fleming today has improved earnings
We just completed our fifth straight quarter of improved
earnings on an adjusted basis. This is the best fourth
quarter results in 6 years.
We believe our growth strategy plan is going to be
successful in continuing to improve both the level of
earnings as well as the growth rate of our earnings.
Slide Number 9) Fleming Today
Slide Description
-----------------
o Strong Focus On The Future
o The Market We See Is Different
o Re-Positioned Business - The Turnaround
o Core Competencies
Slide Number 10) How We See The Retail Market
The market we see is different today
Slide Number 11) How We See The Retail Market
Slide Number 12) How We See The Retail Market
Slide Number 13) How We See The Retail Market
Slide Number 14) How We See The Retail Market
Slide Number 15) How We See The Retail Market
Narrative
---------
For the 1995 through 2005 time frame, the market share for
conventional supermarkets is expected to decrease by 12%,
according to several industry studies.
Slide Number 16) How We See The Retail Market
Narrative
---------
A number of other retailing concepts are expected to gain
market share at the expense of conventional supermarkets.
Slide Number 17) How We See The Retail Market
Narrative
---------
For example, in the destination quadrant, supercenters'
market shares are expected to increase 9% between 1995 and
2005.
In the precision quadrant, limited assortment stores' and
price impact stores market shares are also expected to grow
during this period.
Slide Number 18) How We See The Retail Market
Slide Description
-----------------
o Conventional Retail Under Siege
o Highest Value for Conventional:
- Be A Consolidator
- Sell To A Consolidator
o Opportunities Remain:
- Precision Store Formats
- Destination Store Formats
Slide Number 19) Re-Positioned Business -The Turnaround
Slide Description
-----------------
o Asset Rationalization
o Cost Reduction
o The Business Was Right-Sized
o Core Competencies
Slide Number 20) Core Competencies
Slide Description
-----------------
o Case Pick Distribution
o Piece Pick Distribution
o Flow Through Distribution
o Procurement
o Retail Services
o Value Retail
o E-Commerce
Slide Number 21) Growth Strategy: Distribution
Slide Number 22) Growth: Distribution
Slide Description
-----------------
o Low Cost
o Consolidation for Low Cost Higher Productivity
o Improved Metrics: '98 vs. '00
Slide Number 23) Growth: Distribution
Slide Description
-----------------
Improved Metrics: '98 vs. '00
Avg. Volume/DC $390 MM $589 MM
Avg. Volume/Employee $1.32 MM $1.43 MM
DCs w/$600MM+ Volume 5 9
DCs w/$700MM+ Volume 3 5
DCs w/$1 Billion+ Volume 0 4
Slide Number 24) Growth: Distribution
Slide Description
-----------------
o Procurement Scale
- Centralize Procurement for 60%+ of
All Merchandise
- Purchase Regional Products Locally
- Streamline Procurement Staff
- Improves Buying Efficiencies
- Reduces Cost of Goods
Slide Number 25) Implications
Slide Description
-----------------
o Grow Core Businesses
- Distribution Sales Up 5 % in 2000
- Value Retail Sales Up 24.5% in 2000
- E-Commerce
o Distribution Is A Cash Flow Generator
o Distribution Has Renewed Growth
o Better Metrics and Better Buying Leads To Improved
Value Proposition
- $1.4 Billion In Net New Distribution Sales in '99
- Change on Focus (quadrant slide)
Slide Number 26) Growth Strategy: Value Retail
Slide Number 27) Fleming Retail Business Profile
Slide Description
-----------------
o Leading Competitor in a Number of Major Metropolitan Markets
- Rainbow Foods - #1 in Minneapolis
- Baker's - #1 in Omaha
- Sentry - #2 in Milwaukee
- Food 4 Less - Value-Oriented Price Impact Stores in
California, Utah and Arizona
o Over 80% of Fleming Retail Stores are New or Remodeled
in the Past Five Years
o Fleming Value Retail = Food 4 Less
Narrative
---------
Rainbow Foods has the number one market share position in
Minneapolis. Baker's is the leading food retailer in Omaha.
Our Sentry Stores are a strong number two market share in
Milwaukee and southeast Wisconsin.
Fleming recently began to grow our Food-40-Less Group, which
operates 25 stores in northern California, Utah and Arizona.
Over 80% of these stores are new or have been remodeled in
the past five years.
Fleming Value Retail consists primarily of our Food 4 Less
Group.
Slide Number 28) Growth: Value Retail
Slide Description
-----------------
What Is Value Retail?
o Differentiated Selling Position
o Trade Area vs. Market Area
o Superior Economics
o Competitively Durable
Slide Number 29) Growth: Value Retail
Slide Description
-----------------
What Is Food 4 Less?
o Price Impact Warehouse Food Stores
o High Volumes, Reduced Assortments
o Flow Through Distribution Method
o Appeals to Desirable Demographic: The Aspirational Consumer
o Nation-Wide Growth Potential
Slide Number 30) Growth: Value Retail
Slide Description
-----------------
Food 4 Less: 25 stores in No. California, Utah and Arizona
Price Impact Format
Price: EDLP
Average Store Size = 53,500 Sq.Ft.
Narrative
---------
Fleming owns and operates 25 Food 4 Less stores located in
northern California, Utah and Arizona
These price impact stores offer a deep discount format with
an "every day low price" pricing strategy.
The average store size is 53,500 square feet.
Slide Number 31) Food 4 Less - Consumer Profile
Slide Description
-----------------
o Aspirational Consumer
Who is Price-Sensitive
o Average HH Size = 3.9 Persons
o Good Buying Power
o College Educated
o 63% Own a PC
Narrative
---------
Food 4 Less has great appeal with the Aspirational consumer,
consumers who are planning ahead for the future and are
looking for ways to save
These are price-sensitive shoppers, who tend to have
Good family size
Good buying power
And a good education including relatively high
PC skills
Slide Number 32) Food 4 Less - Efficient Operations
Slide Description
-----------------
o Flow Through Distribution
o 80% Floor Space = Selling
o Prices are 800 Basis Points
Lower Than Conventional Supermarkets
o Wall of Values
Narrative
---------
Price impact stores like Food 4 Less have highly efficient
operations
Flow through distribution, which greatly reduces product
handling functions, helps to provide better economics.
80% of floor space is dedicated to sales, which is higher
than conventional retail.
Higher volumes, reduced assortments, and lower levels of
customer service also provide better economics.
Slide Number 33) Food 4 Less Market Position
Slide Description
-----------------
o Proven Price Impact Format
o Fleming Franchises 66 Stores (incl. 25 FLM-Owned)
Annual Sales greater than $1.5 billion
o Average Weekly Sales/Store Over $450K
o Great Competitive Profile
Narrative
---------
This banner is a proven retailing concept that has been in
the marketplace for a number of years.
In addition to the 25 stores we operate, Fleming licenses
the name on 41 other stores, for a total of 66 stores
licensed by Fleming.
Annual sales for our 25 stores plus the stores we franchise
to others is more than $1.5 billion per year.
Average weekly sales per store is comfortably higher than
$450 thousand.
This concept has a great competitive profile.
Slide Number 34) Food for Less Store Model
Slide Description
-----------------
o Lower Cost to Build
o Lower Cost to Remodel
o EBITDA Return on Sales 6% to 8%
o Return on Capital Employed = 16% to 20%+
Narrative
---------
The typical Food 4 Less store costs up to 25% less to build
than a conventional supermarket.
Remodel costs are lower, also.
These stores can produce an EBITDA return on sales as high
as 6% to 8%.
Return on capital employed can be 16% to more than 20%.
Slide Number 35) Food 4 Less Annual Sales For Fleming-Owned Stores
Slide Description
-----------------
Sales in $Millions
1997 $250 (8 stores)
1998
1999 Est.
2000 Est. $700 (30 stores)
Narrative
---------
In 1997, Fleming owned 8 Food 4 Less stores located in
Northern California and in Utah.
Total sales in 1997 were just above $250 million.
We expect to be operating at least 30 stores this year, with
annual sales to be approximately $700 million.
Slide Number 36) Growth Strategy: E-Commerce
Slide Number 37) E-Commerce Industry Dynamics
Slide Description
-----------------
1998 63,000,000 Web Users
2003 Estimated to be 177,000,000 Web Users
Narrative
---------
In 1998, there were an estimated 63 million web users in the
United States.
In 2003, this number is expected to grow to 177 million.
Slide Number 38) E-Commerce Industry Dynamics
Estimated U.S. Internet Retail Sales*
Slide Description
-----------------
1999 $13 billion
2000
2001 $75 billion
2002
2003
2004 $152 billion
______________
By 2004, $152 billion, or 7% of All Retail Sales for
Physical Items are Expected to be Ordered Through the
Internet.
* Physical Items Only. Excludes Travel and Information
Services
Narrative
---------
This chart shows that internet-based retail sales for
physical goods in the U.S. is expected to reach $152 billion
by 2004, compared with about $13 billion in 1999.
This means about 7% of all retail sales for physical items
is expected to be ordered thru the internet by 2004.
Slide Number 39) E-Commerce Industry Dynamics
Slide Description
-----------------
1998 $655 billion Spent in the U.S. for
groceries, home meal replacements and traditional drugs
Narrative
---------
Total spending in the U.S. for groceries, home meal
replacements, and traditional drugs were about $655 billion
in 1998.
It is estimated that by 2003, internet grocery sales will be
about $11 billion.
Slide Number 40) E-Commerce Industry Dynamics
Top 5 Online Retail Segment Sales*
Slide Description
-----------------
Recreation
Autos
Food/Beverage
Electronics
Apparel
_________________
By 2004, Food & Beverage is Expected to Grow to $16.7
billion, or 11% of Online Retail Sales
*Physical Items Only. Excludes Travel and Information
Services.
Narrative
---------
Food and beverages comprise one of the top five online
retail segments today.
Food as a category, now referred to as the "E-grocery"
segment, is expected to grow in relative importance over the
next few years
Annual E-grocery sales are expected to increase to more than
$16 billion by 2004. This will be a big segment, but this
represents less than 4% of grocery industry sales in 1998.
We believe Fleming is well-positioned with existing assets
to play a major role in the e-commerce industry.
Slide Number 41) Fleming E-Commerce
Slide Description
-----------------
o E-Grocery Fulfillment
o Visionet(R)
Narrative
---------
Fleming is involved in e-commerce primarily through the
internet-based grocers we supply, and our Visionet system.
Slide Number 42) Growth: E-Grocery
Slide Description
-----------------
o Fleming's Current E-Grocery Customers Include:
o NetGrocer.com
o GroceryWorks.com
o Pinkdot.com
o AmericanGrocer.com
o Webvan.com
o Fleming Is Uniquely Equipped To Supply E-Grocers,
Which Are Expected To Grow Rapidly
o Full Case Pick Distribution
o Piece Pick Distribution
o Scale and National Presence
o Expert Retail Guidance
Narrative
---------
Fleming supplies NetGrocer, GroceryWorks, Pinkdot,
AmericanGrocer, and soon to-be supplying Webvan. We are
hopeful of signing more e-grocery customers.
Rapid growth in e-grocery revenues is expected, whether we
are distributing food products through full case
distribution or piece pick selection.
Fleming's large scale and national presence are important
strengths we possess.
Our retail services include helping independent supermarket
operators get into internet-based selling.
We see tremendous growth for internet-based grocers, which
are really the new independent grocers.
Slide Number 43) Growth: Visionet(R)
Slide Description
-----------------
Fleming's Proprietary Internet-Based Communication System -
Electronically Links Manufacturers, Fleming Operations
and the Retailers Fleming Supplies
85% of Fleming's Retailers Subscribe to Visionet
High-Velocity Information Exchange for Promotional
Purchasing
Potential to be Channel for Up to 10% of Fleming's Case
Volume
Revenues Primarily from Vendor Sponsorship
Slide Number 44) Visionet Creates Information
Effectiveness for Transmission of Promotions to the Grocery
Supply Chain
Slide Description
-----------------
Manufacturers: Manufacturers crate Visionet bulletins and
electronically communicate promotional offers
Visionet Workstation: Retailers: Retailers log on to
Visionet to receive instant access to promotions and deals;
and Retailers use Visionet's electronic catalog to evaluate
deals and directly place orders for goods, often benefiting
from reduced prices and aggregated demand
Wholesalers: Visionet transmits orders electronically to
wholesalers and manufacturers, providing an early view of
product demand
_________________
Visionet Aggregates Demand in a Fragmented Market, Speeds
Liquidation of Perishable Promotion Goods, and Facilitates
the High Velocity of Information Exchange Associated with
Promotional Purchasing
Narrative
---------
Visionet creates information effectiveness for transmission
of promotions to the grocery supply chain.
Visionet aggregates demand in a fragmented market, speeds
liquidation of perishable promotion goods, and facilitates
the high velocity of information exchange associated with
promotional purchasing.
Slide Number 45)
Total Fleming Visionet
Population Population Subscribers
Manufacturers 20,800 1,549 73
Brokers 1,500 288 16
Retailers:
Independents 11,170 2,761 2,169
Self-Distributing 19,530 235 235
Mass Merchandise 8,717 120 80
Manufacturers and Brokers Who Subscribe to Visionet
Represent More than 25% of Total Food Manufacturer Sales to
Fleming
Narrative
---------
Manufacturers and brokers who subscribe to Visionet
represent more than 25% of total food manufacturer sales to
Fleming.
Slide Number 46) Visionet Is A High-Growth Community-
Builder
Slide Description
-----------------
Visionet Subscribers and Users 1998-1999
1998-1999 Growth Rate
Subscribers 365%
Users 2,340%
Hits per week to the Visionet System
1998-1999 Growth Rate
Hits 690%
Narrative
---------
Visionet is a high-growth community builder as these charts
show.
Slide Number 47) Summary
Slide Number 48) Fleming Today
Slide Description
-----------------
o Asset Rationalization
o Cost Reduction
o Core Competencies
o Geographic Position
o Market Focus
o Growth Strategy:
- Distribution
- Value Retail
- E-Commerce
Narrative
---------
Fleming today is a re-positioned business, in the midst of
an exciting turnaround.
Assets have been rationalized to divest under-performing and
non-strategic business distribution centers and retail
stores, which has led to productivity gains.
Substantial cost reduction opportunities have been
identified and are being pursued.
Fleming's core competencies include case pick and piece pick
distribution, flow through distribution, procurement, retail
services, value retail and e-commerce.
Fleming is an efficient, coast-to-coast distribution system,
unparalleled by any other food distributor.
We have focused on those markets where we have significant
operations and competitive strengths.
We are growing the business around our core competencies to
take advantage of growth opportunities in distribution,
value retail and e-commerce.
Slide Number 49) Neal J. Rider
Slide Description
-----------------
o Financial Review
Narrative
---------
I'm very excited about Fleming as a great place to invest!
Neal Rider will now provide an important review of financial
results for 1999 as well as describe our future financial
direction for 2000.
Slide Number 50) Net Sales
Slide Description
-----------------
$MM 1998
Wholesale $ 11,480
Retail:
Conventional $ 2,457
Value 304
2B Divested 828
--------
$ 3,589
--------
Total $ 15,069
Narrative
---------
In 1998, before Fleming began implementing the new strategic
plan, total company sales were $15.1 billion.
Implementation of the new strategic plan began in 1999. As
Mark said, consolidating distribution centers in our
wholesale business and divesting under-performing retail
stores in our retail segment are important steps on the road
to Fleming's turnaround.
This chart shows, for example, that more than $800 million
of additional sales losses would be experienced in order to
divest under-performing and non-strategic retail stores.
However, the loss of sales relative to implementing our
strategic plan was an intelligent loss of sales.
Slide Number 51) Net Sales
Slide Description
-----------------
$MM 1998 1999E
Wholesale $ 11,480 $ 10,950 - 4.6 %
Retail:
Conventional $ 2,457 $ 2,540 + 3.4 %
Value 304 530 + 74.3 %
2B Divested $ 828 $ 580
- -----------------------------------
$ 3,589 $ 3,650 + 1.7 %
- -----------------------------------
Total $ 15,069 $ 14,600 - 3.1 %
Narrative
---------
In 1999, due to the consolidation of 8 distribution centers
and the loss of two major customers, our wholesale segment
experienced a loss of sales as anticipated.
This net loss of sales on a total year basis does not
display the fact that in our 1999 fourth quarter, we
experienced the first positive sales growth in our wholesale
distribution business for the first time in over 4 years.
In addition, even though 76 retail stores were divested in
1999, total retail segment sales were up.
Slide Number 52) Net sales
Slide Description
-----------------
$MM 1998 1999E 2000E
Wholesale $ 11,480 $ 10,950 $ 11,500
Retail:
Conventional $ 2,457 $ 2,540 $ 2,660
Value 304 530 690
2B Divested 828 $ 580 190
- ---------------------------------------------------
$ 3,589 $ 3,650 $ 3,500
- ---------------------------------------------------
Total $ 15,069 $ 14,600 $ 15,000
Narrative
---------
In 2000, the sales growth turnaround will be more apparent
as the year unfolds.
You are going to see higher sales in our wholesale segment,
and we are very excited about this.
We also expect to see sales growth in our strategic
conventional and value chains.
Slide Number 53) Net Sales
Slide Description
-----------------
$MM 1998 1999E 2000E
Wholesale $ 11,480 $ 10,950 $ 11,500 + 5.0 %
Retail:
Conventional $ 2,457 $ 2,560 $ 2,660 + 3.9 %
Value 304 530 660 + 24.5 %
2B Divested 828 $ 580 180
- -----------------------------------------------
$ 3,589 $ 3,650 $ 3,500 - 4.1 %
- -----------------------------------------------
Total $ 15,069 $ 14,600 $ 15,000 + 2.7 %
Narrative
---------
In fact, we expect to see today company sales increase for
the first time in more than 5 years in 2000.
We expect sales growth of at least 2.7% this year, and there
is very little inflation assumed in this growth. We are
assuming our internal inflation rate will be zero point
eight percent (0.8%).
Healthy growth in wholesale distribution sales and sales in
our strategic conventional retail and value chains is
expected.
Sales growth in our wholesale distribution segment is being
driven by the impact of the cost reductions we have already
experienced, resulting in an improved value proposition.
Sales growth in our strategic retail chains is driven by the
stores added in 1999, plus to a smaller extent, more than 10
stores we are planning to add in 2000.
Slide Number 54) Net Sales Sources of Growth
Slide Description
-----------------
o Wholesale Alternative Format Retailers
Wholesale Consolidation
Non-Traditional Retailers
Convenience Stores
E-Commerce
o Retail Value-Oriented Price Impact
Narrative
---------
Sales growth is important to every business, but is
especially important to Fleming because we believe it means
we are in the process of a significant turnaround in our
company.
And given our low profit margins, a little bit of sales
growth can go a long way to grow earnings.
Fundamentally, what are the key sources of our sales growth
for year 2000 as well as the future?
First, Fleming has developed a great capacity to serve
alternative retailers, like Kmart and Target, which have
elected to use Fleming as a supplier of a substantial
amount of consumer packaged goods and perishable
merchandise.
Second, we believe consolidation in the wholesale section of
our industry will provide opportunities to serve retailers
currently supplied by less efficient wholesale operations.
Third, non-traditional food retailers, such as drug stores
and hardware stores, are an important new growth opportunity.
Fourth, we see convenience stores as a strong source of
growth, as well as a number of e-commerce opportunities as
Mark described earlier.
We also believe we can successfully grow value-oriented
price impact retail sales, which today is comprised of our
25 Food 4 Less stores.
Slide Number 55) Earnings Per Share*
Slide Description
-----------------
Q3-98 $0.02
Q4-98 $0.06
Q1-99 $0.20
Q2-99 $0.26
Q3-99 $0.27
Q4-99 Est. $0.37e
- ---------------
* Adjusted to exclude strategic plan charges and gains on
sales of wholesale facilities.
Narrative
---------
Because of Fleming's operating leverage, modest cost
reductions and sales growth can go a long way to grow
earnings and earnings per share.
We just completed our fifth straight quarter of improved
earnings on an adjusted basis.
We believe our strategic plan is going to be successful in
helping to improve both the level of earnings as well as the
growth rate of our earnings.
Slide Number 56) EPS*
Slide Description
-----------------
$MM, Except EPS 1999E 2000E
EBITDA* $ 410 $ 450
Less:
Depreciation $ 160
Int. Expense 166
Eq. Inv. Results 3
- ----------------------------
EBT $ 42
Taxes 39
- ----------------------------
Net Earnings $ 42
EPS $ 1.10 $ 1.43
- ---------------
* Adjusted to exclude strategic plan charges and gains on
sales of wholesale facilities.
Narrative
---------
This chart shows that we expect earnings per share in 2000
to be at least $1.43, or at least 30% higher than 1999.
We expect the improvement will be driven by an increase in
operating earnings, reflected here as an increase in EBITDA.
Generally speaking, this increase is driven by cost
reductions not shared with customers and sales growth driven
by the cost reductions we are sharing with customers.
Slide Number 57) EBITDA
Slide Description
-----------------
$MM 1999E 2000E
Wholesale $ 405 $ 430
Retail $ 95 $ 105
Corp. Expenses $( 90) $( 85)
- ----------------------------------------------
$ 410 $ 450 + 10 %
Narrative
---------
EBITDA is expected to increase by approximately 10% this
year versus 1999.
This increase will be greater than the EBITDA we sacrificed
to rationalize our investment in wholesale and retail
operations.
Improvement is expected to come from both the wholesale and
retail segments.
Slide Number 58) EBITDA Margin* On Sales
Slide Description
-----------------
Q3-98 2.6%
Q3-99 3.0%
- ----------------
* Adjusted to exclude strategic plan charges and gains on
sales of wholesale facilities.
Narrative
---------
Our basic financial objective is to produce earnings
comparable to the leaders in our industry.
What does that mean?
This chart shows Fleming has improved its EBITDA margin,
from 2.6% to 3% in our 1999 third quarter. For all of 1999,
our EBITDA margin was 2.8%.
But this is not enough.
The EBITDA margin for wholesale and retail food industry
leaders applied to Fleming on a blended basis, would be
about 4.4%.
Slide Number 59) Potential for EBITA Improvement - What
Would Fleming Be?
Slide Description
-----------------
Fleming $ 410 2.8%
Food Distributors Profitability $ 540 3.7%
Supervalu's Profitability $ 540 3.7%
Fleming Blended $ 640 4.4%
Regional Retailers' Profitability $ 900 6.2%
Narrative
---------
This chart sows what Fleming's EBITDA level would be if our
profitability were comparable to a number of different
benchmarks.
Fleming's 1999 EBITDA was at least $410 million.
If Fleming produced at the 3.7% level, the wholesale food
industry sector average, then our EBITDA would be about $540
million.
If Fleming produced at the 4.4% blended level, then
Fleming's EBITDA would be about $640 million.
It is reasonable to expect Fleming to perform at industry
average levels. We believe opportunities exist to
substantially improve our performance.
Slide Number 60) Cash Flow Estimates in Millions
Slide Description
-----------------
1999E 2000E
EBITDA $ 410 $ 450
Net Working Capital 5 20
Strategic Plan Costs (75) (130)
----- -----
Cash From the Business $ 340 $ 340
Narrative
---------
Cash flow from operations in 1999 was approximately $340
million, and we expect this to be about the same in 2000.
Notice this level of cash flow is net of our strategic plan-
related restructuring costs of $75 million in 1999 and an
estimated $130 million for 2000.
Otherwise, cash flow at this level is expected to improve
due to sales growth, cost reductions, and more efficient
working capital management.
Slide Number 61) Cash Flow Estimates in Millions
Slide Description
-----------------
1999E 2000E
EBITDA $ 410 $ 410
Net Working Capital 5 20
Strategic Plan Costs (75) (130)
----- -----
Cash From the Business $ 340 $ 340
----- -----
Capital Expenditures $(166) $(180)
Businesses Acquired (78) -
Asset Sales 41 40
Interest Expense (166) (170)
All Other (91) (45)
----- -----
$(460) $(355)
Narrative
---------
Total expenditures for capital investment, acquisitions,
interest expense and other investment spending, offset by
asset sale proceeds, totaled $460 million in 1999.
In 2000, spending for these items, excluding acquisition
spending, is expected to be no more than $355 million.
We view the strategic plan-related expenditures as
investments which will help produce future cost savings.
Slide Number 62) Cash Flow Estimates in Millions
Slide Description
-----------------
1999E 2000E
EBITDA $ 410 $ 450
Net Working Capital 5 20
Strategic Plan Costs (75) (130)
----- ------
Cash from the Business $ 340 $ 370
----- -----
Capital Expenditures $(166) $(180)
Businesses Acquired (78) -
Asset Sales 41 40
Interest Expense (166) (170)
All Other (91) (45)
----- -----
$(460) $(355)
----- -----
Funded Debt Increase $(120) $( 15)
Narrative
---------
Funded debt increased by $120 million in 1999, driven by the
strategic plan costs and new business investment.
In 2000, which is the last year we expect to incur
substantial cash restructuring costs, funded debt is
expected to increase by $15 million.
Funded debt would be reduced by $85 million in 2000 if we
did not have the strategic plan costs.
Slide Number 63) Capital Expenditures in Millions
Slide Description
-----------------
99 Est. $166 million Retail
54 million Wholesale
Corporate
00 Est. $180 million Retail
65 million Wholesale
Corporate
Narrative
---------
For 1999, capital expenditures were $166 million. For 2000,
we expect to invest $180 million.
We do not have a large maintenance-of-business capital
requirement. We have the flexibility to invest in the best
growth vehicle, whether that means building new stores, or
acquiring existing stores, or both.
In 1999, we initiated improvements to our capital allocation
process to help ensure greater returns on capital employed.
For example, required rates of return were increased.
The number of authorized spenders was reduced.
Executive management is more involved in capital allocation
decisions.
Slide Number 64) Major Achievements During Turnaround
Slide Description
-----------------
o Closed 8 Distribution Centers (3 More Underway)
o Closed and Sold 76 Under-Performing Retail Stores
o Added $1.4 Billion in Net New Distribution Sales
o Opened and Acquired 26 New Retail Stores
o Upgraded Senior Management Team
o Developed The Low Cost Pursuit Program
Narrative
---------
In 1999, 8 distribution centers were closed, and 3 more are
currently underway.
We closed and sold 76 under-performing retail stores.
We added $1.4 billion in net new distribution sales.
We opened and acquired 26 additional retail stores.
We upgraded the senior management team.
And we developed the low cost pursuit program.
Slide Number 65) Areas of Low Cost Pursuit
Slide Description
-----------------
o Merchandising and Procurement
o Logistics and Distribution
o Shared Services and Finance
o Retail Operations
o Customer-Related
Narrative
---------
Cost reduction projects covering five areas of the company
taken together as a whole comprise our low cost pursuit
program.
In the merchandising and procurement functions, cost of
goods are being reduced and administrative costs are being
lowered by moving to a centralized, versus local,
procurement system.
In the logistics and distribution functions, removable costs
associated with backhaul, in-bound transportation and other
such functions were identified and are being removed.
For shared services and finance, many functions are being
centralized, such as non-merchandise procurement, certain
employee benefit programs, accounting and information
technology services.
In our retail operations, we are using best demonstrated
practices to reduce labor costs across our chains, and we
can improve the management of many in-store operating costs.
With respect to customer relations, we are establishing a
single point of contact for each customer. We are making
our own Visionet system the e-business portal of choice to
realize greater elimination of paper-based processes.
Overall, this makes our customer communications much more
productive.
Slide Number 66) Areas of Low Cost Pursuit
Slide Description
-----------------
o Merchandising and Procurement
o Logistics and Distribution
o Shared Services and Finance
o Retail Operations
o Customer-Related
- ----------------------------------
greater than Low Cost Pursuit Cash Awards
Narrative
---------
A special incentive program, which includes all 36,000
Fleming Associates, was developed to encourage the
attainment of certain program objectives.
Overall, we expect to remove over $100 million of costs on a
run rate basis by the end of year 2000.
This means total cost savings for 2001 will be $100 million.
Where are we today?
At the end of 1999, we confirmed we had already taken out
approximately $50 million of costs on a run rate basis.
Slide Number 67) Summary
Slide Number 68) Fleming Today
Slide Description
-----------------
o Asset Rationalization
o Cost Reduction
o Core Competencies
o Geographic Position
o Market Focus
o Growth Strategy:
- Distribution
- Value Retail
- E-Commerce
Narrative
---------
Fleming today is a re-positioned business, in the midst of
an exciting turnaround.
Assets have been rationalized to divest under-performing and
non-strategic business distribution centers and retail
stores, which has led to productivity gains.
Substantial cost reduction opportunities have been
identified and are being pursued.
Fleming's core competencies include case pick and piece pick
distribution, flow through distribution, procurement, retail
services, value retail and e-commerce.
Fleming is an efficient, coast-to-coast distribution system,
unparalleled by any other food distributor.
We are focused on those markets where we have significant
operations and competitive strengths.
We are growing the business around our core competencies to
take advantage of growth opportunities in distribution,
value retail and e-commerce.
Slide Number 69) Fleming
Slide Description
-----------------
A Great Place to Work
A Great Place to Trade
A Great Place to Invest
Narrative
---------
This concludes our formal remarks.
Our actual 1999 fourth quarter and fiscal year financial
results are scheduled to be announced on February 18th,
2000.
We will now take any questions you may have.
<PAGE>
SIGNATURE
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.
LENORE T. GRAHAM
Lenore T. Graham
Sr. Vice President,
General Counsel and
Secretary
Date: February 10, 2000 Fleming Companies, Inc.
(Registrant)
