UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 16, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-8140
FLEMING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 48-0222760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6301 Waterford Boulevard, Box 26647
Oklahoma City, Oklahoma 73126
(Address of principal executive offices) (Zip Code)
(405) 840-7200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The number of shares outstanding of each of the issuer's
classes of common stock, as of May 13, 1994 is as follows:
Class Shares Outstanding
Common stock, $2.50 par value 37,230,000
FLEMING COMPANIES, INC.
INDEX
Page No.
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements of Earnings -
16 Weeks Ended April 16, 1994,
and April 17, 1993 3
Consolidated Condensed Balance Sheets -
April 16, 1994, and December 25, 1993 4
Consolidated Condensed Statements of Cash Flows -
16 Weeks Ended April 16, 1994,
and April 17, 1993 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. OTHER INFORMATION:
Item 4. Results of Votes of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Consolidated Condensed Statements of Earnings
For the 16 weeks ended April 16, 1994, and April 17, 1993
(In thousands, except per share amounts)
_________________________________________________________________
First Interim Period 1994 1993
_________________________________________________________________
Net sales $4,031,980 $4,044,894
Costs and expenses:
Cost of sales 3,777,967 3,803,545
Selling and administrative 201,535 170,893
Interest expense 21,828 23,481
Interest income (16,252) (18,548)
Equity investment results 3,257 2,067
__________ __________
Total costs and expenses 3,988,335 3,981,438
__________ __________
Earnings before taxes 43,645 63,456
Taxes on income 19,248 26,081
__________ __________
Net earnings $ 24,397 $ 37,375
========== ==========
Net earnings per share $.66 $1.02
Dividends paid per share $.30 $.30
Weighted average shares outstanding 37,093 36,722
_________________________________________________________________
Sales to customers accounted for under the equity method were
approximately $435 million and $464 million in 1994 and 1993,
respectively.
Fleming Companies, Inc. See notes to consolidated condensed
financial statements.
Consolidated Condensed Balance Sheets
(In thousands)
_________________________________________________________________
April 16, December 25,
Assets 1994 1993
_________________________________________________________________
Current assets:
Cash and cash equivalents $ 1,580 $ 1,634
Receivables 281,982 301,514
Inventories 854,505 923,280
Other current assets 98,609 134,229
__________ __________
Total current assets 1,236,676 1,360,657
Investments and notes receivable 332,716 309,237
Investment in direct financing leases 242,254 235,263
Property and equipment 1,047,638 1,061,905
Less accumulated depreciation
and amortization 417,398 426,846
__________ __________
Property and equipment, net 630,240 635,059
Other assets 93,222 90,633
Goodwill 466,939 471,783
__________ __________
Total assets $3,002,047 $3,102,632
========== ==========
Liabilities and Shareholders' Equity
_________________________________________________________________
Current liabilities:
Accounts payable $ 645,805 $ 682,988
Current maturities of long-term debt 37,808 61,329
Current obligations under
capital leases 13,906 13,172
Other current liabilities 165,006 161,043
__________ __________
Total current liabilities 862,525 918,532
Long-term debt 599,194 666,819
Long-term obligations under
capital leases 351,584 337,009
Deferred income taxes 21,500 27,500
Other liabilities 91,203 92,366
Shareholders' equity:
Common stock, $2.50 par value
per share 92,548 92,350
Capital in excess of par value 490,720 489,044
Reinvested earnings 505,564 492,250
Cumulative currency translation
adjustment (288) (288)
__________ __________
1,088,544 1,073,356
Less guarantee of ESOP debt 12,503 12,950
__________ __________
Total shareholders' equity 1,076,041 1,060,406
__________ __________
Total liabilities and shareholders'
equity $3,002,047 $3,102,632
========== ==========
Receivables include $44.8 million and $48.3 million in 1994 and
1993, respectively, due from customers accounted for under the
equity method.
Fleming Companies, Inc. See notes to consolidated condensed
financial statements.
Consolidated Condensed Statements of Cash Flows
For the 16 weeks ended April 16, 1994, and April 17, 1993
(In thousands)
_________________________________________________________________
1994 1993
_________________________________________________________________
Net cash provided by operating
activities $ 142,479 $ 65,257
Cash flows from investing activities:
Collections on notes receivable 20,849 27,369
Notes receivable funded (40,601) (47,157)
Purchase of property and equipment (17,071) (12,030)
Proceeds from sale of property and
equipment 376 543
Investments in customers (2,534) (20,541)
Proceeds from sale of investments 1,576 4,468
Other investing activities (2,036) (304)
_________ ________
Net cash used in investing
activities (39,441) (47,652)
_________ ________
Cash flows from financing activities:
Proceeds from long-term borrowings 155,000 168,916
Principal payments on long-term debt (245,699) (174,620)
Principal payments on capital lease
obligations (4,002) (3,333)
Sale of common stock under incentive
stock and stock ownership plans 1,874 2,422
Dividends paid (11,084) (11,008)
Other financing activities 820 459
_________ ________
Net cash used in financing
activities (103,091) (17,164)
_________ ________
Net increase (decrease) in cash and
cash equivalents (54) 441
Cash and cash equivalents, beginning
of period 1,634 4,712
_________ ________
Cash and cash equivalents, end of
period $ 1,580 $ 5,153
========= ========
Supplemental information:
Cash paid for interest $ 18,342 $ 20,518
Cash paid for income taxes $ 8,070 $ 24,793
========= ========
Fleming Companies, Inc. See notes to consolidated condensed
financial statements.
Notes to Consolidated Condensed Financial Statements
1. The consolidated condensed balance sheet as of April 16,
1994, and the consolidated condensed statements of earnings
and cash flows for the 16-week periods ended April 16, 1994,
and April 17, 1993, have been prepared by the company,
without audit. In the opinion of management, all
adjustments necessary to present fairly the company's
financial position at April 16, 1994, and the results of
operations and cash flows for the periods presented have
been made. All such adjustments are of a normal, recurring
nature. Primary earnings per share are calculated using the
weighted average shares outstanding. The impact of
outstanding stock options on primary earnings per share is
not material.
2. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. These consolidated condensed financial
statements should be read in conjunction with the
consolidated financial statements and related notes included
in the company's 1993 annual report on Form 10-K.
3. The LIFO method of inventory valuation is used for
determining the cost of most grocery and certain perishable
inventories. The excess of current cost of LIFO inventories
over their stated value was $11.3 million at April 16, 1994,
and $12.5 million at December 25, 1993.
4. In December 1993, the company and numerous other defendants
were named in two suits filed in U.S. District Court in
Miami. The plaintiffs allege liability as a consequence of
an alleged fraudulent scheme conducted by Premium Sales
Corporation and others in which unspecified but large losses
in the Premium-related entities occurred to the detriment of
a purported class of investors which has brought one of the
suits. The other suit is by the receiver/trustee of the
estates of Premium and certain of its affiliated entities.
Both actions are in their early procedural stages and the
ultimate outcome cannot presently be determined.
Accordingly, no provision for liability, if any, has been
made in the accompanying financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The company's principal sources of liquidity are cash flows from
operating activities, bank lines of credit and commercial paper
borrowings. The company also has available for issuance from
time to time up to $290 million of registered debt securities.
Commercial paper borrowings are supported by two revolving credit
agreements totaling $600 million. Cash flows from operating
activities in the first quarter of 1994 were $143 million, a
significant increase from the $65 million in the comparable
period in 1993. The primary reason for the increased cash flows
are decreases in inventories combined with lower reductions in
accounts payable. This decline in inventories is due to lower
product levels required after the December 1993 holidays.
Management believes that cash flows from operating activities and
the company's access to capital markets, including its ability to
borrow under bank lines, will be adequate to meet capital needs.
Working capital was $374 million at the end of the quarter, a $68
million decrease from year end. This is primarily due to
declines in inventory and accounts receivable, offset by a
decline in accounts payable. The current ratio decreased
slightly to 1.43 to 1. The debt-to-capital ratio decreased by
2.2% to 48.2%. Total debt and capital leases fell by $76 million
to $1 billion in the quarter.
Capital expenditures were $16 million during the quarter.
Management expects total 1994 capital expenditures, excluding
acquisitions, to approximate $90 to $100 million.
The company's long-term debt agreements contain various covenants
and restrictions including restrictions on additional
indebtedness, payment of cash dividends and acquisition of the
company's common stock. None of these covenants negatively
impacts the company's liquidity or capital resources at this
time. Under the most restrictive covenants, reinvested earnings
of approximately $113 million were available at quarter end for
cash dividends and acquisition of the company's stock.
Results of Operations
Sales for the first quarter (16 weeks) of 1994 were $4.03
billion, essentially even with the same period in 1993.
Increases in sales resulted from the Garland, Texas facility
acquired in the 3rd quarter of 1993, additional business from
Kmart and from Florida retail operations acquired late in 1993.
These increases were offset by declining business with Wal-Mart
and the anticipated loss of Albertson's business early in 1994 as
the related supply contract expired. Tonnage of product shipped
decreased by 2.5% compared to the same period in 1993. Inflation
had an insignificant positive impact on sales. The company
expects sales for the balance of 1994 to continue the pattern
established during the first quarter with new business offsetting
lost business. In the third and fourth quarters of 1994, sales
comparisons to 1993 will not be affected by the additions of the
Garland facility and Florida retail operations, respectively.
Gross margin improved by $12.7 million, or 31 basis points, over
the same period in 1993, increasing to 6.30% of net sales.
Retail operations, principally the Florida retail operations,
resulted in 38 basis points of the increase. Retail operations
typically have a higher gross margin than wholesale operations.
This positive comparison should continue through the third
quarter, as the supermarkets were purchased in the fourth quarter
of 1993. Also benefiting gross margin comparisons was a 12 basis
point improvement in transportation fees charged to customers.
Product handling expenses, consisting of warehouse, truck and
building expenses, were the same as the 1993 period. The credit
to income resulting from the LIFO method of inventory valuation
was 13 basis points lower, due to the company's expectation of a
low level of food price inflation for all of 1994. In the first
quarter of 1993, the company experienced food price deflation of
0.3%. The remaining six basis points of decline were due to
various factors.
Selling and administrative expenses increased by $30.6 million,
or 76 basis points. This is principally due to a 44 basis point
increase in retail expenses related to retail operations.
Florida retail operations were the main contributor to the
increase since they were not in last year's results. This
comparison should continue through the third quarter of 1994.
As more fully described in its 1993 Annual Report on Form 10-K,
the company has a significant amount of credit extended to its
customers through various methods. These methods include
customary and extended credit terms for inventory purchases,
secured loans with terms generally up to ten years, and equity
investments in and secured and unsecured loans to certain
customers. In addition, the company guarantees debt and lease
obligations of certain customers. Usually, these capital
investments are made in and guarantees extended to customers with
whom the company enjoys long-term supply agreements.
Credit loss expense included in selling and administrative
expenses was $15 million, or 37 basis points in 1994. This
represents a $5 million, or 12 basis point, increase over 1993.
The increase related primarily to adverse developments in certain
customers in the company's equity store program. Management
monitors the status of credit and investment exposure and
believes it has provided adequate allowances for potential
losses. However, due to the nature of its customers and the
highly competitive retail grocery environment, there is no
assurance that events resulting in future losses will not occur.
Management expects that credit losses for all of 1994 will be
only slightly lower than those experienced in 1993.
Interest expense decreased $1.7 million, or 7 percent, compared
to the same 16-week period in 1993. The company's weighted
average borrowing rate declined from the prior year period,
principally as a result of the fourth quarter 1993 early
redemption of $67 million of 9.5% debentures. If interest rates
continue to increase, management expects that interest expense
for the year 1994 will be somewhat higher than 1993.
Interest income declined by $2.3 million, or 12.4 percent,
compared to 1993. The decline is due principally to a decrease
in the average balance of loans outstanding to retailers. Notes
sold late in 1993 to third parties have resulted in lower note
receivable balances. Another source of interest income is direct
financing leases. Direct financing lease income increased,
partially offsetting the decline in interest income. Management
may sell to third parties a portion of the direct financing lease
receivables in transactions similar to the note sales.
Equity investment results generated losses of $3.3 million, an
increase of $1.2 million compared to 1993. Business development
ventures experienced improved financial performance, but losses
from retail stores accounted for under the equity method that are
part of the company's equity store program more than offset this
improvement.
The company's effective tax rate increased to 44.1%, primarily as
a result of a higher federal tax rate due to the tax law enacted
in 1993.
Earnings were $24.4 million, down 34.7% from 1993's first
quarter. Net earnings per share in 1994 were $.66 versus $1.02
for last year's results. Management does not expect that 1994
core earnings from operations will improve from 1993 levels.
Continuing low levels of inflation and lower LIFO credits than
those experienced in 1993 are anticipated.
As more fully described in its 1993 Annual Report on Form 10-K,
the company has a plan to consolidate facilities and restructure
its organizational alignment and operations. Actions taken since
year end were consistent with the plan, both in timing and
specific events. Four of the five distribution center closings
have been completed or are in process.
Cash payments related to the facilities consolidations are not
yet significant. The earnings benefits related to consolidating
the facilities will be realized as closed operations are fully
assimilated into the facilities receiving the relocated business.
Various aspects of the re-engineering plan are in the process of
being implemented, but have not yet resulted in any significant
cash expenditures or benefits.
The status of the retail supermarket locations leased or owned by
the company that are no longer viable strategic sites for stores
is the same as originally contemplated by management. Activity
consists of cash lease payments to lessors and attempts to
dispose of the locations.
During the first quarter, management closed the regional staff
offices and terminated or relocated approximately 110 affected
associates. Cash severance payments to terminated associates and
relocation payments to associates transferred within the company
are consistent with management's expectations.
Recent Events
On May 19, 1994 the United States Bankruptcy Court for the
District of New Mexico approved the company's claim in the amount
of $8 million filed in the matter of Rubus Realty Company, a
former customer. Following the conclusion of the bankruptcy
proceedings, the company expects to recover 50% to 70% of such
amount over an 18-month period. The claim represents, among
other things, the future economic benefit which would have been
realized upon fulfillment of a long-term supply contract.
Recovery under the claim will represent earnings to the company.
As previously announced, the company has agreed to sell
substantially all of the assets of its Royal Foods dairy and deli
distribution business located in New Jersey. The transaction is
expected to be finalized during the second quarter of 1994;
however, the company no longer expects the sale to generate any
significant gain or loss.
On May 31, 1994, the company reached an agreement in principle to
acquire all of the outstanding capital stock of Haniel
Corporation. Haniel is the holding company for and owns all of
the outstanding capital stock of Scrivner, Inc., the third-
largest food wholesaler in the United States.
The parties are currently negotiating a definitive agreement, the
consummation of which will be conditioned upon, among other
things, the expiration of applicable regulatory waiting periods.
The total cost to the company, including transaction costs and
refinancing existing debt of Scrivner and Haniel, will
approximate $1.1 billion.
The company expects to finance the acquisition initially with
borrowings under a bank credit facility currently under
negotiation. The company believes it will continue to have
adequate liquidity and access to capital following consummation
of the transaction.
Other
In December 1993, the company and numerous other defendants were
named in two lawsuits filed in U.S. District Court in Miami. The
litigation is in its preliminary stages. Management has been
unable to conclude that an adverse resolution is not reasonably
likely or predict the potential liability, if any, to the
company. However, management does not believe that an adverse
outcome is likely that would materially affect the company's
consolidated financial position.
PART II. OTHER INFORMATION
Item 4. Results of Votes of Security Holders
- - ---------------------------------------------
The company held its annual meeting on April 27, 1994. Directors
reelected were R. Randolph Devening, Carol B. Hallett, Lawrence
M. Jones, and Robert E. Stauth. Directors whose terms of office
continued were Archie R. Dykes, James G. Harlow, Edward C.
Joullian III, Howard H. Leach, John A. McMillan, Guy A. Osborn
and Dean Werries.
Shareholders ratified Deloitte & Touche as independent auditors
for 1994.
The number of votes cast for the above matters is as follows
(votes in thousands):
Withheld
Election of Directors For Against Authority Abstain
- - --------------------- ------ ------- --------- -------
R. Randolph Devening 32,850 --- 423 ---
Carol B. Hallett 32,684 --- 589 ---
Lawrence M. Jones 32,842 --- 431 ---
Robert E. Stauth 32,846 --- 427 ---
Deloitte & Touche as
independent auditors 33,121 53 --- 99
No other business came before the meeting.
Item 5. Other Information
- - --------------------------
On May 18, 1994, Harry L. Winn, Jr. joined the company as
executive vice president and chief financial officer. R.
Randolph Devening will continue in the position of Vice Chairman.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits:
Exhibit Number Page Number
- - -------------- -----------
12 Computation of Ratio of Earnings
to Fixed Charges 14
(b) Reports on Form 8-K:
- - -----------------------
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
FLEMING COMPANIES, INC.
(Registrant)
Date May 31, 1994 /s/ Donald N. Eyler
Donald N. Eyler
Senior Vice President - Controller
(Chief Accounting Officer)
EXHIBIT INDEX
Paper (P) or
Exhibit Electronic (E)
- - ------- --------------
12. Computation of Ratio of Earnings
to Fixed Charges E