SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 17, 1999
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 May 14, 1999 is as follows:
Class Shares Outstanding
Common stock, $2.50 par value 38,384,000
<PAGE>
This amended filing primarily reflects additions to qualitative disclosures.
There were no restatements to the financial statements.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements of Operations -
16 Weeks Ended April 17, 1999,
and April 18, 1998
Consolidated Condensed Balance Sheets -
April 17, 1999, and December 26, 1998
Consolidated Condensed Statements of Cash Flows -
16 Weeks Ended April 17, 1999,
and April 18, 1998
Notes to Consolidated Condensed Financial Statements
Independent Accountants' Review Report
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Consolidated Condensed Statements of Operations
For the 16 weeks ended April 17, 1999, and April 18, 1998
(In thousands, except per share amounts)
<CAPTION>
==============================================================================
1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Net sales $4,465,246 $4,567,126
Costs and expenses:
Cost of sales 4,036,868 4,124,858
Selling and administrative 376,995 364,720
Interest expense 51,606 51,202
Interest income (9,350) (11,305)
Equity investment results 3,556 3,589
Litigation charge - 2,954
Impairment/restructuring charge 37,036 (267)
- ------------------------------------------------------------------------------
Total costs and expenses 4,496,711 4,535,751
- ------------------------------------------------------------------------------
Earnings (loss) before taxes (31,465) 31,375
Taxes on income (loss) (7,224) 16,105
- ------------------------------------------------------------------------------
Net earnings (loss) $ (24,241) $ 15,270
==============================================================================
Basic and diluted net earnings (loss)
per share $(.64) $.40
Dividends paid per share $.02 $.02
Weighted average shares outstanding:
Basic 38,143 37,804
Diluted 38,143 37,972
==============================================================================
</TABLE>
Fleming Companies, Inc. See notes to consolidated condensed financial
statements and independent accountants' review report.
<PAGE>
<TABLE>
Consolidated Condensed Balance Sheets
(In thousands)
<CAPTION>
==============================================================================
April 17, December 26,
Assets 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 42,012 $ 5,967
Receivables 399,705 450,905
Inventories 869,120 984,287
Other current assets 164,049 146,757
- ------------------------------------------------------------------------------
Total current assets 1,474,886 1,587,916
Investments and notes receivable 107,681 119,468
Investment in direct financing leases 154,030 177,783
Property and equipment 1,553,361 1,554,884
Less accumulated depreciation and amortization (745,512) (734,819)
- ------------------------------------------------------------------------------
Net property and equipment 807,849 820,065
Deferred income taxes 53,601 51,497
Other assets 209,760 154,524
Goodwill 556,821 579,579
- ------------------------------------------------------------------------------
Total assets $3,364,628 $3,490,832
==============================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 803,687 $ 945,475
Current maturities of long-term debt 40,368 41,368
Current obligations under capital leases 21,915 21,668
Other current liabilities 250,154 272,573
- ------------------------------------------------------------------------------
Total current liabilities 1,116,124 1,281,084
Long-term debt 1,207,307 1,143,900
Long-term obligations under capital leases 351,138 359,462
Other liabilities 143,250 136,455
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value per share 96,224 96,356
Capital in excess of par value 510,936 509,602
Reinvested earnings (1,839) 23,155
Accumulated other comprehensive income:
Additional minimum pension liability (57,133) (57,133)
- ------------------------------------------------------------------------------
Accumulated other comprehensive income (57,133) (57,133)
Less ESOP note (1,379) (2,049)
- ------------------------------------------------------------------------------
Total shareholders' equity 546,809 569,931
- ------------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,364,628 $3,490,832
==============================================================================
</TABLE>
Fleming Companies, Inc. See notes to consolidated condensed financial
statements and independent accountants' review report.
<PAGE>
<TABLE>
Consolidated Condensed Statements of Cash Flows
For the 16 weeks ended April 17, 1999, and April 18, 1998
(In thousands)
<CAPTION>
==============================================================================
1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (24,241) $ 15,270
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 46,317 56,379
Credit losses 7,942 2,713
Deferred income taxes (12,641) 10,323
Equity investment results 3,556 3,589
Consolidation and restructuring reserve activity (148) (5,126)
Impairment/restructuring and related charges 45,546 18
Cash payments on impairment/restucturing
and related charges (17,574) -
Change in assets and liabilities, excluding
effect of acquisitions:
Receivables 48,722 (6,512)
Inventories 111,128 61,809
Accounts payable (141,788) (71,108)
Other assets and liabilities (35,811) (14,122)
Other adjustments, net 576 (3,462)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 31,584 49,771
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Collections on notes receivable 8,031 16,890
Notes receivable funded (4,541) (10,350)
Purchase of property and equipment (50,041) (38,334)
Proceeds from sale of property and equipment 3,465 10,708
Investments in customers (1,935) -
Proceeds from sale of investment 2,084 3,514
Businesses acquired (10,704) -
Other investing activities (51) 1,382
- ------------------------------------------------------------------------------
Net cash used in investing activities (53,692) (16,190)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 101,000 35,000
Principal payments on long-term debt (38,593) (55,268)
Principal payments on capital lease obligations (3,614) (6,575)
Sale of common stock under incentive
stock and stock ownership plans 178 219
Dividends paid (787) (778)
Other financing activities (31) (386)
- ------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 58,153 (27,788)
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 36,045 5,793
Cash and cash equivalents, beginning of period 5,967 30,316
- ------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 42,012 $ 36,109
==============================================================================
Supplemental information:
Cash paid for interest $ 41,070 $ 43,721
Cash paid for taxes $ 11,301 $ 8,967
==============================================================================
</TABLE>
Fleming Companies, Inc. See notes to consolidated condensed financial
statements and independent accountants' review report.
<PAGE>
Notes to Consolidated Condensed Financial Statements (See independent
accountants' review report)
1. The consolidated condensed balance sheet as of April 17, 1999, and the
consolidated condensed statements of operations and cash flows for the 16
weeks ended April 17, 1999 and April 18, 1998, 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 April 17,
1999, and the results of operations and cash flows for the periods presented
have been made. All such adjustments are of a normal, recurring nature except
as disclosed. Both basic and diluted earnings or loss per share are computed
based on net earnings or loss divided by weighted average shares as
appropriate for each calculation.
The preparation of the consolidated condensed financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain reclassifications have been made to prior year amounts to conform to
current year classifications.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the company's 1998 annual
report on Form 10-K.
3. 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 $48 million at April 17, 1999,
and $44 million at December 26, 1998.
4. Sales and operating earnings for the company's food distribution and retail
food segments are presented below.
<TABLE>
<CAPTION>
==============================================================================
For the 16 weeks ended
April 17, April 18,
($ in millions) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Food distribution $4,002 $4,096
Intersegment elimination (675) (610)
- ------------------------------------------------------------------------------
Net food distribution 3,327 3,486
Retail food 1,138 1,081
- ------------------------------------------------------------------------------
Total sales $4,465 $4,567
==============================================================================
Operating earnings:
Food distribution $ 83 $ 92
Retail food 13 19
Corporate (45) (33)
- ------------------------------------------------------------------------------
Total operating earnings 51 78
Interest expense (51) (51)
Interest income 9 11
Equity investment results (3) (4)
Litigation charge - (3)
Impairment/restucturing charge (37) -
- ------------------------------------------------------------------------------
Earnings (loss) before taxes $(31) $ 31
==============================================================================
</TABLE>
General corporate expenses are not allocated to food distribution and retail
food segments. The transfer pricing between segments is at cost.
5. The company's comprehensive loss totaled $24.2 million for the 16 weeks
ended April 17, 1999. The company's comprehensive income totaled $20.2
million for the 16 weeks ended April 18, 1998. The comprehensive loss in 1999
was comprised only of the reported net loss, whereas the comprehensive income
in 1998 was comprised of the reported net income plus changes in foreign
currency translation adjustments.
6. In accordance with applicable accounting standards, the company records a
charge reflecting contingent liabilities (including those associated with
litigation matters) when management determines that a material loss is
"probable" and either "quantifiable" or "reasonably estimable." Additionally,
the company discloses material loss contingencies when the likelihood of a
material loss is deemed to be greater than "remote" but less than "probable."
Set forth below is information regarding certain material loss contingencies:
Class Action Suits.
In 1996, certain stockholders and one noteholder filed purported class action
suits against the company and certain of its present and former officers and
directors, each in the U.S. District Court for the Western District of
Oklahoma. In 1997, the court consolidated the stockholder cases as City of
Philadelphia, et al. v. Fleming Companies, Inc., et al. The noteholder case
was also consolidated, but only for pre-trial purposes. During 1998, the
noteholder case was dismissed and during the first quarter of 1999, the
consolidated case was also dismissed, each without prejudice. The court gave
the plaintiffs the opportunity to restate their claims without prejudice and
amended complaints were filed in both cases during the first quarter of 1999.
In May 1999, the company filed motions to dismiss in both cases.
Tru Discount Foods.
Fleming brought suit in 1994 on a note and an open account against its former
customer, Tru Discount Foods, which counterclaimed on various grounds. The
case was initially referred to arbitration but later returned to the trial
court; Fleming appealed. In 1997, the defendant amended its counterclaim
against the company alleging fraud, overcharges for products and violations of
the Oklahoma Deceptive Trade Practices Act. In 1998, the appellate court
reversed the trial court and directed that the matter be sent again to
arbitration. Although Tru Discount Foods has not quantified damages, it has
made demand in the amount of $8 million. Management is unable to predict the
ultimate outcome of this matter. However, an unfavorable outcome could have a
material adverse effect on the company.
Don's United Super (and related cases).
In March 1998, the company and two retired executives were named in a suit
filed in the United States District Court for the Western District of Missouri
by approximately 20 current and former customers of the company (Don's United
Super, et al. v. Fleming, et al.). Plaintiffs operate retail grocery stores
in the St. Joseph and Kansas City metropolitan areas. Six plaintiffs who were
parties to supply contracts containing arbitration clauses were permitted to
withdraw from the case.
Previously, two cases had been filed in the same court (R&D Foods, Inc. et al.
v. Fleming, et al. and Robandee United Super, Inc. et al. v. Fleming, et al.)
by 10 customers, some of whom are plaintiffs in the Don's case. The earlier
two cases, which principally seek an accounting of the company's expenditure
of certain joint advertising funds, have been consolidated. All causes of
action in these cases have been stayed pending the arbitration of the causes
of action relating to supply contracts containing arbitration clauses.
The Don's suit alleges product overcharges, breach of contract,
misrepresentation, fraud, and RICO violations and seeks recovery of actual,
punitive and treble damages and a declaration that certain contracts are
voidable at the option of the plaintiffs. Damages have not been quantified.
However, with respect to some plaintiffs, the time period during which the
alleged overcharges took place exceeds 25 years and the company anticipates
that the plaintiffs will allege substantial monetary damages.
In October 1998, a group of 14 retailers (ten of whom had been or are
currently plaintiffs in the Don's case and/or the Robandee case whose claims
were sent to arbitration or stayed pending arbitration) filed a new action in
the United States District Court for the Western District of Missouri against
the company and two former officers, one of whom was a director (Coddington
Enterprises, Inc. et al. v. Dean Werries, et al.). The plaintiffs assert
claims virtually identical to those set forth in the Don's complaint and have
not quantified damages in their pleadings.
Plaintiffs have made a settlement demand in the Don's case for $42 million and
in the Coddington case for $44 million. The company intends to vigorously
defend its interests in these cases. Although management is currently unable
to predict the ultimate outcome of this litigation, based upon the plaintiffs'
allegations, an unfavorable outcome could have a material adverse effect on
the company.
Storehouse Markets.
In 1998, the company and one of its associates were named in a suit filed in
the United States District Court for the District of Utah by three current and
former customers of the company (Storehouse Markets, Inc., et al. v. Fleming
Companies, Inc., et al.). The plaintiffs allege product overcharges,
fraudulent misrepresentation, fraudulent nondisclosure and concealment, breach
of contract, breach of duty of good faith and fair dealing and RICO violations
and seek declaration of class action status and recovery of actual, punitive
and treble damages. Damages have not been quantified. However, the company
anticipates that the plaintiffs will seek substantial monetary damages. The
company intends to vigorously defend its interests in this case but is
currently unable to predict the ultimate outcome. Based upon the plaintiffs'
allegations, an unfavorable outcome could have a material adverse effect on
the company.
Y2K.
The company utilizes numerous computer systems which were developed employing
six digit date structures (i.e., two digits each for the month, day and year).
Where date logic requires the year 2000 or beyond, such date structures may
produce inaccurate results. Management has implemented a program to comply
with year-2000 requirements on a system-by-system basis. Fleming's plan
includes extensive systems testing and is expected to be substantially
completed by the third quarter of 1999. Although the company is developing
greater levels of confidence regarding its internal systems, failure to ensure
that the company's computer systems are year-2000 compliant could have a
material adverse effect on the company's operations. In addition, failure of
the company's customers or vendors to become year-2000 compliant could also
have a material adverse effect on the company's operations.
Program costs to comply with year-2000 requirements are being expensed as
incurred. Through the end of the first quarter of 1999, total expenditures to
third parties were approximately $7 million.
Other.
The company's facilities and operations are subject to various laws,
regulations and judicial and administrative orders concerning protection of
the environment and human health, including provisions regarding the
transportation, storage, distribution, disposal or discharge of certain
materials. In conformity with these provisions, the company has a
comprehensive program for testing, removal, replacement or repair of its
underground fuel storage tanks and for site remediation where necessary. The
company has established reserves that it believes will be sufficient to
satisfy the anticipated costs of all known remediation requirements.
The company and others have been designated by the U.S. Environmental
Protection Agency ("EPA") and by similar state agencies as potentially
responsible parties under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state laws, as
applicable, with respect to EPA-designated Superfund sites. While liability
under CERCLA for remediation at such sites is generally joint and several with
other responsible parties, the company believes that, to the extent it is
ultimately determined to be liable for the expense of remediation at any site,
such liability will not result in a material adverse effect on its
consolidated financial position or results of operations. The company is
committed to maintaining the environment and protecting natural resources and
human health and to achieving full compliance with all applicable laws,
regulations and orders.
The company is a party to various other litigation and contingent loss
situations arising in the ordinary course of its business including: disputes
with customers and former customers; disputes with owners and former owners of
financially troubled or failed customers; disputes with employees and former
employees regarding labor conditions, wages, workers' compensation matters and
alleged discriminatory practices; disputes with insurance carriers; tax
assessments and other matters, some of which are for substantial amounts.
However, the company does not believe any such action will result in a
material adverse effect on the company.
7. Certain indebtedness is 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>
April 17, April 18,
(In millions) 1999 1998
<S> <C> <C>
Current assets $28 $31
Noncurrent assets $51 $72
Current liabilities $15 $15
Noncurrent liabilities $7 $7
</TABLE>
<TABLE>
<CAPTION>
16 weeks ended
April 17, April 18,
(In millions) 1999 1998
<S> <C> <C>
Net sales $104 $110
Costs and expenses $106 $112
Net earnings (loss) $(1) $(1)
</TABLE>
8. The accompanying operating statements include the following:
<TABLE>
<CAPTION>
16 weeks ended
April 17, April 18,
(In thousands) 1999 1998
<S> <C> <C>
Depreciation and amortization
(includes amortized costs in
interest expense) $46,317 $56,379
Amortized costs in
interest expense $1,498 $1,839
</TABLE>
9. In December 1998, the company announced the implementation of a strategic
plan designed to improve the competitiveness of the retailers the company
serves and improve the company's performance by building stronger operations
that can better support long-term growth ("strategic plan"). Described below
are the four major initiatives of the strategic plan along with a status
update of each initiative:
o Consolidate food distribution operations. This initially required
divestiture of seven operating units - two in 1998 and five in 1999.
Of the five divestitures in 1999, all but one have been completed.
An additional closing has taken place in 1999 (Peoria, IL) which was not
originally part of the strategic plan, but was added to the plan when
costs associated with continuing to service customers during a strike
coupled with costs of reopening the operating unit made closing the
operating unit an economically sound decision. Sales for Peoria totaled
$120 million in 1998. The divestiture of an additional four operating
units is still planned. The company anticipates that a significant amount
of the sales will be retained by transferring customer business to its
higher volume, better utilized facilities. The company believes that
this will benefit customers with better product variety and improved
buying opportunities. The company will also benefit with better coverage
of fixed expenses. The closings are expected to result in savings due to
reduced depreciation, payroll, lease and other operating costs, and we
expect to begin recognizing these savings upon closure. Although the
divestiture will proceed as quickly as practical, the company is very
sensitive to customer requirements and will pace the divestitures to meet
those requirements. The capital returned from the divestitures will be
reinvested in the business.
o Grow food distribution sales aggressively. Higher volume, better-
utilized food distribution operations and the dynamics of the market
place represent an opportunity for sales growth. The improved
efficiency and effectiveness of the remaining food distribution
operations enhances their competitiveness and the company intends to
capitalize on these improvements. During the first quarter of 1999,
significant new customers were added in the food distribution segment
of the business.
o Improve retail food performance. This not only requires divestiture
of under-performing company-owned retail chains or groups, but also
requires increased investments in market leading chains or groups.
During the first quarter of 1999, the divestiture of a second under-
performing company-owned retail chain (Consumers Food & Drug) was
announced per the strategic plan. Consumers sales totaled $145 million
in 1998. The divestiture of both chains is well underway. The
divestiture of three more retail chains is still planned. Also during
the first quarter of 1999, the company negotiated and recently finalized
the purchase of a number of retail stores that are considered to fit
in well strategically with its existing chains. A number of remodels
of existing retail stores have also been completed during the quarter.
Same-store sales for the first quarter of 1999, although still negative,
improved over previous quarters.
o Reduce overhead expense. Overhead will be reduced at both the
corporate and operating unit levels through organization and process
changes. In addition, several initiatives to reduce complexity in
business systems are underway. These initiatives should reduce costs
and improve the company's profitability and competitiveness. During
the first quarter of 1999, the company worked with specialists in
supply chain management on plans to begin implementing cost
reductions.
The total pre-tax charge of the strategic plan is presently estimated at $810
million. The pre-tax charge recorded to-date is $714 million ($46 million in
the first quarter of 1999 and $668 million recorded in 1998). After tax, the
expense for the first quarter of 1999 was $32 million or $.84 per share. The
$96 million of costs relating to the strategic plan not yet charged against
income will be recorded throughout the rest of 1999 and 2000 at the time such
costs are accruable.
The $46 million charge was included on several lines of the Consolidated
Condensed Statements of Operations for the first quarter of 1999 as follows:
$6 million was included in cost of sales and was primarily related to
inventory valuation adjustments; $3 million was included in selling and
administrative expense as disposition related costs recognized on a periodic
basis; and the remaining $37 million was included in the impairment/
restructuring charge line. The $46 million charge consisted of the
following components:
o Impairment of assets of $24 million. The impairment components were
$22 million for goodwill and $2 million for other long-lived assets.
All of the goodwill charge of $22 million was related to the 1994
"Scrivner" acquisition.
o Restructuring charges of $13 million. The restructuring charges consisted
of severance related expenses and pension withdrawal liabilities for the
Peoria food distribution operating unit and Consumers retail chain. The
restructuring charges also consisted of operating lease liabilities for
the Peoria food distribution operating unit.
o Other disposition and related costs of $9 million. These costs
consist primarily of inventory valuation adjustments, disposition
related costs recognized on a periodic basis and other costs.
The $46 million charge relates to the company's segments as follows: $32
million relates to the food distribution segment and $8 million relates to the
retail food segment with the balance relating to corporate overhead expenses.
The strategic plan includes workforce reductions which have been recorded to-
date as follows:
<TABLE>
<CAPTION>
($'s in thousands) Amount Headcount
<S> <C> <C>
1998 Activity:
Charge $25,441 1,430
Terminations (3,458) (170)
Ending Liability $21,983 1,260
1999 Activity:
Charge 8,565 910
Terminations (12,039) (900)
Qtr 1 Ending Liability $18,509 1,270
</TABLE>
The breakdown of the 910 headcount reduction recorded during 1999 is: 29 from
the food distribution segment; 811 from the retail food segment; and 70 from
corporate.
Additionally, the strategic plan includes charges related primarily to lease
obligations which totaled approximately $30 million ($2 million in the first
quarter and $28 million in 1998) which will be utilized as operating units or
retail stores close, but ultimately reduced over remaining lease terms
ranging from 1 to 20 years. The charges and utilization have been recorded
to-date as follows:
<TABLE>
<CAPTION>
($'s in thousands) Amount
- ----------------------------------------------------
<S> <C>
1998 Activity:
Charge $28,101
Utilized (385)
-------
1998 Ending Liability 27,716
1999 Quarter 1 Activity:
Charge 2,337
Utilized (3,870)
-------
Qtr 1 Ending Liability $26,183
</TABLE>
Asset impairments were recognized in accordance with SFAS No. 121 - Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and such assets were written down to their estimated fair values
based on estimated proceeds of operating units to be sold or discounted cash
flow projections. The operating costs of operating units to be sold or closed
are treated as normal operations during the period they remain in use.
Salaries, wages and benefits of employees at these operating units are charged
to operations during the time such employees are actively employed.
Depreciation expense is continued for assets that the company is unable to
remove from operations.
Independent Accountants' Review Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
FLEMING COMPANIES, INC.
We have reviewed the accompanying condensed consolidated balance sheet of
Fleming Companies, Inc. and subsidiaries as of April 17, 1999, and the related
condensed consolidated statements of income and of cash flows for the sixteen
weeks ended April 17, 1999 and April 18, 1998. These financial statements are
the responsibility of the company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Fleming Companies Inc. and
subsidiaries as of December 26, 1998, and the related consolidated statements
of operations, shareholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated February 18, 1999, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 26, 1998 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
May 5, 1999
Item 2. Management's Discussion and Analysis of Financial Condition And
Results of Operations
General
The company's performance for the past three years was disappointing and
concerning. In early 1998 the Board of Directors and senior management began
an extensive strategic planning process that evaluated all aspects of the
business. With the help of a consulting firm, the evaluation and planning
process was completed late in 1998. In December 1998, a new strategic plan
was approved and implementation efforts began. The strategic plan involves
three key strategies to restore sales and earnings growth: focus resources to
improve performance, build sales and revenues more aggressively in our
wholesale business and company-owned retail stores, and reduce overhead and
operating costs to improve profitability system-wide.
The three strategies are further defined in the following four major
initiatives:
o Consolidate food distribution operations. This initially required
divestiture of seven operating units - two in 1998 and five in 1999.
Of the five divestitures in 1999, all but one have been completed.
An additional closing has taken place in 1999 (Peoria, IL) which was not
originally part of the strategic plan, but was added to the plan when
costs associated with continuing to service customers during a strike
coupled with costs of reopening the operating unit made closing the
operating unit an economically sound decision. Sales for Peoria totaled
$120 million in 1998. The divestiture of an additional four operating
units is still planned. The company anticipates that a significant amount
of the sales will be retained by transferring customer business to its
higher volume, better utilized facilities. The company believes that
this will benefit customers with better product variety and improved
buying opportunities. The company will also benefit with better coverage
of fixed expenses. The closings are expected to result in savings due to
reduced depreciation, payroll, lease and other operating costs, and we
expect to begin recognizing these savings upon closure. Although the
divestiture will proceed as quickly as practical, the company is very
sensitive to customer requirements and will pace the divestitures to meet
those requirements. The capital returned from the divestitures will be
reinvested in the business.
o Grow food distribution sales aggressively. Higher volume, better-
utilized food distribution operations and the dynamics of the market
place represent an opportunity for sales growth. The improved
efficiency and effectiveness of the remaining food distribution
operations enhance their competitiveness and the company intends to
capitalize on these improvements. Growth is expected from increasing
the amount of sales with existing customers and attracting new
customers. During the first quarter of 1999, significant new
customers were added in the food distribution segment of the
business.
o Improve retail food performance. This not only requires divestiture
of under-performing company-owned retail chains or groups, but also
requires increased investments in market leading chains or groups.
During the first quarter of 1999, the divestiture of a second under-
performing company-owned retail chain (Consumers Food & Drug) was
announced per the strategic plan. Consumers sales totaled $145 million
in 1998. The divestiture of both chains is well underway. The
divestiture of three more retail chains is still planned. Also during
the first quarter of 1999, the company negotiated and recently finalized
the purchase of a number of retail stores that are considered to fit
in well strategically with its existing chains. A number of remodels
of existing retail stores have also been completed during the quarter.
Same-store sales for the first quarter of 1999, although still negative,
improved over previous quarters.
o Reduce overhead expense. Overhead will be reduced at both the
corporate and operating unit levels through organization and process
changes, such as a reduction in workforce through productivity
improvements and elimination of work, centralization of administrative
and procurement functions, and reduction in the number of management
layers. In addition, several initiatives to reduce complexity in
business systems are underway, such as reducing the number of SKU's,
creating a single point of contact with customers, reducing the number
of decision points within the company, and centralizing vendor negotiations.
These initiatives are expected to reduce costs and improve the company's
profitability and competitiveness. During the first quarter of 1999,
the company worked with specialists in supply chain management on plans
to begin implementing cost reductions later this year.
Implementation of the strategic plan is expected to continue through the year
2000. This time frame design accommodates the company's limited resources and
customers' seasonal marketing requirements. Additional expenses will continue
for some time beyond the year 2000 because certain disposition related costs
can only be expensed when incurred.
The total pre-tax charge of the strategic plan is presently estimated at $810
million. The pre-tax charge recorded to-date is $714 million ($46 million in
the first quarter of 1999 and $668 million recorded in 1998). Of the $46
million charge in the first quarter of 1999, only $15 million is expected to
require cash expenditures. The remaining $31 million consisted of noncash
items. The $46 million charge consisted of the following components:
o Impairment of assets of $24 million. The impairment components were
$22 million for goodwill and $2 million for other long-lived assets.
The entire $24 million impairment related to assets to be sold or closed.
o Restructuring charges of $13 million. The restructuring charges consisted
of severance related expenses and pension withdrawal liabilities for the
Peoria food distribution operating unit and Consumers retail chain. The
restructuring charges also consisted of operating lease liabilities for
the Peoria food distribution operating unit.
o Other disposition and related costs of $9 million. These costs
consist primarily of inventory valuation adjustments, disposition
related costs recognized on a periodic basis and other costs.
The company recorded a net loss of $24 million or $.64 per share for the first
quarter of 1999. The after-tax effect of the strategic plan charge on the
company's first quarter of 1999 was $32 million or $.84 per share. Excluding
the strategic plan charge, the company would have recorded net income of $8
million or $.20 per share. Adjusted EBITDA for the first quarter of 1999
was $114 million. "Adjusted EBITDA" is earnings before extraordinary items,
interest expense, income taxes, depreciation and amortization, equity
investment results and one-time adjustments (e.g., strategic plan charges
and specific litigation charges). Adjusted EBITDA should not be considered
as an alternative measure of the company's net income, operating performance,
cash flow or liquidity. It is provided as additional information related to
the company's ability to service debt; however, conditions may require
conservation of funds for other uses. Although the company believes adjusted
EBITDA enhances a reader's understanding of the company's financial condition,
this measure, when viewed individually, is not necessarily a better indicator
of any trend as compared to conventionally computed measures (e.g., net
sales, net earnings, net cash flows, etc.). Finally, amounts presented may
not be comparable to similar measures disclosed by other companies. The
following table sets forth the calculation of adjusted EBITDA for the first
quarter of 1999 (in millions):
<TABLE>
<S> <C>
Net Loss $ (24)
Add back:
Taxes on Loss (7)
Depreciation/Amortization 45
Interest Expense 51
Equity Investment Results 3
-----
EBITDA 68
Add back Noncash Strategic Plan
Charges 31
-----
EBITDA excluding Noncash
Strategic Plan Charges 99
Add back Strategic Plan Charges
requiring Cash 15
-----
Adjusted EBITDA $ 114
=====
</TABLE>
The adjusted EBITDA amount represents cash flow from operations excluding
unusual or infrequent items. In the company's opinion, adjusted EBITDA is
the best starting point when evaluating the company's ability to service
debt. In addition, the company believes it is important to identify the
cash flows relating to unusual or infrequent charges and strategic plan
charges, which should also be considered in evaluating the company's ability
to service debt.
Additional pre-tax expense relating to the strategic plan of approximately $96
million is expected throughout the rest of 1999 and 2000 as implementation of
the strategic plan continues. Approximately $63 million of these future
expenses are expected to require cash expenditures. The remaining $33 million
of the future expense relates to noncash items. These future expenses will
consist primarily of severance, real estate-related divestiture expenses,
pension withdrawal liabilities and other costs expensed when incurred.
The expected benefits of the plan are improved earnings and increased sales.
Based on management's plan, earnings are expected to improve every year
approaching one percent of net sales and exceed $3 per share by the year 2003.
Sales are also expected to increase, but the growth will not be evident in
1999 and 2000 because of the previously announced loss of three significant
customers.
The company has assessed the strategic significance of all operating units.
Under the plan, certain divestitures have been announced and are planned
as described above. The company anticipates the improved performance of
several strategic operating units. However, in the event that performance
is not improved, the strategic plan will be revised and additional operating
units could be sold or closed.
Results of Operations
Set forth in the following table is information regarding the company's net
sales and certain components of earnings expressed as a percent of sales which
are referred to in the accompanying discussion:
<TABLE>
<CAPTION>
==============================================================================
April 17, April 18,
For the 16-weeks ended 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.00 % 100.00 %
Gross margin 9.60 9.68
Less:
Selling and administrative 8.44 8.00
Interest expense 1.16 1.12
Interest income (.21) (.25)
Equity investment results .08 .08
Litigation charge - .06
Impairment/restructuring charge .83 (.01)
- ------------------------------------------------------------------------------
Total expenses 10.30 9.00
- ------------------------------------------------------------------------------
Earnings (loss) before taxes (.70) .68
Taxes on income (loss) (.16) .35
- ------------------------------------------------------------------------------
Net income (loss) (.54)% .33 %
==============================================================================
Net sales.
Sales for the first quarter (16 weeks) of 1999 decreased by $102 million, or
2%, to $4.5 billion from the same period in 1998.
Net sales for the food distribution segment were $3.3 billion in 1999 compared
to $3.5 billion in 1998. The loss of sales from customers moving to self-
distribution, Furr's (in 1998), Randall's (in 1999) and United (in 2000),
will result in sales comparisons to prior periods being negative for some
time. In 1998, sales to these three customers accounted for approximately
8% of the company's sales.
Retail food segment sales increased $57 million, or 5%, in 1999 to $1.1
billion from the same period in 1998. The increase in sales was due primarily
to new stores added since first quarter 1998. This was offset partially by a
decrease of 0.8% in same-store sales for the first quarter of 1999 compared to
the same period in 1998 and the closing of non-performing stores. Although
the same store comparison is a negative 0.8%, it is an improvement from the
negative 4.5% reported in the first quarter of 1998.
Fleming measures inflation using data derived from the average cost of a ton
of product sold by the company. Food price inflation for the first quarter of
1999 was up slightly at 2.3% compared to 2.0% for the same period in 1998.
Gross margin.
Gross margin for the first quarter of 1999 decreased by $14 million, or 3%, to
$428 million from $442 million for the same period in 1998, and also decreased
as a percentage of net sales to 9.60% from 9.68% for the same period in 1998.
The decrease was due, in part, to the overall sales decrease combined with
unfavorable adjustments resulting from additional stores being closed.
Additionally, gross margin in the first quarter of 1999 was adversely affected
by costs relating to the strategic plan, primarily inventory valuation
adjustments. The decreases were offset somewhat by an overall increase in the
retail food segment, which has the better margins of the two segments.
Selling and administrative expenses.
Selling and administrative expenses for the first quarter of 1999 increased by
$12 million, or 3%, to $377 million from $365 million for the same period in
1998 and increased as a percentage of net sales to 8.44% for 1999 from 8.00%
in 1998. The increase was partly due to increased operating expense in the
retail food segment. The increase was also partly due to costs relating to
the strategic plan, including $3 million in disposition related costs. Credit
loss expense is included in selling and administrative expenses and was $8
million for the first quarter of 1999 compared to $3 million for the same
period in 1998.
As more fully described in the 1998 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 and equity investments in and secured and unsecured loans
to certain customers. Secured loans generally have terms up to ten years.
Operating earnings.
Operating earnings for the food distribution segment decreased by $9 million,
or 10%, to $83 million for the first quarter of 1999 from $92 million for the
same period of 1998. Operating earnings were affected primarily by costs
relating to the strategic plan, lower sales and higher credit loss expense,
offset in part by improved results in continuing operations.
Operating earnings for the retail food segment decreased by $6 million, or
32%, to $13 million for the first quarter of 1999 from $19 million for the
same period of 1998. Operating earnings were affected primarily by costs
relating to the strategic plan and a 0.8% decrease in same-store sales.
Partially offsetting these decreases were improved expense controls.
Corporate expenses increased in the first quarter of 1999 compared to the same
period of 1998 by $12 million, or 36%, to $45 million from $33 million.
Closed store expense, the LIFO charge and incentive compensation expense were
higher in 1999 than in 1998.
Interest expense.
Interest expense for the first quarter of 1999 was less than $1 million higher
than 1998 due primarily to higher average debt balances offset by lower
average interest rates.
The company's derivative agreements consist of simple "floating-to-fixed rate"
interest rate swaps. For the first quarter of 1999, interest rate hedge
agreements contributed $1.5 million of interest expense which is unchanged
from the contribution made in the same period of 1998. For a description of
these derivatives, see Item 7A. Quantitative and Qualitative Disclosures about
Market Risk in the company's Annual Report on Form 10-K for the fiscal year
ended December 26, 1998.
Interest income.
Interest income for the first quarter of 1999 was $2 million lower than 1998
due to lower average balances and interest rates for the company's notes
receivable and investment in direct financing leases.
Equity investment results.
The company's portion of operating losses from equity investments remained
unchanged at $4 million for the first quarter of 1999 compared to the same
period of 1998.
Litigation charge.
In October 1997, the company began paying Furr's $800,000 per month as part of
a settlement agreement. In 1998, the $3 million charge in the first quarter
represented this payment. The payments ceased upon the closing of the sale of
the El Paso product supply center to Furr's in October 1998.
Impairment/restructuring charge.
In December 1998, the company announced the implementation of a strategic plan
designed to improve the competitiveness of the retailers the company serves
and to improve the company's performance by building stronger operations that
can better support long-term growth. The pre-tax charge recorded in the
Consolidated Condensed Statements of Operations was $46 million for the first
quarter of 1999. The net charge for the first quarter of 1998 was not
significant. The $46 million charge in 1999 was recorded with $37 million
reflected in the Impairment/restructuring charge line and the balance
reflected in other financial statement lines. See -General above and Note 9.
in the notes to the consolidated condensed financial statements for further
discussion regarding the strategic plan.
Taxes on income.
The effective tax rate used for the first quarter of 1999 was 23.0%. This is
a blended rate taking into account operations activity, strategic plan
activity, write-offs of non-deductible goodwill and the timing of these
transactions during the year. The tax rate used for the first quarter of 1998
was 51.3%.
Other.
Several factors negatively affecting earnings in the first 16-weeks of 1999
are likely to continue for the near term. Management believes that these
factors include lower sales and operating losses in certain company-owned
retail stores.
Liquidity and Capital Resources
Set forth below is certain information regarding the company's capital
structure at the end of the first quarter of 1999 and at the end of fiscal
1998:
</TABLE>
<TABLE>
<CAPTION>
==============================================================================
Capital Structure (In millions) April 17, 1999 December 26, 1998
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $1,248 57.6% $1,185 55.5%
Capital lease obligations 373 17.2 381 17.8
- ------------------------------------------------------------------------------
Total debt 1,621 74.8 1,566 73.3
Shareholders' equity 547 25.2 570 26.7
- ------------------------------------------------------------------------------
Total capital $2,168 100.0% $2,136 100.0%
==============================================================================
</TABLE>
Note: The above table includes current maturities of long-term debt and
current obligations under capital leases.
Long-term debt was $63 million higher at the end of the first quarter of 1999
compared to year-end 1998 because cash requirements for capital expenditures
and other investments, plus the increase in cash balances, exceeded net cash
provided from operations and sales of assets. Capital lease obligations were
$8 million lower because repayments exceeded leases added for new retail
stores.
The debt-to-capital ratio at the end of the first quarter of 1999 was 74.8%,
up from 73.3% at year-end 1998.
Operating activities generated $32 million of net cash flows for the first
quarter of 1999 compared to $50 million for the same period in 1998. Working
capital was $359 million at the end of the first quarter of 1999, an increase
from $307 million at year-end 1998. The current ratio increased to 1.32 to 1,
from 1.24 to 1 at year-end 1998.
Capital expenditures were $50 million in the first quarter of 1999, an
increase of $12 million compared to the same period in 1998. Total capital
expenditures in 1999 are expected to be approximately $200 million. The
company's strategic plan involves the divesting of a number of food
distribution and retail food facilities and other assets, and focusing
resources in the remaining food distribution and retail food operations. The
company intends to increase its retail operations by making investments in its
existing stores and by adding approximately 20 stores per year for the
foreseeable future. Acquisitions of supermarket chains or groups or other
food distribution operations will be made only on a selective basis. The
company has recently purchased an eight-store Food 4 Less group in northern
California.
Over the next few years, the implementation of the strategic plan is expected
to result in fewer, higher-volume, more efficient food distribution operating
units; fewer and more profitable retail food stores; reduced overhead
expenses; and substantial increases in net earnings. Cash costs related to
the implementation and completion of these initiatives (on a pre-tax basis)
were $17 million in the first quarter of 1999, and are estimated to be a total
of $45 million in 1999, $51 million in 2000, and $65 million thereafter.
Management believes working capital reductions, proceeds from the sale of
assets, and increased earnings related to the successful implementation of the
strategic plan are expected to provide substantially more than enough cash
flow to cover these incremental costs.
The company makes investments in and loans to certain retail customers. Net
investments and loans decreased $12 million in the first quarter of 1999, from
$137 million at year-end 1998 to $125 million, due primarily to a reduced
level of investment in these assets by the company.
In the first quarter of 1999, the company's primary sources of liquidity were
cash flows from operating activities, borrowings under its credit facility,
and the sale of certain assets and investments. The company's principal
sources of capital, excluding shareholders' equity, are banks and other
lenders and lessors.
The company's credit facility consists of a $600 million revolving credit
facility, with a final maturity of July 25, 2003, and a $250 million
amortizing term loan, with a final maturity of July 25, 2004. Up to $300
million of the revolver may be used for issuing letters of credit, and
borrowings and letters of credit issued under the credit facility may be used
for general corporate purposes. Outstanding borrowings and letters of credit
are secured by a first priority security interest in the accounts receivable
and inventories of the company and its subsidiaries and in the capital stock
of or other equity interests owned by the company in its subsidiaries. In
addition, the credit facility is guaranteed by substantially all company
subsidiaries. The stated interest rate on borrowings under the credit
agreement is equal to a referenced index rate, normally the London interbank
offered interest rate ("LIBOR"), plus a margin. The level of the margin is
dependent on credit ratings on the company's senior secured bank debt.
The credit agreement and the indentures under which other company debt
instruments were issued contain customary covenants associated with similar
facilities. The credit agreement currently contains the following more
significant financial covenants: maintenance of a fixed charge coverage ratio
of at least 1.7 to 1, based on adjusted earnings, as defined, before interest,
taxes, depreciation and amortization and net rent expense; maintenance of a
ratio of inventory-plus-accounts receivable to funded bank debt (including
letters of credit) of at least 1.4 to 1; and a limitation on restricted
payments, including dividends. Covenants contained in the company's
indentures under which other company debt instruments were issued are
generally less restrictive than those of the credit agreement. The company is
in compliance with all financial covenants under the credit agreement and its
indentures.
The credit facility may be terminated in the event of a defined change in
control. Under the company's indentures, noteholders may require the company
to repurchase notes in the event a defined change of control coupled with a
defined decline in credit ratings.
At the end of the first quarter of 1999, borrowings under the credit facility
totaled $211 million in term loans and $170 million of revolver borrowings,
and $78 million of letters of credit had been issued. Letters of credit are
needed primarily for insurance reserves associated with the company's normal
risk management activities. To the extent that any of these letters of credit
would be drawn, payments would be financed by borrowings under the revolver.
At the end of the first quarter of 1999, the company would have been allowed
to borrow an additional $352 million under the revolving credit facility
contained in the credit agreement based on actual borrowings and letters of
credit outstanding. Under the company's most restrictive borrowing covenant,
which is the fixed charge coverage ratio contained in the credit agreement,
$12 million of additional annualized fixed charges could have been incurred.
On December 7, 1998, Standard & Poor's rating group ("S&P") announced it had
placed its BB corporate credit rating, BB- senior unsecured debt rating, B+
subordinated debt rating, and BB+ bank loan rating for the company on
CreditWatch with negative implications. The CreditWatch listing followed the
company's December 7, 1998 announcement of its new strategic plan. S&P said
that its action reflected its concern and opinion that, despite the positive
moves included in the new strategic plan, it would be difficult for Fleming to
restore measures of earnings and cash flow protection to levels appropriate
for the current rating.
On December 8, 1998, Moody's Investors Service ("Moody's") announced it had
confirmed its credit ratings of the company and had changed its rating outlook
from stable to negative following the company's December 7, 1998 announcement
of its new strategic plan. Moody's confirmed its Ba3 senior secured bank
agreements rating, B1 senior unsecured sinking fund debentures, medium-term
notes, senior notes, and issuer rating, and B3 senior subordinated unsecured
notes rating. In addition, Moody's said failure of the company to achieve
cost reductions or operational disruptions from the execution of the new
strategic initiatives could negatively impact financial returns and exert
downward pressure on the ratings.
Dividend payments in the first quarter of 1999 were $0.02 per share, which was
the same per share amount as in the first quarter of 1998. The credit
agreement and the indentures for the $500 million of senior subordinated notes
limit restricted payments, including dividends, to $67 million at the end of
the first quarter of 1999, based on a formula tied to net earnings and equity
issuances.
For the foreseeable future, the company's principal sources of liquidity and
capital are expected to be cash flows from operating activities, the company's
ability to borrow under its credit agreement and asset sale proceeds. In
addition, lease financing may be employed for new retail stores and certain
equipment. Management believes these sources will be adequate to meet working
capital needs, capital expenditures (including expenditures for acquisitions,
if any), strategic plan implementation costs and other capital needs for the
next 12 months. Three of the company's largest customers (Furr's, Randall's,
and United) are moving or have moved to self-distribution, which together
represent approximately 8% of the company's sales in 1998. The effect of
the loss of this business is not expected to have a substantial impact on the
company's liquidity due to implementation of cost cutting measures and
anticipated new business, although if these measures are not successful or
the anticipated new business does not materialize, the company's liquidity
could be adversely affected.
Contingencies
From time to time the company faces litigation or other contingent loss
situations resulting from owning and operating its assets, conducting its
business or complying (or allegedly failing to comply) with federal, state and
local laws, rules and regulations which may subject the company to material
contingent liabilities. In accordance with applicable accounting standards,
the company records as a liability amounts reflecting such exposure when a
material loss is deemed by management to be both "probable" and "quantifiable"
or "reasonably estimable." Furthermore, the company discloses material loss
contingencies in the notes to its financial statements when the likelihood of
a material loss has been determined to be greater than "remote" but less than
"probable." Such contingent matters are discussed in Note 6 in the notes to
the consolidated condensed financial statements. An adverse outcome
experienced in one or more of such matters, or an increase in the likelihood
of such an outcome, could have a material adverse effect on the company. Also
see Legal Proceedings.
Fleming has numerous computer systems which were developed employing six digit
date structures (i.e., two digits each for month, day and year). Where date
logic requires the year 2000 or beyond, such date structures may produce
inaccurate results. Management has implemented a program to comply with
year-2000 requirements on a system-by-system basis including both information
technology (IT) and non-IT systems (e.g., microcontrollers). Fleming's plan
includes extensive systems testing and is expected to be substantially
completed by the third quarter of 1999. Code for the company's largest and
most comprehensive system, FOODS, has been completely remediated, reinstalled
and tested. Based on these tests, the company believes FOODS and the related
systems which run the company's distribution system will be year-2000 ready
and in place at all food distribution operating units. At year-end 1998, the
company was substantially complete with the replacement and upgrading
necessary to make its nearly 5,000 PCs year-2000 ready. Although the company
believes contingency plans will not be necessary based on progress to date,
contingency plans have been developed for each critical system. The content
of the contingency plans varies depending on the system and the assessed
probability of failure and such plans are modified periodically based on
remediation and testing. The alternatives include reallocating internal
resources, obtaining additional outside resources, implementing temporary
manual processes or temporarily rolling back internal clocks. Although the
company is developing greater levels of confidence regarding its internal
systems, failure to ensure that the company's computer systems are year-2000
compliant could have a material adverse effect on the company's operations.
The company is also assessing the status of its vendors' and customers'
year-2000 readiness through meetings, discussions, notices and questionnaires.
Vendor and customer responses and feedback are varied and in some cases
inconclusive. Accordingly, the company believes the most likely worst case
scenario could be customers' failure to serve and retain consumers resulting
in a negative impact on the company's sales. Failure of the company's
suppliers or its customers to become year-2000 compliant might also have a
material adverse impact on the company's operations.
Program costs to comply with year-2000 requirements are being expensed as
incurred. Total expenditures to third parties in 1997 through completion in
1999 are not expected to exceed $10 million, none of which is incremental.
Through the end of the first quarter of 1999, these third party expenditures
totaled approximately $7 million. To compensate for the dilutive effect on
results of operations, the company has delayed other non-critical development
and support initiatives. Accordingly, the company expects that annual
information technology expenses will not differ significantly from prior
years.
Forward-Looking Information
This report includes statements that (a) predict or forecast future events or
results, (b) depend on future events for their accuracy, or (c) embody
assumptions which may prove to have been inaccurate, including the company's
ability to successfully achieve the goals of its strategic plan and reverse
sales declines, cut costs and improve earnings; the company's assessment of
the probability and materiality of losses associated with litigation and other
contingent liabilities; the company's ability to develop and implement
year-2000 systems solutions; the company's ability to expand portions of its
business or enter new facets of its business; and the company's expectations
regarding the adequacy of capital and liquidity. These 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 the:
risks associated with the successful execution of the company's strategic
business plan; 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 of the company to
achieve necessary cost savings; failure of the company, its vendors or its
customers to develop and implement year-2000 system solutions; and the
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 Annual Report on Form
10-K for the fiscal year ended December 26, 1998 and in other periodic reports
available from the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Page Number
3.1 Amended and Restated Certificate **
of Incorporation as amended
May 19, 1999
3.2 Bylaws as amended May 19, 1999 **
10.49* Amendment to Fleming Companies, **
Inc. 1990 Stock Incentive Plan
10.50* Employment Agreement for John T. **
Standley dated as of May 17, 1999
10.51* Restricted Stock Agreement for John **
T. Standley dated as of May 17, 1999
10.52* Letter Agreement for William H. **
Marquard dated as of May 26, 1999
12 Computation of Ratio of Earnings **
to Fixed Charges
15 Letter from Independent Accountants ***
As to Unaudited Interim Financial
Information
27 Financial Data Schedule **
_______________
* Management contract, compensatory plan or arrangement.
** Exhibit filed with Form 10-Q for quarter ended April 17, 1999.
*** Exhibit filed with this amendment.
(b) Reports on Form 8-K:
On April 16, 1999, the company announced that it was closing its Peoria,
Illinois food distribution division. The Peoria division was under strike by
the union. The company's LaCrosse, Wisconsin division was serving and will
continue to serve the retail customers previously supplied by Peoria.
On April 23, 1999, the company announced that the closing of its Peoria,
Illinois food distribution division was not originally part of the company's
strategic plan, but was added to the plan. The closing was expected to result
in a pre-tax charge of approximately $27 million ($25 million after income tax
benefits or $.65 per share) for the first quarter of 1999. $24 million ($23
million after income tax benefits or $.60 per share) of the $27 million
represented non-cash charges. Additional cash costs were expected to total
approximately $2 million over the next two years.
<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: February 9, 2000 KEVIN TWOMEY
Kevin Twomey
Senior Vice President Finance
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
<S> <C> <C>
15 Letter from Independent Accountants Filed herewith electronically
As to Unaudited Interim Financial
Information
</TABLE>
Exhibit 15
Fleming Companies, Inc.
6301 Waterford Boulevard, Box 26647
Oklahoma City, OK 73126
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of Fleming Companies, Inc. and
subsidiaries for the sixteen weeks ended April 17, 1999 and April 18,
1998, as indicated in our report dated May 5, 1999; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q/A for the sixteen weeks ended April 17,
1999, is incorporated by reference in the following:
(i) Registration Statement No. 2-98602 (1985 Stock Option Plan)
on Form S-8;
(ii) Registration Statement No. 33-36586 (1990 Fleming Stock
Option Plan) on Form S-8;
(iii) Registration Statement No. 33-56241 (Dividend Reinvestment
and Stock Purchase Plan) on Form S-3;
(iv) Registration Statement No. 333-11317 (1996 Stock Incentive
Plan) on Form S-8;
(v) Registration Statement No. 333-35703 (Senior Subordinated
Notes) on Form S-4;
(vi) Registration Statement No. 333-28219 (Associate Stock
Purchase Plan) on Form S-8;
(vii) Registration Statement No. 333-80445 (1999 Stock Incentive Plan)
on Form S-8; and
(viii) Registration Statement No. 333-89375 (Consolidated Savings Plus
and Stock Ownership Plan) on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of a
registration statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 9, 2000
