UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 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)
Registrant's telephone number, including area code (405) 840-7200
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $2.50 Par Value New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [X]
The aggregate market value of the common shares (based upon the
closing price on March 2, 2000 of these shares on the New York
Stock Exchange) of Fleming Companies, Inc. held by nonaffiliates
was approximately $569 million.
As of March 3, 2000, 39,212,000 common shares were outstanding.
Documents Incorporated by Reference
A portion of Part III has been incorporated by reference from the
registrant's proxy statement in connection with its annual
meeting of shareholders to be held on May 10, 2000.
PART I
ITEM 1. BUSINESS
GENERAL
Fleming Companies, Inc. ("Fleming" or the "company") began
operations in 1915 in Topeka, Kansas as a small food wholesaler.
Today, Fleming's distribution operation ("distribution") is one
of the largest food and general merchandise distributors in the
United States supplying supermarket, supercenter, discount,
convenience, limited assortment, drug, specialty and other retail
stores and businesses in 41 states. Fleming's retail operation
("retail") is a major food and general merchandise retailer in
the United States, operating approximately 240 supermarkets in 8
states.
Business Strategy. At the end of 1998, Fleming completed a
comprehensive study of all facets of its operations which
resulted in a strategic plan to be implemented over the next two
years. During 1999, the company's strategic plan continued to be
refined providing additional focus. Today, the company has three
primary objectives for continued growth: rationalize assets;
reduce costs; and focus on core competencies to grow sales
aggressively.
Rationalize assets. Assets have and will continue to be
rationalized to divest or close under-performing and non-
strategic business distribution operating units and retail
stores.
In the distribution segment, the closing of twelve operating
units is in varying stages of completion. By closing these
twelve operating units the company has the potential to
optimize other distribution operations and more effectively
and efficiently support the company's retail customers. During
1998, the company completed the closing of two operating
units: El Paso, TX and Portland, OR. By mid-1999, six
operating units were closed: Houston, TX; Huntingdon, PA;
Laurens, IA; Johnson City, TN; Sikeston, MO; and Peoria, IL.
By mid-2000, four additional operating units will be closed:
San Antonio, TX; Philadelphia, PA; York, PA; and Buffalo, NY.
The customers at eleven of the twelve closed operating units
will be transferred and serviced primarily by the operating
units located in Nashville, TN; Memphis, TN; Massillon, OH;
Lincoln, NE; Kansas City, MO; La Crosse, WI; Garland, TX;
Lubbock, TX; and North East, MD. During 1998, the Portland
operating unit was sold to Associated Grocers of Seattle (AG)
as part of the formation of a joint venture marketing company.
In the retail segment, the divestiture or closing of seven
retail chains and groups has been completed or is underway.
During 1999, the company completed the divestiture or closing
of 75 stores: six from the Hyde Park Market(trademark) chain
in Florida; 21 from the Consumers Food & Drug(trademark) chain
headquartered in Missouri; 24 from the Boogaarts(registered
trademark) Food Stores chain which operated in Kansas and
Nebraska; 10 from the New York Retail chain in New York and
Pennsylvania; and 14 other stores. During 2000, the company
expects to divest or close an additional 60 stores comprised
of: 19 additional stores from the New York Retail chain; 18
from the Penn Retail group which operates in Pennsylvania and
Maryland; seven Baker's(trademark) stores located in Oklahoma;
and 16 other stores.
Reduce costs. To support improved operating efficiency,
overhead expenses were reduced during 1999 with additional
reductions expected during 2000. Staff functions at all levels
of the organization have and will continue to be examined and
appropriately reset to reflect the configuration of the
distribution and retail segments. In addition, the "low cost
pursuit" program was developed during 1999 covering five areas
of the company. These five areas are: merchandising and
procurement; logistics and distribution; shared services and
finance; retail operations; and customer relations. In the
merchandising and procurement functions, the company is
focusing on lowering cost of goods and administrative costs by
moving to a centralized versus local procurement system. The
logistics and distribution functions are attempting to remove
costs associated with back-haul, in-bound transportation and
other logistics functions. Within the shared services and
finance organizations, many functions are being centralized to
reduce costs and improve effectiveness. Centralization is
occurring in areas such as non-merchandise procurement,
certain employee benefit programs, accounting and information
technology services. Retail operations are implementing best
demonstrated practices to reduce labor costs and reduce store
operating costs. Certain administrative functions are also
being centralized for retail operations. Customer relations
is establishing a single point of contact for each customer to
eliminate many paper-based processes and improve customer
communications.
Focus on core competencies to grow sales aggressively. By
focusing on the company's core competencies and engaging in a
continuous improvement program the company expects to foster
growth. These core competencies consist of the following:
case-pick distribution; piece-pick distribution; flow-through
distribution; procurement; retail services; value oriented
price impact retail operations ("value retail"); and e-
commerce. The company's strategy for growth will focus around
its core competencies to take advantage of growth
opportunities in distribution, value retail and e-commerce.
In 1999, asset rationalization activities resulted in lower
sales compared to 1998.
Strategic growth in distribution consists of the continuous
implementation of an aggressive business development program
that will leverage the power of Fleming's consolidated
distribution operations to earn a greater share of business
from existing customers and to attract new customers including
non-traditional retailers. The growth strategies for each
targeted market are based on detailed market-by-market
studies, the competitive advantages anticipated from the
consolidations, cost reduction initiatives, and improvement in
buying efficiencies and cost of goods resulting from the
centralization of the majority of procurement.
In retail operations, the company will concentrate growth in
its Food 4 Less(registered trademark) and other value-
oriented retail operations. In addition, the company will
be focusing on improving the performance of its strong
regional players which includes Baker's(trademark), Rainbow
Foods(registered trademark), Sentry(registered trademark)
Foods and ABCO Foods(trademark). To strengthen the top-
performing retail operations, the company will spend
additional capital for new store development and remodels.
Fleming also expects growth through supply arrangements with e-
commerce grocers.
Fleming generated net sales of $14.6 billion, $15.1 billion and
$15.4 billion for 1999, 1998 and 1997, respectively. The net
loss for fiscal 1999 was $45 million which was largely due to
a $137 million pre-tax charge related to the strategic
plan. Fleming generated net earnings before strategic plan
charges and one-time adjustments of $43 million, $32 million and
$25 million for fiscal 1999, 1998 and 1997, respectively.
Additionally, the company generated net cash flows from
operations of $168 million, $148 million and $113 million for the
same periods, respectively, before payments related to the
strategic plan. The combined businesses generated $411 million,
$431 million and $460 million of adjusted EBITDA for fiscal 1999,
1998 and 1997, respectively. "Adjusted EBITDA" is earnings
before extraordinary items, interest expense, income taxes,
depreciation and amortization, equity investment results, LIFO
provision 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 (in
millions):
1999 1998 1997
-------- -------- --------
Net income (loss) $ (45) $(511) $25
Add back:
Extraordinary charge - - 13
Taxes on income (loss) (18) (88) 44
Depreciation/amortization 158 180 173
Interest expense 165 162 163
Equity investment results 10 12 17
LIFO provision 11 8 6
------ ----- ------
EBITDA 281 (237) 441
Add back non-cash strategic plan
charges and one-time items 92 594 -
------ ----- ------
EBITDA excluding non-cash
strategic plan charges 373 357 441
Add back strategic plan charges and
one-time items ultimately requiring
cash 38 74 19
------ ----- ------
Adjusted EBITDA $411 $431 $460
====== ===== ======
The company expects adjusted EBITDA for 2000 to be at least $450
million. 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.
DISTRIBUTION SEGMENT
The distribution segment sells food and non-food products to
retail grocers and other retail operators. A variety of retail
support services are offered to independently-owned and company-
owned retail stores. Net sales for the distribution segment were
$10.9 billion for fiscal 1999, excluding sales to the company's
retail segment. Sales to the retail segment totaled $2.2 billion
during 1999.
Customers Served. During 1999 the distribution segment served a
wide variety of retail operations located in 41 states. The
segment's customers range from small convenience outlets to large
supercenters with the format of the retail stores being a
function of size and marketing approach. The segment serves
customers operating as conventional supermarkets (averaging
approximately 23,000 total square feet), superstores
(supermarkets of 30,000 square feet or more), supercenters (a
combination of discount store and supermarket encompassing
110,000 square feet or more), warehouse stores ("no-frills"
operations of various large sizes), combination stores (which
have a high percentage of non-food offerings) and convenience
stores (generally under 4,000 square feet and offering only a
limited assortment of products). The company is continuing to
diversify its customer base to include non-traditional retailers
such as drug stores and mass merchandisers.
The company also licenses or grants franchises to retailers to
use certain registered trade names such as Piggly
Wiggly(registered trademark), Food 4 Less(registered trademark)
(a registered servicemark of Food 4 Less Supermarkets, Inc.),
Sentry(registered trademark) Foods, Super 1 Foods(registered
trademark), Festival Foods(registered trademark), Jubilee
Foods(registered trademark), Jamboree Foods(registered
trademark), MEGAMARKET(registered trademark), Shop 'N
Kart(registered trademark), American Family(registered
trademark), Big Star(registered trademark), Big T(registered
trademark), Buy for Less(registered trademark), County Pride
Markets(registered trademark), Buy Way(registered trademark), Pic-
Pac(registered trademark), Shop N Bag(registered trademark),
Super Save(registered trademark), Super Duper(registered
trademark), Super Foods(trademark), Super Thrift(registered
trademark), Thriftway(registered trademark), and Value
King(registered trademark).
The company is working to encourage independents and small chains
to join one of the Fleming Banner Groups to receive many of the
same marketing and procurement efficiencies available to larger
chains. The Fleming Banner Groups are retail stores operating
under the IGA(registered trademark) (IGA(registered trademark) is
a registered trademark/servicemark of IGA, Inc.) or Piggly
Wiggly(registered trademark) banner or under one of a number of
banners representing a price impact retail format. Fleming Banner
Group stores are owned by customers, many of which license their
store banner from Fleming.
The company's top 10 external customers accounted for
approximately 16% of total net sales during 1999. Kmart
Corporation, the company's largest customer, represented
approximately 4.5% of total net sales. No single other customer
represented more than 2.3% of total net sales during 1999.
Pricing. The distribution segment uses market research and cost
analyses as a basis for pricing its products and services. In
all operating units, Retail Services are individually and
competitively priced. The company has three marketing programs
for its distribution business: FlexMate(trademark),
FlexPro(trademark) and FlexStar(trademark).
The FlexMate(trademark) marketing program has a presentation to
customers of a quoted sell price. The quoted sell price is
generally a selling price that includes a mark-up. The
FlexMate(trademark) marketing program is available as an option
in all operating units for grocery, frozen and dairy products. In
all operating units, a price plus mark-up method is applied for
meat, produce, bakery goods, delicatessen products, tobacco
supplies, general merchandise and health and beauty care
products. Under FlexMate(trademark) a distribution fee is added
to the product price for various product categories. Under some
marketing programs, freight charges are also added to offset in
whole or in part Fleming's cost of delivery services provided.
Any cash discounts, certain allowances, and service income earned
from vendors may be retained by the distribution segment. This
has generally been referred to as the "traditional pricing"
method.
Under FlexPro(trademark), grocery, frozen and dairy products are
listed at a price generally comparable to the net cash price paid
by the distribution segment. Dealer allowances and service income
are passed through to the customer. Service charges are
established using the principles of activity-based pricing
modified by market research. Activity-based pricing attempts to
identify Fleming's cost of providing certain services in
connection with the sale of products such as transportation,
storage, handling, etc. Based on these identified costs, and with
a view to market responses, Fleming establishes charges for these
activities designed to recover Fleming's cost and provide the
company with a reasonable profit. These charges are then added to
aggregate product price. A fee is also charged for administrative
services provided to arrange and manage certain allowances and
service income offered by vendors and earned by the distribution
segment and its customers.
FlexStar(trademark) is very similar to FlexPro(trademark), but
generally uses a less complex presentation for distribution
service charges by using customer-specific average charges. This
averaging mechanism lessens the volatility of charges to the
retailer but does not permit the retailer to manage his own
product costs as fully as with FlexPro(trademark).
Fleming Brands. Fleming Brands are store brands which include
both private labels and controlled labels. Private labels are
offered only in stores operating under specific banners (which
may or may not be controlled by Fleming). Controlled labels are
Fleming-owned brands which are offered to all distribution
customers. Fleming Brands are targeted to three market segments:
premium, national quality and value. Each Fleming Brand offers
consumers high quality products within each pricing tier. Fleming-
controlled labels include: Living Well(trademark) and Nature's
Finest(registered trademark), which are premium brands;
BestYet(registered trademark), SuperTru(registered trademark) and
Marquee(registered trademark), which are national quality brands;
and Rainbow(registered trademark), Fleming's value brand. Fleming
offers two private labels, IGA(registered trademark) and Piggly
Wiggly(registered trademark), which are national quality brands.
Fleming shares the benefit of reduced acquisition costs of store
brand products with its customers, permitting both the
distribution segment and the retailer to earn higher margins from
the sale of Fleming Brands.
Retail Services. Retail Services are separately marketed, priced
and delivered from other distribution operations. Retail Services
marketing and sales personnel look for opportunities to cross-
sell additional retail services as well as other distribution
segment products to their customers. The company offers
consulting, administrative and information technology services to
its distribution segment customers (including retail segment
operating units) and non-customers.
Consulting Services include: the advertising service group, one
of the largest retail advertising agencies in the United States;
the retail development group, which offers market analysis,
surveys and store development services; the pricing group, which
assists retailers in developing pricing strategy programs; the
store operations group, which offers assistance in quality
control, standards monitoring, audit training, and other general
supermarket management; and insurance services for reviewing,
pricing and coordinating retail insurance portfolios.
Administrative Services include: the financial group, which helps
retailers track their financial performance by providing full
accounting services, operating statements, payroll and accounts
payable systems and tax return preparation; the category
management group, which offers retailers more effective product
management selection, shelf management, perpetual inventory and
computer-assisted ordering capability; and the promotion group,
which offers numerous promotional tools to assist retail
operators in improving store traffic, such as frequent shopper
programs, kiosk use and instant savings programs.
Information Technology Services include: the technology group,
which provide POS equipment purchasing and leasing programs with
the three largest vendors of scanning equipment; electronic
payment systems; credit/debit/EBT; direct store delivery and
receiving systems; electronic shelf labels; in-store file
managers; total store technology solutions; and
Visionet(registered trademark), which is the company's
proprietary interactive internet-based electronic information
network giving retailers access to inventory information,
financial data, vendor promotions, retail support services and on-
line ordering.
Facilities and Transportation. At the end of 1999 the
distribution segment operated twenty-five full-line food product
supply centers which are responsible for the distribution of
national brands and Fleming Brands, including groceries, meat,
dairy and delicatessen products, frozen foods, produce, bakery
goods and a variety of related food and non-food items. Six
general merchandise and specialty food operating units distribute
health and beauty care items and other items of general
merchandise and specialty foods. Two operating units serve
convenience stores. All facilities are equipped with modern
material handling equipment for receiving, storing and shipping
large quantities of merchandise. Upon the completion of the
closing of the four operating units scheduled during 2000, the
distribution segment will operate twenty-two full-line operating
units. The Philadelphia and York operating units scheduled to
be closed will be merged into the expanded North East, MD facility
which currently serves as a perishables facility for the
Philadelphia operating unit.
The distribution segment's operating units comprise more than
16.5 million square feet of warehouse space. Additionally, the
distribution segment rents, on a short-term basis, approximately
four million square feet of off-site temporary storage space.
Upon the completion of the closing of the four operating units
scheduled during 2000, the distribution segment facilities in
operation will comprise approximately 15 million square feet of
warehouse space and will continue to rent approximately 4 million
square feet of off-site temporary storage space. Distribution
productivity and efficiencies increase dramatically as the
company merges smaller operating units into large volume
operating units. The benefit is twofold: customers benefit from
improved economics and the company improves sales per operating
unit. Average sales volume per operating unit increased 24% from
1998 to 1999 and an additional 22% increase is expected by year-
end 2000.
Transportation arrangements and operations vary by operating unit
and may vary by customer. Some customers prefer to handle product
delivery themselves, others prefer the company to deliver
products, and still others ask the company to coordinate delivery
with a third party. Accordingly, many operating units maintain a
truck fleet to deliver products to customers, and several centers
also engage dedicated contract carriers to deliver products. The
company increases the utilization of its truck fleet by back-
hauling products from suppliers and others, thereby reducing the
number of empty miles traveled. To further increase its fleet
utilization, the company has made its truck fleet available to
other firms on a for-hire carriage basis.
Capital Invested in Customers. As part of its services to
retailers, the company provides capital to certain customers by
extending credit for inventory purchases, by becoming primarily
or secondarily liable for store leases, by leasing equipment to
retailers, by making secured loans and by making equity
investments in customers:
o Extension of Credit for Inventory Purchases. Customary trade
credit terms are usually the day following statement date for
customers on FlexPro(trademark) or FlexStar(trademark) and up
to seven days for other marketing plan customers.
o Store and Equipment Leases. The company leases stores for
sublease to certain customers. At year-end 1999, the company
was the primary lessee of more than 680 retail store locations
subleased to and operated by customers. Fleming also leases a
substantial amount of equipment to retailers.
o Secured Loans and Lease Guarantees. Loans are approved by the
company's business development committee following written
approval standards. The company makes loans to customers
primarily for store expansions or improvements. These loans
are typically secured by inventory and store fixtures, bear
interest at rates above the prime rate, and are for terms of
up to 10 years. During fiscal year 1997, the company sold,
with limited recourse, $29 million of notes evidencing such
loans. No loans were sold in 1998 or 1999. The company
believes its loans to customers are illiquid and would not be
investment grade if rated. From time to time, the company also
guarantees the lease obligations of certain of its customers.
o Equity Investments. The company has equity investments in
operators referred to as Equity Stores. Certain Equity Store
participants may retain the right to purchase the company's
investment over a five to ten year period. Many of the
customers in which the company has equity investments are
highly leveraged, and the company believes its equity
investments are highly illiquid.
In making credit and investment decisions, Fleming considers many
factors, including estimated return on capital, risk and the
benefits to be derived.
At year-end 1999, Fleming had loans outstanding to customers
totaling $114 million ($12 million of which were to retailers in
which the company had an equity investment) and equity
investments in customers totaling $4 million. The company also
has investments in customers through direct financing leases,
lease guarantees, operating leases or credit extensions for
inventory purchases. The present values of the company's
obligations under direct financing leases and lease guarantees
were $214 million and $53 million, respectively, at year-end
1999. Fleming's credit loss expense from receivables as well as
from investments in customers was $25 million in 1999, $23
million in 1998 and $24 million in 1997. See "Investments and
Notes Receivable" and "Lease Agreements" in the notes to the
consolidated financial statements.
RETAIL SEGMENT
The retail segment presently operates approximately 240
supermarkets in eight states. Sixty of the stores are in the
process of being divested or closed, resulting in continuing
operations of approximately 180 supermarkets operated as five
distinct local chains in six states with an aggregate of
approximately 8.9 million square feet. Each chain has its own
local management and localized marketing skills. The retail
segment's supermarkets are all served by distribution segment
operating units. Net sales of the retail segment were $3.7
billion in fiscal 1999.
The company operates two basic retail formats: conventional and
value retail. Conventional retail stores are designed and
equipped to offer a broad selection of both national brands as
well as Fleming Brands at attractive prices while maintaining
high levels of service. Most of these stores have extensive
produce sections and complete meat departments, together with one
or more specialty departments such as in-store bakeries,
delicatessens, seafood or floral departments. Specialty
departments generally produce higher gross margins per selling
square foot than general grocery sections. Value retail stores
are designed and equipped to offer a reduced assortment of
products at reduced prices resulting in increased volumes which
is enabled by a lower cost structure.
The retail segment consisted of the following local trade names
and number of stores as of year-end 1999:
Value Retail Operations.
Food 4 Less(registered trademark) is a group of 25 food
warehouse stores operating in the Northern California, Salt
Lake City and Phoenix market areas with an average size of
approximately 54,500 square feet. The supermarkets use a price
impact pricing strategy. "Price impact" stores seek to
minimize the retail price of goods by a reduced variety of
product offerings, lower levels of customer services and
departments, low overhead and minimal decor and advertising.
Conventional Retail Operations.
ABCO Foods(trademark). Located in Phoenix and Tucson, ABCO
operates 58 stores, of which a majority are "Desert Market"
format conventional supermarkets, averaging approximately
37,700 square feet.
Baker's(trademark), Nebraska. Located primarily in Omaha,
Nebraska, Baker's operates 15 stores which are primarily
superstores in format. Baker's stores average approximately
56,900 square feet.
Rainbow Foods(registered trademark). With 44 stores in
Minnesota, primarily Minneapolis/St. Paul, and two stores in
Wisconsin, Rainbow Foods operates in a large store format. The
average store size for Rainbow Foods is approximately 59,500
square feet.
Sentry(registered trademark) Foods. Located in Wisconsin,
Sentry operates 41 stores, 38 of which are conventional-format
supermarkets with an average size of approximately 46,200
square feet. The remaining three stores are liquor or drug
stores.
Other.
New York Retail. This is a 19 store group consisting primarily
of Jubilee Foods(registered trademark) stores, operating in
western New York and Pennsylvania. As a result of Fleming's
asset rationalization, New York Retail is in the process of
being divested or closed.
Penn Retail. This group is made up of 18 conventional
supermarkets which includes Festival Foods(registered
trademark) and Jubilee Foods(registered trademark) operating
primarily in Pennsylvania with several located in Maryland. As
a result of Fleming's asset rationalization, Penn Retail is in
the process of being divested or closed.
Thompson Food Basket(registered trademark). Located in
Illinois and Iowa, these 13 stores average approximately
38,500 square feet. As a result of Fleming's asset rationali-
zation, Thompson Food Basket is in the process of being
divested or closed.
Baker's(trademark), Oklahoma. This is a seven store group
which as a result of Fleming's asset rationalization is in the
process of being divested.
Fleming retail segment supermarkets provide added purchasing
power as they enable Fleming to commit to certain promotional
efforts at the retail level. The company, through its owned
supermarkets, is able to retain many of the promotional savings
offered by vendors in exchange for volume increases.
Additional information regarding the company's two operating
segments is contained in "Segment Information" in the notes to
the consolidated financial statements which are included in Item
8 of this report.
E-COMMERCE SEGMENT
Fleming has assets in place and is well positioned to play a
major role in the e-commerce industry. The company is already
involved in e-commerce by supplying internet-based grocers
(including NetGrocer.com, GroceryWorks.com, Pinkdot.com,
AmericanGrocer.com and Webvan.com) and through our proprietary
Visionet(registered trademark) system. Visionet unites retailers,
traditional and non-traditional vendors, and Fleming operations.
Visionet provides a way to communicate orders, promotions,
marketing bulletins and related information among Fleming,
vendors, and retailers. For example, retail customers
regularly avail themselves of the cost savings inherent in
special manufacturer promotions via Visionet. In addition to
serving as a high-velocity informational interchange for
promotional purchasing, Visionet offers a bid/auction capability
for case pricing and inventory liquidation. This proprietary
portal also enables Fleming to communicate with independent
retail stores on category management, item price guides, order
status, and other issues. In addition, Visionet is proving to be
a valuable tool for replacing paper-based communications. To
date, this segment has been immaterial and included as part of
the distribution segment, but rapid growth is anticipated in the
future.
PRODUCTS
The distribution segment and the retail segment supply Fleming's
customers with a full line of national brands and Fleming Brands,
including groceries, meat, dairy and delicatessen products,
frozen foods, produce, bakery goods and a variety of general
merchandise, health and beauty care and other related items.
During 1999 the average number of stock keeping units ("SKUs")
carried in full-line distribution operating units was
approximately 15,200 including approximately 2,500 perishable
products. General merchandise and specialty food operating units
carried an average of approximately 18,200 SKUs. Food and food-
related product sales account for over 93 percent of the
company's consolidated sales. During 1999, the company's product
mix as a percentage of product sales was approximately 51%
groceries, 42% perishables and 7% general merchandise. The
company is in the process of centralizing over 60% of all
merchandise procurement which should make more efficient use of
procurement staff, improve buying effectiveness, and
substantially reduce the cost of goods.
SUPPLIERS
Fleming purchases its products from numerous vendors and growers.
As a large customer, Fleming is able to secure favorable terms
and volume discounts on many of its purchases, leading to lower
unit costs. The company purchases products from a diverse group
of suppliers and believes it has adequate sources of supply for
substantially all of its products.
COMPETITION
The distribution segment faces significant competition. The
company's primary competitors are regional and local food
distributors, national chains which perform their own
distribution, and national food distributors. The principal
competitive factors include price, quality and assortment of
product lines, schedules and reliability of delivery, and the
range and quality of customer services.
The primary competitors of retail segment supermarkets and
distribution segment customers are national, regional and local
grocery and drug chains, as well as supercenters, independent
supermarkets, convenience stores, restaurants and fast food
outlets. Principal competitive factors include product price,
quality and assortment, store location and format, sales
promotions, advertising, availability of parking, hours of
operation and store appeal.
EMPLOYEES
At year-end 1999, the company had approximately 36,300 full-time
and part-time employees, with approximately 10,900 employed by
the distribution segment, approximately 23,600 by the retail
segment and approximately 1,800 employed in shared services,
customer support and other functions.
Approximately half of the company's associates are covered by
collective bargaining agreements with the International
Brotherhood of Teamsters; Chauffeurs, Warehousemen and Helpers of
America; the United Food and Commercial Workers; the
International Longshoremen's and Warehousemen's Union; and the
Retail Warehouse and Department Store Union. Most of such
agreements expire at various times throughout the next five
years.
RISK FACTORS
All statements other than statements of historical facts included
in this report including, without limitation, statements under
the captions "Risk Factors," "Management's Discussion and
Analysis" and "Business," regarding the company's financial
position, business strategy and plans and objectives of
management of the company for future operations, constitute
forward-looking statements. Although the company believes that
the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will
prove to have been correct. Cautionary statements describing
important factors that could cause actual results to differ
materially from the company's expectations are disclosed
hereunder and elsewhere in this report. All subsequent written
and oral forward-looking statements attributable to the company
or persons acting on its behalf are expressly qualified in their
entirety by such cautionary statements.
Changing Environment.
The distribution and retail segments are undergoing accelerated
change as distributors and retailers seek to lower costs and
increase services in an increasingly competitive environment. An
example of this is the growing trend of large self-distributing
chains to consolidate to reduce costs and gain efficiencies.
Eating away from home and alternative format food stores (such as
warehouse stores and supercenters) have taken market share from
traditional supermarket operators, including independent grocers,
many of whom are Fleming customers. Vendors, seeking to ensure
that more of their promotional fees and allowances are used by
retailers to increase sales volume, increasingly direct
promotional dollars to large self-distributing chains. The
company believes that these changes have led to reduced sales,
reduced margins and lower profitability among many of its
customers and, consequently, at the company itself. Failure to
implement the company's strategies, developed in response to
these changing market conditions, could have a material adverse
effect on the financial condition and prospects of the company.
Sales Growth.
Net sales have declined each year since 1995; however, the
decline slowed and turned during 1999 with the fourth quarter
reflecting positive net sales growth. The company anticipates
that net sales for 2000 will be higher than in 1999 due to growth
in sales to non-traditional distribution customers, higher sales
for continuing retail stores and growing sales to internet-based
companies. See Item 7. Management's Discussion and Analysis.
Although Fleming has taken steps to reverse sales declines and to
enhance its overall profitability (see -General), no assurance
can be given that the company will be successful in these
efforts.
Employee Relations.
Approximately one-half of the company's associates are covered by
collective bargaining agreements. Successful execution of the
company's strategic plan is subject to maintaining satisfactory
relationships with its unions.
Leverage.
The company has substantial indebtedness in relation to its
shareholders' equity. The degree to which the company is
leveraged could have important consequences including the
following: (i) the company's ability to obtain other financing in
the future may be impaired; (ii) a substantial portion of the
company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness; and (iii)
a high degree of leverage may make the company more vulnerable to
economic downturns and may limit its ability to withstand
competitive pressures. Fleming's ability to make scheduled
payments on or refinance its indebtedness depends on its
financial and operating performance, which may fluctuate
significantly from quarter to quarter and is subject to
prevailing economic conditions and to financial, business and
other factors beyond the company's control.
If Fleming is unable to generate sufficient cash flow to meet its
debt obligations, the company may be required to renegotiate the
payment terms or refinance all or a portion of its indebtedness,
to sell assets or to obtain additional financing. If Fleming
could not satisfy its obligations related to such indebtedness,
substantially all of the company's long-term debt could be in
default and could be declared immediately due and payable. There
can be no assurance that the company could repay all such
indebtedness in such event.
The company's credit agreement and the indentures for certain of
its outstanding indebtedness contain numerous restrictive
covenants which limit the discretion of the company's management
with respect to certain business matters. These covenants place
significant restrictions on, among other things, the ability of
the company and its subsidiaries to incur additional
indebtedness, to create liens or other encumbrances, to pay
dividends, to make certain payments, investments, loans and
guarantees and to sell or otherwise dispose of a substantial
portion of assets to, or merge or consolidate with, another
entity which is not wholly owned by the company.
Competition.
The distribution segment is in a highly competitive market. The
company faces competition from local, regional and national food
distributors on the basis of price, quality and assortment,
schedules and reliability of deliveries and the range and quality
of services provided. The company also competes with retail
supermarket chains that provide their own distribution functions,
purchasing directly from producers and distributing products to
their supermarkets for sale to the consumer. Consolidation of
self-distributing chains may produce even stronger competition
for the distribution segment.
In its retail segment, Fleming competes with other food outlets
on the basis of price, quality and assortment, store location and
format, sales promotions, advertising, availability of parking,
hours of operation and store appeal. Traditional mass
merchandisers have gained a growing foothold in food marketing
and distribution with alternative store formats, such as
warehouse stores and supercenters, which depend on concentrated
buying power and low-cost distribution technology. Market share
of stores with alternative formats is expected to continue to
grow in the future. Retail consolidations not only produce
stronger competition in the retail segment, but may also result
in declining sales in the distribution segment due to customers
being acquired by self-distributing chains.
To meet the challenges of a rapidly changing and highly
competitive environment, the company must maintain operational
flexibility and effectively implement its strategies across many
market segments. The company's failure to successfully respond to
these competing pressures or to implement its strategies
effectively could have a material adverse effect on the financial
condition and prospects of the company.
Certain Litigation.
Fleming is involved in substantial litigation which exposes the
company to material loss contingencies. See Item 7. Management's
Discussion and Analysis-Contingencies, Item 3. Legal Proceedings
and "Litigation Charges" and "Contingencies" in the notes to the
consolidated financial statements.
Potential Losses From Investments in Retailers.
The company provides subleases and extends loans to and makes
investments in many of its retail customers, often in conjunction
with the establishment of long-term supply contracts. Loans to
customers are generally not investment grade and, along with
equity investments in customers, are highly illiquid. The company
also makes investments in customers through direct financing
leases, lease guarantees, operating leases, credit extensions for
inventory purchases and the recourse portion of notes sold
evidencing such loans. See "-Capital Invested in Customers", Item
7. Management's Discussion and Analysis, and Fleming's
consolidated financial statements and the notes thereto included
elsewhere in this report. The company also invests in real estate
to assure market access or to secure supply points. See "Lease
Agreements" in the notes to the consolidated financial
statements. Although the company has strict credit policies and
applies cost/benefit analyses to loans to and investments in
customers, there can be no assurance that credit losses from
existing or future investments or commitments will not have a
material adverse effect on the company's results of operations or
financial condition.
ITEM 2. PROPERTIES
The following table sets forth facilities information with
respect to Fleming's Distribution segment.
Approximate
Square Feet Owned or
Location (in 000's) Leased
-------- ----------- --------
Distribution:
Altoona, PA (1) 172 Owned
Buffalo, NY (2) 417 Leased
Ewa Beach, HI 196 Leased
Fresno, CA 326 Owned
Garland, TX 1,180 Owned
Geneva, AL 345 Leased
Kansas City, KS 929 Leased
La Crosse, WI 907 Owned
Lafayette, LA 437 Owned
Lincoln, NE 304 Leased
Lubbock, TX 400 Owned
Marshfield, WI (1) 157 Owned
Massillon, OH 855 Owned
Memphis, TN 765 Owned
Miami, FL 764 Owned
Milwaukee, WI 600 Owned
Minneapolis, MN 480 Owned
Nashville, TN 803 Leased
North East, MD 108 Owned
Oklahoma City, OK 410 Leased
Philadelphia, PA (3) 832 Leased
Phoenix, AZ 912 Owned
Sacramento, CA 719 Owned
Salt Lake City, UT 433 Owned
San Antonio, TX (4) 514 Leased
Superior, WI 371 Owned
Warsaw, NC 334 Owned/Leased
York, PA (3) 450 Owned
------
15,120
General Merchandise Group:
Dallas, TX 262 Owned/Leased
King of Prussia, PA 377 Leased
La Crosse, WI 163 Owned
Memphis, TN 339 Owned/Leased
Sacramento, CA 294 Leased
Topeka, KS 179 Leased
------
1,614
Outside Storage:
Outside storage facilities -
Typically rented on a
Short-term basis 4,240
------
Total for Distribution 20,974
======
(1) Convenience store distribution operations.
(2) In process of merging into Massillon distribution operation.
(3) In process of merging into North East distribution operation
(which currently serves as a perishables facility for the
Philadelphia distribution operation).
(4) In process of merging into Garland distribution operation.
In addition to the above, the company has closed six facilities
in various states and is actively marketing them.
The following table sets forth general information with respect
to Fleming's Retail segment. These retail stores are primarily
leased.
Approximate
Combined
Retail Chain Location Number Square Feet
or Group of Stores of Stores (in 000's)
------------ --------- --------- -----------
ABCO Foods AZ 58 2,187
Baker's NE NE 15 853
Food 4 Less AZ, CA, UT 25 1,364
Rainbow Foods MN, WI 46 2,735
Sentry Foods WI 38 1,755
--- -----
Total Retail Segment 182 8,894
=== =====
In addition to the above stores, the company is also in the
process of divesting or closing 60 stores in various states.
Fleming's shared service and customer support center offices are
located in Oklahoma City, Oklahoma in leased office space
totaling approximately 356,000 square feet. During 2000, Fleming
will move its customer support services from the Oklahoma City
office and field locations to leased space totaling approximately
136,000 square feet in Lewisville, Texas.
Fleming owns and leases other significant assets, such as
inventories, fixtures and equipment, capital leases, etc., which
are reflected in the company's consolidated balance sheets which
are included in Item 8 of this report.
For information regarding lease commitments and long-term debt
relating to properties or other assets, see "Lease Agreements"
and "Long-term Debt" in the notes to the consolidated financial
statements which are included in Item 8 of this report.
ITEM 3. LEGAL PROCEEDINGS
The following describes various pending legal proceedings to
which Fleming is subject. For additional information see
"Litigation Charges" and "Contingencies" in the notes to the
consolidated financial statements which are included in Item 8 of
this report.
(1) Class Action Suits. In 1996, the company and certain of its
present and former officers and directors (Robert E. Stauth, R.
Randolph Devening, Harry L. Winn, Kevin J. Twomey and Donald N.
Eyler) were named as defendants in nine purported class action
suits filed by certain stockholders (Kenneth Steiner, Lawrence B.
Hollin, Ronald T. Goldstein, General Telcom Money Purchase Plan &
Trust, Bright Trading, Inc., City of Philadelphia, Gerald Pindus,
Charles Hinton and Lawrence M. Wells, among others) and one
purported class action suit filed by a noteholder (Robert Mark),
each in the U.S. District Court for the Western District of
Oklahoma (Mr. Devening was not named in the noteholder case). 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 1999 the consolidated case was also dismissed, each
without prejudice. The court gave the plaintiffs the opportunity
to restate their claims in each case.
The complaint filed in the consolidated cases asserted liability
for the company's alleged failure to properly account for and
disclose the contingent liability created by the David's
litigation and by the company's alleged "deceptive business
practices." The plaintiffs claimed that these alleged practices
led to the David's litigation and to other material contingent
liabilities, caused the company to change its manner of doing
business at great cost and loss of profit, and materially
inflated the trading price of the company's common stock. The
company denied each of these allegations. On February 4, 2000,
the stockholder case was dismissed with prejudice by the district
court. On March 3, 2000, the plaintiffs filed an appeal. The
motion to dismiss in the noteholder case has not yet been decided.
The plaintiffs seek undetermined but significant damages. However,
if the district court ruling described below is upheld, the company
believes the litigation will not have a material adverse effect on
the company.
In 1997, the company won a declaratory judgment in the U.S.
District Court for the Western District of Oklahoma against
certain of its insurance carriers regarding policies issued to
Fleming for the benefit of its officers and directors ("D&O
policies"). On motion for summary judgment, the court ruled that
the company's exposure, if any, under the class action suits is
covered by D&O policies written by the insurance carriers
(aggregating $60 million in coverage) and that the "larger
settlement rule" will be applicable to the case. According to
the trial court, under the larger settlement rule a D&O insurer
is liable for the entire amount of coverage available under a
policy even if there is some overlap in the liability created by
the insured individuals and the uninsured corporation. If a
corporation's liability is increased by uninsured parties beyond
that of the insured individuals, then that portion of the
liability is the sole obligation of the corporation. The court
also held that allocation is not available to the insurance
carriers as an affirmative defense. The insurance carriers
appealed. In 1999, the appellate court affirmed the decision that
the class actions were covered by D&O policies aggregating $60
million on coverage but reversed the trial court's decision on
allocation as being premature.
(2) Tobacco Cases. Notices of suit or intention to sue have been
filed by 27 individuals in the Court of Common Pleas of
Philadelphia County, and by 3 individuals in the Court of Common
Pleas of Dauphin County, Pennsylvania; and one individual brought
suit in the 38th Judicial District Court, Cameron Parish,
Louisiana. Each case named as co-defendants at least one major
manufacturer of tobacco products and the company or a current or
former company subsidiary, among others. With respect to each
case, the company is being indemnified and defended by a
substantial third-party co-defendant.
Pursuant to a tolling agreement among the parties, all of the
cases which were already pending in Pennsylvania (save two) were
dismissed in 1998 without prejudice and may be refiled at a later
date.
During the fourth quarter of 1999, the court set a trial date in
one of the cases pending in the Court of Common Pleas,
Philadelphia County, Pennsylvania for October 1, 2000. Two cases
are now set for trial in that court. The second case is set for
trial March 4, 2001. In addition, counsel for the parties
amended the tolling agreement, by which three of the cases were
withdrawn from the tolling agreement. In January, 2000, counsel
for the parties agreed to an amendment to the tolling agreement
by which counsel for the plaintiffs withdrew from representing
the plaintiffs in 21 of the cases, and one case was withdrawn
from the tolling agreement. These plaintiffs have until March
31, 2000 to file a case, after which the company can assert the
defenses of statute of limitations and laches. As to the case
formerly pending in Cameron Parish, Louisiana, plaintiffs have
appealed to the Fifth Circuit Court of Appeals the decision of
the federal district court refusing to remand the case, which
appeal is pending. Oral argument occurred in September, 1999 and
no decision has been rendered.
(3) Don's United Super (and related cases). The company and two
retired executives have been named in a suit filed in 1998 in the
United States District Court for the Western District of Missouri
by several current and former customers of the company (Don's
United Super, et al. v. Fleming, et al.). The eighteen
plaintiffs operate retail grocery stores in the St. Joseph and
Kansas City metropolitan areas. The plaintiffs in this suit
allege product overcharges, breach of contract, breach of
fiduciary duty, misrepresentation, fraud, and RICO violations,
and they are seeking actual, punitive and treble damages, as well
as a declaration that certain contracts are voidable at the
option of the plaintiffs.
During the fourth quarter of 1999, plaintiffs produced reports of
their expert witnesses calculating alleged actual damages of
approximately $112 million. During the first quarter of 2000,
plaintiffs revised a portion of these damage calculations, and
although plaintiffs have not finalized these calculations, it
appears that their revised damage calculations will result in a
claim of approximately $120 million, exclusive of any punitive or
treble damages.
In October 1998, the company and the same two retired executives
were named in a suit filed by another group of retailers in the
same court as the Don's suit. (Coddington Enterprises, Inc., et
al. v. Fleming, et al.). Currently, sixteen plaintiffs are
asserting claims in the Coddington suit. All of the plaintiffs
except for one have arbitration agreements with Fleming. The
plaintiffs assert claims virtually identical to those set forth
in the Don's suit, and although plaintiffs have not yet
quantified the damages in their pleadings, it is anticipated that
they will claim actual damages approximating the damages claimed
in the Don's suit.
In July 1999, the court ordered two of the plaintiffs in the
Coddington case to arbitration, and otherwise denied arbitration
as to the remaining plaintiffs. The company has appealed the
district court's denial of arbitration to the Eighth Circuit
Court of Appeals. The two plaintiffs that were ordered to
arbitration have filed motions asking the district court to
reconsider the arbitration ruling.
Two other cases had been filed before the Don's case in the same
district court (R&D Foods, Inc., et al. v. Fleming, et al. and
Robandee United Super, Inc., et al. v. Fleming, et al.) by ten
customers, some of whom are also 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 proceedings in these cases have been
stayed pending the arbitration of the claims of those plaintiffs
who have arbitration agreements with the company.
The company intends to vigorously defend against the claims in
these related cases, but is currently unable to predict the
outcome. An unfavorable outcome could have a material adverse
effect on the financial condition and prospects of the company.
(4) Storehouse Markets. In 1998, the company and one of its
division officers were named in a suit filed in the United States
District Court for the District of Utah by several current and
former customers of the company (Storehouse Markets, Inc., et al.
v. Fleming Companies, Inc., et al.). The plaintiffs have alleged
product overcharges, fraudulent misrepresentation, fraudulent non-
disclosure and concealment, breach of contract, breach of duty of
good faith and fair dealing, and RICO violations, and they are
seeking actual, punitive and treble damages. On March 7, 2000
the court stated that this case will be certified as a class action.
The class will include current and former customers of Fleming's
Salt Lake City division covering a four state region. A formal order
has not yet been received. The company is considering an appeal
of this ruling pending receipt of this order. Damages have not been
quantified by the plaintiffs; however, the company anticipates
that substantial damages will be claimed. The company intends to
vigorously defend against these claims, but is currently unable
to predict the outcome. An unfavorable outcome could have a
material adverse effect on the financial condition and prospects
of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the company as of March 1, 2000:
Year
First Became
Name (age) Present Position An Officer
- ---------- ---------------- ------------
Mark S. Hansen (45) Chairman and 1998
Chief Executive Officer
E. Stephen Davis (59) Executive Vice President and 1981
President, Wholesale
Dennis C. Lucas (52) Executive Vice President and 1999
President, Retail
William H. Marquard Executive Vice President, 1999
(40) Business Development and
Chief Knowledge Officer
Scott M. Northcutt (38) Executive Vice President, 1999
Human Resources
Neal J. Rider (38) Executive Vice President and 2000
Chief Financial Officer
David R. Almond (59) Senior Vice President, 1989
Administration
Mark K. Batenic (51) Senior Vice President, Sales 1994
and Business Development -
Food Distribution
Lenore T. Graham (44) Senior Vice President, 2000
General Counsel and Secretary
Charles L. Hall (49) Senior Vice President, Real 1999
Estate and Store Development
Richard C. Judd (48) Senior Vice President, Supply 1999
Dixon E. Simpson (57) Senior Vice President, 1993
e-Commerce Fulfillment
John M. Thompson (58) Senior Vice President, 1982
Business Development Finance
and Assistant Secretary
Kevin J. Twomey (49) Senior Vice President, 1995
Finance and Controller
No family relationship exists among any of the executive officers
listed above.
Executive officers are elected by the Board of Directors for a
term of one year beginning with the annual meeting of
shareholders held in April or May of each year.
Each of the executive officers has been employed by the company
or its subsidiaries for the preceding five years except for
Messrs. Hansen, Lucas, Marquard, Northcutt, Rider and Hall and
Mrs. Graham.
Mr. Hansen joined the company in his present position in November
1998. From 1997 until joining the company, he was Chairman and
Chief Executive Officer of SAM's Club, a division of Wal-Mart
Stores, Inc. From 1989 to 1997, he served in multiple capacities
at PETsMART, Inc., including President and Chief Executive
Officer.
Mr. Lucas joined the company in his present position in July
1999. From 1992 until joining the company, he served in multiple
capacities at Albertson's, including Vice President positions and
Regional President.
Mr. Marquard joined the company in his present position in June
1999. From 1991 until joining the company, he was a partner in
the consulting practice of Ernst & Young.
Mr. Northcutt joined the company in his present position in
January 1999. From 1997 until joining the company, he was Vice
President-People Group at SAM's Club, a division of Wal-Mart
Stores, Inc. From 1988 to 1996, he served as Vice President-Human
Resources and later as Vice President-Store Operations at Dollar
General Corporation.
Mr. Rider joined the company in his present position in January
2000. From 1999 until joining the company, he was Executive Vice
President and Chief Financial Officer at Regal Cinemas, Inc.
From 1980 to 1999, Mr. Rider served in multiple capacities at
American Stores Company, including Treasurer and Controller
responsibilities before becoming Chief Financial Officer.
Mr. Hall joined the company in his present position in June 1999.
From 1998 until joining the company, he was Senior Vice President-
Real Estate and Store Development at Eagle Hardware and Garden,
Inc. From 1992 to 1998, he served as Vice President of Real
Estate Development at PETsMART, Inc.
Mrs. Graham joined the company in her present position in January
2000. From 1995 until joining the company, she was a stockholder
with the Oklahoma City law firm McAfee & Taft A Professional Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Fleming common stock is traded on the New York, Chicago and
Pacific stock exchanges. The ticker symbol is "FLM". As of March
3, 2000, 39.2 million outstanding shares were owned by 16,100
shareholders of record and approximately 9,500 beneficial owners
whose shares are held in street name by brokerage firms and
financial institutions. According to the New York Stock Exchange
Composite Transactions tables, the high and low prices of Fleming
common stock during each calendar quarter of the past two years
are shown below.
1999 1998
--------------------- -------------------
Quarter High Low High Low
------- --------- ------- -------- -------
First $11.88 $7.19 $20.75 $13.38
Second 12.00 8.31 20.06 17.25
Third 12.50 9.81 18.00 11.06
Fourth 13.44 9.25 12.69 8.63
Cash dividends on Fleming common stock have been paid for 83
consecutive years. Dividends are generally declared on a
quarterly basis with holders as of the record date being entitled
to receive the cash dividend on the payment date. Record and
payment dates for 2000 are as shown below:
Record Dates: Payment Dates:
------------- --------------
February 18 March 10
May 19 June 9
August 18 September 11
November 20 December 8
Cash dividends of $.02 per share were paid on or near each of the
above four payment dates in 1999 and 1998.
ITEM 6. SELECTED FINANCIAL DATA
1999(a) 1998(b) 1997(c) 1996(d) 1995(e)
------- ------- ------- ------- -------
(In millions, except per share amounts)
Net sales $14,646 $15,069 $15,373 $16,487 $17,502
Earnings (loss) before
extraordinary charge (45) (511) 39 27 42
Net earnings (loss) (45) (511) 25 27 42
Diluted net earnings (loss)
per common share before
extraordinary charge (1.17) (13.48) 1.02 .71 1.12
Diluted net earnings (loss)
per share (1.17) (13.48) .67 .71 1.12
Total assets 3,573 3,491 3,924 4,055 4,297
Long-term debt and
capital leases 1,602 1,503 1,494 1,453 1,717
Cash dividends declared
per common share .08 .08 .08 .36 1.20
See Item 3. Legal Proceedings, notes to consolidated financial
statements in Item 8., and the financial review included in Item 7.
(a) The results in 1999 reflect an impairment/restructuring
charge with related costs totaling $137 million ($92 million
after-tax) related to the company's strategic plan. 1999 also
reflected one-time items ($31 million charge to close 10
conventional retail stores, income of $22 million from
extinguishing some workers' compensation liability at a discount,
interest income of $9 million related to refunds in federal
income taxes from prior years, and $6 million in gains from the
sale of distribution facilities) netting to $6 million of income
($3 million after-tax).
(b) The results in 1998 reflect an impairment/restructuring
charge with related costs totaling $668 million ($543 million
after-tax) related to the company's newly adopted strategic plan.
(c) The results in 1997 reflect a charge of $19 million ($9
million after-tax) related to the settlement of a lawsuit against
the company. 1997 also reflected an extraordinary charge of $22
million ($13 million after-tax) related to the recapitalization
program.
(d) Results in 1996 include a charge of $20 million ($10 million
after-tax) related to the settlement of two related lawsuits
against the company.
(e) In 1995, management changed its estimates with respect to
the general merchandising portion of the 1993 reengineering plan
and reversed $9 million ($4 million after-tax) of the related
provision.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
In early 1998 the Board of Directors and senior management began
an extensive strategic planning process that evaluated all
aspects of Fleming's business. With the help of a consulting
firm, the evaluation and planning process was completed late in
1998. In December 1998, the strategic plan was approved and
implementation efforts began.
The strategic plan consists of the following four major
initiatives:
o Consolidate distribution operations. The strategic plan
initially included closing eleven operating units (El Paso,
TX; Portland, OR; Houston, TX; Huntingdon, PA; Laurens, IA;
Johnson City, TN; Sikeston, MO; San Antonio, TX; Buffalo, NY;
an unannounced operating unit still to be closed; and an
unannounced operating unit scheduled for 1999 closure, but due
to increased cash flows from new business it will not be
closed). Of the nine announced, all but San Antonio and
Buffalo have been completed. San Antonio should be closed by
the end of the first quarter of 2000 and Buffalo by the end of
the second quarter of 2000. Three additional closings were
announced which were not originally part of the strategic plan
which brings the total operating units to be closed to
thirteen. The closing of Peoria was added to the plan in the
first quarter of 1999 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. Recently, the closings of York
and Philadelphia were announced as part of an effort to grow
in the northeast by consolidating distribution operations and
expand the Maryland facility. Total 1998 sales from the 13
operating units closed or to be closed were approximately $3.1
billion. Most of these sales have been or are expected to be
retained by transferring customer business to its higher
volume, better utilized facilities. The company believes that
this consolidation process benefits customers with better
product variety and improved buying opportunities. The
company has also benefited with better coverage of fixed
expenses. The closings result in savings due to reduced
depreciation, payroll, lease and other operating costs, and
the company begins recognizing these savings immediately upon
closure. The capital returned from the divestitures and
closings has been and will continue to be reinvested in the
business.
o Grow distribution sales. Higher volume, better-utilized
distribution operations and the dynamics of the market place
represent an opportunity for sales growth. The improved
efficiency and effectiveness of the remaining distribution
operations enhances their competitiveness and the company
intends to capitalize on these improvements. During 1999,
significant new customers were added in the distribution
segment, including increased business with Kmart Corporation,
which is expected to result in approximately $1 billion in
annualized new sales.
o Improve retail performance. This not only requires divestiture
or closing of under-performing company-owned retail chains,
but also requires increased investments in market leading
chains. The strategic plan includes the divestiture or
closing of seven retail chains (including the recently
announced letters of intent to sell the Baker's Oklahoma
stores in the first half of 2000). The chains
divested or closed (or to be divested or closed) are Hyde
Park, Consumers, Boogaarts, New York Retail, Pennsylvania
Retail, Baker's Oklahoma, and a chain not yet announced. The
sale of Baker's Oklahoma as well as the divestiture or closing
of the chain not yet announced were not in the original
strategic plan, but no longer fit into the current business
strategy. Total 1998 sales from the divested or closed (or to
be divested or closed) chains was approximately $844 million.
The sale or closing of these chains is expected to be
substantially completed by the end of the second quarter of
2000. Also during 1999, the company built or acquired more
than 25 retail stores that are expected to fit in well
strategically with the existing chains. Sixteen remodels of
existing retail stores were also completed during 1999.
o Reduce overhead and operating expenses. Overhead has been and
will continue to be reduced through the low cost pursuit
program which includes 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. The low cost pursuit program also includes
other initiatives to reduce complexity in business systems and
remove non-value-added costs from operations, 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 well underway and have reflected reduced costs
for the company which ultimately reflect improved
profitability and competitiveness.
Implementation of the strategic plan is expected to continue
through 2000. This time frame accommodates the company's limited
resources and customers' seasonal marketing requirements. Thus
far, the implementation has proceeded as planned other than
changes to the plan described above. Additional expenses will
continue for some time beyond 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 $935 million ($239 million cash and $696 million non-
cash). The plan originally announced in December 1998 had an
estimated pre-tax charge totaling $782 million. The increase is
due primarily to closing the Peoria, York and Philadelphia
divisions ($59 million), updating impairment amounts on certain
retail chains ($25 million), the divestiture of the Baker's chain
in Oklahoma ($17 million), increasing costs associated with
initiatives to reduce overhead and complexity in business systems
($60 million), and decreasing costs related to a scheduled
closing no longer planned ($8 million). Updating the impairment
amounts was necessary as decisions to close additional operating
units were made. Additionally, sales negotiations provided more
current information regarding the fair value on certain chains.
The cost of severance, relocation and other periodic expenses
relating to reducing overhead and business complexities was more
than expected. Also, there were changes in the list of operating
units to be divested or closed due to their failure to fit
into the current business strategy as described above. The
pre-tax charge recorded to-date is $805 million ($137 million
in 1999 and $668 million recorded in 1998). After tax, the
expense for 1999 was $92 million or $2.39 per share.
Of the $137 million charge in 1999, $58 million is expected to
require cash expenditures. The remaining $79 million consisted
of non-cash items. The $137 million charge consisted of the
following components:
o Impairment of assets of $62 million. The impairment components
were $36 million for goodwill and $26 million for other long-
lived assets. The entire $62 million impairment related to
assets to be sold or closed.
o Restructuring charges of $41 million. The restructuring
charges consisted primarily of severance related expenses and
pension withdrawal liabilities for the divested or closed
operating units announced during 1999. The restructuring
charges also consisted of operating lease liabilities for
divestitures or closings decided in 1999 that weren't part of
the original plan and professional fees incurred during the
year related to the restructuring process.
o Other disposition and related costs of $34 million. These
costs consisted primarily of inventory valuation adjustments,
impairment of an investment, disposition related costs
recognized on a periodic basis and other costs.
Additional pre-tax expense of approximately $130 million is
expected in 2000 relating to the continuing implementation of the
strategic plan. Approximately $107 million of these future
expenses are expected to require cash expenditures. The
remaining $23 million of the future expense relates to non-cash
items. These future expenses will consist primarily of
severance, real estate-related expenses, pension withdrawal
liabilities and other costs expensed when incurred.
The pre-tax charge relating to the strategic plan for 1998
totaled $668 million and is described in the Form 10-K and Form
10-K/A for 1998.
The expected benefits of the plan are increased sales and
improved earnings. Sales are expected to increase in 2000 due to
new customers added in the distribution segment. Based on
management's plan, earnings are expected to improve and exceed $3
per share by or before the year 2003.
The company has assessed the strategic significance of all
operating units. Under the plan, the sale or closing of certain
operating units has been announced and is 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.
In addition to the strategic plan related charges mentioned
above, other significant one-time items included in 1999 were: a
$31 million charge to close certain retail stores; income of $22
million from extinguishing a portion of the company's self-
insured workers' compensation liability at a discount through
insurance coverage; interest income of $9 million related to
refunds in federal income taxes from prior years; and income of
$6 million in gains from the sale of distribution facilities.
This results in a net one-time income of approximately $6 million
($3 million after-tax or $.09 per share). The net effect of the
strategic plan charges and one-time adjustments was a $131
million pre-tax charge. Net earnings for 1999 after excluding
these charges was $43 million or $1.12 per share. The company
expects net earnings after excluding strategic plan charges and
one-time items for 2000 to be at least $1.46 per share.
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:
1999 1998 1997
------- ------- -------
Net Sales 100.00% 100.00% 100.00%
Gross margin 9.81 9.62 9.16
Less:
Selling and administrative 8.62 8.30 7.62
Interest expense 1.13 1.07 1.06
Interest income (.28) (.24) (.30)
Equity investment results .07 .08 .11
Litigation charges - .05 .13
Impairment/restructuring charge .70 4.33 -
----- ----- -----
Total expenses 10.24 13.59 8.62
----- ----- -----
Earnings (loss) before taxes (.43) (3.97) .54
Taxes on income (loss) (.12) (.58) .29
----- ----- -----
Earnings (loss) before
extraordinary charge (.31) (3.39) .25
Extraordinary charge - - (.09)
----- ----- -----
Net earnings (loss) (.31)% (3.39)% .16%
===== ===== =====
1999 and 1998
Net Sales. Sales for 1999 decreased by $.4 billion, or 3%, to
$14.65 billion from $15.07 billion for 1998.
Net sales for the distribution segment were $10.9 billion in 1999
compared to $11.5 billion in 1998. The sales decrease was
primarily due to the previously announced loss of sales to Furr's
(in 1998) and Randall's (in 1999) and the disposition of the
Portland division (in 1999). These sales losses were partially
offset by the increase in sales to Kmart Corporation. Sales
during 1999 were also impacted by the planned closing and
consolidation of certain distribution operating units. These
sales losses plus the prospective loss of sales to United in 2000
will be partially offset by the increase in sales to Kmart
Corporation. In 1999 and 1998, sales to Furr's, Randall's and
United accounted for approximately 4% and 8%, respectively, of
the company's sales.
Retail segment sales were $3.7 billion in 1999 compared to $3.6
billion in 1998. The increase in sales was due primarily to new
stores added in 1999. This was offset partially by a 1.9%
decrease in same-store sales and closing non-performing stores.
The company measures inflation using data derived from the
average cost of a ton of product sold by the company. For 1999,
food price inflation was 1.0%, compared to 2.1% in 1998.
The company anticipates that net sales for 2000 will be
approximately $15 billion and will be higher than in 1999 due to
growth in sales to non-traditional distribution customers, higher
sales for continuing retail stores and growing sales to internet-
based companies.
Gross Margin. Gross margin for 1999 decreased by $13 million, or
1%, to $1.44 billion from $1.45 billion for 1998, and increased
as a percentage of net sales to 9.81% from 9.62% for 1998. After
excluding the strategic plan charges and one-time items, gross
margin dollars still decreased compared to the same period in
1998 and gross margin as a percentage of net sales still
increased compared to the same period in 1998. The decrease in
dollars was due primarily to the overall sales decrease, but was
partly offset by positive results from leveraging the company's
buying power and cutting costs. The increase in percentage to
net sales was due to the impact of the growing retail segment
compared to the distribution segment. The retail segment has the
higher margins of the two segments. This increase was partly
offset by lower margins in the retail segment due to competitive
pricing at company-owned new stores.
Selling and Administrative Expenses. Selling and administrative
expenses for 1999 increased by $10 million, or 1%, to $1.26
billion from $1.25 billion for 1998, and increased as a
percentage of net sales to 8.62% for 1999 from 8.30% for 1998.
The increase in both dollars and percentage of net sales was
primarily due to one-time items recorded in 1999: a charge to
close conventional retail stores which was partially offset by
income from extinguishing a portion of the company's self-insured
workers' compensation liability at a discount. The increase in
percentage to net sales was also partly due to the impact of the
growing retail segment compared to the distribution segment - the
retail segment has higher operating expenses as a percent to
sales compared to the distribution segment.
The company has a significant amount of credit extended to
certain 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.
Credit loss expense is included in selling and administrative
expenses and for 1999 increased to $25 million from $23 million
for 1998.
Operating Earnings. Operating earnings for the distribution
segment increased by $31 million, or 12%, to $290 million from
$259 million for 1998, and increased as a percentage of
distribution net sales to 2.65% from 2.26%. Excluding the costs
relating to the strategic plan and one-time items, operating
earnings still increased by $29 million to $302 million from $273
million for the same period of 1998. Operating earnings improved
primarily due to the benefits of the consolidation of
distribution operating units and cost reduction.
Operating earnings for the retail segment decreased by $64
million to a loss of $2 million from earnings of $62 million for
1998. Excluding the costs relating to the strategic plan and one-
time items (primarily a charge to close conventional retail
stores), operating earnings still decreased, but by $20 million
to $42 million from $62 million for the same period of 1998. The
decrease was due to the impact of new store start-up expenses
plus expenses related to the divestiture and closing of stores.
Operating earnings for the retail segment were also adversely
affected by a 1.9% decrease in same-store sales.
Corporate expenses decreased in 1999 to $112 million compared to
$122 million for 1998. Excluding the costs relating to the
strategic plan and one-time items (primarily income from
extinguishing a portion of the company's self-insured workers'
compensation liability at a discount), corporate expenses
increased in 1999 to $132 million compared to $121 million for
1998. The increase was due primarily to an increase in lease
termination and real estate disposition expenses and higher
incentive compensation.
Interest Expense. Interest expense in 1999 was $4 million higher
than 1998 due primarily to 1998's low interest expense as a
consequence of a favorable settlement of tax assessments. The
higher 1999 expense was also due to higher average debt balances.
The company's derivative agreements consist of simple "floating-
to-fixed rate" interest rate swaps. For 1999, interest rate hedge
agreements contributed $4.8 million of net interest expense
compared to $4.3 million in 1998, or $0.5 million higher. This
was due to slightly higher average net interest rates underlying
the hedge agreements. For a description of these derivatives see
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk and "Long-Term Debt" in the notes to the consolidated
financial statements.
Interest Income. Interest income for 1999 was $4 million higher
than 1998 due to a one-time item related to refunds in federal
income taxes from prior years. This was partially offset by
lower average balances for the company's investment in direct
financing leases.
Equity Investment Results. The company's portion of operating
losses from equity investments for 1999 decreased by
approximately $2 million to $10 million from $12 million for
1998. The reduction in losses is due to improved results of
operations in certain of the underlying equity investments.
Litigation Charges. In October 1997, the company began paying
Furr's $800,000 per month as part of a settlement agreement which
ceased in October 1998. Payments to Furr's totaled $7.8 million
in 1998.
Impairment/Restructuring Charge. The pre-tax charge for the
strategic plan recorded in the Consolidated Statements of
Operations totaled $137 million for 1999 and $668 million for
1998. Of these totals, $103 million and $653 million were
reflected in the Impairment/restructuring charge line with the
balance of the charges reflected in other financial statement
lines. See "General" above and the notes to the consolidated
condensed financial statements for further discussion regarding
the strategic plan.
Taxes On Income. The effective tax rates used for 1999 and 1998
were 28.5% and 14.6%, respectively, both representing a tax
benefit. These are blended rates taking into account operations
activity, strategic plan activity, write-offs of non-deductible
goodwill and the timing of these transactions during the year.
Certain Accounting Matters. The Financial Accounting Standards
Board issued SFAS No. 133 - Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and is effective for 2001. The company will adopt
SFAS No. 133 by the required effective date. The company has not
determined the impact on its financial statements from adopting
the new standard.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 - Revenue Recognition ("SAB No.
101"). SAB No. 101 provides guidance on recognition,
presentation, and disclosure of revenue in financial statements.
The company has determined the impact on earnings is not
material.
Other. Several factors negatively affecting earnings in 1999 are
likely to continue for the near term. The company believes that
these factors include costs related to the strategic plan,
negative same-store sales and operating losses in certain
company-owned retail stores.
1998 and 1997
Net Sales. Sales for 1998 decreased by $.3 billion, or 2%, to
$15.07 billion from $15.37 billion for 1997.
Net sales for the distribution segment were $11.5 billion in 1998
compared to $11.9 billion in 1997. 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 segment sales were $3.6 billion in 1998 compared to $3.5
billion in 1997. The increase in sales was due primarily to new
stores added in 1998. This was offset partially by a decrease in
same-store sales in 1998 compared to 1997 of 3.6% and closing non-
performing stores.
The company measures inflation using data derived from the
average cost of a ton of product sold by the company. For 1998,
food price inflation was 2.1%, compared to 1.3% in 1997.
Gross Margin. Gross margin for 1998 increased by $42 million, or
3%, to $1.45 billion from $1.41 billion for 1997, and increased
as a percentage of net sales to 9.62% from 9.16% for 1997. The
increase was due, in part, to an overall increase in the retail
segment, which has the better margins of the two segments, net of
the unfavorable impact of gains from dispositions that occurred
in 1997, but not in 1998. Gross margin also reflects favorable
adjustments for closed stores due to better-than-expected lease
buyouts. These increases in gross margin were partly offset by
costs relating to the strategic plan in 1998 primarily relating
to inventory valuation adjustments. Product handling expenses,
consisting of warehouse, transportation and building expenses,
were lower as a percentage of net sales in 1998 compared to 1997,
reflecting continued productivity improvements.
Selling and Administrative Expenses. Selling and administrative
expenses for 1998 increased by $79 million, or 7%, to $1.25
billion from $1.17 billion for 1997, and increased as a
percentage of net sales to 8.30% for 1998 from 7.62% in 1997. The
increase was partly due to increased operating expense in the
retail segment. Selling expense was higher than the previous year
as the company continues to work at reversing recent sales
declines. The increase was also partly due to costs relating to
the strategic plan.
The company has a significant amount of credit extended to
certain 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.
Credit loss expense is included in selling and administrative
expenses and for 1998 decreased by approximately $1 million to
$23 million from $24 million for 1997.
Operating Earnings. Operating earnings for the distribution
segment decreased by $24 million, or 8%, to $259 million from
$283 million for 1997, and decreased as a percentage of
distribution net sales to 2.26% from 2.38%. 1998 operating
earnings were adversely affected by inventory valuation
adjustments and other costs related to the strategic plan as well
as lower sales.
Operating earnings for the retail segment decreased by $18
million, or 23%, to $62 million from $80 million for 1997, and
decreased as a percentage of retail sales to 1.73% from 2.31%.
Operating earnings for the retail segment were adversely affected
primarily by a 3.6% decrease in same-store sales and by higher
labor costs.
Corporate expenses decreased in 1998 compared to 1997 due to
lower incentive compensation, which was partially offset by
severance expense and professional fees under the strategic plan
as well as an increase in the LIFO charge.
Interest Expense. Interest expense in 1998 was $1 million lower
than 1997 due primarily to a reduction of interest accruals
relating to a favorable settlement of tax assessments. Without
this reduction, interest expense in 1998 would have been $2
million greater than 1997 due to higher average fixed-rate debt
balances.
The company's derivative agreements consist of simple "floating-
to-fixed rate" interest rate swaps. For 1998, interest rate hedge
agreements contributed $4.3 million of interest expense compared
to $7.2 million in 1997, or $2.9 million lower. This was due to a
lower average amount of notional principal of debt referenced by
the hedge agreements. For a description of these derivatives see
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk and "Long-Term Debt" in the notes to the consolidated
financial statements.
Interest Income. Interest income for 1998 was $10 million lower
than 1997 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 for 1998 decreased by
approximately $5 million to $12 million from $17 million for
1997. The reduction in losses is due to improved results of
operations in certain of the underlying equity investments.
Litigation Charges. In October 1997, the company began paying
Furr's $800,000 per month as part of a settlement agreement which
ceased in October 1998. Payments to Furr's totaled $7.8 million
in 1998. In the first quarter of 1997, the company expensed $19.2
million in settlement of the David's litigation. See "Litigation
Charges" in the notes to the consolidated financial statements.
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 improve the company's performance by building stronger
operations that can better support long-term growth. The pre-tax
charge recorded in 1998 for the plan was $668 million. After tax,
the expense was $543 million in 1998 or $14.33 loss per share.
The $114 million of costs relating to the strategic plan not yet
charged against income will be recorded over the next 2 years at
the time such costs are accruable.
Taxes On Income. The effective tax rate for 1998 is 14.6% versus
58.0% for 1997. The 1998 effective rate is low due primarily to
the impairment of non-deductible goodwill written off as part of
the strategic plan. The presentation of the 1997 tax is split by
reflecting a tax benefit at the statutory rate of 40% for the
extraordinary charge and reflecting the balance of the tax amount
on the taxes on income line. See "Income Taxes" in the notes to
the consolidated financial statements.
Extraordinary Charge From Early Retirement of Debt. During 1997,
the company undertook a recapitalization program which culminated
in an $850 million senior secured credit facility and the sale of
$500 million of senior subordinated notes. The recapitalization
program resulted in an extraordinary charge of $13.3 million,
after income tax benefits of $8.9 million, or $.35 per share, in
the company's third quarter 1997. Almost all of the charge
represents a non-cash write-off of unamortized financing costs
related to debt which was prepaid.
Other. During 1998 and 1997, activity was booked against the
facilities consolidation and restructuring reserve set up in
1993. In 1998, the primary activity was the reversal of a $4
million reserve originally set up to close a facility. In 1997,
$11 million of severance expense was recorded which related to
corporate headcount reductions, outsourcing certain
transportation operations and an early retirement program;
additionally, $2 million was recorded to reimburse customers of
the company's general merchandise and distribution operations for
expenses they incurred to conform to a change in our standard
product codes. The implementation of the 1993 plan was slowed by
the acquisition of Scrivner in mid-1994, disruptions caused by
the David's lawsuit and other litigation developments in 1996 and
1997, and other unforeseen difficulties.
LIQUIDITY AND CAPITAL RESOURCES
In the year ended December 25, 1999, the company's principal
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, during this period were
banks and lessors.
Net cash provided by operating activities.
Operating activities generated $118 million of net cash flows for
the year ended December 25, 1999, compared to $141 million for
the same period in 1998. Included in 1999 net operating cash
flows were $78 million from an increase in receivables and
inventories, $36 million reduction in accounts payable, and $50
million in payments for strategic plan-related restructuring
charges.
Cash requirements related to the implementation and completion of
the strategic plan (on a pre-tax basis) are estimated to be a
total of $130 million in 2000 and $56 million thereafter. Total
expected cash requirements (pre-tax) have increased by $85
million since the end of 1998 due to the cost of additional
divestitures and closings added to the strategic plan plus
increasing costs associated with initiatives to reduce overhead
and complexity in business systems. Management believes working
capital reductions, proceeds from the sale of assets, and
increased after-tax earnings related to the successful
implementation of the strategic plan are expected to provide
adequate cash flows to cover all of these costs.
Net cash used in investing activities.
Total net investment expenditures were $213 million for the year
ended December 25, 1999, compared to $163 million in net
investment expenditures for the same period in 1998. Included in
1999 net investment expenditures were $166 million for capital
expenditures, $78 million for acquisitions of retail stores and a
total of $52 million in loans and equity investments in
customers. Offsetting these expenditures in part were sales of
assets and investments totaling $45 million and collections on
notes receivable totaling $35 million.
Capital expenditures are estimated to be a total of $180 million
for 2000. The company intends to increase its retail operations
by making investments in its existing stores and by adding new
stores through store construction or acquisitions. Acquisitions
of supermarket groups or chains or distribution operations will
be made only on a selective basis. The focus of retail
investment is expected to shift towards the company's value-
oriented stores. The company's strategic plan involves divesting
or closing certain distribution and retail facilities and other
assets, and focusing resources on the remaining distribution and
retail operations.
Net cash provided by financing activities.
Net cash provided by financing activities was $96 million for the
year ended December 25, 1999, compared to $2 million in net cash
used in financing activities for the same period in 1998.
Included in 1999 net cash provided by financing activities was a
net increase in long-term debt of $120 million since the end of
1998. The increase in long-term debt reflects net cash required
from external sources to finance net cash used in investment
activities and certain financing activities such as $22 million
of principal payments on capital lease obligations and $3 million
of dividends paid, offset in part by $1 million from the sale of
common stock under stock ownership plans. Approximately $30
million in net capital value has been provided by lessors through
capital lease obligations since the end of 1998.
At the end of 1999, borrowings under the credit facility totaled
$198 million in term loans and $255 million of revolver
borrowings, and $40 million of letters of credit had been issued.
Based on actual borrowings and letters of credit issued, the
company could have borrowed an additional $305 million under the
revolver.
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 facility, 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, 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) have
announced they are moving or have moved to self-distribution,
which together represented approximately 4% and 8% of the
company's sales in 1999 and 1998, respectively. This is expected
to have no significant future impact on the company's liquidity
due to the implementation of cost cutting measures and the new
business gained in 1999 and so far in 2000.
In December 2001, the company's $300 million of 10 5/8% senior
notes are scheduled to mature. While management believes future
cash flows from operating activities, the company's ability to
borrow under its credit facility, and asset sale proceeds may be
adequate to cover this debt service requirement, alternative
means of refinancing this debt maturity are being explored (such
as accessing the long-term capital markets).
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
"Contingencies" in the notes to the consolidated 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 Item 3. 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. In
1996, management implemented a program to comply with year-2000
requirements on a system-by-system basis, which included
extensive systems testing. Conversion efforts were complete at
December 31, 1999. The company has not experienced any
significant difficulties to date relating to year-2000 issues,
and management does not expect year-2000 issues to have a
significant impact on the company's operations. Although the
company believes contingency plans will not be necessary,
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. In
addition, the company has not experienced any significant
difficulties to date relating to its vendors' and customers' year-
2000 readiness.
Program costs to comply with year-2000 requirements were expensed
as incurred. Through the year end 1999, total expenditures to
third parties were $8.4 million since the beginning of 1997. To
compensate for the dilutive effect on results of operations, the
company delayed other non-critical development and support
initiatives. Accordingly, the company's annual information
technology expenses did 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 projections and assumptions which may
prove to have been inaccurate, including expectations for years
2000 and beyond, 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 expand
portions of its business or enter new facets of its business; and
the company's expectations regarding the adequacy of capital and
liquidity. The management of the company has prepared the financial
projections included in this Form 10-K on a reasonable basis, and such
projections reflect the best currently available estimates and judgments
and present, to the best of management's knowledge and belief, the
expected course of action and the expected future financial performance
of the company. However, this information is not fact and should not
be relied upon as necessarily indicative of future results, and readers
of this Form 10-K are cautioned not to place undue reliance on the
projected financial information. These projections, forward-looking
statements and the company's business and prospects are subject to a
number of factors which could cause actual results to differ materially
including the risks associated with the successful execution of
the company's strategic business plan; adverse effects of labor
disruptions; 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; 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 this report under Item 1. Business -- Risk Factors
and in other periodic reports available from the Securities and
Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company's exposure to pricing risk in the financial markets
consists of changes in interest rates related to its investment
in notes receivable, the balance of debt obligations outstanding,
and derivatives employed to hedge interest rate changes on
variable rate debt. The company does not use foreign currency
exchange rate forward contracts or commodity contracts and does
not have any material foreign currency exposure. The company does
not use financial instruments or derivatives for any trading
purposes. Fleming uses derivatives, currently consisting of
simple floating-to-fixed interest rate swap transactions, to
hedge its exposure to changing interest rates for its variable
interest rate debt obligations.
In the normal course of business Fleming carries notes receivable
because the company makes long-term loans to certain retail
customers (see "Investments and Notes Receivable" in the notes to
the consolidated financial statements). A portion of the notes
receivable carries a variable interest rate, which is based on a
prime rate index published in a major financial publication and
is reset quarterly. The remaining portion carries fixed interest
rates negotiated with each retail customer. No derivatives have
been employed to hedge the company's exposure to variable
interest rates on notes receivable primarily because these notes
are considered to be a partial hedge for debt with variable
interest rates.
In order to help maintain liquidity and finance business
operations, Fleming obtains long-term credit commitments from
banks and other financial institutions under which term loans and
revolving loans are made. Such loans carry variable interest
rates based on the London interbank offered interest rate
("LIBOR") plus a borrowing margin for different interest periods,
such as one week, one month, and other periods up to one year. To
assist in managing its debt maturities and diversify its sources
of debt capital, Fleming also uses long-term debt which carries
fixed interest rates.
Fleming management maintains a written policy statement which
governs its financial risk management activities including the
use of financial derivatives. The policy statement says that the
company will engage in a financial risk management process to
manage its defined exposures to uncertain future changes in
interest rates and foreign exchange rates which impact net
earnings. The primary purpose of this process is to control and
limit the volatility of net earnings according to pre-established
targets for exposure to such changes in a manner which does not
result in unreasonable or unmanageable additional risks or
expense. The financial risk management process works under the
oversight of a special management group to ensure certain policy
objectives are achieved. Such objectives include, and are not
limited to, the following: to act in accordance with authority
granted by resolution of the Board of Directors, which
specifically permits the use of derivatives to hedge interest
rate or foreign exchange rate risks and which prohibits the use
of derivatives for the purpose of speculation; to define and
measure the company's financial risks associated with interest
and foreign exchange rates as well as with derivative
instruments to be used for hedging; and to establish exposure
targets and to manage performance against those targets.
Changes in interest rates may have a material impact on Fleming's
interest expense and interest income, as well as to the fair
values for its investment in notes receivable, outstanding debt
obligations and financial derivatives used. The table below
presents a summary of the categories of Fleming's financial
instruments according to their respective interest rate profiles.
For notes receivable, the table shows the principal amount of
cash the company expects to collect each year according to the
scheduled maturities, as well as the average interest rates
applicable to such maturities. For debt obligations, the table
shows the principal amount of cash the company expects to pay
each year according to the scheduled maturities, as well as the
average interest rates applicable to such maturities. For
derivatives, the table shows when the notional principal
contracts terminate.
SUMMARY OF FINANCIAL INSTRUMENTS
Maturities of Principal by Fiscal Year
-----------------------------------------
(In millions, Fair Value Fair Value There-
except rates) at 12/26/98 at 12/25/99 2000 2001 2002 2003 2004 after
Notes Receivable with
Variable Interest Rates
Principal receivable $72 $93 $20 $14 $12 $11 $11 $25
Average variable rate
receivable 10.6% 11.0% Based on the referenced Prime Rate plus a margin
Notes Receivable with
Fixed Interest Rates
Principal receivable $51 $28 $9 $3 $4 $2 $2 $8
Average fixed rate
receivable 5.2% 6.0% 4.6% 4.3% 2.1% 2.1% 4.6% 7.6%
Debt with Variable
Interest Rates
Principal payable $313 $428 $35 $35 $40 $295 $49 $ -
Average variable rate
payable 6.8% 7.1% Based on LIBOR plus a margin
Debt with Fixed Interest Rates
Principal payable $846 $808 $37 $303 $10 $5 $250 $250
Average fixed rate
payable 10.3% 6.6% 10.6% 8.9% 8.8% 10.5% 10.6%
Variable-To-Fixed Rate Swaps
Amount payable $10 $3 $250 (notional, not payable)
Average fixed rate
payable 7.2% 7.2% 7.2%
Average variable rate
receivable 5.2% 6.2% Based on LIBOR
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) 1. Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 10,
2000. Information concerning Executive Officers of the company is included
in Part I herein which is incorporated in this Part III by reference.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 10,
2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 10,
2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 10,
2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
o Consolidated Statements of Operations -
For the years ended December 25, 1999,
December 26, 1998, and December 27, 1997
o Consolidated Balance Sheets -
At December 25, 1999 and December 26, 1998
o Consolidated Statements of Cash Flows -
For the years ended December 25, 1999,
December 26, 1998, and December 27, 1997
o Consolidated Statements of Shareholders' Equity -
For the years ended December 25, 1999,
December 26, 1998, and December 27, 1997
o Notes to Consolidated Financial Statements -
For the years ended December 25, 1999,
December 26, 1998, and December 27, 1997
o Independent Auditors' Report
o Quarterly Financial Information (Unaudited)
CONSOLIDATED STATEMENT OF OPERATIONS
For the years ended December 25, 1999, December 26, 1998 and December 27, 1997
(In thousands, except per share amounts)
1999 1998 1997
---- ---- ----
Net sales $14,645,566 $15,069,335 $15,372,666
Costs and expenses (income):
Costs of sales 13,208,399 13,618,961 13,963,972
Selling and administrative 1,261,631 1,251,592 1,172,436
Interest expense 165,180 161,581 162,506
Interest income (40,318) (36,736) (46,638)
Equity investment results 10,243 11,622 16,746
Litigation charges - 7,780 20,959
Impairment/restructuring charge 103,012 652,737 -
----------- ----------- -----------
Total costs and expenses 14,708,147 15,667,537 15,289,981
----------- ----------- -----------
Earnings (loss) before taxes (62,581) (598,202) 82,685
Taxes on income (loss) (17,853) (87,607) 43,963
----------- ----------- -----------
Earnings (loss) before
extraordinary charge (44,728) (510,595) 38,722
Extraordinary charge from early
retirement of debt (net of taxes - - (13,330)
----------- ----------- -----------
Net earnings (loss) $(44,728) $(510,595) $25,392
=========== =========== ===========
Earnings (loss) per share:
Basic and diluted before
extraordinary charge $(1.17) $(13.48) $1.02
Extraordinary charge - - (.35)
------ ------- -------
Basic and diluted net earnings
(loss) $(1.17) $(13.48) $ .67
====== ======= =======
Weighted average shares outstanding:
Basic 38,305 37,887 37,803
====== ====== ======
Diluted 38,305 37,887 37,862
====== ====== ======
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
At December 25, 1999 and December 26, 1998
(In Thousands)
ASSETS 1999 1998
---- ----
Current assets:
Cash and cash equivalents $6,683 $5,967
Receivables, net 496,159 450,905
Inventories 997,805 984,287
Other current assets 228,103 146,757
---------- ----------
Total current assets 1,728,750 1,587,916
Investments 108,895 119,468
Investment in direct financing leases 126,309 177,783
Property and equipment:
Land 45,507 49,494
Buildings 389,651 408,739
Fixtures and equipment 636,501 663,724
Leasehold improvements 236,570 225,010
Leased assets under capital leases 231,236 207,917
---------- ----------
1,539,465 1,554,884
Less accumulated depreciation and amortization (701,289) (734,819)
---------- ----------
Net property and equipment 838,176 820,065
Deferred income taxes 54,754 51,497
Other assets 150,214 154,524
Goodwill, net 566,120 579,579
---------- ----------
TOTAL ASSETS $3,573,218 $3,490,832
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $981,219 $945,475
Current maturities of long-term debt 70,905 41,638
Current obligations under capital leases 21,375 21,668
Other current liabilities 210,220 272,573
---------- ----------
Total current liabilities 1,283,719 1,281,084
Long-term debt 1,234,185 1,143,900
Long-term obligations under capital leases 367,960 359,462
Other liabilities 126,652 136,455
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value, authorized -
100,000 shares, issued and outstanding -
38,856 and 38,542 shares 97,141 96,356
Capital in excess of par value 511,447 509,602
Reinvested earnings (deficit) (22,326) 23,155
Accumulated other comprehensive income:
Additional minimum pension liability (25,560) (57,133)
---------- ----------
Accumulated other comprehensive income (25,560) (57,133)
Less ESOP note - (2,049)
---------- ----------
Total shareholders' equity 560,702 569,931
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,573,218 $3,490,832
========== ==========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 25, 1999, December 26, 1998, and December 27, 1997
(In thousands)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net earnings (loss) $(44,728) $(510,595) $25,392
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 162,379 185,368 181,357
Credit losses 24,704 23,498 24,484
Deferred income taxes 3,357 (117,239) 40,301
Equity investment results 9,412 11,622 16,746
Impairment/restructuring and
related charges 136,868 668,028 -
Cash payments on impairment/
restructuring and related charges (50,340) (7,408) -
Cost of early debt retirement - - 22,227
Consolidation and restructuring
reserve activity 423 (1,008) (12,724)
Change in assets and liabilities,
excluding effect of acquisitions:
Receivables (55,692) (156,822) (41,347)
Inventories (22,049) 6,922 31,315
Accounts payable 35,744 114,136 (117,219)
Other assets and liabilities (77,113) (71,058) (53,116)
Other adjustments, net (5,348) (4,365) (4,448)
-------- -------- --------
Net cash provided by operating activities 117,617 141,079 112,968
-------- -------- --------
Cash flows from investing activities:
Collections on notes receivable 34,798 38,076 59,011
Notes receivable funded (43,859) (28,946) (37,537)
Notes receivable sold - - 29,272
Businesses acquired (78,440) (30,225) (9,572)
Proceeds from sale of businesses 7,042 32,277 13,093
Purchase of property and equipment (166,339) (200,211) (129,386)
Proceeds from sale of property
and equipment 35,487 17,056 15,845
Investments in customers (8,115) (1,009) (1,694)
Proceeds from sale of investments 2,745 3,529 4,970
Other investing activities 3,337 6,141 1,895
-------- -------- --------
Net cash used in investing activities (213,344) (163,312) (54,103)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings 126,000 170,000 914,477
Principal payments on long-term debt (6,178) (159,651) (982,982)
Principal payments on capital
lease obligations (21,533) (13,356) (20,102)
Sale of common stock under incentive
stock and stock ownership plans 1,267 4,830 593
Dividends paid (3,082) (3,048) (3,007)
Other financing activities (31) (891) (1,195)
-------- -------- --------
Net cash provided by (used in)
financing activities 96,443 (2,116) (92,216)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 716 (24,349) (33,351)
Cash and cash equivalents,
beginning of year 5,967 30,316 63,667
-------- -------- --------
Cash and cash equivalents, end of year $6,683 $5,967 $30,316
======== ======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 25, 1999, December 26, 1998 and December 27, 1997
(In thousands, except per share amounts)
Accumulated
Capital Reinvested Other
Common Shares in excess Earnings Comprehensive Comprehensive ESOP
Total Shares Amount of par value (Deficit) Income Income Note
---------------------------------------------------------------------------------------
Balance at December 28, 1996 $1,075,958 37,798 $94,494 $503,595 $514,408 $(29,597) $(6,942)
Comprehensive income
Net earnings 25,392 25,392 $25,392
Other comprehensive income,
net of tax
Currency translation
adjustment (net of $0 taxes) (222) (222) (222)
Minimum pension liability
adjustment (net of $8,556
of taxes) (12,818) (12,818) (12,818)
-------
Comprehensive income $12,352
=======
Incentive stock and stock
ownership plans 2,022 466 1,166 856
Cash dividends, $0.08 per share (3,008) (3,008)
ESOP note payments 2,348 2,348
---------- ------ ------- -------- -------- ------- -------
Balance at December 27, 1997 1,089,672 38,264 95,660 504,451 536,792 (42,637) (4,594)
Comprehensive income
Net loss (510,595) (510,595) $(510,595)
Other comprehensive income,
net of tax
Currency translation
adjustment (net of $0 taxes) 4,922 4,922 4,922
Minimum pension liability
adjustment (net of $12,914
of taxes) (19,418) (19,418) (19,418)
---------
Comprehensive income $(525,091)
=========
Incentive stock and stock
ownership plans 5,847 278 696 5,151
Cash dividends, $0.08 per share (3,042) (3,042)
ESOP note payments 2,545 2,545
---------- ------ ------- -------- -------- ------- ------
Balance at December 26, 1998 569,931 38,542 96,356 509,602 23,155 (57,133) (2,049)
Comprehensive income
Net loss (44,728) (44,728) $(44,728)
Other comprehensive income,
net of tax
Minimum pension liability
adjustment (net of $21,049
of taxes) 31,573 31,573 31,573
--------
Comprehensive income $(13,155)
========
Incentive stock and stock
ownership plans 4,955 314 785 4,170
Cash dividends, $0.08 per share (3,078) (2,325) (753)
ESOP note payments 2,049 2,049
---------- ------ ------- --------
Balance at December 25, 1999 $560,702 38,856 $97,141 $511,447 $(22,326) $(25,560) $ -
========== ====== ======= ======== ======== ======== ======
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 25, 1999, December 26, 1998 and December 27, 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: The company markets food and related
products and offers retail services to supermarkets in 41 states.
The company also operates more than 240 company-owned stores in
several geographic areas. The company's activities encompass two
major businesses: distribution and retail operations. Food and
food-related product sales account for over 90 percent of the
company's consolidated sales. No one customer accounts for 4.5
percent or more of consolidated sales.
Fiscal Year: The company's fiscal year ends on the last Saturday
in December.
Basis of Presentation: The preparation of the consolidated
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.
Principles of Consolidation: The consolidated financial
statements include all subsidiaries. Material intercompany items
have been eliminated. The equity method of accounting is usually
used for investments in certain entities in which the company has
an investment in common stock of between 20% and 50% or such
investment is temporary. Under the equity method, original
investments are recorded at cost and adjusted by the company's
share of earnings or losses of these entities and for declines in
estimated realizable values deemed to be other than temporary.
Reclassifications: Certain reclassifications have been made to
prior year amounts to conform to current year classifications.
Basic and Diluted Net Earnings (Loss) Per Share: Both basic and
diluted earnings per share are computed based on net earnings
(loss) divided by weighted average shares as appropriate for each
calculation subject to anti-dilution limitations.
Taxes on Income: Deferred income taxes arise from temporary
differences between financial and tax bases of certain assets and
liabilities.
Cash and Cash Equivalents: Cash equivalents consist of liquid
investments readily convertible to cash with an original maturity
of three months or less. The carrying amount for cash equivalents
is a reasonable estimate of fair value.
Receivables: Receivables include the current portion of customer
notes receivable of $25 million in 1999 and $17 million in 1998.
Receivables are shown net of allowance for doubtful accounts of
$32 million in 1999 and $28 million in 1998. The company extends
credit to its retail customers located over a broad geographic
base. Regional concentrations of credit risk are limited.
Interest income on impaired loans is recognized only when
payments are received.
Inventories: Inventories are valued at the lower of cost or
market. Grocery and certain perishable inventories, aggregating
approximately 70% of total inventories in 1999 and 1998 are
valued on a last-in, first-out (LIFO) method. The cost for the
remaining inventories is determined by the first-in, first-out
(FIFO) method. Current replacement cost of LIFO inventories was
greater than the carrying amounts by approximately $54 million at
year-end 1999 ($4 million of which is recorded in assets held for
sale in other current assets) and $44 million at year-end 1998.
In 1999 and 1998, the liquidation of certain LIFO layers related
to business closings decreased cost of products sold by
approximately $2 million and $3 million, respectively.
Property and Equipment: Property and equipment are recorded at
cost or, for leased assets under capital leases, at the present
value of minimum lease payments. Depreciation, as well as
amortization of assets under capital leases, is based on the
estimated useful asset lives using the straight-line method. The
estimated useful lives used in computing depreciation and
amortization are: buildings and major improvements - 20 to 40
years; warehouse, transportation and other equipment - 3 to 10
years; and data processing equipment and software - 3 to 7 years.
Goodwill: The excess of purchase price over the fair value of net
assets of businesses acquired is amortized on the straight-line
method over periods not exceeding 40 years. Goodwill is shown net
of accumulated amortization of $184 million and $176 million in
1999 and 1998, respectively.
Impairment: Asset impairments are recorded when the carrying
amount of assets are not recoverable. Impairment is assessed and
measured, by asset type, as follows: notes receivable - fair
value of the collateral for each note; and, long-lived assets,
goodwill and other intangibles - estimate of the future cash
flows expected to result from the use of the asset and its
eventual disposition aggregated to the operating unit level for
distribution and store level for retail.
Financial Instruments: Interest rate hedge transactions and other
financial instruments are utilized to manage interest rate
exposure. The methods and assumptions used to estimate the fair
value of significant financial instruments are discussed in the
"Investments and Notes Receivable" and "Long-term Debt" notes.
Stock-Based Compensation: The company applies APB Opinion No. 25
- - Accounting for Stock Issued to Employees and related
Interpretations in accounting for its plans.
Comprehensive Income: Comprehensive income is reflected in the
Consolidated Statements of Shareholders' Equity. Other
comprehensive income is comprised of foreign currency translation
adjustments and minimum pension liability adjustments. The
cumulative effect of other comprehensive income is reflected in
the Shareholders' Equity section of the Consolidated Balance
Sheets.
IMPAIRMENT/RESTRUCTURING CHARGE AND RELATED COSTS
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. The following reflect the four major
initiatives and their current status:
o Consolidate distribution operations. The strategic plan
initially included closing eleven operating units (El Paso,
TX; Portland, OR; Houston, TX; Huntingdon, PA; Laurens, IA;
Johnson City, TN; Sikeston, MO; San Antonio, TX; Buffalo, NY;
an unannounced operating unit still to be closed; and an
unannounced operating unit scheduled for 1999 closure, but due
to increased cash flows from new business it will not be
closed). Of the nine announced, all but San Antonio and
Buffalo have been completed. San Antonio should be closed by
the end of the first quarter of 2000 and Buffalo by the end of the
second quarter of 2000. Three additional closings were announced
which were not originally part of the strategic plan which
brings the total operating units to be closed to thirteen.
The closing of Peoria was added to the plan in the first
quarter of 1999 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. Recently, the closings of York
and Philadelphia were announced as part of an effort to grow
in the northeast by consolidating distribution operations and
expand the Maryland facility. Total 1998 sales from the 13
operating units closed or to be closed were approximately $3.1
billion. Most of these sales have been or are expected to be
retained by transferring customer business to its higher
volume, better utilized facilities. The company believes that
this consolidation process benefits customers with better
product variety and improved buying opportunities. The
company has also benefited with better coverage of fixed
expenses. The closings result in savings due to reduced
depreciation, payroll, lease and other operating costs, and
the company begins recognizing these savings immediately upon
closure. The capital returned from the divestitures and
closings has been and will continue to be reinvested in the
business.
o Grow distribution sales. Higher volume, better-utilized
distribution operations and the dynamics of the market place
represent an opportunity for sales growth. The improved
efficiency and effectiveness of the remaining distribution
operations enhances their competitiveness and the company
intends to capitalize on these improvements.
o Improve retail performance. This not only requires divestiture
or closing of under-performing company-owned retail chains,
but also requires increased investments in market leading chains.
The strategic plan includes the divestiture or closing of seven
retail chains (including the recently announced letters of intent
to sell the Baker's Oklahoma stores in the first half of 2000).
The chains divested or closed (or to be divested or closed) are Hyde
Park, Consumers, Boogaarts, New York Retail, Pennsylvania
Retail, Baker's Oklahoma, and a chain not yet announced. The
sale of Baker's Oklahoma as well as the divestiture or closing
of the chain not yet announced were not in the original
strategic plan, but no longer fit into the current business
strategy. Total 1998 sales from the divested or closed (or to
be divested or closed) chains that have been announced were
approximately $844 million. The sale or closing of these
chains is expected to be substantially completed by the end of
the second quarter of 2000. Also during 1999, the company
built or acquired more than 25 retail stores that are expected
to fit in well strategically with the existing chains.
Sixteen remodels of existing retail stores were also completed
during 1999.
o Reduce overhead and operating expenses. Overhead has been and
will continue to be reduced through the low cost pursuit
program which includes 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. The low cost pursuit program also includes
other initiatives to reduce complexity in business systems and
remove non-value-added costs from operations, 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 well underway and have reflected reduced costs
for the company which ultimately reflect improved
profitability and competitiveness.
The total pre-tax charge of the strategic plan is presently
estimated at $935 million ($239 million cash and $696 million non-
cash). The plan originally announced in December 1998 had an
estimated pre-tax charge totaling $782 million. The increase is
due primarily to closing the Peoria, York and Philadelphia
divisions ($59 million), updating impairment amounts on certain
retail chains ($25 million), the divestiture of the Baker's chain
in Oklahoma ($17 million), increasing costs associated with
initiatives to reduce overhead and complexity in business systems
($60 million), and decreasing costs related to a scheduled
closing no longer planned ($8 million). Updating the impairment
amounts was necessary as decisions to close additional operating
units were made. Additionally, sales negotiations provided more
current information regarding the fair value on certain chains.
The cost of severance, relocation and other periodic expenses
relating to reducing overhead and business complexities was more
than expected. Also, there were changes in the list of operating
units to be divested or closed due to no longer fitting into the
current business strategy as described above. The pre-tax charge
recorded to-date is $805 million ($137 million in 1999 and $668
million recorded in 1998). After tax, the expense for 1999 was
$92 million or $2.39 per share. The $130 million of costs
relating to the strategic plan not yet charged against income
will primarily be recorded throughout 2000 at the time such costs
are accruable.
The $137 million charge in 1999 was included on several lines of
the Consolidated Statements of Operations as follows: $18 million
was included in cost of sales and was primarily related to
inventory valuation adjustments; $16 million was included in
selling and administrative expense and equity investment results
as disposition related costs recognized on a periodic basis; and
the remaining $103 million was included in the impairment/
restructuring charge line. The 1999 charge consisted of the
following components:
o Impairment of assets of $62 million. The impairment components
were $36 million for goodwill and $26 million for other long-
lived assets. Of the goodwill charge of $36 million, $22
million related to the 1994 "Scrivner" acquisition with the
remaining amount related to two retail acquisitions.
o Restructuring charges of $41 million. The restructuring
charges consisted primarily of severance related expenses and
pension withdrawal liabilities for the divested or closed
operating units announced during 1999. The restructuring
charges also consisted of operating lease liabilities and
professional fees incurred related to the restructuring
process.
o Other disposition and related costs of $34 million. These
costs consisted primarily of inventory valuation adjustments,
impairment of an investment, disposition related costs
recognized on a periodic basis and other costs.
The 1999 charge relates to the company's segments as follows: $48
million relates to the distribution segment and $70 million
relates to the retail segment with the balance relating to
corporate overhead expenses.
The charges related to workforce reductions are as follows:
($'s in thousands) Amount Headcount
------ ---------
1998 Activity:
Charge $25,441 1,430
Terminations (3,458) (170)
------- -----
1998 Ending Liability 21,983 1,260
1999 Activity:
Charge 12,029 1,350
Terminations (24,410) (1,950)
------- -----
1999 Ending Liability $9,602 660
======= =====
The breakdown of the 1,350 headcount reduction recorded during
1999 is: 275 from the distribution segment; 925 from the retail
segment; and 150 from corporate.
Additionally, the strategic plan includes charges related to
lease obligations which will be utilized as operating units or
retail stores close, but ultimately reduced over remaining lease
terms ranging from 1 to 20 years. The charges and utilization
have been recorded to-date as follows:
($'s in thousands) Amount
------
1998 Activity:
Charge $28,101
Utilized (385)
-------
1998 Ending Liability 27,716
1999 Activity:
Charge 4,153
Utilized (10,281)
-------
1999 Ending Liability $21,588
=======
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.
Assets held for sale included in other current assets at the end
of 1999 were approximately $69 million, consisting of $8 million
of distribution operating units and $61 million of retail stores.
During 1999, gains on the sale of facilities totaled
approximately $6 million and were included in net sales. Also
during 1999, the company recorded a charge of approximately $31
million related to the closing of certain retail stores which was
included in selling and administrative expense.
LITIGATION CHARGES
Furr's Supermarkets, Inc. ("Furr's") filed suit against the
company in 1997 claiming it was overcharged for products. During
1997, Fleming and Furr's reached an agreement dismissing all
litigation between them. Pursuant to the settlement, Furr's
purchased Fleming's El Paso product supply center in 1998,
together with related inventory and equipment. As part of the
settlement, Fleming paid Furr's $1.7 million in 1997 and $7.8
million in 1998 as a refund of fees and charges.
The company was sued by David's Supermarkets, Inc. ("David's") in
1993 for allegedly overcharging for products. In 1996, judgment
was entered against the company for $211 million; the judgment
was subsequently vacated and a new trial granted. At the end of
1996 the company had an accrual of $650,000. The company denied
the plaintiff's allegations; however, to eliminate the
uncertainty and expense of protracted litigation, the company
paid $19.9 million to the plaintiff in April 1997 in exchange for
dismissal, with prejudice, of all plaintiff's claims against the
company, resulting in a charge to first quarter 1997 earnings of
$19.2 million.
EXTRAORDINARY CHARGE
During 1997, the company undertook a recapitalization program
which culminated in an $850 million senior secured credit
facility and the sale of $500 million of senior subordinated
notes. The recapitalization program resulted in an extraordinary
charge of $13.3 million, after income tax benefits of $8.9
million, or $.35 per share. Almost all of the charge represents a
non-cash write-off of unamortized financing costs related to debt
which was prepaid. See the "Long-term Debt" note for further
discussion of the recapitalization program.
PER SHARE RESULTS
The following table sets forth the basic and diluted per share
computations for income (loss) before extraordinary charge.
(In thousands, except per share amounts) 1999 1998 1997
- ---------------------------------------- ---- ---- ----
Numerator:
Basic and diluted earnings (loss)
before extraordinary charge
$(44,728) $(510,595) $38,722
======== ========= =======
Denominator:
Weighted average shares for
basic earnings per share 38,305 37,887 37,803
Effect of dilutive securities:
Employee stock options - - 21
Restricted stock compensation - - 38
------ ------ ------
Dilutive potential common shares - - 59
------ ------ ------
Weighted average shares for
diluted earnings per share 38,305 37,887 37,862
====== ====== ======
Basic and diluted earnings (loss) per
share before extraordinary charge $(1.17) $(13.48) $1.02
====== ======= ======
The company did not reflect 364,000 weighted average potential
shares for the 1999 diluted calculation or 172,000 weighted
average potential shares for the 1998 diluted calculation because
they would be antidilutive. Other options with exercise prices
exceeding market prices consisted of 3.8 million shares in 1999
and 2.4 million shares in 1998 of common stock at a weighted
average exercise price of $ 14.71 and $19.37 per share,
respectively, that were not included in the computation of
diluted earnings per share because the effect would be
antidilutive.
SEGMENT INFORMATION
The company derives over 90% of its net sales and operating
profits from the sale of food and food-related products. Further,
over 90% of the company's assets are based in and net sales
derived from 41 states and no single customer amounts to 4.5% or
more of net sales for any of the years reported. Considering the
customer types and the processes for meeting the needs of
customers, senior management manages the business as two
segments: distribution and retail operations.
The distribution segment represents the aggregation of retail
services and the distribution and marketing of the following
products: food, general merchandise, health and beauty care, and
Fleming Brands. The aggregation is based primarily on the common
customer base and the interdependent marketing and distribution
efforts.
The company's senior management utilizes more than one
measurement and multiple views of data to assess segment
performance and to allocate resources to the segments. However,
the dominant measurements are consistent with the company's
consolidated financial statements and, accordingly, are reported
on the same basis herein. Interest expense, interest income,
equity investments, corporate expenses, other unusual charges and
income taxes are managed separately by senior management and
those items are not allocated to the business segments.
Intersegment transactions are reflected at cost.
The following table sets forth the composition of the segment's
and total company's net sales, operating earnings, depreciation
and amortization, capital expenditures and identifiable assets.
(In millions) 1999 1998 1997
- ------------- ---- ---- ----
Net Sales
Distribution $13,131 $13,561 $13,864
Intersegment elimination (2,204) (2,081) (1,950)
------- ------- -------
Net distribution 10,927 11,480 11,914
Retail 3,719 3,589 3,459
------- ------- -------
Total $14,646 $15,069 $15,373
======= ======= =======
Operating Earnings
Distribution $290 $259 $283
Retail (2) 62 80
Corporate (112) (122) (127)
------- ------- -------
Total operating earnings 176 199 236
Interest expense (165) (161) (162)
Interest income 40 37 47
Equity investment results (10) (12) (17)
Litigation charges - (8) (21)
Impairment/restructuring charge (103) (653) -
------- ------- -------
Earnings (loss) before taxes $(62) $(598) $83
------- ------- -------
Depreciation and Amortization
Distribution $88 $107 $105
Retail 64 61 55
Corporate 10 17 21
------- ------- -------
Total $162 $185 $181
======= ======= =======
Capital Expenditures
Distribution $53 $81 $51
Retail 112 118 77
Corporate 1 1 1
------- ------- -------
Total $166 $200 $129
======= ======= =======
Identifiable Assets
Distribution $2,517 $2,502 $2,864
Retail 823 683 708
Corporate 233 306 352
------- ------- -------
Total $3,573 $3,491 $3,924
======= ======= =======
INCOME TAXES
Components of taxes on income (loss) are as follows:
(In thousands) 1999 1998 1997
- -------------- ---- ---- ----
Current:
Federal $(17,287) $ 23,896 $ (4,761)
State (3,924) 5,737 (474)
-------- -------- --------
Total current (21,211) 29,633 (5,235)
-------- -------- --------
Deferred:
Federal 2,552 (94,254) 32,519
State 806 (22,986) 7,782
-------- -------- --------
Total deferred 3,358 (117,240) 40,301
-------- -------- --------
Taxes on income (loss) $(17,853) $(87,607) $ 35,066
======== ======== ========
Taxes on income in the above table includes a tax benefit of
$8,897,000 in 1997 which is reported net in the extraordinary
charge from the early retirement of debt in the consolidated
statements of operations.
Deferred tax expense (benefit) relating to temporary differences
includes the following components:
(In thousands) 1999 1998 1997
- -------------- ---- ---- ----
Depreciation and amortization $ (9,603) $ (64,132) $(4,818)
Inventory 7,019 (6,839) (6,228)
Capital losses (4,825) 251 (357)
Asset valuations and reserves (18,114) 9,302 22,498
Equity investment results (172) (403) 821
Credit losses (4,527) (7,825) 23,184
Lease transactions 7,996 (34,718) (757)
Associate benefits 31,700 3,200 2,727
Note sales (139) (217) (1,843)
Acquired loss carryforwards - - -
Other (5,977) (15,859) 5,074
-------- --------- -------
Deferred tax expense (benefit) $ 3,358 $(117,240) $40,301
======== ========= =======
Temporary differences that give rise to deferred tax assets and
liabilities as of year-end 1999 and 1998 are as follows:
(In thousands) 1999 1998
- -------------- ---- ----
Deferred tax assets:
Depreciation and amortization $ 23,002 $ 76,175
Asset valuations and reserve activities 48,559 34,238
Associate benefits 54,457 111,591
Credit losses 28,263 21,656
Equity investment results 9,983 9,196
Lease transactions 40,325 48,340
Inventory 26,342 31,328
Acquired loss carryforwards 67 4,997
Capital losses 9,372 4,549
Other 30,847 29,865
--------- --------
Gross deferred tax assets 271,217 371,935
Less valuation allowance - (4,929)
--------- --------
Total deferred tax assets 271,217 367,006
--------- --------
Deferred tax liabilities:
Depreciation and amortization 52,103 114,878
Equity investment results 3,482 2,867
Lease transactions 1,532 1,551
Inventory 56,867 54,835
Associate benefits 29,424 33,809
Asset valuations and reserve activities 2,772 6,565
Note sales 3,387 3,418
Prepaid expenses 3,874 3,421
Capital losses 1,088 1,090
Other 28,225 31,703
--------- --------
Total deferred tax liabilities 182,754 254,137
--------- --------
Net deferred tax asset $ 88,463 $112,869
========= ========
The change in net deferred tax asset from 1998 to 1999 is
allocated $3.4 million to deferred income tax expense and $21.0
million expense to stockholders' equity.
The valuation allowance in 1998 relates to $4.9 million of
acquired loss carryforwards. The valuation allowance is not
needed in 1999 and management believes it is more likely than not
that all of the company's deferred tax assets will be realized.
The effective income tax rates are different from the statutory
federal income tax rates for the following reasons:
1999 1998 1997
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 5.1 6.8 7.9
Acquisition-related differences 0.0 12.3 14.5
Other (3.1) (.4) .6
---- ---- ----
Effective rate on operations 37.0% 53.7% 58.0%
Impairment/restructuring and
related charges (8.5) (39.1) -
---- ---- ----
Effective rate after impairment/
restructuring and related charges 28.5% 14.6% 58.0%
==== ==== ====
During 1999, the company recorded interest income of $9 million
related to refunds in federal income taxes from prior years.
INVESTMENTS AND NOTES RECEIVABLE
Investments and notes receivable consist of the following:
(In thousands) 1999 1998
- -------------- ---- ----
Investments in and advances to customers $ 14,136 $ 30,371
Notes receivable from customers 83,354 71,751
Other investments and receivables 11,405 17,346
-------- --------
Investments and notes receivable $108,895 $119,468
======== ========
Investments and notes receivable are shown net of reserves of $23
million and $27 million in 1999 and 1998, respectively. Sales to
customers accounted for under the equity method were
approximately $0.3 billion, $0.6 billion and $0.9 billion in
1999, 1998 and 1997, respectively. Receivables include $8
million and $5 million in 1999 and 1998, respectively, due from
customers accounted for under the equity method.
The company extends long-term credit to certain retail customers.
Loans are primarily collateralized by inventory and fixtures.
Interest rates are above prime with terms up to 10 years. The
carrying amount of notes receivable approximates fair value
because of the variable interest rates charged on certain notes
and because of the allowance for credit losses.
The company's impaired notes receivable (including current
portion) are as follows:
(In thousands) 1999 1998
- -------------- ---- ----
Impaired notes with related allowances $ 57,657 $ 55,031
Credit loss allowance on impaired notes (25,811) (26,260)
Impaired notes with no related allowances 4,613 366
-------- --------
Net impaired notes receivable $ 36,459 $ 29,137
======== ========
Average investments in impaired notes were as follows: 1999-$65
million; 1998-$59 million; and 1997-$13 million.
Activity in the allowance for credit losses is as follows:
(In thousands) 1999 1998 1997
Balance, beginning of year $ 47,232 $ 43,848 $ 49,632
Charged to costs and expenses 24,704 23,498 24,484
Uncollectible accounts written off,
net of recoveries (16,408) (20,114) (32,655)
Asset impairment - - 2,387
-------- -------- --------
Balance, end of year $ 55,528 $ 47,232 $ 43,848
======== ======== ========
The company sold certain notes receivable at face value with
limited recourse during 1997. The outstanding balance at year-end
1999 on all notes sold is $15 million, of which the company is
contingently liable for $4 million should all the notes become
uncollectible.
LONG-TERM DEBT
Long-term debt consists of the following:
(In thousands) 1999 1998
- -------------- ---- ----
10.625% senior notes due 2001 $ 300,000 $ 300,000
10.5% senior subordinated notes due 2004 250,000 250,000
10.625% senior subordinated notes due 2007 250,000 250,000
Revolving credit, average interest rates of
6.5% for both years, due 2003 255,000 89,000
Term loans, due 2000 to 2004, average
interest rate of 7.3% and 7.0% 197,594 224,269
Other debt 52,496 71,999
---------- ----------
1,305,090 1,185,268
Less current maturities (70,905) (41,368)
---------- ----------
Long-term debt $1,234,185 $1,143,900
========== ==========
Five-year Maturities: Aggregate maturities of long-term debt for
the next five years are as follows: 2000-$71 million; 2001-$337
million; 2002-$50 million; 2003-$300 million; and 2004-$299
million.
The 10.625% $300 million senior notes were issued in 1994 and
mature December 15, 2001. The senior notes are unsecured senior
obligations of the company, ranking the same as all other
existing and future senior indebtedness and senior in right of
payment to the subordinated notes. The senior notes are
effectively subordinated to secured senior indebtedness of the
company with respect to assets securing such indebtedness,
including loans under the company's senior secured credit
facility. The senior notes are guaranteed by substantially all of
the company's subsidiaries (see -Subsidiary Guarantee of Senior
Notes below).
The senior subordinated notes consist of two issues: $250 million
of 10.5% Notes due December 1, 2004 and $250 million of 10.625%
Notes due July 31, 2007. The subordinated notes are general
unsecured obligations of the company, subordinated in right of
payment to all existing and future senior indebtedness of the
company, and senior to or of equal rank with all future
subordinated indebtedness of the company. The company currently
has no other subordinated indebtedness outstanding.
The company's $850 million senior secured 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 maturity of July 25, 2004. Up to $300 million
of the revolver may be used for issuing letters of credit.
Borrowings and letters of credit issued under the new credit
facility may be used for general corporate purposes and 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 or other equity interests owned by the
company in its subsidiaries. In addition, this 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 interest 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, up to $72 million at year-end 1999, based on
a formula tied to net earnings and equity issuances. Under the
credit agreement, new issues of certain kinds of debt must have a
maturity after January 2005. 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 of control. Under the company's indentures, noteholders
may require the company to repurchase notes in the event of a
defined change of control coupled with a defined decline in
credit ratings.
At year-end 1999, borrowings under the credit facility totaled
$198 million in term loans and $255 million of revolver
borrowings, and $40 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 credit
agreement.
At year-end 1999, the company would have been allowed to borrow
an additional $305 million under the revolving credit facility
contained in the credit agreement based on the actual borrowings
and letters of credit outstanding.
Medium-term Notes: Medium-term notes are included in other debt
in the above table. Between 1990 and 1993, the company
registered $565 million in medium-term notes with a total of $275
million issued. The company has no plans to issue additional
medium-term notes at this time. The balances due at year-end
1999 and 1998 were $53 million and $69 million, respectively,
with average interest rates of 7.2% for both years. The notes
mature from 2000 to 2003.
Credit Ratings: On August 24, 1999, Moody's Investors Service
("Moody's") announced it had confirmed its ratings for the
company's various issues of long-term debt, and that it had
changed its outlook from negative to positive.
On September 9, 1999, Standard & Poor's rating group ("S&P")
announced it had lowered its ratings one notch and confirmed its
stable outlook on the company.
Giving effect to these changes, the table below summarizes the
company's credit ratings:
Moody's S&P
------- ---
Credit agreement loan Ba3 BB
Senior implied debt B1 BB-
Senior unsecured debt B1 B+
Subordinated notes B3 B
Outlook Positive Stable
Average Interest Rates: The average interest rate for total debt
(including capital lease obligations) before the effect of
interest rate hedges was 10.2% for 1999, versus 10.1% for 1998.
Including the effect of interest rate hedges, the interest rate
of debt was 10.5% and 10.4% at the end of 1999 and 1998,
respectively.
Interest Expense: Components of interest expense are as follows:
(In thousands) 1999 1998 1997
- -------------- ---- ---- ----
Interest costs incurred:
Long-term debt $127,271 $123,054 $121,356
Capital lease obligations 36,768 37,542 36,414
Other 2,258 1,589 5,922
-------- -------- --------
Total incurred 166,297 162,185 163,692
Less interest capitalized (1,117) (604) (1,186)
-------- -------- --------
Interest expense $165,180 $161,581 $162,506
======== ======== ========
Derivatives: The company enters into interest rate hedge
agreements with the objective of managing interest costs and
exposure to changing interest rates. The classes of derivative
financial instruments used have included interest rate swaps and
caps. The company's policy regarding derivatives is to engage in
a financial risk management process to manage its defined
exposures to uncertain future changes in interest rates which
impact net earnings.
Strategies for achieving the company's objectives have resulted
in the company maintaining interest rate swap agreements covering
$250 million aggregate principal amount of floating rate
indebtedness at year-end 1999. The agreements all mature in 2000.
The counterparties to these agreements are three major U.S. and
international financial institutions.
The interest rate applicable to most of the company's floating
rate indebtedness is equal to LIBOR, plus a margin. The average
fixed interest rate paid by the company on the interest rate
swaps at year-end 1999 was 7.22%, covering $250 million of
floating rate indebtedness. The interest rate swap agreements,
which were implemented through three counterparty banks, and
which had an average remaining life of 0.4 years at year-end
1999, provide for the company to receive substantially the same
LIBOR that the company pays on its floating rate indebtedness.
The notional amounts of interest rate swaps did not represent
amounts exchanged by the parties and are not a measure of the
company's exposure to credit or market risks. The amounts
exchanged are calculated on the basis of the notional amounts and
the other terms of the hedge agreements. Notional amounts are not
included in the consolidated balance sheet.
The company believes its exposure to potential loss due to
counterparty nonperformance is minimized primarily due to the
relatively strong credit ratings of the counterparty banks for
their unsecured long-term debt (A- or higher from S&P or A3 or
higher from Moody's) and the size and diversity of the
counterparty banks. The hedge agreements are subject to market
risk to the extent that market interest rates for similar
instruments decrease and the company terminates the hedges prior
to maturity.
Fleming's financial risk management policy requires that any
interest rate hedge agreement be matched to designated interest-
bearing assets or debt instruments. All of the company's hedge
agreements have been matched to its floating rate indebtedness.
At year-end 1999, the company's floating rate indebtedness
consisted of the term loans and revolver loans under the credit
agreement.
Accordingly, all outstanding swaps are matched swaps and the
settlement accounting method is employed. Derivative financial
instruments are reported in the balance sheet where the company
has made or received a cash payment upon entering into or
terminating the transaction. The carrying amount is amortized
over the shorter of the initial life of the hedge agreement or
the maturity of the hedged item. The company had a financial
basis of $2.2 million and $2.6 million at year-end 1999 and 1998,
respectively, including accrued interest payable or receivable
for the interest rate agreements included in the balance sheet.
Payments made or received under interest rate swap agreements are
included in interest expense.
Fair Value of Financial Instruments: The fair value of long-term
debt was determined using valuation techniques that considered
market prices for actively traded debt, and cash flows discounted
at current market rates for management's best estimate for
instruments without quoted market prices. At year-end 1999, the
carrying value of debt was higher than the fair value by $69
million, or 5.3% of the carrying value. At year-end 1998, the
carrying value of debt was higher than the fair value by $26
million, or 2.2% of the carrying value. The fair value of notes
receivable is comparable to the carrying value because of the
variable interest rates charged on certain notes and because of
the allowance for credit losses.
For derivatives, the fair value was estimated using termination
cash values. At year-end 1999 and 1998, interest rate hedge
agreement values would represent an obligation of $3 million and
$9 million, respectively.
The Financial Accounting Standards Board issued SFAS No. 133 -
Accounting for Derivative Instruments and Hedging Activities
("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and is effective
for 2001. The company will adopt SFAS No. 133 by the required
effective date. The company has not determined the impact on its
financial statements from adopting the new standard.
Subsidiary Guarantee of Senior Notes: The senior notes are
guaranteed by all direct and indirect subsidiaries of the company
(except for certain inconsequential subsidiaries), all of which
are wholly-owned. The guarantees are joint and several, full,
complete and unconditional. There are currently no restrictions
on the ability of the subsidiary guarantors to transfer funds to
the company in the form of cash dividends, loans or advances.
Financial statements for the subsidiary guarantors are not
presented herein because the operations and financial position of
such subsidiaries are not material.
The 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.
(In millions) 1999 1998
---- ----
Current assets $256 $30
Noncurrent assets 462 52
Current liabilities 102 14
Noncurrent liabilities 144 7
(In millions) 1999 1998 1997
---- ---- ----
Net sales $899 $362 $379
Costs and expenses 913 393 388
Net loss (9) (10) (4)
The 1999 and 1998 losses include impairment/restructuring and other
costs related to the strategic plan totaling $2 million pre-tax ($1
million after-tax) and $19 million pre-tax ($15 million after-tax),
respectively.
LEASE AGREEMENTS
Capital And Operating Leases: The company leases certain distribution
facilities with terms generally ranging from 20 to 35 years, while
lease terms for other operating facilities range from 1 to 15 years.
The leases normally provide for minimum annual rentals plus executory
costs and usually include provisions for one to five renewal options of
five years each.
The company leases company-owned store facilities with terms generally
ranging from 15 to 20 years. These agreements normally provide for
contingent rentals based on sales performance in excess of specified
minimums. The leases usually include provisions for one to four renewal
options of two to five years each. Certain equipment is leased under
agreements ranging from two to eight years with no renewal options.
Accumulated amortization related to leased assets under capital leases
was $59 million and $70 million at year-end 1999 and 1998,
respectively.
Future minimum lease payment obligations for leased assets under
capital leases as of year-end 1999 are set forth below:
(In thousands) Lease
Years Obligations
- ----- -----------
2000 $ 37,620
2001 36,257
2002 35,129
2003 35,308
2004 35,134
Later 154,297
--------
Total minimum lease payments 333,745
Less estimated executory costs (49,613)
--------
Net minimum lease payments 284,132
Less interest (108,492)
--------
Present value of net minimum lease payments 175,640
Less current obligations (7,457)
--------
Long-term obligations $168,183
========
Future minimum lease payments required at year-end 1999 under operating
leases that have initial noncancelable lease terms exceeding one year
are presented in the following table:
(In thousands)
Facility Facilities Equipment Net
Years Rentals Subleased Rentals Rentals
- ----- -------- ---------- --------- -------
2000 $ 155,034 $ (68,706) $ 12,393 $ 98,721
2001 137,336 (59,646) 9,698 87,388
2002 128,369 (50,606) 4,061 81,824
2003 118,077 (42,974) 458 75,561
2004 104,305 (35,343) 156 69,118
Later 323,963 (100,080) - 223,883
--------- --------- -------- ---------
Total lease
payments $ 967,084 $(357,355) $ 26,766 $ 636,495
========= ========= ======== =========
The following table shows the composition of annual net rental expense
under noncancelable operating leases and subleases with initial terms
of one year or greater:
(In thousands) 1999 1998 1997
- -------------- ---- ---- ----
Operating activity:
Rental expense $ 95,760 $100,238 $108,694
Contingent rentals 1,329 1,971 2,002
Less sublease income (9,868) (7,349) (7,064)
-------- -------- --------
87,221 94,860 103,632
-------- -------- --------
Financing activity:
Rental expense 64,107 70,914 76,973
Less sublease income (68,442) (63,920) (75,445)
-------- -------- --------
(4,335) 6,994 1,528
-------- -------- --------
Net rental expense $82,886 $101,854 $105,160
======== ======== ========
The company reflects net financing activity, as shown above, as a
component of net sales.
Direct Financing Leases: The company leases retail store facilities
with terms generally ranging from 15 to 20 years which are subsequently
subleased to customers. Most leases provide for a percentage rental
based on sales performance in excess of specified minimum rentals. The
leases usually contain provisions for one to four renewal options of
five years each. The sublease to the customer is normally for an
initial five-year term with automatic five-year renewals at Fleming's
discretion, which corresponds to the length of the initial term of the
prime lease.
The following table shows the future minimum rentals receivable under
direct financing leases and future minimum lease payment obligations
under capital leases in effect at year-end 1999:
(In thousands) Lease Rentals Lease
Years Receivable Obligations
- ----- ------------- -----------
2000 $ 34,239 $ 31,023
2001 30,611 29,466
2002 27,092 29,242
2003 23,597 28,212
2004 21,169 27,456
Later 67,482 95,072
--------- ---------
Total minimum lease payments 204,190 240,471
Less estimated executory costs (17,365) (21,124)
--------- ---------
Net minimum lease payments 186,825 219,347
Less interest (45,758) (5,652)
--------- ---------
Present value of net minimum lease payments 141,067 213,695
Less current portion (14,758) (13,918)
--------- ---------
Long-term portion $ 126,309 $ 199,777
========= =========
Contingent rental income and contingent rental expense are not
material.
SHAREHOLDERS' EQUITY
The company offers a Dividend Reinvestment and Stock Purchase Plan
which provides shareholders the opportunity to automatically reinvest
their dividends in common stock at a 5% discount from market value.
Shareholders also may purchase shares at market value by making cash
payments up to $5,000 per calendar quarter. Such programs resulted in
issuing 54,000 and 33,000 new shares in 1999 and 1998, respectively.
The company's employee stock ownership plan (ESOP) established in 1990
allows substantially all associates to participate. In 1990, the ESOP
entered into a note with a bank to finance the purchase of the shares.
In 1994, the company paid off the note and received a note from the
ESOP. The ESOP completed payments of the loan balance to the company in
1999.
The company made contributions to the ESOP based on fixed debt service
requirements of the ESOP note. Such contributions were approximately $2
million in 1999, $2.5 million in 1998, and $2 million in 1997.
Dividends used by the ESOP for debt service and interest and
compensation expense recognized by the company were not material.
The company issues shares of restricted stock to key employees under
plans approved by the stockholders. Periods of restriction and/or
performance goals are established for each award.
The fair value of the restricted stock at the time of the grant is
recorded as unearned compensation - restricted stock which is netted
against capital in excess of par within shareholders' equity.
Compensation is amortized to expense when earned. At year-end 1999,
568,742 shares remained available for award under all plans.
Subsequent to year end, approximately 363,000 shares were awarded.
Information regarding restricted stock balances is as follows (in
thousands):
1999 1998
---- ----
Awarded restricted shares outstanding 441 420
=== ===
Unearned compensation - restricted stock $ 3,503 $ 6,199
======= =======
The company may grant stock options to key employees through stock
option plans, providing for the grant of incentive stock options and
non-qualified stock options. The stock options have a maximum term
of 10 years and have time and/or performance based vesting
requirements. At year-end 1999, there were 1,472,000 shares available
for grant under the unrestricted stock option plans. Subsequent to
year end, approximately 826,000 stock options were granted. Also
subsequent to year end, the Board of Directors approved, subject to
shareholder approval, a new stock option plan reserving 1.9 million
shares for future grants.
Stock option transactions for the three years ended December 25, 1999
are as follows:
Weighted Average
(Shares in thousands) Shares Exercise Price Price Range
- --------------------- ------ ---------------- -----------
Outstanding, year-end 1996 2,631 $23.93 $16.38-42.13
Granted 80 $17.58 $17.50-18.13
Exercised (8) $16.38 $16.38-16.38
Canceled and forfeited (437) $28.48 $16.38-42.13
------ ------ ------------
Outstanding, year-end 1997 2,266 $22.65 $16.38-38.38
Granted 550 $10.18 $9.72-18.19
Exercised (3) $16.38 $16.38-16.38
Canceled and forfeited (403) $25.40 $16.38-37.06
------ ------ ------------
Outstanding, year-end 1998 2,410 $19.35 $9.72-38.38
Granted 2,337 9.80 $7.53-12.25
Exercised (0) 0.00 $0.00- 0.00
Canceled and forfeited (968) 16.53 $7.53-38.38
------ ------ ------------
Outstanding, year end 1999 3,799 $14.19 $7.53-38.38
====== ====== ============
Information regarding options outstanding at year-end 1999 is as follows:
All Options
(Shares in thousands) Outstanding Currently
- --------------------- Options Exercisable
----------- -----------
Option price $28.38 - $38.38:
Number of options 129 121
Weighted average exercise price 36.25 36.77
Weighted average remaining life in years 1 -
Option price $18.19 - $26.44:
Number of options 594 283
Weighted average exercise price 24.57 24.33
Weighted average remaining life in years 4 -
Option price $7.53 - $17.50:
Number of options 3,057 649
Weighted average exercise price 11.17 14.30
Weighted average remaining life in years 9 -
In the event of a change of control, the vesting of all awards will
accelerate.
The company applies APB Opinion No. 25 - Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans.
Total compensation cost recognized in income for stock based employee
compensation awards was $1,378,000, $3,160,000 and $1,493,000 for 1999,
1998 and 1997, respectively. If compensation cost had been recognized
for the stock-based compensation plans based on fair values of the
awards at the grant dates consistent with the method of SFAS No. 123 -
Accounting for Stock-Based Compensation, reported net earnings (loss)
and earnings (loss) per share, both before extraordinary charge, would
have been $(47.4) million and $(1.24) for 1999, $(511.7) million and
$(13.48) for 1998, $37.9 million and $1.00 for 1997, respectively. The
weighted average fair value on the date of grant of the individual
options granted during 1999, 1998 and 1997 was estimated at $4.62,
$4.82 and $8.81, respectively.
Significant assumptions used to estimate the fair values of awards
using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1999, 1998 and 1997 are: risk-free
interest rate - 4.50% to 7.00%; expected lives of options - 10 years;
expected volatility - 30% to 50%; and expected dividend yield of 0.5%
to 0.8%.
ASSOCIATE RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
The company sponsors pension and postretirement benefit plans for
substantially all non-union and some union associates.
Benefit calculations for the company's defined benefit pension plans
are primarily a function of years of service and final average earnings
at the time of retirement. Final average earnings are the average of
the highest five years of compensation during the last 10 years of
employment. The company funds these plans by contributing the
actuarially computed amounts that meet funding requirements.
Substantially all the plans' assets are invested in listed securities,
short-term investments, bonds and real estate.
The company also has unfunded nonqualified supplemental retirement
plans for selected associates.
The company offers a comprehensive major medical plan to eligible
retired associates who meet certain age and years of service
requirements. This unfunded defined benefit plan generally provides
medical benefits until Medicare insurance commences.
The following table provides a reconciliation of benefit obligations,
plan assets and funded status of the plans mentioned above.
Other
(In thousands) Pension Benefits Postretirement Benefits
- -------------- ---------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
Change in benefit obligation:
Balance at beginning of year $418,604 $350,993 $16,503 $16,441
Service cost 14,163 12,981 177 139
Interest cost 26,511 25,334 1,020 1,052
Plan participants' contributions - - 837 851
Actuarial gain/loss (53,098) 50,009 2,006 2,932
Amendments - 1,132 - -
Benefits paid (30,577) (21,892) (5,330) (4,911)
SFAS #88 curtailment - 47 - -
-------- -------- ------- -------
Balance at end of year $375,603 $418,604 $15,213 $16,504
======== ======== ======= =======
Change in plan assets:
Fair value at beginning of year $316,539 $262,484 $- $-
Actual return on assets 39,608 31,415 - -
Employer contribution 6,292 44,532 5,330 4,911
Benefits paid (30,577) (21,892) (5,330) (4,911)
-------- -------- ------- -------
Fair value at end of year $331,862 $316,539 $- $-
======== ======== ======= =======
Funded status $(43,741) $(102,065) $(15,213) $(16,504)
Unrecognized actuarial loss 53,401 127,984 5,564 3,781
Unrecognized prior service cost 1,190 1,481 - -
Unrecognized net transition asset (320) (588) - -
-------- --------- -------- --------
Net amount recognized $ 10,530 $ 26,812 $ (9,649) $(12,723)
======== ========= ======== ========
Amounts recognized in the
consolidated balance sheet:
Prepaid benefit cost $- $- $- $-
Accrued benefit liability (6,714) (69,714) (9,649) (12,723)
Intangible asset 958 1,304 - -
Accumulated other
comprehensive income 16,286 95,222 - -
-------- -------- -------- --------
Net amount recognized $ 10,530 $ 26,812 $ (9,649) $(12,723)
======== ======== ======== ========
The following year-end assumptions were used for the plans mentioned
above.
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
Discount rate (weighted average) 7.50% 6.50% 7.50% 6.50%
Expected return on plan assets 8.50% 9.50% - -
Rate of compensation increase 4.50% 4.00% - -
Net periodic pension and other postretirement benefit costs include the
following components:
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
(In thousands) 1999 1998 1997 1999 1998 1997
- -------------- ---- ---- ---- ---- ---- ----
Service cost $14,163 $12,981 $11,359 $177 $139 $137
Interest cost 26,511 25,334 23,525 1,020 1,052 1,185
Expected return
on plan assets (29,257) (25,234) (28,008) - - -
Amortization of
actuarial loss 11,134 9,105 11,533 222 - (44)
Amortization of
prior service
cost 291 354 549 - - -
Amortization of
net transition
asset (268) (268) (220) - - -
Cost of termina-
benefits - - - - - 15
------- ------- ------- ------ ------ ------
Net periodic
benefit cost $22,574 $22,272 $18,738 $1,419 $1,191 $1,293
======= ======= ======= ====== ====== ======
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $376 million, $341
million, and $332 million, respectively, as of December 25, 1999, and
$419 million, $385 million, and $317 million, respectively, as of
December 26, 1998.
For measurement purposes in 1999 and 1998, a 9% annual rate of increase
in the per capita cost of covered medical care benefits was assumed. In
1999, the rate for 2000 was assumed to remain at 9%, then decrease to
5% by the year 2008, then remain level. In 1998, the rate for 2000 was
assumed to be 8.5%, then decrease to 5% by the year 2007, then remain
level.
The effect of one-percentage point increase in assumed medical cost
trend rates would have increased the accumulated postretirement benefit
obligation as of December 31, 1999 from $15.2 to $16.0 million, and
increased the total of the service cost and interest cost components of
the net periodic cost from $1.19 million to $1.25 million. The effect
of one-percentage point decrease in assumed medical cost trend rates
would have decreased the accumulated postretirement benefit obligation
as of December 31, 1999 from $15.2 to $14.5 million, and decreased the
total of the service cost and interest cost components of the net
periodic cost from $1.19 million to $1.15 million.
In some of the retail operations, contributory profit sharing plans are
maintained by the company for associates who meet certain types of
employment and length of service requirements. Company contributions
under these defined contribution plans are made at the discretion of
the Board of Directors and totaled $3 million in both 1999 and 1998 and
$4 million in 1997.
Beginning in 2000, the company changed its benefit plans to offer a
matching 401(k) plan to associates in addition to the pension plan
previously offered. The pension plan was continued, but with a
reduced benefit formula. The new plan offerings were also offered to
an increased number of associates.
Certain associates have pension and health care benefits provided under
collectively bargained multi-employer agreements. Expenses for these
benefits were $77 million, $80 million and $81 million for 1999, 1998
and 1997, respectively.
SUPPLEMENTAL CASH FLOWS INFORMATION
(In thousands) 1999 1998 1997
- -------------- ---- ---- ----
Acquisitions:
Fair value of assets acquired $ 78,607 $ 32,080 $ 9,572
Less:
Liabilities assumed or created - (1,792) -
Existing company investment (167) (63) -
-------- -------- --------
Cash paid, net of cash acquired $ 78,440 $ 30,225 $ 9,572
======== ======== ========
Cash paid during the year for:
Interest, net of amounts
capitalized $165,676 $182,449 $179,180
======== ======== ========
Income taxes, net of refunds $ 14,863 $ 23,822 $ 30,664
======== ======== ========
Direct financing leases and
related obligations $ 45,645 $ 9,349 $ 5,092
======== ======== ========
Property and equipment additions
by capital leases $ 45,220 $ 70,684 $ 28,990
======== ======== ========
CONTINGENCIES
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, the company and certain of its present
and former officers and directors were named as defendants in nine
purported class action suits filed by certain stockholders and one
purported class action suit filed by a noteholder. In 1997, the court
consolidated the stockholder cases (the noteholder case was also
consolidated, but only for pre-trial purposes). During 1998 the
noteholder case was dismissed and during 1999 the consolidated case was
also dismissed, each without prejudice. The court gave the plaintiffs
the opportunity to restate their claims in each case.
The complaint filed in the consolidated cases asserted liability for
the company's alleged failure to properly account for and disclose the
contingent liability created by the David's litigation and by the
company's alleged "deceptive business practices." The plaintiffs claim
that these alleged practices led to the David's litigation and to other
material contingent liabilities, caused the company to change its
manner of doing business at great cost and loss of profit, and
materially inflated the trading price of the company's common stock.
The company denied each of these allegations. On February 4, 2000 the
shareholder case was dismissed with prejudice by the district court.
The plaintiffs filed an appeal on March 3, 2000. The motion to dismiss
in the noteholder case has not yet been decided. The plaintiffs seek
undetermined but significant damages. However, if the district court
ruling described below is upheld, Fleming believes the litigation will
not have a material adverse effect on the company.
In 1997, the company won a declaratory judgment against certain of its
insurance carriers regarding policies issued to Fleming for the benefit
of its officers and directors ("D&O policies"). On motion for summary
judgment, the court ruled that the company's exposure, if any, under
the class action suits is covered by D&O policies written by the
insurance carriers (aggregating $60 million in coverage) and that the
"larger settlement rule" will be applicable to the case. According to
the trial court, under the larger settlement rule a D&O insurer is
liable for the entire amount of coverage available under a policy even
if there is some overlap in the liability created by the insured
individuals and the uninsured corporation. If a corporation's
liability is increased by uninsured parties beyond that of the insured
individuals, then that portion of the liability is the sole obligation
of the corporation. The court also held that allocation is not
available to the insurance carriers as an affirmative defense. The
insurance carriers appealed. In 1999, the appellate court affirmed
the decision that the class actions were covered by D&O policies
aggregating $60 million in coverage but reversed the trial court's
decision as to allocation as being premature.
Tru Discount Foods. Fleming brought suit in 1994 on a note and an open
account against its former customer, Tru Discount Foods. The case was
initially referred to arbitration but later restored to the trial
court; Fleming appealed. In 1997, the defendant amended its counter
claim 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. On September 28, 1999, the arbitration
panel entered its award in favor of Fleming against Tru Discount Foods
and its principals in the net amount of $579,443 plus interest at the
rate of six percent per annum from October 29, 1999, and fees and
expenses. On December 27, 1999, Tru Discount Foods and its principals
filed a motion in the trial court to vacate the arbitration award, on
the grounds, among others, that the arbitration panel prevented them
from asserting a RICO counterclaim for treble damages, and refused to
admit alleged new evidence relating thereto. The company objected to
the motion and moved to confirm the arbitration award. On February 28,
2000, the trial court confirmed the award and entered judgment against
the defendants. The defendants have until April 5, 2000 to appeal the
judgment.
Don's United Super (and related cases). The company and two retired
executives have been named in a suit filed in 1998 in the United States
District Court for the Western District of Missouri by several current
and former customers of the company (Don's United Super, et al. v.
Fleming, et al.). The eighteen plaintiffs operate retail grocery
stores in the St. Joseph and Kansas City metropolitan areas. The
plaintiffs in this suit allege product overcharges, breach of
contract, breach of fiduciary duty, misrepresentation, fraud, and RICO
violations, and they are seeking actual, punitive and treble damages,
as well as a declaration that certain contracts are voidable at the
option of the plaintiffs.
During the fourth quarter of 1999, plaintiffs produced reports of their
expert witnesses calculating alleged actual damages of approximately
$112 million. During the first quarter of 2000, plaintiffs revised a
portion of these damage calculations, and although plaintiffs have not
finalized these calculations, it appears that their revised damage
calculations will result in a claim of approximately $120 million,
exclusive of any punitive or treble damages.
In October 1998, the company and the same two retired executives were
named in a suit filed by another group of retailers in the same court
as the Don's suit. (Coddington Enterprises, Inc., et al. v. Fleming,
et al.). Currently, sixteen plaintiffs are asserting claims in the
Coddington suit. All of the plaintiffs except for one have arbitration
agreements with Fleming. The plaintiffs assert claims virtually
identical to those set forth in the Don's suit, and although plaintiffs
have not yet quantified the damages in their pleadings, it is
anticipated that they will claim actual damages approximating the
damages claimed in the Don's suit.
In July 1999, the court ordered two of the plaintiffs in the Coddington
case to arbitration, and otherwise denied arbitration as to the
remaining plaintiffs. The company has appealed the district court's
denial of arbitration to the Eighth Circuit Court of Appeals. The two
plaintiffs that were ordered to arbitration have filed motions asking
the district court to reconsider the arbitration ruling.
Two other cases had been filed before the Don's case in the same district
court (R&D Foods, Inc., et al. v. Fleming, et al. and Robandee United
Super, Inc., et al. v. Fleming, et al.) by ten customers, some of whom
are also 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 proceedings in
these cases have been stayed pending the arbitration of the claims of
those plaintiffs who have arbitration agreements with the company.
The company intends to vigorously defend against the claims in these
related cases, but is currently unable to predict the outcome.
An unfavorable outcome could have a material adverse effect on the
financial condition and prospects of 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 several current and former customers of the company
(Storehouse Markets, Inc., et al. v. Fleming Companies, Inc., et al.).
The plaintiffs have alleged product overcharges, fraudulent
misrepresentation, fraudulent non-disclosure and concealment, breach of
contract, breach of duty of good faith and fair dealing, and RICO
violations, and they are seeking actual, punitive and treble damages.
On March 7, 2000 the court stated that this case will be certified
as a class action. The class will include current and former customers
of Fleming's Salt Lake City division covering a four-state region. A
formal order has not yet been received. The company is considering
an appeal of this ruling pending receipt of this order. Damages
have not been quantified by the plaintiffs; however, the company
anticipates that substantial damages will be claimed. The company
intends to vigorously defend against these claims, but is currently
unable to predict the outcome. An unfavorable outcome could have a
material adverse effect on the financial condition and prospects of the
company.
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.
During 1999, the company recorded income of $22 million from
extinguishing a portion of the company's self-insured workers'
compensation liability at a discount through insurance coverage.
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.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Fleming Companies, Inc.
We have audited the accompanying consolidated balance sheets of Fleming
Companies, Inc. and subsidiaries as of December 25, 1999 and December
26, 1998, and the related consolidated statements of operations, cash
flows, and shareholders' equity for each of the three years in the
period ended December 25, 1999. Our audits also included the financial
statement schedule listed in the index at item 14. These financial
statements and financial statement schedule are the responsibility of
the company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the consolidated financial position of
Fleming Companies, Inc. and subsidiaries at December 25, 1999, and
December 26, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 25,
1999, in conformity with generally accepted accounting principles.
Also, in our opinion such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 18, 2000
QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
(Unaudited)
1999 First Second Third Fourth Year
- ---- ----- ------ ----- ------ ----
Net sales $4,465,246 $3,349,362 $3,243,192 $3,587,766 $14,645,566
Costs and expenses
(income):
Cost of sales 4,036,868 3,022,154 2,906,749 3,242,628 13,208,399
Selling and
administrative 376,995 286,565 291,990 306,081 1,261,631
Interest expense 51,606 38,647 36,987 37,940 165,180
Interest income (9,350) (6,894) (7,075) (16,999) (40,318)
Equity investment
results 3,556 2,415 2,431 1,841 10,243
Litigation charges - - - - -
Impairment/
restructuring charge 37,036 6,169 36,151 23,656 103,012
---------- ---------- ---------- ---------- -----------
Total costs and expenses 4,496,711 3,349,056 3,267,233 3,595,147 14,708,147
---------- ---------- ---------- ---------- -----------
Earnings (loss)
before taxes (31,465) 306 (24,041) (7,381) (62,581)
Taxes on income (loss) (7,224) 2,644 (9,695) (3,578) (17,853)
---------- ---------- ---------- ---------- -----------
Net earnings (loss) $ (24,241) $ (2,338) $ (14,346) $ (3,803) $ (44,728)
========== ========== ========== ========== ===========
Basic and diluted net
income (loss) per share $(.64) $(.06) $(.37) $(.10) $(1.17)
===== ===== ===== ===== ======
Dividends paid
per share $.02 $.02 $.02 $.02 $.08
==== ==== ==== ==== ====
Weighted average
shares outstanding:
Basic 38,143 38,204 38,459 38,470 38,305
====== ====== ====== ====== ======
Diluted 38,143 38,204 38,459 38,470 38,305
====== ====== ====== ====== ======
1998 First Second Third Fourth Year
- ---- ----- ------ ----- ------ ----
Net sales $4,567,126 $3,505,943 $3,438,766 $3,557,500 $15,069,335
Costs and expenses
(income):
Cost of sales 4,124,858 3,164,174 3,115,371 3,214,558 13,618,961
Selling and
administrative 364,720 284,146 284,497 318,229 1,251,592
Interest expense 51,202 35,861 37,348 37,170 161,581
Interest income (11,305) (8,308) (8,559) (8,564) (36,736)
Equity investment
results 3,589 3,248 2,669 2,116 11,622
Litigation charges 2,954 2,216 2,215 395 7,780
Impairment/
restructuring charge (267) 916 6,038 646,050 652,737
---------- ---------- ---------- ---------- -----------
Total costs and expenses 4,535,751 3,482,253 3,439,579 4,209,954 15,667,537
---------- ---------- ---------- ---------- -----------
Earnings (loss)
before taxes 31,375 23,690 (813) (652,454) (598,202)
Taxes on income (loss) 16,105 10,051 1,512 (115,275) (87,607)
---------- ---------- ---------- ---------- -----------
Net earnings (loss) $15,270 $13,639 $(2,325) $(537,179) $(510,595)
========== ========== ========== ========== ===========
Basic and diluted net
income (loss) per share $.40 $.36 $(.06) $(14.11) $(13.48)
==== ==== ===== ======= =======
Dividends paid
per share $.02 $.02 $.02 $.02 $.08
==== ==== ==== ==== ====
Weighted average
shares outstanding:
Basic 37,804 37,859 38,039 38,084 37,887
====== ====== ====== ====== ======
Diluted 37,972 38,027 38,039 38,084 37,887
====== ====== ====== ====== ======
Each quarter of 1999 includes charges related to the company's
strategic plan: quarter 1 - $46 million pre-tax, $32 million
after-tax, $.84 per share; quarter 2 - $16 million pre-tax, $12
million after-tax, $.31 per share; quarter 3 - $45 million pre-
tax, $28 million after-tax, $.73 per share; quarter 4 - $30
million pre-tax, $20 million after-tax, $.50 per share; full year
- - $137 million pre-tax, $92 million after-tax, $2.39 per share.
The third quarter also includes a one-time item for gains on the
sale of facilities of approximately $6 million pre-tax ($3
million after-tax or $.09 per share).
Each quarter of 1998 has been restated to reclassify certain
operations expenses from selling and administrative expenses to
cost of sales to conform with 1999 reporting. Each quarter of
1999 includes charges related to the company's strategic plan,
but the fourth quarter reflects the significant portion for the
year: quarter 4 - $661 million pre-tax, $540 million after-tax,
$14.17 per share; full year - $668 million pre-tax, $543 million
after-tax, $14.33 per share.
The first quarter of both years consists of 16 weeks; all other
quarters are 12 weeks.
(a) 2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
(a) 3. Exhibits:
Page Number or
Exhibit Incorporation by
Number Reference to
------- ----------------
3.1 Certificate of Incorporation Exhibit 3.1 to Form 10-Q
for quarter ended April
17, 1999
3.2 By-Laws Exhibit 3.2 to Form
10-Q for quarter ended
April 17, 1999
4.0 Credit Agreement, dated as of Exhibit 4.16 to
July 25, 1997, among Fleming Form 10-Q for
Companies, Inc., the Lenders quarter ended
party thereto, BancAmerica July 12, 1997
Securities, Inc., as
syndication agent, Societe
Generale, as documentation
agent and The Chase Manhattan
Bank, as administrative agent
4.1 Security Agreement dated as Exhibit 4.17 to Form 10-Q
of July 25, 1997, between for quarter ended
Fleming Companies, Inc., the July 12, 1997
company subsidiaries party
thereto and The Chase
Manhattan Bank, as collateral
agent
4.2 Pledge Agreement, dated as of Exhibit 4.18 to Form 10-Q
July 25, 1997, among Fleming for quarter ended
Companies, Inc., the company July 12, 1997
subsidiaries party thereto
and The Chase Manhattan Bank,
as collateral agent
4.3 Guarantee Agreement among the Exhibit 4.19 to Form 10-Q
company subsidiaries party for quarter ended
thereto and The Chase July 12, 1997
Manhattan Bank, as collateral
agent
4.4 Indenture dated as of Exhibit 4.5 to Registration
December 15, 1994, among Statement No. 33-55369
Fleming, the Subsidiary
Guarantors named therein and
Texas Commerce Bank National
Association, as Trustee,
regarding $300 million of 10-
5/8% Senior Notes
4.5 Indenture, dated as of July Exhibit 4.20 to Form 10-Q
25, 1997, among Fleming for quarter ended
Companies, Inc., the July 12, 1997
Subsidiary Guarantors named
therein and Manufacturers and
Traders Trust Company, as
Trustee, regarding 10-5/8%
Senior Subordinated Notes due
2007
4.6 Indenture, dated as of July Exhibit 4.21 to Form 10-Q
25, 1997, among Fleming for quarter ended
Companies, Inc., the July 12, 1997
Subsidiary Guarantors named
therein and Manufacturers and
Traders Trust Company
regarding 10-1/2% Senior
Subordinated Notes due 2004
4.7 First Amendment, dated as of Exhibit 4.8 to Form 10-Q
October 5, 1998, to Credit for quarter ended October
Agreement dated July 25, 1997 3, 1998
4.8 Agreement to furnish copies
of other long-term debt
instruments
10.0 Dividend Reinvestment and Exhibit 28.1 to
Stock Purchase Plan, as Registration Statement No.
amended 33-26648 and Exhibit 28.3
to Registration Statement
No. 33-45190
10.1* 1990 Stock Option Plan Exhibit 28.2 to
Registration Statement No.
33-36586
10.2* Form of Option Agreement for
1990 Stock Option Plan
10.3* Form of Restricted Stock Exhibit 10.5 to Form 10-K
Award Agreement for 1990 for year ended December
Stock Option Plan (1997) 27, 1997
10.4* Fleming Management Incentive Exhibit 10.4 to
Compensation Plan Registration Statement No.
33-51312
10.5* Form of Amended and Restated
Severance Agreement between
the Registrant and certain of
its officers
10.6* Fleming Companies, Inc. 1996 Exhibit A to Proxy
Stock Incentive Plan dated Statement for year ended
February 27, 1996 December 30, 1995
10.7* Form of Restricted Award Exhibit 10.12 to Form 10-K
Agreement for 1996 Stock for year ended December
Incentive Plan (1997) 27, 1997
10.8* Phase III of Fleming
Companies, Inc. Stock
Incentive Plan
10.9* Amendment No. 1 to the Exhibit 10.16 to Form 10-K
Fleming Companies, Inc. 1996 for year ended December
Stock Incentive Plan 28, 1996
10.10* Supplemental Income Trust
10.11* First Amendment to Fleming Exhibit 10.19 to Form 10-K
Companies, Inc. Supplemental for year ended December
Income Trust 28, 1996
10.12* Form of Change of Control
Employment Agreement
between Registrant and
certain of the employees
10.13* Economic Value Added Exhibit A to Proxy Statement
Incentive Bonus Plan for year ended December 31,
1994
10.14* Agreement between the Exhibit 10.24 to Form 10-K
Registrant and William J. for year ended December
Dowd 30, 1995
10.15* Amended and Restated Exhibit 10.23 to Form 10-K
Supplemental Retirement for year ended December
Income Agreement for Robert 28, 1996
E. Stauth
10.16* Executive Past Service Exhibit 10.23 to Form 10-K
Benefit Plan (November 1997) for year ended December
27, 1997
10.17* Form of Agreement for Exhibit 10.24 to Form 10-K
Executive Past Service for year ended December
Benefit Plan (November 1997) 27, 1997
10.18* Executive Deferred Exhibit 10.25 to Form 10-K
Compensation Plan (November for year ended December
1997) 27, 1997
10.19* Executive Deferred Exhibit 10.26 to Form 10-K
Compensation Trust (November for year ended December
1997) 17, 1997
10.20* Form of Agreement for Exhibit 10.27 to Form 10-K
Executive Deferred for year ended December
Compensation Plan (November 27, 1997
1997)
10.21* Fleming Companies, Inc. Exhibit 10.28 to Form 10-K
Associate Stock Purchase Plan for year ended December
27, 1997
10.22* Settlement Agreement between Exhibit 10.25 to Form 10-Q
Fleming Companies, Inc. and for quarter ended October
Furr's Supermarkets, Inc. 4, 1997
dated October 23, 1997
10.23* Form of Amended and Restated Exhibit 10.30 to Form 10-Q
Agreement for Fleming for quarter ended October
Companies, Inc. Executive 3, 1998
Past Service Benefit Plan
10.24* Form of Amended and Restated Exhibit 10.31 to Form 10-Q
Agreement for Fleming for quarter ended October
Companies, Inc. Executive 3, 1998
Deferred Compensation Plan
10.25* Amended and Restated Exhibit 10.32 to Form 10-Q
Supplemental Retirement for quarter ended October
Income Agreement between 3, 1998
William J. Dowd and Fleming
Companies, Inc. dated August
18, 1998
10.26* Form of Amended and Restated Exhibit 10.33 to Form 10-Q
Restricted Stock Award for quarter ended October
Agreement under Fleming 3, 1998
Companies, Inc. 1996 Stock
Incentive Plan
10.27* Form of Amended and Restated Exhibit 10.34 to Form 10-Q
Non-Qualified Stock Option for quarter ended October
Agreement under the Fleming 3, 1998
Companies, Inc. 1996 Stock
Incentive Plan
10.28* First Amendment to Economic Exhibit 10.36 to Form 10-Q
Value Added Incentive Bonus for quarter ended October
Plan for Fleming Companies, 3, 1998
Inc.
10.29* Amendment No. 2 to Economic Exhibit 10.37 to Form 10-Q
Value Added Incentive Bonus for quarter ended October
Plan for Fleming Companies, 3, 1998
Inc.
10.30* Form of Amendment to Certain Exhibit 10.38 to Form 10-Q
Employment Agreements for quarter ended October
3, 1998
10.31* Form of First Amendment to Exhibit 10.39 to Form 10-Q
Restricted Stock Award for quarter ended October
Agreement for Fleming 3, 1998
Companies, inc. 1996 Stock
Incentive Plan
10.32* Settlement and Severance Exhibit 10.40 to Form 10-Q
Agreement by and between for quarter ended October
Fleming Companies, Inc. and 3, 1998
Robert E. Stauth dated August
28, 1998
10.33* 1999 Stock Incentive Plan Exhibit 10.38 to Form 10-K
for year ended December
26, 1998
10.34* Form of Non-Qualified Stock Exhibit 10.39 to Form 10-K
Option Agreement for 1999 for year ended December
Stock Incentive Plan 26, 1998
10.35* Corporate Officer Incentive Exhibit 10.40 to Form 10-K
Plan for year ended December
26, 1998
10.36* Employment Agreement for Mark Exhibit 10.41 to Form 10-K
Hansen dated as of November for year ended December
30, 1998 26, 1998
10.37* Restricted Stock Agreement Exhibit 10.42 to Form 10-K
under 1990 Stock Incentive for year ended December
Plan for Mark Hansen dated as 26, 1998
of November 30, 1998
10.38* Form of Amendment to Exhibit 10.43 to Form 10-K
Employment Agreement between for year ended December
Registrant and certain 26, 1998
executives dated as of March
2, 1999
10.39* Amendment No. One to 1990 Exhibit 10.44 to Form 10-K
Stock Option Plan for year ended December
26, 1998
10.40* Fleming Companies, Inc. 1990 Exhibit 10.45 to Form 10-K
Stock Incentive Plan (as for year ended December
amended) 26, 1998
10.41* Fleming Companies, Inc. Exhibit 10.46 to Form 10-K
Amended and Restated for year ended December
Directors' Compensation and 26, 1998
Stock Equivalent Unit Plan
10.42* Severance Agreement for Exhibit 10.47 to Form 10-K
Thomas L. Zaricki dated for year ended December
January 29, 1999 26, 1998
10.43* Severance Agreement for Harry Exhibit 10.48 to Form 10-K
L. Winn, Jr. dated February for year ended December
22, 1999 26, 1998
10.44* Amendment to Fleming Exhibit 10.49 to Form 10-Q
Companies, Inc. 1990 Stock for quarter ended April
Incentive Plan 17, 1999
10.45* Employment Agreement for John Exhibit 10.50 to Form 10-Q
T. Standley dated as of May for quarter ended April
17, 1999 17, 1999
10.46* Restricted Stock Agreement Exhibit 10.51 to Form 10-Q
for John T. Standley dated as for quarter ended April
of May 17, 1999 17, 1999
10.47* Letter Agreement for William Exhibit 10.52 to Form 10-Q
H. Marquard dated as of May for quarter ended April
26, 1999 17, 1999
10.48* Severance Agreement with Exhibit 10.53 to Form 10-Q
William J. Dowd effective as for quarter ended July 10,
of June 17, 1999 1999
10.49* Employment Agreement for Exhibit 10.54 to Form 10-Q
William H. Marquard dated as for quarter ended July 10,
of June 1, 1999 1999
10.50* Restricted Stock Agreement Exhibit 10.55 to Form 10-Q
for William H. Marquard dated for quarter ended July 10,
as of June 1, 1999 1999
10.51* Employment Agreement for Exhibit 10.56 to Form 10-Q
Dennis C. Lucas dated as of for quarter ended July 10,
July 28, 1999 1999
10.52* Restricted Stock Agreement Exhibit 10.57 to Form 10-Q
for Dennis C. Lucas dated as for quarter ended July 10,
of July 28, 1999 1999
10.53* Restricted Stock Agreement Exhibit 10.58 to Form 10-Q
for E. Stephen Davis dated as for quarter ended July 10,
of July 20, 1999 1999
10.54* Form of Loan Agreement Exhibit 10.59 to Form 10-Q
Pursuant to Executive Stock for quarter ended July 10,
Ownership Program 1999
10.55* Restricted Stock Award
Agreement for William H.
Marquard dated as of December
21, 1999
10.56* Restricted Stock Award
Agreement for John M.
Thompson dated as of December
21, 1999, as amended
10.57* Form of Non-qualified Stock
Option Agreement for 1999
Stock Option Plan - Corporate
10.58* Form of Non-qualified Stock
Option Agreement for 1999
Stock Option Plan -
Distribution
10.59* Form of Non-qualified Stock
Option Agreement for 1999
Stock Option Plan - Retail
10.60* Amended and Restated Employ-
ment Agreement for Scott M.
Northcutt effective January
26, 1999
12 Computation of ratio of
earnings to fixed charges
21 Subsidiaries of the
Registrant
23 Consent of Deloitte & Touche
LLP
24 Power of Attorney
27 Financial Data Schedule
* Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K:
On December 6, 1999, registrant announced the departure of John
Standley and certain finance and accounting promotions.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Fleming has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 14th day of March, 2000.
FLEMING COMPANIES, INC.
MARK S. HANSEN
By: Mark S. Hansen
Chairman and Chief
Executive Officer
(Principal executive
officer)
NEAL RIDER
By: Neal Rider
Executive Vice President
and Chief Financial Officer
(Principal financial officer)
KEVIN TWOMEY
By: Kevin Twomey
Senior Vice President
Finance and Controller
(Principal accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
the 14th day of March, 2000.
MARK S. HANSEN JACK W. BAKER * HERBERT M. BAUM *
Mark S. Hansen Jack W. Baker Herbert M. Baum
(Chairman of the Board) (Director) (Director)
ARCHIE R. DYKES * CAROL B. HALLETT * EDWARD C. JOULLIAN III *
Archie R. Dykes Carol B. Hallett Edward C. Joullian III
(Director) (Director) (Director)
GUY A. OSBORN * ALICE M. PETERSON * DAVID A. RISMILLER *
Guy A. Osborn Alice M. Peterson David A. Rismiller
(Director) (Director) (Director)
NEAL RIDER
Neal Rider
(Chief Financial Officer)
*A Power of Attorney authorizing Neal Rider to sign the Annual
Report on Form 10-K on behalf of each of the indicated directors
of Fleming Companies, Inc. has been filed herein as Exhibit 24.
SCHEDULE INDEX
Schedule
Number Description Method of Filing
- -------- ----------- ----------------
II Valuation and Filed herewith electronically
Qualifying Accounts
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
- ------- ----------- ----------------
3.1 Certificate of Incorporation Incorporated herein by
reference
3.2 By-Laws Incorporated herein by
reference
4.0 Credit Agreement, dated as of Incorporated herein by
July 25, 1997, among Fleming reference
Companies, Inc., the Lenders
party thereto, BancAmerica
Securities, Inc., as
syndication agent, Societe
Generale, as documentation
agent and The Chase Manhattan
Bank, as administrative agent
4.1 Security Agreement dated as of Incorporated herein by
July 25, 1997, between Fleming reference
Companies, Inc., the company
subsidiaries party thereto and
The Chase Manhattan Bank, as
collateral agent
4.2 Pledge Agreement, dated as of Incorporated herein by
July 25, 1997, among Fleming reference
Companies, Inc., the company
subsidiaries party thereto and
The Chase Manhattan Bank, as
collateral agent
4.3 Guarantee Agreement among the Incorporated herein by
company subsidiaries party reference
thereto and The Chase
Manhattan Bank, as collateral
agent
4.4 Indenture dated as of Incorporated herein by
December 15, 1994, among reference
Fleming, the Subsidiary
Guarantors named therein and
Texas Commerce Bank National
Association, as Trustee,
regarding $300 million of 10-
5/8% Senior Notes
4.5 Indenture, dated as of July Incorporated herein by
25, 1997, among Fleming reference
Companies, Inc., the
Subsidiary Guarantors named
therein and Manufacturers and
Traders Trust Company, as
Trustee, regarding 10-5/8%
Senior Subordinated Notes due
2007
4.6 Indenture, dated as of July Incorporated herein by
25, 1997, among Fleming reference
Companies, Inc., the
Subsidiary Guarantors named
therein and Manufacturers and
Traders Trust Company
regarding 10-1/2% Senior
Subordinated Notes due 2004
4.7 First Amendment, dated as of Incorporated herein by
October 5, 1998, to Credit reference
Agreement dated July 25, 1997
4.8 Agreement to furnish copies of Filed herewith electronically
other long-term debt
instruments
10.0 Dividend Reinvestment and Incorporated herein by
Stock Purchase Plan, as reference
amended
10.1 1990 Stock Option Plan Incorporated herein by
reference
10.2 Form of Option Agreement for Filed herewith electronically
1990 Stock Option Plan
10.3 Form of Restricted Stock Award Incorporated herein by
Agreement for 1990 Stock reference
Option Plan (1997)
10.4 Fleming Management Incentive Incorporated herein by
Compensation Plan reference
10.5 Form of Amended and Restated Filed herewith electronically
Severance Agreement between
the Registrant and certain of
its officers
10.6 Fleming Companies, Inc. 1996 Incorporated herein by
Stock Incentive Plan dated reference
February 27, 1996
10.7 Form of Restricted Award Incorporated herein by
Agreement for 1996 Stock reference
Incentive Plan (1997)
10.8 Phase III of Fleming Filed herewith electronically
Companies, Inc. Stock
Incentive Plan
10.9 Amendment No. 1 to the Fleming Incorporated herein by
Companies, Inc. 1996 Stock reference
Incentive Plan
10.10 Supplemental Income Trust Filed herewith electronically
10.11 First Amendment to Fleming Incorporated herein by
Companies, Inc. Supplemental reference
Income Trust
10.12 Form of Change of Control Filed herewith electronically
Employment Agreement
between Registrant and certain
of the employees
10.13 Economic Value Added Incentive Incorporated herein by
Bonus Plan reference
10.14 Agreement between the Incorporated herein by
Registrant and William J. Dowd reference
10.15 Amended and Restated Incorporated herein by
Supplemental Retirement Income reference
Agreement for Robert E. Stauth
10.16 Executive Past Service Benefit Incorporated herein by
Plan (November 1997) reference
10.17 Form of Agreement for Incorporated herein by
Executive Past Service Benefit reference
Plan (November 1997)
10.18 Executive Deferred Incorporated herein by
Compensation Plan (November reference
1997)
10.19 Executive Deferred Incorporated herein by
Compensation Trust (November reference
1997)
10.20 Form of Agreement for Incorporated herein by
Executive Deferred reference
Compensation Plan (November
1997)
10.21 Fleming Companies, Inc. Incorporated herein by
Associate Stock Purchase Plan reference
10.22 Settlement Agreement between Incorporated herein by
Fleming Companies, Inc. and reference
Furr's Supermarkets, Inc.
dated October 23, 1997
10.23 Form of Amended and Restated Incorporated herein by
Agreement for Fleming reference
Companies, Inc. Executive Past
Service Benefit Plan
10.24 Form of Amended and Restated Incorporated herein by
Agreement for Fleming reference
Companies, Inc. Executive
Deferred Compensation Plan
10.25 Amended and Restated Incorporated herein by
Supplemental Retirement Income reference
Agreement between William J.
Dowd and Fleming Companies,
Inc. dated August 18, 1998
10.26 Form of Amended and Restated Incorporated herein by
Restricted Stock Award reference
Agreement under Fleming
Companies, Inc. 1996 Stock
Incentive Plan
10.27 Form of Amended and Restated Incorporated herein by
Non-Qualified Stock Option reference
Agreement under the Fleming
Companies, Inc. 1996 Stock
Incentive Plan
10.28 First Amendment to Economic Incorporated herein by
Value Added Incentive Bonus reference
Plan for Fleming Companies,
Inc.
10.29 Amendment No. 2 to Economic Incorporated herein by
Value Added Incentive Bonus reference
Plan for Fleming Companies,
Inc.
10.30 Form of Amendment to Certain Incorporated herein by
Employment Agreements reference
10.31 Form of First Amendment to Incorporated herein by
Restricted Stock Award reference
Agreement for Fleming
Companies, inc. 1996 Stock
Incentive Plan
10.32 Settlement and Severance Incorporated herein by
Agreement by and between reference
Fleming Companies, Inc. and
Robert E. Stauth dated August
28, 1998
10.33 1999 Stock Incentive Plan Incorporated herein by
reference
10.34 Form of Non-Qualified Stock Incorporated herein by
Option Agreement for 1999 reference
Stock Incentive Plan
10.35 Corporate Officer Incentive Incorporated herein by
Plan reference
10.36 Employment Agreement for Mark Incorporated herein by
Hansen dated as of November reference
30, 1998
10.37 Restricted Stock Agreement Incorporated herein by
under 1990 Stock Incentive reference
Plan for Mark Hansen dated as
of November 30, 1998
10.38 Form of Amendment to Incorporated herein by
Employment Agreement between reference
Registrant and certain
executives dated as of March
2, 1999
10.39 Amendment No. One to 1990 Incorporated herein by
Stock Option Plan reference
10.40 Fleming Companies, Inc. 1990 Incorporated herein by
Stock Incentive Plan (as reference
amended)
10.41 Fleming Companies, Inc. Incorporated herein by
Amended and Restated reference
Directors' Compensation and
Stock Equivalent Unit Plan
10.42 Severance Agreement for Thomas Incorporated herein by
L. Zaricki dated January 29, reference
1999
10.43 Severance Agreement for Harry Incorporated herein by
L. Winn, Jr. dated February reference
22, 1999
10.44 Amendment to Fleming Incorporated herein by
Companies, Inc. 1990 Stock reference
Incentive Plan
10.45 Employment Agreement for John Incorporated herein by
T. Standley dated as of May reference
17, 1999
10.46 Restricted Stock Agreement for Incorporated herein by
John T. Standley dated as of reference
May 17, 1999
10.47 Letter Agreement for William Incorporated herein by
H. Marquard dated as of May reference
26, 1999
10.48 Severance Agreement with Incorporated herein by
William J. Dowd effective as reference
of June 17, 1999
10.49 Employment Agreement for Incorporated herein by
William H. Marquard dated as reference
of June 1, 1999
10.50 Restricted Stock Agreement for Incorporated herein by
William H. Marquard dated as reference
of June 1, 1999
10.51 Employment Agreement for Incorporated herein by
Dennis C. Lucas dated as of reference
July 28, 1999
10.52 Restricted Stock Agreement for Incorporated herein by
Dennis C. Lucas dated as of reference
July 28, 1999
10.53 Restricted Stock Agreement for Incorporated herein by
E. Stephen Davis dated as of reference
July 20, 1999
10.54 Form of Loan Agreement Incorporated herein by
Pursuant to Executive Stock reference
Ownership Program
10.55 Restricted Stock Award Filed herewith electronically
Agreement for William H.
Marquard dated as of December
21, 1999
10.56 Restricted Stock Award Filed herewith electronically
Agreement for John M. Thompson
dated as of December 21, 1999,
as amended
10.57 Form of Non-qualified Stock Filed herewith electronically
Option Agreement for 1999
Stock Option Plan - Corporate
10.58 Form of Non-qualified Stock Filed herewith electronically
Option Agreement for 1999
Stock Option Plan -
Distribution
10.59 Form of Non-qualified Stock Filed herewith electronically
Option Agreement for 1999
Stock Option Plan - Retail
10.60 Amended and Restated Employ- Filed herewith electronically
ment Agreement for Scott M.
Northcutt effective January
26, 1999
12 Computation of ratio of Filed herewith electronically
earnings to fixed charges
21 Subsidiaries of the Registrant Filed herewith electronically
23 Consent of Deloitte & Touche Filed herewith electronically
LLP
24 Power of Attorney Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically
SCHEDULE II
FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 25, 1999
DECEMBER 26, 1998, AND DECEMBER 27, 1997
(In thousands)
Allowance
for
Credit Losses Current Noncurrent
BALANCE, December 28, 1996 $49,632 $24,659 $24,973
Charged to cost and expenses 24,484 11,989 12,495
Uncollectible accounts written-off,
less recoveries (32,655) (17,636) (15,019)
Asset impairment 2,387 - 2,387
BALANCE, December 27, 1997 $43,848 $19,012 $24,836
Charged to cost and expenses 23,498 9,979 13,519
Uncollectible accounts written-off,
less recoveries (20,114) (9,012) (11,102)
BALANCE, December 26, 1998 $47,232 $19,979 $27,253
Charged to cost and expenses 24,704 20,734 3,970
Uncollectible accounts written-off,
less recoveries (16,408) (8,512) (7,896)
BALANCE, December 25, 1999 $55,528 $32,201 $23,327