THIS DOCUMENT IS A COPY OF THE 10-Q FILED ON JUNE 7, 1995 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
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 22, 1995
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 20, 1995 is as follows:
Class Shares Outstanding
Common stock, $2.50 par value 37,520,000
FLEMING COMPANIES, INC.
INDEX
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements of Earnings -
16 Weeks Ended April 22, 1995,
and April 16, 1994
Consolidated Condensed Balance Sheets -
April 22, 1995, and December 31, 1994
Consolidated Condensed Statements of Cash Flows -
16 Weeks Ended April 22, 1995,
and April 16, 1994
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. OTHER INFORMATION:
Item 4. Results of Votes of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Consolidated Condensed Statements of Earnings
For the 16 weeks ended April 22, 1995, and April 16, 1994
(In thousands, except per share amounts)
First Interim Period 1995 1994
---------- ----------
Net sales $5,485,403 $4,031,980
Costs and expenses:
Cost of sales 5,049,364 3,777,967
Selling and administrative 363,944 201,535
Interest expense 56,397 21,828
Interest income (21,769) (16,252)
Equity investment results 6,473 3,257
Facilities consolidation and
restructuring (8,982) -
---------- ---------
Total costs and expenses 5,445,427 3,988,33
---------- ---------
Earnings before taxes 39,976 43,645
Taxes on income 20,428 19,248
---------- ----------
Net earnings $ 19,548 $ 24,397
========== ==========
Net earnings per share $.52 $.66
Dividends paid per share $.30 $.30
Weighted average shares outstanding 37,497 37,093
---------- ----------
Fleming Companies, Inc. See notes to consolidated condensed financial state-
ments.
Consolidated Condensed Balance Sheets
(In thousands)
April 22, December 31,
Assets 1995 1994
- -----------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 4,616 $ 28,352
Receivables 373,486 364,884
Inventories 1,139,323 1,301,980
Other current assets 78,923 124,865
--------- ---------
Total current assets 1,596,348 1,820,081
Investments and notes receivable 353,268 402,603
Investment in direct financing leases 239,359 230,357
Property and equipment 1,462,731 1,455,954
Less accumulated depreciation
and amortization (496,176) (467,830)
Property and equipment, net 966,555 988,124
Other assets 176,557 179,332
Goodwill 985,235 987,832
--------- ---------
Total assets $4,317,322 $4,608,329
============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 820,969 $ 960,333
Current maturities of long-term debt 110,194 110,321
Current obligations under capital leases 16,948 15,780
Other current liabilities 254,811 237,197
--------- ---------
Total current liabilities 1,202,922 1,323,631
Long-term debt 1,473,555 1,641,390
Long-term obligations under capital leases 368,057 353,403
Deferred income taxes 36,072 51,279
Other liabilities 146,958 160,071
Shareholders' equity:
Common stock, $2.50 par value per share 93,953 93,705
Capital in excess of par value 496,791 494,966
Reinvested earnings 512,361 503,962
Cumulative currency translation adjustment (2,926) (2,972)
--------- ---------
1,100,179 1,089,661
Less guarantee of ESOP debt (10,421) (11,106)
--------- ---------
Total shareholders' equity 1,089,758 1,078,555
--------- ---------
Total liabilities and shareholders' equity $4,317,322 $4,608,329
============================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial state-
ments.
Consolidated Condensed Statements of Cash Flows
For the 16 weeks ended April 22, 1995, and April 16, 1994
(In thousands)
1995 1994
----- -----
Net cash provided by operating activities $145,748 $ 142,479
Cash flows from investing activities:
Collections on notes receivable 42,916 20,849
Notes receivable funded (25,682) (40,601)
Purchase of property and equipment (29,586) (17,071)
Proceeds from sale of property and equipment 9,158 376
Investments in customers (1,234) (2,534)
Proceeds from sale of investments 15,901 1,576
Other investing activities (709) (2,036)
------- -------
Net cash provided (used) in investing
activities 10,764 (39,441)
------- -------
Cash flows from financing activities:
Proceeds from long-term borrowings - 155,000
Principal payments on long-term debt (167,962) (245,699)
Principal payments on capital lease
obligations (4,970) (4,002)
Sale of common stock under incentive stock
and stock ownership plans 2,073 1,874
Dividends paid (11,150) (11,084)
Other financing activities 1,761 819
------- -------
Net cash used in financing activities (180,248) (103,092)
------- -------
Net decrease in cash and cash equivalents (23,736) (54)
Cash and cash equivalents, beginning of period 28,352 1,634
------- -------
Cash and cash equivalents, end of period $ 4,616 $ 1,580
============================================================================
Supplemental information:
Cash paid for interest $44,860 $18,342
Cash paid for income taxes $19,770 $8,070
============================================================================
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 22, 1995, and the
consolidated condensed statements of earnings and cash flows for the
16-week periods ended April 22, 1995, and April 16, 1994, have been pre-
pared by the company, without audit. In the opinion of management, all
adjustments necessary to present fairly the company's financial position
at April 22, 1995, 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. The statement of earnings for the 16 weeks ended April 22, 1995 reflects
the effect of the change in management's estimate of the cost associated
with the general merchandising portion of the facilities consolidation and
restructuring plan. The estimate reflects reduced expense and cash out-
flow. Accordingly, the company reversed $9 million of the provision for
restructuring. The reversal is shown as a credit to the facilities con-
solidation and restructuring expense line in the accompanying financial
statements.
3. 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 1994 annual
report on Form 10-K.
4. 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 $18 million at April 22, 1995,
and $19 million at December 31, 1994.
5. 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 on the part of the company as a consequence of an allegedly 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. Plaintiffs seek damages, treble damages, attorneys' fees,
costs, expenses and other appropriate relief. While the amount of damages
sought under most claims is not specified, plaintiffs allege that hundreds of
millions of dollars were lost as the result of the allegations contained in the
complaint.
The litigation is complex and the ultimate outcome cannot presently be
determined. Furthermore, management is unable to predict a potential range
of monetary exposure, if any, to the company. Based on the large recovery
sought, an unfavorable judgment could have a material adverse effect on the
company. Management believes, however, that a material adverse effect on the
company's consolidated financial position is not likely. The company is
vigorously defending the actions.
6. As of July 1994, the company completed the acquisition of all the out-
standing stock of Haniel Corporation, the parent of Scrivner Inc. ("Scrivner").
The company paid $388 million in cash and refinanced substantially all of
Scrivner's existing indebtedness (approximately $670 million in aggregate
principal and premium). The acquisition has been accounted for as a purchase
and the results of operations of Scrivner have been included in the consoli-
dated financial statements since the beginning of the third quarter of 1994.
The purchase price was allocated based on estimated fair values at the date of
the acquisition. At April 22, 1995, the excess of purchase price over assets
acquired was $550 million and is being amortized on a straight-line basis over
40 years. Pro forma information for the 16 weeks ending April 16, 1994, sum-
marizing the results of operations of the company (16 weeks ended April 16) and
Scrivner (12 weeks ended March 19) as if the acquisition had occurred at the
beginning of 1994, with pro forma adjustments to give effect to amortization of
goodwill, interest expense on acquisition debt and certain other adjustments,
together with related income tax effects, are as follows: net sales - $5.39
billion; net earnings - $21 million; and net earnings per share - $.57.
7. In the first quarter 1995, the company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 114 - Accounting by Creditors
for Impairment of a Loan (as amended by SFAS No. 118 - Income Recognition and
Disclosures). The impact on the consolidated statements of earnings and
financial position was immaterial. Loans determined to be impaired are
measured by the present value of expected future cash flows discounted at the
loan's effective interest rate, or collateral values.
8. The senior notes issued during 1994 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. Full financial
statements for the subsidiary guarantors are not presented herein because
management does not believe such information would be material.
The following summarized financial information for the combined subsidiary
guarantors has been prepared from the books and records maintained by the
subsidiary guarantors and the company. Intercompany transactions are
eliminated. The summarized financial information includes allocations of
material amounts of expenses such as corporate services and administration,
interest expense on indebtedness and taxes on income. The allocations are
generally based on proportional amounts of sales or assets, and taxes on income
are allocated consistent with the asset and liability approach used for
consolidated financial statement purposes. Management believes these alloca-
tion methods are reasonable.
===================================================================
(In millions) April 22, 1995
-------------------------------------------------------------------
Current assets $ 754
Noncurrent assets 1,405
Current liabilities 501
Noncurrent liabilities 875
===================================================================
16 Weeks Ended
(In millions) April 22, 1995
-------------------------------------------------------------------
Net sales $ 2,215
Costs and expenses 2,230
Earnings (loss) before
extraordinary items (8)
Net earnings (loss) (8)
===================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
In January 1994, the company announced the details of a plan to restruc-
ture its organizational alignment, re-engineer its operations and consolidate
its facilities. The company's objective is to lower product costs to retail
customers while providing the company with a fair and adequate return for
product supply and value-added services. To achieve this objective, management
is making major organizational changes, introducing the new Fleming Flexible
Marketing Plan and investing in technology. The actions contemplated by the
plan will affect the company's food and general merchandise wholesaling opera-
tions as well as certain retail operations and are expected to be substantially
completed by the end of 1996. The acquisition of Scrivner, described more
fully below, has not changed the plan's design but has delayed full implementa-
tion.
In the first quarter of 1995, management changed its restructuring esti-
mates with respect to the general merchandising operations portion of the re-
structuring plan. The revised estimate reflects reduced expense and cash out-
flow. Accordingly, during the quarter the company reversed $9 million of the
provision for restructuring.
Facilities consolidation has resulted in the closure of four distribution
centers and will result in the closure of one additional facility. During 1994
and the first quarter of 1995, approximately 450 associate positions were
eliminated through facilities consolidations.
Results beginning with the third quarter of 1994 have been materially af-
fected by the acquisition of Scrivner. Sales have increased dramatically and
gross margin and selling and administrative expenses as a percent of sales are
significantly higher due to the higher percentage of retail food operations in
Scrivner. Interest expense increased materially as a result of the increased
borrowing level and higher interest rates and expense for the amortization of
goodwill also significantly increased, both due to the acquisition. The com-
pany has closed five Scrivner distribution centers, has announced plans and
begun closing actions on three additional facilities and expects to close
one more.
Management has identified certain on-going expenses to be incurred during
the transitional phases of the company's consolidation, reorganization and re-
engineering plan and the integration of Scrivner. These expenses include
travel and training costs, additional expenditures associated with maintaining
two operational systems during the integration of Scrivner and the roll-out of
the new flexible marketing plan, software installation costs and other miscel-
laneous costs associated with facilities consolidations (including costs re-
lating to operational inefficiencies during the change-over, deferred sales
growth and lost business opportunities). These costs are difficult to isolate,
quantify or predict, and the timing of various components is erratic. Never-
theless, management believes that such expenses have been incurred at a
significant rate since the end of the second quarter of 1994 and that such
expenses will continue to negatively impact earnings until approximately
mid-1997.
Results of Operations
Set forth in the following table is information for the first interim
periods of 1995 and 1994 regarding certain components of the company's earnings
expressed as a percentage of net sales:
1995 1994
------- -------
Net sales 100.00% 100.00%
Gross margin 7.95 6.30
Less:
Selling and administrative expense 6.63 5.00
Interest expense 1.03 .54
Interest income (.40) (.40)
Equity investment results .12 .08
Facilities consolidation and
restructuring (.16)
------- -------
Total costs and expenses 7.22 5.22
Earnings before taxes .73 1.08
Taxes on income .37 .47
------- -------
Net earnings .36% .61%
======= =======
Net sales. Sales for the first quarter (16 weeks) of 1995 increased
by $1.45 billion, or 36%, to $5.49 billion from $4.03 billion for the same
period in 1994. For the company's food distribution and retail food segments,
the sales increase is as follows: Food distribution operations sales increased
by $782 million, or 21%, to $4.47 billion from $3.69 billion for the same
period in 1994: retail food operations sales increased by $664 million to
$1.00 billion from $340 million for the first 16 weeks in 1994. The increases
in net sales were due to the approximately $1.5 billion in sales generated by
the Scrivner acquisition. Such sales were not in the comparable period in
1994. Without the acquisition, net sales would have declined slightly due to
several factors, none of which is individually material to net sales,
including: the expiration of the temporary agreement with Albertson's,
Inc. as its Florida distribution center came on line, the sale of a
distribution center, the loss of a customer and the loss of business due to
the bankruptcy of Megafoods Stores, Inc. Lost business is typically replaced
through normal sales efforts. Management believes that the company's
aggressive consolidation schedule for Scrivner and the organizational and
operational changes associated with the Fleming re-engineering program have
hindered and will continue to hinder the full effectiveness of such sales
activities until these major initiatives are completed in mid-1997. Sales
comparisons for the second quarter of 1995 will continue to be materially
affected by the acquisition.
On May 16, 1995, the company received confirmation that the federal
bankruptcy court in Phoenix approved Megafoods' decision to move the majority
of its $150 million food distribution business in the Arizona market to a dif-
ferent food supplier on June 3. Although there is no formal agreement in
place, Fleming expects to continue to sell approximately $20 million of produce
annually to Megafoods. Fleming will continue to have a substantial business
base in its Phoenix division with sales of more than $1 billion annually to
more than 400 locations. In response to the lost Megafoods business, the com-
pany will adjust its Phoenix operations' overhead costs and pursue new busi-
ness opportunities.
Fleming measures inflation using data derived from the average cost of a
ton of product sold by the company. For the first quarter of 1995, food price
inflation was flat.
Gross margin. Gross margin for the first quarter of 1995 increased by
$182 million, or 72%, to $436 million from $254 million for the same period of
1994 and increased as a percentage of net sales to 7.95% for the first quarter
of 1995 from 6.30% for the same period in 1994. The increase in gross margin
was due to the addition of retail operations, principally the Scrivner retail
operations, which were not in the 1994 period. Retail operations typically
have a higher gross margin and higher selling expenses than wholesale opera-
tions. This comparison should continue through the second quarter. Product
handling expenses, consisting of warehouse, truck and building expenses, were
essentially unchanged as a percentage of net sales in 1995 when compared to
the 1994 period.
Selling and administrative expenses. Selling and administrative ex-
penses for the 16 weeks in 1995 increased by $162 million, or 81%, to $364
million from $202 million for the same period in 1994 and increased as a per-
centage of net sales to 6.63% for 1995 from 5.00% in 1994. This increase was
due primarily to the acquisition of Scrivner, and also includes other retail
operations which were not in the 1994 period. Selling and administrative
expenses also have increased due to additional goodwill amortization related to
the acquisition. This comparison should continue through the second quarter
of 1995.
As more fully described in its 1994 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, which includes the impairment of equity investments,
is included in selling and administrative expenses and decreased by $5 million
to $10 million from $15 million for the comparable period in 1994. The more
stringent credit practices and de-emphasis of credit extensions to and
investments in customers are beginning to result in lower losses. While there
can be no assurance that credit losses from existing or future investments or
commitments will not have a material adverse effect on results of operations or
financial position, management expects that credit losses for fiscal year
1995 will be lower than those experienced in 1994.
Operating earnings by segments. As a result of the above changes in
sales, cost of sales and selling and administrative expenses, operating
earnings increased by $20 million, or 37%, to $72 million for the 1995 period
from $52 million for the same period in 1994. Operating earnings for industry
segments consist of net sales less related operating expenses. Operating
expenses exclude interest expense, interest income, equity investment
results, income taxes and, effective in 1995, general corporate expenses.
The comparable 1994 period has been restated to remove the allocations of
general corporate expenses. Operating earnings for the company's food
distribution and retail operations segments were as follows: Food distribu-
tion for the 1995 period increased by $29 million, or 37%, to $106 million
from $77 million for the same period in 1994; retail food for the first 16
weeks in 1995 increased by $3 million to $7 million from $4 million for the
comparable period in 1994. General corporate expenses were $41 million in the
1995 period compared to $29 million for the 1994 period.
Interest expense. Interest expense for the first quarter of 1995 in-
creased $35 million to $56 million from $22 million for the same period in
1994. The increase was due to the indebtedness incurred to finance the
acquisition, higher interest rates in the capital markets and higher borrowing
margins resulting from changes in the company's credit rating.
The company enters into interest rate hedge agreements to manage
interest costs and exposure to changing interest rates. The credit agreement
with the company's banks requires the company to provide interest rate pro-
tection on a substantial portion of the indebtedness outstanding thereunder.
The company has entered into interest rate swaps and caps covering $1 billion
aggregate principal amount of floating rate indebtedness. This amount ex-
ceeds the requirements set forth in the credit agreement.
The average interest rate on the company's floating rate indebtedness
is equal to the London interbank offered interest rate ("LIBOR") plus a margin.
The average fixed interest rate paid by the company on the interest rate swaps
is 6.79%, covering $750 million of floating rate indebtedness. The interest
rate swap agreements, which were implemented through eight counterparty banks,
and which have an average remaining life of approximately 3 years, provide for
the company to receive substantially the same LIBOR that the company pays on
its floating rate indebtedness. For the remaining $250 million, the company
has purchased interest rate cap agreements from an additional two counterparty
banks covering $250 million of its floating rate indebtedness. The agreements
cap LIBOR at 7.33% over the next 3.5 years. The company's payment obligations
and receivables under the interest rate swap and cap agreements meet the
criteria for hedge accounting treatment. Accordingly, the company's payment
obligations and receivables are accounted for as interest expense. For the
first quarter of 1995, the interest rate hedge agreements added $2 million to
interest expense.
With respect to the interest rate hedging agreements, the company be-
lieves its exposure to potential credit loss expense is minimized primarily
due to the relatively strong credit ratings of the counterparties for their
unsecured long-term debt (A+ or higher from Standard & Poor's Ratings Group
and A1 or higher from Moody's Investors Service, Inc.) 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 their maturity.
However, the company believes the risk is minimized as it currently foresees
no need to terminate any hedge agreements prior to their maturity.
Interest income. Interest income for the 1995 quarter increased by $6
million to $22 million from $16 million for the same period in 1994. The
increase is primarily due to earnings on the notes receivable acquired in
the Scrivner loan portfolio. The company has sold certain notes receivable
with limited recourse in prior years and expects to sell approximately $80
million to $90 million of notes during 1995.
Equity investment results. The company's portion of operating losses
from equity investments for the first quarter of 1995 increased by $3 million
to $6 million compared to the same period in 1994. Certain of the strategic-
multi store customers in which the company has made equity investments under
its business development venture program experienced poor financial results.
Losses from retail stores which are part of the company's equity store pro-
gram, and are accounted for under the equity method, decreased, partially
offsetting the poor financial results in business development ventures.
Taxes on income. The company's effective tax rate increased to 51.1%
in the 1995 period from 44.1% in the same 1994 period, primarily due to
increased goodwill amortization with no related tax deduction, operations in
higher tax rate states and the significance of certain nondeductible expenses
to pretax earnings.
Other. Management believes that several factors negatively affecting
earnings in 1994 and the first quarter of 1995 are likely to continue. Such
factors include: flat wholesale sales; lack of food price inflation; operating
losses in certain company-owned retail stores; increased interest expense,
goodwill amortization and integration costs related to the acquisition; and a
higher effective tax rate. Additionally, the company will continue to experi-
ence certain costs associated with the transitional phases of its consoli-
dation, reorganization and re-engineering plan and the integration of Scrivner
until mid-1997.
Liquidity and Capital Resources
Set forth below is certain information regarding the company's capital
position at the end of the first quarter of 1995 and at the end of fiscal
1994:
Capital Structure April 22, December 31,
(In millions) 1995 % 1994 %
------ ----- ------ -----
Long-term debt $1,584 51.8% $1,752 54.8%
Capital lease
obligations 385 12.6 369 11.5
Total debt 1,969 64.4 2,121 66.3
Shareholders' equity 1,090 35.6 1,079 33.7
----- ----- ------ -----
Total capital $3,059 100.0% $3,200 100.0%
====== ===== ====== =====
Current maturities of long-term debt and current obligations under capital
leases are included in the respective captions.
Fleming's capital structure changed significantly as a result of the
acquisition of Scrivner. The acquisition was financed, and a large portion
of the existing debt of both Fleming and Scrivner was refinanced, through a
$2.2 billion revolving credit and term loan agreement entered into with a group
of banks. Upon execution of the new credit agreement the company terminated
its $400 million and $200 million bank credit agreements. In December, the
company sold $300 million of 10.625% seven-year senior notes and $200 million
of floating rate seven-year senior notes in a public offering and retired
the $500 million two-year loan tranche of the credit agreement with the
proceeds.
The company's credit ratings for its senior unsecured long-term debt were
downgraded from investment grade to Ba1 and BB+ by Moody's and Standard &
Poor's, respectively, as a result of the additional debt incurred in the
acquisition. Moreover, in late February 1995, Standard & Poor's placed its
rating of Fleming's senior unsecured long-term debt on CreditWatch with
negative implications. Standard & Poor's expressed concerns that lower than
expected earnings for the third and fourth quarters of 1994, combined with
re-engineering costs that are now anticipated to reduce 1995 earnings below
Standard & Poor's prior expectations, will limit the company's ability to
reduce acquisition-related debt.
Pricing under the credit agreement automatically increases or decreases
with respect to certain credit rating declines or improvements, respectively.
Despite the effect of reduced earnings and the CreditWatch action by Standard
& Poor's, management believes the company can maintain adequate liquidity for
the foreseeable future at acceptable rates.
The company's principal sources of liquidity are cash flows from operat-
ing activities and borrowings under the bank credit agreement. At quarter end
1995, $770 million was outstanding on the $800 million six-year amortizing term
loan and $150 million was drawn on the $900 million five-year revolving credit
facility.
The credit agreement and the indentures for the company's senior notes
issued in 1994 contain customary covenants associated with similar facilities.
The bank credit agreement currently contains the following covenants: main-
tenance of a consolidated-debt-to-net-worth ratio of not more than 2.45 to 1;
maintenance of a minimum consolidated net worth of at least $869 million;
maintenance of a fixed charge coverage ratio of at least 1.40 to 1; a limita-
tion on restricted payments (including dividends and company stock repur-
chases); prohibition of certain liens; prohibitions of certain mergers,
consolidations and sales of assets; restrictions on the incurrence of debt and
additional guarantees; limitations on transactions with affiliates;
limitations on acquisitions and investments; limitations on capital ex-
penditures; and a limitation on payment restrictions affecting subsidiaries.
The company is permitted to pay dividends or repurchase capital stock in the
aggregate amount of approximately $44 million for the remainder of fiscal
1995. At quarter-end 1995 the consolidated-debt-to-net-worth test would have
allowed the company to borrow an additional $667 million and the fixed charge
coverage test would have allowed the company to incur an additional $5 million
of annual interest expense. Covenants associated with the senior notes are
generally less restrictive than those of the bank facility. At the end of the
first quarter 1995, the company was in compliance with all financial covenants
under the credit agreement and the senior note indentures. Continued com-
pliance over the near-term will depend on the company's ability to generate
sufficient earnings during the implementation of its re-engineering plan and
the integration of Scrivner.
Operating activities generated $146 million of net cash flows for the
first quarter of 1995 compared to $143 million in the comparable period in
1994. Working capital was $393 million at quarter end 1995, a decrease from
$496 million at year-end 1994. The current ratio decreased to 1.33 to 1,
from 1.38 to 1 at year-end 1994. Management believes that cash flows from
operating activities and the company's ability to borrow under the credit
agreement will be adequate to meet working capital needs, capital expenditures
and cash needs for the facilities consolidation, restructuring and re-
engineering plan.
Capital expenditures for the first quarter of 1995 were approximately $23
million. Management expects that 1995 capital expenditures, excluding
acquisitions, if any, will approximate $100 million.
The debt-to-capital ratio decreased to 64.4% from 66.3% at year-end 1994.
The company's long-term target ratio is approximately 50%. Total capital was
$3.06 billion at quarter end, down $141 million from year-end 1994.
PART II. OTHER INFORMATION
Item 4. Results of Votes of Security Holders
The company held its annual meeting on May 3, 1995. Directors re-elected
were Archie R. Dykes, John A. McMillan, Guy A. Osborn and Robert E. Stauth.
Directors whose terms of office continued were Carol B. Hallett, James G.
Harlow, Lawrence M. Jones, Edward C. Joullian III, Howard H. Leach and Dean
Werries.
Shareholders confirmed the proposal to approve the Economic Value Added
Incentive Bonus Plan for Fleming Companies, Inc. and Its Subsidiaries. This
is a system for paying incentive compensation to key associates who are
selected to be participants and who contribute to the long-term growth and
profitability of the company.
Shareholders ratified Deloitte & Touche LLP as independent auditors for
1995.
The number of votes cast for the above matters is as follows (votes in
thousands):
Election of Directors For Against Abstain
- --------------------- ------ ------- -------
Archie R. Dykes 31,612 539 ---
John A. McMillan 31,630 520 ---
Guy A. Osborn 28,819 3,331 ---
Robert E. Stauth 31,633 517 ---
Approval of Economic Value
Added Incentive Bonus Plan 26,436 2,048 232
Independent auditors 31,933 111 106
No other business came before the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
12 Computation of Ratio of Earnings
to Fixed Charges
27 Financial Data Schedule
(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 June 5, 1995 KEVIN J. TWOMEY
Kevin J. Twomey
Vice President - Controller
(Chief Accounting Officer)