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 [FEE REQUIRED]
For the fiscal year ended December 25, 1993
or
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________________ to ___________
Commission file number 1-8140
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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
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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 and New York Stock Exchange
Common Stock Purchase Rights Pacific Stock Exchange
Chicago Stock Exchange
9.5% Debentures New York Stock Exchange
- ----------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
----------------
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
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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. Yes X No
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As of February 18, 1994, 37,158,000 common shares were outstanding. The
aggregate market value of the common shares (based upon the closing price of
these shares on the New York Stock Exchange) of Fleming Companies, Inc. held by
nonaffiliates was approximately $.9 billion.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of Part III has been incorporated by reference from the
registrant's proxy statement dated March 14, 1994, in connection with its
annual meeting of shareholders to be held on April 27, 1994.
PART I
ITEM 1. BUSINESS
Fleming Companies, Inc. (hereinafter referred to as "Fleming," the
"registrant" or the "company") was incorporated in Kansas in 1915 and in 1981
was reincorporated as an Oklahoma corporation. Fleming is engaged primarily in
the wholesale distribution of food and related products. The company currently
serves as the principal source of supply for 4,700 retail food stores,
including 2,900 supermarkets, in 36 states in the U.S. and several foreign
countries. These supermarkets have a total area of 80 million square feet.
These are predominantly independent stores, many of which operate and advertise
under a common name to promote greater consumer recognition. Fleming's
retail customers (hereinafter referred to as "customers") also include national
and regional corporate chains.
The company distributes a wide variety of both national and private brand
groceries, meats, dairy and delicatessen products, frozen foods, fresh produce,
and a variety of general merchandise and related items. In addition, Fleming
offers a full range of support services, including collateralized long-term
financing of certain customers, which enables the customers to compete with
other types of food stores in their respective market areas.
The company also owns and operates 72 supermarkets. See "Company- Operated
Retail Stores". The company's wholesale distribution of food and related
products is its dominant business as defined by Statement of Financial
Accounting Standards No. 14; therefore, segment information is not required.
On January 18, 1994, the company announced the details of a plan to
consolidate facilities and restructure its organizational alignment and
operations. Management's objective is to improve company performance by
eliminating functions and operations that do not add economic value. As a
result, registrant has closed five regional offices and also will close five
distribution centers and relocate two operations. When completed, these
actions will reduce employment by about 2,000, or 9% of the company's work
force, and lower operating costs by approximately $65 million annually.
The plan resulted from a thorough review, which began in October 1993, of
all operations and business strategies. The 1993 fourth quarter results
reflect a charge of $101.3 million resulting directly from facilities
consolidation restructuring. This is in addition to $6.5 million provided for a
facilities consolidation in the second quarter. The plan consists of four
categories: facilities consolidation, re-engineering, retail-related assets and
elimination of regional operations. The actions contemplated by the plan will
affect the company's food and general merchandise wholesaling operations as
well as certain retailing assets. In early 1994, the company announced that it
would close its Fort Worth, Joplin and Tupelo facilities as part of the plan.
The pending closing of the Topeka food distribution facility was previously
announced. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DISTRIBUTION FACILITIES. Fleming currently operates 28 food distribution
divisions which handle food and related products including groceries, meat,
produce, frozen foods, dairy products and certain nonfood items. Five general
merchandise divisions distribute general merchandise, health and beauty care
items, prescription drug products, and other nonfood items. Two additional
divisions distribute dairy, delicatessen and fresh meat products. All are
equipped with modern materials handling equipment for receiving, storing and
shipping large quantities of merchandise. In total, the company's distribution
facilities, including outside storage, comprise approximately 21 million
square feet of warehouse space. See "Recent Developments."
-2-
PRODUCTS. The company purchases its inventory requirements from numerous
processors, manufacturers and growers, and believes it generally has adequate
and alternate sources of supply for most of the products handled. Fleming
purchases product on a volume basis and strives to maintain optimum inventory
turnover rates while optimizing service levels. Most grocery purchases
are subject to a cash discount if paid within specified days of receipt of
merchandise.
Fleming operates a central procurement program for fresh meats and produce
and for products sold primarily under private brands, including canned goods,
frozen foods, general merchandise and dairy products. Private brands include
Bonnie Hubbard-R-, Captain's Cove-R-, Fleming's-R-, Hyde Park-R-, IGA-R-,
Marquee-R-, Montco-R-, P.S. - Personally Selected-R-, Piggly Wiggly-R-,
Rainbow-R-, Royal-TM-, Sentry-R-, Sunrise-TM- and TV-R-. Private brands are an
important source of sales and are slightly more profitable to Fleming than
national brands.
Billings to customers for merchandise are generally based on an agreed
price that includes Fleming's defined cost, to which is added a fee determined
by the volume of the customer's purchases. A delivery charge is usually added
based on order size and mileage. In some geographic areas, billings are
determined by percentage mark-up. Payment may be received upon delivery of the
order, or within credit terms that generally are weekly or semiweekly. A cash
deposit from the customer may be required.
RETAIL STORES SERVED. The retail stores served by Fleming range in size
from small convenience outlets to conventional supermarkets to large
superstores, combination units and price impact stores. Fleming's principal
customers are supermarkets carrying a wide variety of grocery, meat, produce,
frozen food and dairy products. Most customers also handle an assortment of
nonfood items, including health and beauty care, and general merchandise such
as housewares, soft goods and stationery. Many supermarkets also operate one
or more specialty departments such as in-store bakeries, delicatessens, seafood
and floral departments. Fleming seeks to expand its customer base through a
variety of means. See "Services to Customers" and "Capital Invested in
Customers".
Sales by store format are comprised of: conventional - 46%; superstore -
23%; price impact - 17%; and combination 14%. Sales for 1993 by the company's
operating regions are dispersed as follows: Mid-South - 25%; Western - 24%;
Mid-America - 20%; Southern - 19%; and Eastern - 12%. Sales by customer type
are comprised of: single-store independents - 20%; multiple-store independents
- - 33%; voluntary chains - 5%; corporate chains - 35%; and company-operated
locations - 7%. The mix of product sales for 1993 was: groceries - 52%;
perishables - 42%; and general merchandise - 6%.
Voluntary chains are retail stores licensed to do business under a common
trade name and generally participate in group advertising and promotional
activities. See "Franchise Operations."
The company considers a chain as 11 or more stores under common ownership.
At 1993 year end, Fleming was serving 810 corporate chain stores, compared to
840 a year ago.
Many of the customers served by Fleming have entered into sales service
plan agreements with Fleming which are terminable upon notice by either party.
Certain customers also have signed mid-term or long-term supply agreements.
The agreements set forth the terms under which Fleming provides products and
services to the stores.
-3-
SERVICES TO CUSTOMERS. In addition to supplying retail stores with their
inventory requirements, Fleming offers a wide variety of services designed to
enhance the customer's ability to compete and to attract new retailers. Such
services include merchandising and marketing assistance, advertising, consumer
education programs, retail electronic services and employee training. The
costs of some of these services are included in the fees charged by Fleming in
connection with its sale of food products and related items. Charges are made
separately for services such as retail accounting, electronic services, leasing
and financing.
Another important service that Fleming offers is assistance in the
development and expansion of retail stores. Fleming provides, for a fee, site
selection and market surveys; store design, layout and decor assistance; and
equipment and fixture planning.
Fleming also develops sales promotions for customers including travel,
continuity and other incentive programs.
CAPITAL INVESTED IN CUSTOMERS. As part of its services to retailers,
Fleming executes prime leases on store locations for sublease to certain
customers. Sublease rentals are generally higher than the base rental to
Fleming. At the end of 1993, Fleming was the primary lessee of 770 retail
store locations subleased to and operated by customers. In certain
circumstances, the company has also guaranteed the lease obligations of certain
customers.
In addition to extending credit for inventory purchases, Fleming also
assists customers by making capital available in the form of loans and equity
investments. The composition of Fleming's portfolio of loans to (including
current portion) and investments in customers is presented below. Amounts are
in millions.
Business Total Loans to
Development Equity Retail and Equity in Customers with
Ventures Stores Stores Equity Customers No Equity Investments Total
----------- ------ ------ ---------------- --------------------- -----
1993
- ----
Loans $ 78 $55 $ 2 $135 $178 $313
Equity Investments 28 15 12 55 - 55
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Total $106 $70 $14 $190 $178 $368
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1992
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Loans $114 $49 $ - $163 $193 $356
Equity Investments 18 18 10 46 - 46
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Total $132 $67 $10 $209 $193 $402
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Fleming makes equity investments in certain customers under its equity
store program or as business development ventures. Fleming also makes secured
loans to these customers. These investments and loans decreased from $209
million to $190 million during 1993. Losses of $12 million were recorded
under the equity method associated with such investments in 1993, compared
to $16 million recorded in 1992. Equity investments in customers totaled $55
million and $46 million at year end 1993 and 1992, including $12 million and
$10 million in 1993 and 1992, respectively, invested in company-owned retail
stores held for resale to qualified buyers. Loans to customers in whom the
company held an equity interest totaled approximately $135 million at year-end
1993, compared to $163 million at year-end 1992. During 1993, $68 million of
notes evidencing loans were sold, compared to $45 million sold in 1992. The
loan portfolio is net of reserves of $18 million in 1993 and 1992.
-4-
Through its equity store program, the company invests capital in
customers. The customer is permitted to purchase the company's investment
over a five to ten year period. At year-end 1993, equity investments in 51
customers under this program totaled $15 million compared to $18 million at
year end 1992. Loans to these customers were $55 million in 1993 and $49
million in 1992.
Upon review and approval by its board of directors, the company invests in
strategic multi-store customers as business development ventures. These
customers, many of whom are highly leveraged, are usually medium-sized retail
chains who have entered into long-term supply agreements with the company. At
year-end 1993, the company had equity investments of approximately $28 million
in 10 business development ventures compared to investments of $18 million in
12 ventures in 1992. At the end of 1993, the company had secured loans
totaling approximately $78 million to these entities compared to $114
million in 1992. In addition, the company has guaranteed $35 million of loans
to one such venture.
The company also makes loans to customers in which it has no equity
investment, primarily for store expansions or improvements. These loans are
generally secured by inventory and store fixtures, bear interest at rates at
or above prime, and are for terms of up to ten years. Such loans totaled
approximately $178 million and $193 million at year-end 1993 and 1992,
respectively.
Fleming does not believe its loans to customers would be investment grade
if rated. Furthermore, its equity investments are highly illiquid. However,
the company has systems and controls in place to monitor the performance of
its equity investments and the more than 800 outstanding loans to customers
totaling $313 million and $356 million in 1993 and 1992, respectively.
For equity stores and business development ventures, the company has active
representation on the customer's board of directors. The company also
conducts periodic credit reviews and receives and analyzes the customers'
financial statements. Retail counselors visit the customers' locations
regularly. On an ongoing basis, senior management reviews the company's
largest investments and credit exposures.
In making credit and investment decisions, the company considers many
factors including anticipated risk, expected return on capital utilized and
the benefits to be derived from sustained or increased product sales. Sales
to stores served by the company through the equity store program and business
development ventures were approximately $1.6 billion in 1993, or approximately
12% of total net sales. Although the company has in the past and may in the
future sustain operating losses associated with capital investments in
customers, management believes that on balance the economic benefit to the
company including the benefit of increased product sales outweighs the
increased risk of making such capital investments.
COMPANY-OPERATED RETAIL STORES. At year end, the company operated 72
supermarkets located in four states. The average size of these stores is
38,000 square feet. Company-operated stores do business in a variety of
formats, from conventional supermarkets to price impact stores. All locations
are served by Fleming distribution divisions.
The number of company-operated stores increased during 1993 and 1992 due
to purchases of retail locations in both years. Management intends to continue
to increase ownership of company-operated stores. The growth plan includes
evaluating markets currently served as well as identifying appropriate
acquisition candidates in specific niche markets.
INTERNATIONAL ACTIVITIES. The company has a 49% interest in a joint
venture with one of Mexico's largest retailers, Grupo Gigante, to develop and
operate price impact supermarkets in Mexico. Four stores were in operation at
the end of 1993 and two stores are planned for opening in 1994. The company's
pro-rata investment in the venture is $13 million.
-5-
In the fall of 1993 the company (35%) and an affiliate of a leading
Australian food wholesaler (65%) capitalized a Singapore corporation in order to
acquire and develop food distribution businesses throughout Asia. The company
has an option to purchase and the Australian shareholder has a right to require
the company to purchase an additional 14%. The Singapore corporation holding
minority interests has formed joint ventures to operate food distribution
centers with local supermarket operators in each of Singapore and Malaysia and
plans additional joint ventures in other Pacific Rim countries. The company's
committed investment, including the additional 14% interest in the Singapore
corporation, is approximately $7.5 million.
The company has export sales aggregating $212 million in 1993.
International sales activities have been consolidated under Fleming
International, Ltd., a wholly owned subsidiary. Principal areas in which these
sales were made are: the Caribbean, Central America, Japan, Mexico, the Pacific
Rim, and South America.
The company will continue to explore expansion of its international
activities. Fleming currently exports both private label and branded products,
and has established working alliances with many companies to expand their
international sales through Fleming.
FRANCHISE OPERATIONS. The company offers its customers the opportunity to
franchise a concept or license a common trade name. This program helps the
customer compete by providing, as part of the franchise or license program,
state-of-the-art business concepts, group advertising, private label products
and other benefits. Fleming is the franchisor or has the right to license
retailers to use certain trade names such as Big Star-R-, Big T-R-, Checkers-R-,
Food 4 Less-R-, IGA-R-, MEGA MARKET-R-, Minimax-R-, Piggly Wiggly-R-, Sentry-R-,
Shop 'n Bag-R-, Shop 'n Kart-R-, Super 1 Foods-R-, Super Save-R-, Thriftway-R-,
United Supers-R- and Value King-R-. While these rights are collectively
significant, none of the individual trade names is considered material to the
company's operation. At year end 1993, the company franchised or licensed
approximately 1,700 stores.
RELATED ACTIVITIES. The company operates dairy facilities in Nashville,
Tenn., and Baton Rouge, La. These automated facilities process milk products,
including regular and low fat milk, as well as cultured items such as cottage
cheeses, sour cream and dips marketed under private and national brands, In
addition, these facilites process fruit juices and soft drinks.
The company owns an 80% interest in a limited assortment retail format,
Sav-U-Foods-R-. These are small stores located in Southern California that carry
fewer varieties of products than conventional stores while offering very
competitive pricing. There are currently 20 stores in operation with plans to
have at least 50 open by the end of 1994. These stores are supplied from a
separate distribution center.
Fleming owns and operates two drug stores, two retail liquor stores and a
bakery, all located in Wisconsin.
Most distribution divisions operate a truck fleet to deliver products to
customers. The company increases the utilization of its truck fleet by
backhauling products from many suppliers, 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.
COMPETITION. Fleming competes with several other wholesale food
distributors in most of its market areas on the basis of product price, quality
and assortment, schedules and reliability of deliveries, the range and quality
of services provided and its willingness to invest capital in customers.
-6-
The sales volume of wholesale food distributors is dependent on the level
of sales achieved by the retail food stores they serve. Retail stores served by
Fleming compete with other retail food outlets in their areas on the basis of
product price, quality and assortment, store location, sales promotions,
advertising, availability of parking, hours of operation, cleanliness and
attractiveness.
Fleming believes that the designs and locations of its distribution
divisions enable it to serve its customers in an efficient manner and that its
purchasing systems and standards enable it to provide such customers with a wide
assortment of products at competitive prices.
EMPLOYEES. Fleming had approximately 23,300 associates at year end 1993.
RECENT DEVELOPMENTS. In January 1994, the company announced that it has
signed a letter of intent to sell substantially all the assets of its Royal
Foods dairy and deli products distribution business located in Woodbridge, New
Jersey, to DiGiorgio Corporation. The transaction, at March 24, 1994 is subject
to execution of a definitive agreement and receipt of certain third party
consents. The company expects to record a pre-tax gain of approximately $3
million on the transaction, $3 million less than the original estimate. Annual
sales of the operation are approximately $300 million and future financial
results will not be adversely affected as a result of the transaction. The
company's Royal Foods distribution center located in Maryland is not part of the
proposed sale and will continue to supply perishable products to customers of
the Philadelphia division.
-7-
ITEM 2. PROPERTIES
The following table sets forth information with respect to Fleming's major
distribution facilities.
SIZE, IN
FOOD THOUSANDS OF OWNED OR
DISTRIBUTION SQUARE FEET LEASED
------------ ------------ --------
El Paso, TX (1) 465 Leased
Ewa Beach, HI 196 Leased
Fort Worth, TX (2) 447 Owned
Fresno, CA 380 Owned
Geneva, AL 345 Leased
Garland, TX 1,206 Owned
Houston, TX 662 Leased
Johnson City, TN 235 Owned
Joplin, MO (2) 264 Leased
Kansas City, KS 424 Leased
Lafayette, LA 430 Owned
Lincoln, NE 255 Leased
Lubbock, TX (1) 378 Owned
Marshfield, WI 156 Owned
Massilon, OH 470 Owned
Memphis, TN 780 Owned
Miami, FL 763 Owned
Milwaukee, WI 600 Owned
Nashville, TN 734 Leased
Oklahoma City, OK 410 Leased
Philadelphia, PA 830 Leased
Phoenix, AZ 912 Owned
Portland, OR 323 Owned
Sacramento, CA 593 Owned
Salt Lake City, UT 361 Owned
San Antonio, TX 482 Leased
Sikeston, MO 481 Owned
Topeka, KS (2) 299 Leased
Tupelo, MS (2) 194 Leased
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14,075
GENERAL MERCHANDISE
AND OTHER DISTRIBUTION
----------------------
Dallas, TX 170 Leased
King of Prussia, PA 377 Leased
Memphis, TN 339 Owned
North East, MD (3) 107 Owned
Sacramento, CA 294 Owned
Topeka, KS 179 Leased
Woodbridge, NJ (3) 194 Leased
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1,660
-8-
OUTSIDE STORAGE
Outside storage facilities -
typically rented on a
short-term basis. 5,160
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Total square feet 20,895
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(1) Comprise the Lubbock distribution operation.
(2) The company has announced that it will close this facility in 1994 and
transfer its customers to other company-operated facilities.
(3) Comprise the Royal distribution operation.
At the end of 1993, Fleming operated a delivery fleet consisting of
approximately 1,800 power units and 3,700 trailers. Most of this equipment is
owned by the company.
Company-operated retail stores occupy approximately 2.7 million square feet
which is primarily leased.
ITEM 3. LEGAL PROCEEDINGS
TROPIN V. THENEN ET AL., (INCLUDING MALONE & HYDE, INC., AND FLEMING
COMPANIES, INC.) CASE NO. 93-1092-CIV-MORENO. UNITED STATES DISTRICT COURT,
SOUTHERN DISTRICT OF FLORIDA.
WALCO INVESTMENTS, INC., ET AL. V. THENEN, ET AL., (INCLUDING MALONE &
HYDE, INC., AND FLEMING COMPANIES, INC.) CASE NO. 93-1092-CIV-MORENO, UNITED
STATES DISTRICT COURT, SOUTHERN DISTRICT OF FLORIDA.
On December 21, 1993, these cases were filed in the United States District
Court for the Southern District of Florida. Both cases name numerous defendants,
including registrant, its subsidiary Malone & Hyde, Inc., and four former
associates of subsidiaries of registrant.
These cases contain similar factual allegations. As to registrant, Malone &
Hyde, and the former associates, plaintiffs allege, among other things, that the
former associates participated in fraudulent activities by taking money for
confirming diverting transactions which had not occurred and that, in so doing,
the former associates acted within the scope of their employment. Plaintiffs
also allege that Malone & Hyde allowed its name to be used in furtherance of the
alleged fraud.
The allegations against registrant and Malone & Hyde include common law
fraud, breach of contract, aiding and abetting a violation of Section 10(b) of
the Securities and Exchange Act of 1934, negligence, and demand for repayment of
monies allegedly received by the confirmers. In addition, allegations were made
against Malone & Hyde claiming it violated the federal Racketeer Influenced and
Corrupt Organizations Act and comparable state law. 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 matters complained of.
Registrant and Malone & Hyde, Inc. deny the allegations of the complaints
and will vigorously defend the actions.
See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
-9-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-10-
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the company as of March 24, 1994:
Year First
Became
Name (age) Present Position An Officer
- ---------- ---------------- ----------
E. Dean Werries (64) Chairman of the Board 1970
Robert E. Stauth (49) President and 1987
Chief Executive Officer
R. Randolph Devening (52) Vice Chairman and 1980
Chief Financial Officer
Gerald G. Austin (56) Executive Vice President-Operations 1982
E. Stephen Davis (53) Executive Vice President-Distribution 1981
Glenn E. Mealman (59) Executive Vice President- 1977
National Accounts
James E. Stuard (59) Executive Vice President-
Division Operations 1979
David R. Almond (54) Senior Vice President-General Counsel 1989
and Secretary
Darreld R. Easter (57) Senior Vice President-Marketing 1988
Donald N. Eyler (62) Senior Vice President-Controller 1981
Larry A. Wagner (47) Senior Vice President-Human Resources 1989
Ronald C. Anderson (51) Vice President-General Merchandise 1993
Mark K. Batenic (45) Vice President-Division Operations 1994
Dixon E. Simpson (51) Vice President-Division Operations 1994
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. Devening, Almond
and Anderson.
-11-
Mr. Devening returned to the company in June 1989 as executive vice
president and chief financial officer and was elected to his present position in
1993. From 1979 to January 1987, he was associated with the company, being
elected executive vice president-finance and administration in 1982. From
January 1987 to June 1989, he was vice president and chief financial officer of
Genentech, Inc., a pharmaceutical products company.
Mr. Almond joined the company in May 1989 as senior vice president-general
counsel. He assumed the additional role of corporate secretary in 1992. Since
1985 until joining the company, he was senior vice president-general counsel and
administration of Wilson Foods Corp., a processor of meat products. In 1990,
Wilson Foods Corp. filed for protection under Chapter 11 of the United States
Bankruptcy Code and subsequently had a reorganization plan approved by the
court.
Mr. Anderson joined the company in his present position in July 1993.
Since 1986, until joining the company, he was vice president of McKesson
Corporation, a distributor of pharmaceutical and related products, where he was
responsible for its service merchandising division.
Mr. Werries will retire effective April 27, 1994 as chairman of the board.
Mr. Stauth will then become chairman, president and chief executive officer.
Mr. Stuard will retire effective December 1, 1994.
-12-
PART II
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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 December 31, 1993, the 36.9 million
outstanding shares were owned by 11,200 shareholders of record and approximately
19,300 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.
1993 1992
---- ----
Quarter High Low High Low
------- ----- --- ----- ---
First $34.38 $30.75 $35.00 $28.38
Second 33.75 31.25 34.38 29.75
Third 33.75 31.13 35.13 29.00
Fourth 33.25 23.75 32.63 27.25
Cash dividends on Fleming common stock have been paid for 77 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 are normally as shown below:
Record Dates: Payment Dates:
------------- --------------
February 20 March 10
May 20 June 10
August 20 September 10
November 20 December 10
Cash dividends of $.30 per share were paid on each of the above four
payment dates in 1992 and 1993.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------
(In thousands, except
per share amounts) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------
Net sales $13,092,145 $12,893,534 $12,851,129 $11,932,767 $12,045,310
Earnings before
extraordinary
loss and
cumulative
effect(a) 37,480 118,904 64,365 97,256 80,076
Net earnings per
common share(a) 1.02 3.33 1.82 3.06 2.54
Total assets 3,102,632 3,117,705 2,958,416 2,767,696 2,689,321
Long-term debt
and capital
leases 1,003,828 1,038,183 951,864 981,488 990,614
Cash dividends paid
per common share 1.20 1.20 1.14 1.03 1.00
-13-
(a) In 1993 and 1992, the company recorded an after-tax loss of $2.3 million
and $5.9 million, respectively, for early retirement of debt. In 1991, the
company changed its method of accounting for postretirement health care
benefits, resulting in a charge to net earnings of $9.3 million.
The results in 1993 include an after-tax charge of approximately $62
million for additional facilities consolidations, re-engineering, impairment of
retail-related assets and elimination of regional operations.
The company instituted a plan late in 1991 to reduce costs and increase
operating efficiency by consolidating four distribution centers into larger,
higher volume and more efficient facilities. The after-tax charge was $41.4
million.
During 1989, the company sold all of its preferred stock investment and
approximately 60% of its common stock investment in the purchaser of White Swan,
Inc., resulting in an after-tax gain of $8.2 million. The remaining common
stock investment was sold in 1990, resulting in an after-tax gain of
approximately $3.6 million.
See notes to consolidated financial statements and the financial review
included in Item 7 and 8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Fleming continues to experience excellent access to the capital markets.
The company refinanced at lower interest rates $28 million of term debt
through borrowings on bank lines and the issuance of medium-term notes. Also,
proceeds from the sale of $68 million of long-term retailer notes receivable
were applied to the early redemption of $63 million of 9.5% debentures purchased
at the required premium. Additional customer notes receivable may be sold in
the future with the proceeds used to reduce debt.
The company registered an additional $264 million of debt securities with
the Securities and Exchange Commission. Medium-term notes in the amount of $61
million were issued in 1993 with maturities ranging from four to seven years
with an average interest rate of 5.9%. The remaining $290 million of registered
securities are available for sale from time to time and allow the company to
maintain adequate access to the debt capital markets.
In addition, three-year loans totaling $65 million were consummated with
three banks. In January 1994, a similar $20 million loan was closed and a
maturing loan was extended for 2.5 years.
The company has established public and private commercial paper programs.
Two revolving credit agreements, $400 million maturing in October 1997 and $200
million maturing in October 1994, serve as backup lines for the company's
commercial paper programs and for borrowings under uncommitted lines, assuring
adequate liquidity. These credit facilities, with a strong group of banks led
by Morgan Bank, were established in October to replace a similar $500 million
facility which was scheduled to expire in November 1994.
-14-
During 1993, the company made no borrowings under any of its committed
agreements. The interest rate for the facilities is based on various money
market rates selected by the company at the time of borrowing. Management
intends to renew the $200 million credit agreement prior to its maturity.
The committed credit agreements and seven term bank loans contain various
covenants, including restrictions on additional indebtedness, payment of cash
dividends and acquisition of the company's common stock. None of these
covenants negatively impact the company's liquidity or capital resources at this
time. Reinvested earnings of approximately $92 million were available at year
end for cash dividends and acquisition of the company's stock. Each of these
credit agreements may be terminated in the event of a defined change of control
of the company.
Uncommitted bank lines were used during the year when their rates were
lower than commercial paper rates. During 1993, borrowings under these lines
averaged $170 million, ranging from $81 million to $435 million, and were $145
million at year-end 1993. Commercial paper borrowings averaged $151 million,
ranging from $15 million to $226 million, and were $166 million at year end.
The company's long-term debt and commercial paper continue to carry
investment grade ratings of BBB/Baa2 and A-2/P-2, respectively. However, the
ratings of Baa2 and P-2 were put under review with negative implications in
January 1994 by Moody's Investors Service.
Fleming makes investments in and loans to its retail customers, primarily
in conjunction with the establishment of long-term supply agreements. Such
investments and loans were made at a lesser rate in 1993 than in 1992. At year
end these investments and loans of $379 million, combined with total trade
receivables of $232 million, were $611 million, an $83 million net decrease from
1992. After a $68 million sale of notes, net investments and loans decreased
$33 million. In addition, net trade receivables decreased $50 million.
Cash flow from operations, one of the company's primary sources of
liquidity, was $209 million in 1993, up $119 million from 1992. The increase is
attributable to reduced trade receivables and inventories. Trade receivables in
1993 had a turnover rate of 45.3 times, up from 43.1 times the prior year.
Inventory turns increased slightly to 13.1 times in 1993, compared to 12.8 times
the year before.
Capital expenditures were $53 million in 1993 compared to $62 million in
1992. In both years these were for normal additions and replacements of
warehouse and transportation equipment and leasehold improvements. Capital
expenditures in 1994 are expected to be approximately $100 million, excluding
any possible acquisitions. The increase is primarily attributable to expansion
projects at several distribution centers to accommodate new customers, including
Kmart.
The company's capital structure is as presented below. Amounts include
current maturities of long-term debt and current obligations under capital
leases.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capital Structure (In Millions) 1993 1992
- --------------------------------------------------------------------------------
Long-term debt $ 728 34.0% $ 772 36.0%
Capital lease obligations 350 16.4 314 14.6
- --------------------------------------------------------------------------------
Total debt 1,078 50.4 1,086 50.6
Shareholders' equity 1,060 49.6 1,060 49.4
- --------------------------------------------------------------------------------
Total capital $2,138 100.0% $2,146 100.0%
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-15-
Long-term debt and capital lease obligations decreased $8 million to $1.08
billion during 1993. Shareholders' equity at the end of 1993 remained $1.06
billion, unchanged from the prior year.
The year-end debt-to-capital ratio decreased to 50.4%, slightly below last
year's ratio of 50.6%. The company's long-term target ratio is approximately
50%. Total capital was $2.14 billion at year end, essentially unchanged from the
prior year.
The composite interest rate of total debt (excluding capital lease
obligations) before the effect of interest rate swaps was 4.8% at year end, a
reduction from 5.8% a year earlier, principally due to lower short-term rates
and to a lesser extent the company's refinancing activities in the first half
of 1993. Including the effect of interest rate swaps, the composite interest
rate of debt was 4.9% and 5.9% at the end of 1993 and 1992, respectively.
The dividend payments of $1.20 per common share in 1993 and 1992 were 125%
and 38% of primary net earnings per common share in 1993 and 1992,
respectively. The payout ratio would have been 44% in 1993 before fourth
quarter charges for facilities consolidation and restructuring and debt
prepayment and 36% in 1992 before fourth quarter charges for debt prepayment.
The company's policy toward cash dividends is to pay out approximately
one-third of trailing 12 months earnings.
The company has adequate liquidity to provide for cash needs of
approximately $83 million for the facilities consolidation and restructuring
plan.
RESULTS OF OPERATIONS
NET SALES
Sales increased 1.5% in 1993 over 1992 compared to a .3% increase in 1992
over 1991. The 1993 sales increase is primarily due to a full year of Baker's
in 1993, compared to 12 weeks in 1992, and the addition of the Garland facility
in August. Also contributing to the increase were new customers, including
Kmart. For 1993, the company again experienced food price deflation of .1%
compared to deflation of 1% in 1992 and inflation of .8% in 1991. The company's
outlook for 1994 is for a low level of food price inflation.
Tonnage of food product sold in 1993 was essentially the same as 1992. In
1992, tonnage of food product sold versus 1991 increased 1.6%, compared to a
6.1% increase achieved in 1991. The lower tonnage growth rates experienced in
1993 and 1992 reflect sluggish retail food industry sales and the lack of net
expansion of the company's customer base as new business was roughly matched by
business lost.
Sales for 1994 will be positively affected by the addition of the recently
acquired retail stores in Florida, a full year of operation at the Garland
facility and new business resulting in part from the supply agreement signed
with Kmart. These sales gains will be offset by the expiration of a contract
with Albertson's in Florida in early 1994 and declining business with Wal-Mart.
-16-
COMPONENTS OF EARNINGS
Components of earnings, before the early debt retirement in 1993 and 1992,
and before the accounting change in 1991, expressed as a percent of sales are:
- --------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------
Gross margin (sales less
cost of sales) 5.85% 5.64% 5.82%
Less expense:
Selling and administrative 4.27 3.84 4.18
Interest expense .60 .63 .73
Interest income (.48) (.46) (.48)
Equity investment results .09 .12 .06
Facilities consolidation
and restructuring
.82 - .52
- -----------------------------------------------------------------------------
Total costs and expenses 5.30 4.13 5.01
- -----------------------------------------------------------------------------
Earnings before taxes .55 1.51 .81
Taxes on income .26 .59 .31
- ------------------------------------------------------------------------------
Net Margin .29% .92% .50%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GROSS MARGIN
Gross margin as a percent of sales improved by 21 basis points, rising to
5.85% in 1993 compared to 5.64% in 1992. The increase in gross margin in 1993
was due to retail operations, which accounted for a 44 point favorable
comparison. Retail food operations typically have a higher gross margin than
wholesale operations. The margin increase is principally the effect of a full
year of Baker's operations compared to only fourth quarter operations in 1992
and, to a lesser extent, the Florida operations acquired late in 1993. Gross
margin comparisons for the first three quarters of 1994 will continue to benefit
from the effects of the Florida operations. Product handling expense was nine
basis points better. Higher product cost accounted for the rest of the
difference.
The 18 basis point decrease in gross margin in 1992 compared to 1991 is due
to several factors. The absence of company-operated retail stores sold in
December 1991 and the presence of Baker's stores acquired at the beginning of
the fourth quarter of 1992 caused 14 basis points of the decrease. Increased
transportation expenses in 1992 contributed 10 basis points to the decrease in
gross margin. This was due principally to the company's facilities consolidation
program that resulted in trucks driving farther to deliver product.
Gross margin in the fourth quarter of 1992 was increased by $4.9 million,
or four basis points (annual effect) from the favorable resolution of certain
litigation. The LIFO method of inventory valuation increased gross margin by
$9.3 million, an increase of $4.5 million or four basis points from 1991.
-17-
SELLING AND ADMINISTRATIVE
Selling and administrative expenses in 1993 were 4.27% of sales, compared
to 3.84% in 1992. Retail operations have higher selling expenses than wholesale
operations, and this was the main reason for the $63.4 million increase.
Reductions in other selling and administrative categories were more than offset
by the increase in credit loss expense discussed below.
During the second quarter of 1993, selling and administrative expenses were
affected by several nonrecurring items. The company recorded $11.2 million of
pretax income resulting from cash received in the favorable resolution of a
litigation matter and a $1.2 million accrual for expected settlements in other
legal proceedings. Management estimated that the company's previously disclosed
contingent liability for lease obligations exceeded previously established
reserves by $2 million and recorded this amount as an expense. A $4.6 million
gain from a real estate transaction was also recorded during the quarter.
Selling and administrative expenses in 1991 were increased by $15 million
due to unusual charges related to litigation settlements and the write-down of a
nonoperating asset. Comparing 1992 to 1991, selling and administrative expenses
were reduced by $42.1 million. In addition to the unusual charges, the absence
of selling expenses related to company-operated retail stores sold at the end of
1991 and additional selling expenses related to Baker's operation led to a net
reduction of $25 million.
Also contributing to the positive result in 1992 compared to 1991 were the
effects of cost controls and the benefits of certain completed facilities
consolidations. Gains on the sales of customer notes receivable were reductions
to selling and administrative expenses of $3.2 million, $2.5 million and $2.7
million in 1993, 1992 and 1991, respectively.
The company invests a significant amount of capital in its customers
through various methods consisting of customary or extended credit terms for
inventory purchases, secured loans with terms up to ten years, and minority
equity investments in qualifying customers under the company's equity store
program. In addition, the company may guarantee debt and lease obligations of
certain customers. Usually, such capital investments are made in and guarantees
are extended to customers with whom the company enjoys long-term supply
agreements.
A significant portion of the company's net trade receivables and
investments in customer notes receivable is related to multi-store, medium-sized
retail chains in which the company holds an equity interest, referred to as
business development ventures.
Selling and administrative expenses include credit loss expense of $52
million in 1993, $28.3 million in 1992, and $17.3 million in 1991. The increases
in 1993 and 1992 are due to the combined effect on customers' financial
conditions of sluggish retail sales, intensified retail competition and lack of
food price inflation. Credit losses increased in the fourth quarter of 1993, due
to adverse developments in certain of the company's equity store program
investments.
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 future losses will not occur.
-18-
INTEREST EXPENSE
Interest expense in 1993 declined $3.1 million to $78 million. The
improvement is due to lower short-term rates and refinancings in late 1992 and
the first half of 1993. The company's borrowing strategy seeks to minimize
interest expense while achieving a target range of exposure to floating interest
rates and balancing its debt instruments across a range of maturities. The
company enters into interest rate hedge agreements to manage interest costs and
exposure to changing interest rates.
Interest expense in 1992 improved over 1991, dropping by $12.3 million to
$81.1 million as a result of lower interest rates. As a percent of sales,
interest expense was .60%, .63% and .73% in 1993, 1992 and 1991, respectively.
INTEREST INCOME
Interest income consists primarily of interest earned on notes receivable
from customers. Also included is income generated from direct financing leases
of retail stores and related equipment. In 1993, 1992 and 1991, interest income
was $62.9 million, $59.5 million and $61.4 million, respectively. The increase
in 1993 results from higher outstanding notes receivable and direct financing
leases, partially offset by a slight decline in the interest rate. The decrease
in 1992 compared to 1991 was due to lower interest rates prevailing in 1992
versus 1991, partially offset by the effect of higher average notes receivable
balances.
EQUITY INVESTMENT RESULTS
Losses resulting from investments in certain customers accounted for under
the equity method were $11.9 million in 1993 compared to $15.1 million in 1992
and $7.7 million in 1991. The improvement in 1993 is due to improved operating
performance by certain of the company's business development ventures. Such
ventures were responsible for equity method losses of $6 million in 1993,
compared to $11 million in 1992 and $4.1 million in 1991. The increase from 1991
to 1992 resulted from poor performance by certain of the company's business
development ventures. For 1994, the continued effects on customers of a lack of
food price inflation and intense competition may result in higher losses.
However, the benefits to the company outweigh these losses.
FACILITIES CONSOLIDATION AND RESTRUCTURING
On January 18, 1994, the company announced the details of a plan to
consolidate facilities and restructure its organizational alignment and
operations. Management's objective is to improve company performance by
eliminating functions and operations that do not add economic value. The plan
resulted from a thorough review, which began in October 1993, of all operations
and business strategies. The 1993 fourth quarter results reflect a charge of
$101.3 million resulting directly from facilities consolidation and
restructuring. This is in addition to $6.5 million provided for a facilities
consolidation in the second quarter. The plan consists of four categories:
facilities consolidation, re-engineering, retail-related assets and elimination
of regional operations. The actions contemplated by the plan will affect the
company's food and general merchandise wholesaling operations as well as certain
retailing assets. Cash requirements related to the charge are estimated to be
$31 million in 1994 and $52 million in 1995 and thereafter. The cash
requirements are expected to be provided by internally generated cash flows and
through capital raised in the debt markets.
-19-
Facilities consolidations will result in the closure of five distribution
centers, the relocation of two operations, consolidation of one center's
administrative function, and completion of the 1991 facilities consolidation
actions. Disclosures of specific facilities affected are made as closing actions
commence. Approximately 400 associate positions are expected to be eliminated
through facilities consolidations. The closures and relocations are anticipated
to be completed primarily in 1994. Expected losses on disposition of the related
property through sale or sublease are provided for through the estimated
disposal dates.
The total provision for facilities consolidation is approximately $60
million. Detail components include: severance costs - $15 million, impaired
property and equipment - $13 million, other related asset impairments and
obligations - $11 million, lease and holding costs - $10 million, completion of
actions contemplated in the 1991 restructure charge - $7 million and product
handling and damage - $4 million. The actions are not expected to result in a
material reduction of revenues. Increased transportation expense likely will
result due to trucks driving farther to serve customers, although expected
savings due to administrative expenses, working capital and productivity
improvements will be far more significant.
The costs to complete activities contemplated in the 1991 restructure
charge result principally from the deterioration of the California bay area
commercial real estate market. Management's 1991 estimate of real estate values
and demand has been adversely affected by the decline in sales values and
increase in available competing properties. Increased costs in the consolidation
were partially offset by a change in management's plans regarding the originally
planned construction of a large, new facility in the Kansas City area. The
revised plan calls for enlarging and utilizing existing facilities with a lower
associated capital outlay.
It is not practical to separately estimate reduced depreciation and
amortization, labor or operating costs. Management does anticipate that, in the
aggregate, a positive annual pretax earnings impact of approximately $20 million
will result once the facilities consolidation plan is fully implemented.
The re-engineering component of the charge provides for the cash costs
associated with terminating an expected 1,500 associates displaced by the
re-engineering plan, which will be implemented beginning in 1994. Annual payroll
savings are projected to be approximately $40 million. The provision for
re-engineering is approximately $25 million.
Certain retail supermarket locations leased or owned by the company have
been deemed to no longer represent viable strategic sites for stores due to
size, location or age. The charge includes the present value of lease payments
on these locations, as well as holding costs until disposition, the write-off of
capital lease assets recorded for certain of the locations, and the expected
loss on a location closed in 1994. The charge consists principally of cash costs
for lease payments and write-down of property. Annual savings from these actions
are expected to be $1 million. The provision for retail-related assets is
approximately $15 million.
Elimination of the company's regional operations in early 1994 will result
in cash severance payments to approximately 100 associates, as well as
transferring approximately 60 associates. Completion of the actions is expected
in mid-1994. The annual savings are expected to be $4 million, principally in
payroll costs. The provision for eliminating regions is approximately $8
million, including the write-down to estimated fair value of certain related
assets.
-20-
The 1991 restructuring plan was initiated to reduce costs and increase
future operating efficiency by consolidating several distribution centers into
larger, higher volume and more efficient facilities. The charge of $67 million
included severance benefits, lease terminations, asset disposals and the
impairment of related assets. The plan has resulted in the closing or
consolidation of four facilities whose operations were assimilated into other
distribution centers. Cash expenditures related to the 1991 facilities
consolidation charge were $12 million and $22 million in 1993 and 1992,
respectively. It is not practical to specifically quantify the operating
efficiencies and economies of scale that resulted from the 1991 consolidation
actions. Additional estimated costs, related primarily to asset dispositions in
process, were made in the 1993 charge as discussed.
EARLY DEBT RETIREMENT
In the fourth quarters of 1993 and 1992, the company recorded extraordinary
losses for early retirement of debt. In 1993, the company retired $63 million
of 9.5% debentures at a cost of $2.3 million, after tax benefits of $2.1
million. In 1992, the company recorded a charge of $5.9 million, after tax
benefits of $3.7 million. The 1992 costs related to retiring the $172.5 million
of convertible notes, $30 million of the 9.5% debentures and certain other debt.
Lower future interest costs will result from the actions in both years, as well
as the elimination of the dilutive effect associated with the potential issuance
of common shares into which the notes were convertible.
TAXES ON INCOME
The effective income tax rates were 48%, 39% and 38.3% in 1993, 1992 and
1991, respectively. The 1993 rate was higher than previous years because of the
significance of the facilities consolidation and restructuring charge. Pretax
income was reduced, resulting in nondeductible items for tax purposes having a
much larger impact on the effective rate. In addition, the federal rate
increased by 1% because of the new tax law enacted in 1993. The combined state
income tax rate increased by 1% in 1993 compared to 1992 for the same reasons as
the federal rate. The 1992 effective rate was reduced because of favorable
settlements of possible tax assessments recorded in prior years. The 1991 rate
was lower primarily due to one-time benefits related to the difference in the
financial and tax basis in an insurance subsidiary sold in 1991 and a lower
combined state income tax rate. The expected 1994 effective rate is 44%.
OTHER
In 1993, the company reduced the discount rate assumption used to determine
its obligations for defined benefit pension plans and postretirement benefits.
The 1% decline will cause pension and postretirement benefit expense recognized
in 1994 to increase by approximately $3 million compared to 1993.
Considering the various factors discussed above, management does not
anticipate that 1994 earnings from core operations will be improved over those
of 1993.
In December 1993, the company and numerous other defendants were named in
two lawsuits filed in U. S. District Court in Miami. Because 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.
-21-
Statement of Financial Accounting Standards No. 114 - Accounting by
Creditors for Impairment of a Loan will be effective for the first quarter of
the company's 1995 fiscal year. This statement requires that loans determined
to be impaired be measured by the present value of expected future cash flows
discounted at the loan's effective interest rate. Management has not yet
determined the impact, if any, on the consolidated statements of earnings or
financial position.
Statement of Financial Accounting Standards No. 112 - Employers' Accounting
for Postemployment Benefits is not applicable to benefits offered to company
associates.
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.
-22-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to pages 3 through 6 of the company's
proxy statement dated March 14, 1994, in connection with its annual meeting of
shareholders to be held on April 27, 1994. 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 pages 12 through 20 of the company's
proxy statement dated March 14, 1994, in connection with its annual meeting of
shareholders to be held on April 27, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to pages 9 through 11 of the company's
proxy statement dated March 14, 1994, in connection with its annual meeting of
shareholders to be held on April 27, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
-23-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE NUMBER
IN FORM 10-K
(a) 1. Financial Statements:
o Consolidated Statements of Earnings -
For the years ended December 25, 1993,
December 26, 1992, and December 28, 1991 30
o Consolidated Balance Sheets -
At December 25, 1993, and December 26, 1992 31
o Consolidated Statements of Shareholders' Equity -
For the years ended December 25, 1993,
December 26, 1992, and December 28, 1991 33
o Consolidated Statements of Cash Flows -
For the years ended December 25, 1993,
December 26, 1992, and December 28, 1991 34
o Notes to Consolidated Financial Statements -
For the years ended December 25, 1993,
December 26, 1992, and December 28, 1991 35
o Independent Auditors' Report 52
o Quarterly Financial Information (Unaudited) 53
(a) 2. Financial Statement Schedules:
o Independent Auditors' Report on Schedules 52
o Schedule V - Property and Equipment 55
o Schedule VI - Accumulated Depreciation and
Amortization of Property and
Equipment 56
o Schedule VIII - Valuation and Qualifying Accounts 57
All other financial statement schedules are omitted because they are not
applicable, or not required, or because the required information is
included in the consolidated financial statements or notes thereto.
-24-
(a), (c) 3. Exhibits:
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
3.1 Certificate of Incorporation Exhibit 3.1 to
Report on Form 10-K
for year ended
December 28, 1991.
3.2 By-Laws Exhibit 28.2 to
Report on Form
8-K dated
August 22, 1989.
4.1 $400,000,000 Credit Agreement Exhibit 4.1 to
dated as of October 21, 1993, among Report on Form 10-Q
the Registrant, the banks listed for the quarter ended
in the Agreement and Morgan October 2, 1993.
Guaranty Trust Company of New York,
as Agent
4.2 Amendment No. 1, dated January 12, 58
1994, to $400,000,000 Credit
Agreement
4.3 $200,000,000 Credit Agreement dated Exhibit 4.2 to Report
as of October 21, 1993, among the on Form 10-Q for the
Registrant, the banks listed in the quarter ended
Agreement and Morgan Guaranty Trust October 2, 1993.
Company of New York, as Agent
4.4 Amendment No. 1, dated January 17, 63
1994, to $200,000,000 Credit
Agreement
4.5 Agreement to furnish copies of 69
other long-term debt instruments
4.6 Rights Agreement dated as of Exhibit 28 to
July 7, 1986, between the Report on Form
Registrant and Morgan 8-K dated June 24,
Guaranty Trust Company of New York 1986.
4.7 Amendment to Rights Agreement Exhibit 28.1 to
dated as of August 22, 1989, Report on Form 8-K
between the Registrant dated August 22,
and First Chicago Trust Company 1989.
of New York, as Rights Agent
4.8 Indenture dated as of December 1, Exhibit 4 to
1989, between the Registrant and Registration
Morgan Guaranty Trust Company of Statement
New York, as trustee No. 33-29633.
-25-
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
10.1 Investment Advisor Agreement Exhibit 10.17 to
between the Registrant and The Form 10-K for year
First Boston Corporation dated ended December 30,
November 27, 1989 1989.
10.2 Investment Advisor Agreement Exhibit 10.18 to
between the Registrant and Merrill Form 10-K for year
Lynch, Pierce, Fenner & Smith ended December 30,
Incorporated dated December 5, 1989 1989.
10.3 Agreement and Plan of Exhibit 2.1 to
Reorganization by and among Registration
Fleming Companies, Inc., Statement No.
Cornhusker Acquisition and 33-51312.
Baker's Supermarkets, Inc.
dated August 25, 1992
10.4 Dividend Reinvestment and Exhibit 28.1 to
Stock Purchase Plan, as Registration
amended Statement No.
33-26648 and
Exhibit 28.3
to Registration
Statement No.
33-45190.
10.5* 1985 Stock Option Plan Exhibit 28(a) to
Registration
Statement No.
2-98602.
10.6* Form of Award Agreement for 70
1985 Stock Option Plan (1994)
10.7* 1990 Stock Option Plan Exhibit 28.2 to
Registration
Statement No.
33-36586.
10.8* Form of Award Agreement for 74
1990 Stock Option Plan (1994)
10.9* Fleming Management Incentive Exhibit 10.4 to
Compensation Plan Registration
Statement No.
33-51312.
10.10* Directors' Deferred Exhibit 10.5 to
Compensation Plan Registration
Statement No.
33-51312.
10.11* Supplemental Retirement Plan Exhibit 10.7 to
Registration
Statement No.
33-51312.
-26-
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
10.12* Godfrey Company 1984 Non- Appendix II to
qualified Stock Option Plan Registration
Statement No.
33-18867.
10.13* Form of Severance Agreement Exhibit 10.14 to
between the Registrant and Form 10-K for year
certain of its officers ended December 31,
1988.
10.14* Fleming Companies, Inc. 1990 Exhibit B to
Stock Incentive Plan dated Proxy Statement
February 20, 1990 for year ended
December 30, 1989.
10.15* Phase I of Fleming Companies, Inc. Exhibit 10.16 to
Stock Incentive Plan and Form of Form 10-K for year
Awards Agreement ended December 30,
1989.
10.16* Phase II of Fleming Companies, Inc. Exhibit 10.12 to Form
Stock Incentive Plan 10-K for year ended
December 26, 1992.
10.17* Phase III of Fleming Companies, Inc. 80
Stock Incentive Plan
10.18* Fleming Companies, Inc. Directors' Exhibit 10.14 to
Stock Equivalent Plan Form 10-K for year
ended December 28,
1991.
10.19* Agreement between the Registrant 84
and E. Dean Werries
10.20* Agreement between the Registrant 85
and James E. Stuard
10.21* Agreement between the Registrant 87
Robert F. Harris
11 Earnings per share computation 93
12 Computation of ratio of earnings to 97
fixed charges
21 Subsidiaries of the Registrant 98
23 Consent of Deloitte & Touche 99
-27-
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
24 Power of attorney instruments signed 100
by certain directors and officers of
the Registrant appointing R. Randolph
Devening, Vice Chairman and Chief
Financial Officer, as attorney-in-fact
and agent to sign the Annual Report on
Form 10-K on behalf of said directors
and officers
99 Company Undertaking 102
* Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K:
Form 8-K filed December 16, 1993 disclosed that the company's fourth
quarter and full year 1993 results will be below expectations. Reasons for
the less than expected results include an increase in the provision for
credit losses, a significant LIFO charge and weak sales.
Form 8-K filed January 20, 1994 disclosed the press release made by the
company on January 18, 1994 announcing details of its planned
restructuring. Registrant recorded a pre-tax charge of approximately $101
million in the fourth quarter of 1993 resulting from the restructuring.
-28-
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 24th day of March
1994.
FLEMING COMPANIES, INC.
/S/ ROBERT E. STAUTH
----------------------------------------
By: Robert E. Stauth
(President and Chief Executive Officer)
/S/ R. RANDOLPH DEVENING
----------------------------------------
By: R. Randolph Devening
(Vice Chairman and Chief Financial Officer)
/S/ DONALD N. EYLER
---------------------------------------------
By: Donald N. Eyler
(Senior Vice President and Controller)
(Chief 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 25th day of March 1994.
/S/ E. DEAN WERRIES * /S/ ROBERT E. STAUTH * /S/ R. RANDOLPH DEVENING *
- ------------------------- ------------------------- --------------------------
E. Dean Werries Robert E. Stauth R. Randolph Devening
(Chairman of the Board) (Director) (Director)
/S/ ARCHIE R. DYKES * /S/ CAROL B. HALLETT * /S/ JAMES G. HARLOW, JR. *
- ------------------------- ------------------------- --------------------------
Archie R. Dykes Carol B. Hallett James G. Harlow, Jr.
(Director) (Director) (Director)
/S/ R. D. HARRISON * /S/ LAWRENCE M. JONES * /S/ EDWARD C. JOULLIAN III*
- ------------------------- ------------------------- ---------------------------
R. D. Harrison Lawrence M. Jones Edward C. Joullian III
(Director) (Director) (Director)
/S/ HOWARD H. LEACH * /S/ JOHN A. MCMILLAN * /S/ GUY O. OSBORN *
- ------------------------- -------------------------- -------------------------
Howard H. Leach John A. McMillan Guy O. Osborn
(Director) (Director) (Director)
/S/ R. RANDOLPH DEVENING
- ---------------------------
*By: R. Randolph Devening
(Attorney-in-Fact)
*A Power of Attorney authorizing R. Randolph Devening 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 25.
-29-
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 25, 1993, December 26, 1992,
and December 28, 1991
(In thousands, except per share amounts)
1993 1992 1991
---------- ---------- ----------
Net sales $13,092,145 $12,893,534 $12,851,129
Costs and expenses:
Cost of sales 12,326,778 12,166,858 12,103,080
Selling and administrative 558,470 494,983 537,058
Interest expense 78,029 81,102 93,353
Interest income (62,902) (59,477) (61,381)
Equity investment results 11,865 15,127 7,690
Facilities consolidation
and restructuring 107,827 - 67,000
---------- ---------- ----------
Total costs and expenses 13,020,067 12,698,593 12,746,800
Earnings before taxes 72,078 194,941 104,329
Taxes on income 34,598 76,037 39,964
---------- ---------- ----------
Earnings before extraordinary
loss and cumulative
effect of accounting change 37,480 118,904 64,365
Extraordinary loss from
early retirement of debt 2,308 5,864 -
Cumulative effect of change
in accounting for
postretirement health
care benefits - - 9,270
---------- ---------- ----------
Net earnings $ 35,172 $ 113,040 $ 55,095
---------- ---------- ----------
---------- ---------- ----------
Net earnings available to
common shareholders $35,172 $113,040 $51,955
---------- ---------- ----------
---------- ---------- ----------
Net earnings per common share:
Primary before extraordinary
loss and accounting change $1.02 $3.33 $1.82
Extraordinary loss .06 .16 -
Accounting change - - .28
---------- ---------- ----------
Primary $ .96 $3.16 $1.54
---------- ---------- ----------
---------- ---------- ----------
Fully diluted before
extraordinary loss and
accounting change $1.02 $3.21 $1.82
Extraordinary loss .06 .15 -
Accounting change - - .28
---------- ---------- ----------
Fully diluted $ .96 $3.06 $1.54
---------- ---------- ----------
---------- ---------- ----------
Weighted average common
shares outstanding 36,801 35,759 35,759
---------- ---------- ----------
---------- ---------- ----------
Sales to customers accounted for under the equity method were approximately $1.6
billion, $1.3 billion and $1 billion in 1993, 1992 and 1991, respectively.
See notes to consolidated financial statements.
-30-
CONSOLIDATED BALANCE SHEETS
At December 25, 1993, and December 26, 1992
(In thousands, execept per share amounts)
ASSETS 1993 1992
------ ------
Current assets:
Cash and cash equivalents $ 1,634 $ 4,712
Receivables 301,514 349,324
Inventories 923,280 959,134
Other current assets 134,229 90,040
--------- ---------
Total current assets 1,360,657 1,403,210
Investments and notes receivable 309,237 344,000
Investment in direct financing leases 235,263 213,956
Property and equipment:
Land 49,580 46,293
Buildings 268,317 251,320
Fixtures and equipment 466,904 438,068
Leasehold improvements 133,897 123,734
Leased assets under capital leases 143,207 152,737
--------- ---------
1,06l,905 1,012,152
Less accumulated depreciation
and amortization 426,846 401,446
--------- ---------
Net property and equipment 635,059 610,706
Other assets 90,633 79,686
Goodwill 471,783 466,147
--------- ---------
Total assets $3,102,632 $3,117,705
--------- ---------
--------- ---------
-31-
LIABILITIES AND SHAREHOLDERS' EQUITY
1993 1992
---- ----
CURRENT LIABILITIES:
Accounts payable $ 682,988 $ 717,484
Current maturities of
long-term debt 61,329 36,474
Current obligations under
capital leases 13,172 10,927
Other current liabilities 161,043 110,051
--------- ---------
Total current liabilities 918,532 874,936
Long-term debt 666,819 735,565
Long-term obligations
undercapital leases 337,009 302,618
Deferred income taxes 27,500 39,194
Other liabilities 92,366 104,958
Shareholders' equity:
Common stock, $2.50 par value,
authorized -1 00,000 shares,
issued and outstanding -
36,940 and 36,698 shares 92,350 91,746
Capital in excess of par value 489,044 482,107
Reinvested earnings 492,250 501,231
Cumulative currency
translation adjustment (288) -
--------- ---------
1,073,356 1,075,084
Less guarantee of ESOP debt 12,950 14,650
--------- ---------
Total shareholders' equity 1,060,406 1,060,434
--------- ---------
Total liabilities and shareholders'
equity $3,102,632 $3,117,705
--------- ---------
--------- ---------
Receivables include $48.3 million and $48.9 million in 1993 and 1992,
respectively, due from customers accounted for under the equity method.
See notes to consolidated financial statements.
-32-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 25, 1993, December 26, 1992, and December 28, 1991
(In thousands)
1993 1992 1991
------------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Preferred stock:
Beginning of year 50 $ 50,000
Redemption (50) (50,000)
------ --------
End of year - -
------ --------
------ --------
Common stock:
Beginning of year 36,698 $ 91,746 35,433 $ 88,584 30,548 76,369
Incentive stock and
stock ownership plans 242 604 191 478 285 715
Stock issued for acquisition - - 1,074 2,684 - -
Stock offering - - - - 4,600 11,500
------ --------- ------ --------- ------ ------
End of year 36,940 92,350 36,698 91,746 35,433 88,584
------ --------- ------ --------- ------ ------
------ ------ ------
Capital in excess of par value:
Beginning of year 482,107 445,501 287,665
Stock offering, net - - 148,436
Incentive stock and
stock ownership plans 6,937 5,165 9,400
Stock issued for acquisition - 31,441 -
--------- --------- ------
End of year 489,044 482,107 445,501
--------- --------- ------
Reinvested earnings:
Beginning of year 501,231 431,120 418,085
Net earnings 35,172 113,040 55,095
Cash dividends:
Common ($1.20 per share in 1993
and 1992, $1.14 in 1991) (44,153) (42,929) (38,920)
Preferred - - (3,140)
--------- --------- ------
End of year 492,250 501,231 431,120
--------- --------- ------
Cumulative currency translation adjustment:
Beginning of year -
Current translation adjustments (288)
---------
End of year (288)
---------
Guarantee of ESOP debt:
Beginning of year (14,650) (16,218) (17,665)
Payments 1,700 1,568 1,447
--------- --------- ------
End of year (12,950) (14,650) (16,218)
--------- --------- ------
Total shareholders equity
end of year $1,060,406 $1,060,434 $948,987
--------- --------- ------
--------- --------- ------
See notes to consolidated financial statements.
-33-
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 25, 1993, December 26, 1992, and December 28, 1991
(In thousands)
1993 1992 l991
---- ---- ----
Cash flows from operating activities:
Net earnings $ 35,172 $113,040 $ 55,095
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 101,103 93,827 91,252
Credit losses 52,018 28,258 l7,281
Deferred income taxes (24,471) ll,343 (34,l58)
Equity investment results 11,865 l5,l28 7,690
Facilities consolidation and
reserve activities, net 87,211 (3l,226) 53,l50
Postretirement health care benefits - - l5,000
Change in assets and liabilities:
Receivables (16,420) (75,924) (45,094)
Inventories 58,625 (440) (74,500)
Other assets (48,984) (l0,2l8) (3l,l24)
Accounts payable (38,472) (4l,285) 37,l66
Other liabilities (10,883) (l6,566) 4,25l
Other adjustments, net 1,779 3,918 (634)
------- ------- -------
Net cash provided by
operating activities 208,543 89,855 95,375
------- ------- -------
Cash flows from investing activities:
Collections on notes receivable 82,497 88,85l 95,045
Notes receivable funded (130,846) (l68,8l4) (l93,643)
Notes receivable sold 67,554 44,970 8l,986
Purchase of property and equipment (55,554) (66,376) (67,295)
Proceeds from sale of
property and equipment 2,955 3,603 4,748
Investments in customers (37,196) (l7,3l5) (2l,l08)
Businesses acquired (51,110) (8,233) -
Proceeds from sale of investments 7,077 9,763 7,l56
Other investing activities 197 (353) (8,428)
------- ------- -------
Net cash used in investing activities (114,426) (113,904) (101,539)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term borrowings 331,502 462,726 353,38l
Principal payments on long-term debt (373,693) (383,l88) (432,364)
Principal payments on capital
lease obligations (11,316) (l0,904) (ll,565)
Sale of common stock under incentive
stock and stock ownership plans 7,541 5,653 8,870
Dividends paid (44,153) (42,929) (4l,979)
Redemption of preferred stock - (19,100) (30,900)
Proceeds from common stock sale - - l59,936
Other financing activities (7,076) (4,587) 588
---------- ------- -------
Net cash provided by (used in)
financing activities (97,195) 7,67l 5,967
------- ------- -------
Net decrease in cash and cash equivalents (3,078) (l6,378) (l97)
Cash and cash equivalents,
beginning of year 4,712 21,090 21,287
------- ------- -------
Cash and cash equivalents, end of year $ 1,634 $ 4,712 $ 21,090
------- ------- -------
------- ------- -------
See notes to consolidated financial statements.
-34-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR: The company's fiscal year ends on the last Saturday in
December.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
all material subsidiaries. Material intercompany items have been eliminated.
The equity method of accounting is used for investments in certain customers.
CASH AND CASH EQUIVALENTS: Cash equivalents consist of liquid investments
readily convertible to cash with a 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 $69.9 million (1993) and $67.8 million (1992). Receivables are
shown net of allowance for credit losses of $44.3 million (1993) and $25.3
million (1992). The company extends credit to its retail customers located
over a broad geographic base. Regional concentrations of credit risk are
limited.
INVENTORIES: Inventories are valued at the lower of cost or market. Most
grocery and certain perishable inventories are valued on a last-in, first-out
(LIFO) method. Other inventories are valued on a first-in, first-out (FIFO)
method.
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, are based on the estimated useful asset lives using the straight-line
method.
GOODWILL: The excess of purchase price over the 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
$74.2 million (1993) and $60 million (1992). Goodwill is written down if it
is probable that estimated operating income generated by the related assets
will be less than the carrying amount.
ACCOUNTS PAYABLE: Accounts payable include $8.8 million (1993) and $11.2
million (1992) of issued checks that have not yet cleared the company's bank
accounts, less deposits in transit.
FINANCIAL INSTRUMENTS: Interest rate hedge transactions and other
financial instruments are utilized to manage interest rate exposure. The
difference between amounts to be paid or received is accrued and recognized
over the life of the contracts.
-35-
TAXES ON INCOME: Deferred income taxes arise from temporary differences
between financial and tax bases of certain assets and liabilities.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: 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.
FOREIGN CURRENCY TRANSLATION: Net exchange gains or losses resulting from the
translation of assets and liabilities of an international investment are
included in shareholders' equity.
NET EARNINGS PER COMMON SHARE: Primary earnings per common share are computed
based on net earnings, less dividends on preferred stock in 1991, divided by the
weighted average common shares outstanding. The impact of common stock options
on primary earnings per common share is not materially dilutive. Fully diluted
earnings per common share assume conversion of the convertible subordinated
notes that were redeemed during 1992.
RECLASSIFICATIONS: Certain reclassifications have been made to prior year
amounts to conform to current year classifications.
INVENTORIES
Inventories are valued as follows:
Dec. 25, Dec. 26,
(In thousands) 1993 1992
- -------------- -------- --------
LIFO method $638,383 $689,358
FIFO method 284,897 269,776
-------- --------
Inventories $923,280 $959,134
-------- -------
-------- -------
Current replacement cost of LIFO inventories were greater than the carrying
amounts by approximately $12.5 million at December 25, 1993, and $19.3 million
at December 26, 1992.
INVESTMENTS AND NOTES RECEIVABLE
Investments and notes receivable consist of the following:
Dec. 25, Dec. 26,
(In thousands) 1993 1992
- -------------- -------- --------
Investments in and
advances to customers $164,292 $176,092
Notes receivable from customers 133,935 157,655
Other investments and receivables 11,010 10,253
-------- --------
Investments and notes receivable $309,237 $344,000
-------- --------
-------- --------
-36-
The company extends long-term credit to certain retail customers it serves.
Loans are primarily collateralized by inventory and fixtures. Investments and
notes receivable are shown net of allowance for credit losses of $18.3 million
and $18.2 million in 1993 and 1992, respectively. 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 the
notes.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 114 - Accounting by Creditors for Impairment of
a Loan. This new statement requires that loans determined to be impaired be
measured by the present value of expected future cash flows discounted at the
loan's effective interest rate. The new standard is effective for the first
quarter of the company's 1995 fiscal year. The company has not yet determined
the impact, if any, on the consolidated statements of earnings or financial
position.
The company has sold certain notes receivable at face value with limited
recourse. The outstanding balance at year end 1993 on all notes sold is $155.4
million, of which the company is contingently liable for $31.3 million should
all the notes become uncollectible. The company guarantees bank debt of $35
million for a customer.
-37-
LONG-TERM DEBT
Long-term debt consists of the following:
Dec. 25, Dec. 26,
(In thousands) 1993 1992
-------- --------
Medium-term notes, due 1994 to 2003,
average interest rates of
7.5% and 8.3% $222,450 $194,450
Commercial paper, average interest
rate of 3.3% in 1993 165,866 -
Unsecured term bank loans,
due 1994 to 1996, average
interest rates of 3.7% and 4.2% 160,000 95,000
Unsecured credit lines, average
interest rates of 3.3% and 3.9% 145,000 340,000
9.5% Debentures, due 2010, annual
sinking fund payments of
$5,000 commencing in 1997 7,000 70,000
Guaranteed bank loan of employee
stock ownership plan 12,950 14,650
Mortgaged real estate notes and
other debt, varying interest rates
from 3.5% to 8%, due 1994 to 2019 14,882 57,939
-------- --------
728,148 772,039
Less current maturities 61,329 36,474
-------- --------
Long-term debt $666,819 $735,565
-------- --------
-------- --------
Aggregate maturities of long-term debt for the next five years are as
follows: 1994-$61.3 million; 1995-$140.3 million; 1996-$69 million; 1997-$13.8
million and 1998-$27.8 million.
In 1993 and 1992, the company recorded extraordinary losses for early
retirement of debt. In 1993, the company retired $63 million of the 9.5%
debentures. The extraordinary loss was $2.3 million, after income tax benefits
of $2.1 million, or $.06 per share. The funding source for the early redemption
was the sale of notes receivable. In 1992, the company retired the $172.5
million of convertible subordinated notes, $30 million of the 9.5% debentures
and certain other debt. The extraordinary loss was $5.9 million, after income
tax benefits of $3.7 million, or $.15 per share. Funding sources related to the
1992 early retirement were bank lines, medium-term notes, sale of notes
receivable and commercial paper.
The company has two commercial paper programs supported by committed $400
million and $200 million revolving credit agreements with a group of banks.
Currently, the company limits
-38-
the amount of commercial paper issued at any time plus the amount of borrowing
under uncommitted credit lines to the unused credit available through the
committed credit agreements. The $400 million credit agreement matures in
October 1997. The $200 million credit agreement matures in October 1994, but
the company intends to renew the agreement prior to maturity. At year end, the
company had no borrowings under the agreements which carry combined annual
facility and commitment fees of .25% and .15% for the $400 million agreement and
the $200 million agreement, respectively. The interest rate is based on various
money market rates selected by the company at the time of borrowing.
The credit agreements contain various covenants, including restrictions on
additional indebtedness, payment of cash dividends and acquisition of the
company's common stock. None of these covenants negatively impact the company's
liquidity or capital resources at this time. Reinvested earnings of
approximately $92 million were available at year end for cash dividends and
acquisition of the company's stock. The agreements contain a provision that, in
the event of a defined change of control, the credit agreements may be
terminated.
The company has registered $565 million in medium-term notes. Of this, the
remaining $289.6 million may be issued from time to time, at fixed or floating
interest rates, as determined at the time of issuance.
The unsecured term bank loans have original maturities of three years and
bear interest at floating rates. Unsecured credit lines have original
maturities of generally less than one year and bear interest at floating rates.
The loans contain essentially the same covenants as the revolving credit
agreements and are prepayable without penalty.
The carrying value of assets collateralized under mortgaged real estate
notes and other debt was approximately $9.4 million and $123 million at year end
1993 and 1992, respectively.
Components of interest expense are as follows:
(In thousands) 1993 1992 1991
------ ------ ------
Interest costs incurred:
Long-term debt $44,628 $50,524 $64,068
Capital lease obligations 31,355 29,103 26,915
Other 2,046 1,475 2,539
------- ------- -------
Total incurred 78,029 81,102 93,522
Less interest capitalized - - 169
------- ------- -------
Interest expense $78,029 $81,102 $93,353
------- ------- -------
------- ------- -------
-39-
The company's employee stock ownership plan (ESOP) allows substantially all
associates to participate. The ESOP purchased 640,000 shares of common stock
from the company at $31.25 per share, resulting in proceeds of $20 million. The
ESOP borrowed the money from a bank. The company guaranteed the bank loan. The
loan balance is presented in long-term debt with an offset as a reduction of
shareholders' equity. The ESOP will repay the loan with proceeds from company
contributions.
The company makes contributions based on fixed debt service requirements of
the ESOP loan. The ESOP used $.6 million of common stock dividends for debt
service in each of 1993, 1992 and 1991. During 1993, 1992 and 1991, the company
recognized $1.1 million, $.9 million and $.8 million, respectively, in
compensation expense. Interest expense of $.5 million, $.7 million and $1.3
million was recognized at average rates of 3.7%, 4.4% and 7.7% in 1993, 1992 and
1991, respectively.
The company enters into interest rate hedge agreements to manage interest
costs and exposure to changing interest rates. At year end 1993 and 1992,
agreements were in place that effectively fixed rates on $70 million and $270
million, respectively, of the company's floating rate debt. Additionally, for
both years, $60 million of agreements convert fixed rate debt to floating and a
$100 million transaction hedges the company's risk of fluctuation between prime
rate and LIBOR. The maturities for such agreements range from 1995 to 1998.
The counterparties to these agreements are major national and international
financial institutions.
The fair value of long-term debt as of year end 1993 and 1992 was
determined using valuation techniques that considered cash flows discounted at
current market rates and management's best estimate for instruments without
quoted market prices. At year end 1993 and 1992, the fair value of debt
exceeded the carrying amount by $13.8 million and $16.5 million, respectively.
For interest rate swap agreements, the fair value was estimated using
termination cash values. At year end 1993, swap agreements had no fair value.
At year end 1992, swap agreements had a fair value of $1.7 million. The company
does not have any financial basis in the hedge agreements other than accrued
interest payable or receivable.
LEASE AGREEMENTS
CAPITAL AND OPERATING LEASES: The company leases certain distribution
facilities with terms generally ranging from 20 to 30 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.
-40-
The company leases company-operated retail store facilities with terms
generally ranging from 3 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 three renewal options of two to
five years. Certain equipment is leased under agreements ranging from 2 to 8
years with no renewal options.
Accumulated amortization related to leased assets under capital leases was
$41.7 million and $59.5 million at year end 1993 and 1992, respectively.
Future minimum lease payment obligations for leased assets under capital
leases as of year end 1993 are set forth below:
(In thousands)
LEASE
YEARS OBLIGATIONS
- ----- -----------
1994 $ 16,719
1995 16,672
1996 16,554
1997 16,244
1998 15,816
Later 143,209
Total minimum lease payments 225,214
Less estimated executory costs 332
--------
Net minimum lease payments 224,882
Less interest 101,754
-------
Present value of net minimum lease payments 123,128
Less current obligations 5,618
-------
Long-term obligations $117,510
-------
-------
Future minimum lease payments required at year end 1993 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
- ----- -------- ---------- --------- -------
1994 $ 92,936 $ 46,105 $16,407 $ 63,238
1995 83,905 43,084 10,277 51,098
1996 77,680 39,733 5,057 43,004
1997 71,364 36,700 1,219 35,883
1998 64,559 32,702 347 32,204
Later 368,039 165,396 - 202,643
------- ------- ------ -------
Total minimum
lease payments $758,483 $363,720 $33,307 $428,070
------- ------- ------ -------
------- ------- ------ -------
-41-
The following table shows the composition of total annual rental expense
under noncancelable operating leases and subleases with initial terms of one
year or greater:
(In thousands) 1993 1992 1991
- -------------- ------- ------- -------
Minimum rentals $126,040 $123,189 $119,819
Contingent rentals 182 247 415
Less sublease income 57,308 54,348 51,506
------- ------- -------
Rental expense $ 68,914 $ 69,088 $ 68,728
------- ------- -------
------- ------- -------
At year end 1993, the company is contingently liable for future minimum
rental commitments of $335 million.
DIRECT FINANCING LEASES: The company leases retail store facilities for
sublease to customers with terms generally ranging from 5 to 25 years. Most
leases provide for a contingent rental based on sales performance in excess of
specified minimums. Sublease rentals are generally higher than the rental paid.
The leases and subleases usually contain provisions for one to four renewal
options of two to five years.
The following table shows the future minimum rentals to be received under
direct financing leases and future minimum lease payment obligations under
capital leases in effect at December 25, 1993:
(In thousands) LEASE RENTALS LEASE
YEARS RECEIVABLE OBLIGATIONS
- ----- ------------- -----------
1994 $ 41,633 $ 29,375
1995 40,560 29,553
1996 39,083 29,617
1997 36,751 29,646
1998 33,229 29,599
Later 293,696 277,785
------- -------
Total minimum lease payments 484,952 425,575
Less estimated executory costs 2,062 2,055
------- -------
Net minimum lease payments 482,890 423,520
Less unearned income 235,813 -
Less interest - 196,467
------- -------
Present value of net minimum
lease payments 247,077 227,053
Less current portion 11,814 7,554
------- -------
Long-term portion $235,263 $219,499
------- -------
------- -------
Contingent rental income and contingent rental expense were not material in
1993, 1992 or 1991.
-42-
FACILITIES CONSOLIDATION AND RESTRUCTURING
The results in 1993 include a charge of $107.8 million for additional
facilities consolidations, re-engineering, impairment of retail-related assets
and elimination of regional operations. Facilities consolidations will result
in the closure of five distribution centers, the relocation of two operations,
the consolidation of a center's administrative function and completion of the
1991 facilities consolidation actions. The related charge provides for
severance costs, impaired property and equipment, product handling and damage,
and impaired other assets. The re-engineering component of the charge provides
for severance costs of terminating associates displaced by the re-engineering
plan. Impairment of retail-related assets provides for the present value of
lease payments and assets associated with certain retail supermarket locations
leased or owned by the company. These sites are no longer strategically viable
due to size, location or age. Elimination of regional operations in early 1994
will result in cash severance payments to affected associates.
The 1991 restructuring plan was initiated to reduce costs and increase
operating efficiency by consolidating four distribution centers into larger,
higher volume and more efficient facilities. The $67 million charge included
associate severance, lease terminations and impairment of related assets. The
plan has resulted in the closing or consolidation of four facilities whose
operations were assimilated into other distribution centers. Additional
estimated costs, related primarily to asset dispositions in process, were made
in the 1993 charge.
TAXES ON INCOME
Components of taxes on income (tax benefit) are as follows:
(In thousands) 1993 1992 1991
- -------------- ------ ------ ------
Current:
Federal $48,742 $55,473 $56,634
State 10,327 11,814 8,849
------ ------ ------
Total current 59,069 67,287 65,483
------ ------ ------
Deferred:
Federal (20,160) 7,280 (21,500)
State (4,311) 1,470 (4,019)
------ ------ ------
Total deferred (24,471) 8,750 (25,519)
------ ------ ------
Taxes on income $34,598 $76,037 $39,964
------ ------ ------
------ ------ ------
-43-
Deferred tax expense (benefit) relating to temporary differences includes
the following components:
(In thousands) 1993 1992 1991
---- ---- ----
Depreciation $ 516 $ 2,161 $ (301)
Facilities consolidation
and reserve activities (31,519) 10,989 (20,977)
Retirement benefits 13,094 517 (350)
Investment valuation (6,767) (4,292) (1,717)
Credit losses (5,417) (4,539) 421
Prepaid expenses 3,200 - -
Asset dispositions 2,670 3,818 186
Lease transactions (2,307) (230) (509)
Noncompete agreement 2,170 2,552 2,556
Associate benefits (2,115) (3,494) (6,525)
Note sales 1,880 623 1,038
Other 124 645 659
------ ------ ------
Deferred tax expense
(benefit) $(24,471) $ 8,750 $(25,519)
------ ------ ------
------ ------ ------
Temporary differences that give rise to deferred tax assets and liabilities as
of December 25, 1993, are as follows:
DEFERRED DEFERRED
TAX TAX
(In thousands) ASSETS LIABILITIES
--------- -----------
Depreciation $ 4,333 $ 88,609
Facilities consolidation and
reserve activities 51,942 -
Associate benefits 31,878 -
Credit losses 22,579 -
Investment valuation 13,848 1,758
Lease transactions 8,857 1,623
Inventory 7,743 18,401
Asset dispositions 5,580 -
Acquired loss carryforwards 4,514 -
Retirement benefits - 16,568
Note sales - 3,555
Prepaid expenses - 3,200
Other 8,954 8,582
------- -------
Gross deferred taxes 160,228 142,296
Valuation allowance (6,514) -
------- -------
Total deferred taxes $153,714 $142,296
------- -------
------- -------
Total deferred taxes,
December 26, 1992 $112,904 $125,957
------- -------
------- -------
The effect of the increase in the federal statutory rate to 35% on deferred
tax assets and liabilities was immaterial. The
-44-
valuation allowance contains $4.5 million of acquired loss carryforwards that,
if utilized, will be reversed to goodwill in future years.
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
(In thousands) 1993 1992 1991
---- ---- ----
Statutory rate 35.0% 34.0% 34.0%
State income taxes, net of
federal tax benefit 5.4 4.4 3.1
Acquisition-related differences 6.6 2.3 4.7
Possible assessments - (1.4) 2.1
Sale of insurance subsidiary - - (4.8)
Other 1.0 (.3) (.8)
---- ---- ----
Effective rate 48.0% 39.0% 38.3%
---- ---- ----
---- ---- ----
SHAREHOLDER'S EQUITY
The company offers a Dividend Reinvestment and Stock Purchase Plan which
offers 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. Shareholders reinvested dividends in 174,000 and 157,000 new shares in
1993 and 1992, respectively. Additional shares totaling 9,000 and 13,000 in
1993 and 1992, respectively, were purchased at market value by shareholders.
The company has a shareholder rights plan designed to protect shareholders
should the company become the target of coercive and unfair takeover tactics.
Shareholders have one right for each share of stock held. When exercisable,
each right entitles shareholders to buy one share of common stock at a specific
price in the event of certain defined actions that constitute a change of
control. The rights expire on July 6, 1996.
The company has severance agreements with certain management associates.
The agreements generally provide two years' salary to these associates if the
associate's employment terminates within two years after a change of control.
In the event of a change of control, a supplemental trust will be funded to
provide these salary obligations.
INCENTIVE STOCK PLANS
The company's stock option plans allow the granting of nonqualified stock
options and incentive stock options, with or without stock appreciation rights
(SARs), to key associates.
-45-
In 1993 and 1992, options with SARs were exercisable for 35,000 and 46,000
shares, respectively. Options without SARs were exercisable for 841,000 shares
in 1993 and 805,000 shares in 1992. At year end 1993, there were 1.5 million
shares available for grant under the stock option plans.
Stock option transactions are as follows:
(Shares in thousands) Options Price Range
------- -------------
Outstanding, December 29, 1990 1,225 $4.72 - 42.13
Exercised (34) $12.88 - 37.06
Canceled and forfeited (23) -
------- -------------
Outstanding, December 28, 1991 1,168 $4.72 - 42.13
Granted 4 $30.00
Exercised (28) $12.88 - 29.81
Canceled and forfeited (60) -
------- -------------
Outstanding, December 26, 1992 1,084 $4.72 - 42.13
Exercised (59) $20.33 - 31.75
Canceled and forfeited (42) -
------- -------------
Outstanding, December 25, 1993 983 $4.72 - 42.13
------- ------------
------- ------------
The company has a stock incentive plan that allows awards to key associates
of up to 400,000 restricted shares of common stock and phantom stock units. The
company has issued 133,000 restricted common shares, net of 10,000 shares
forfeited in 1993. These shares were recorded at the market value when issued,
$4.4 million, and are amortized to expense as earned. The unamortized portion,
$1.8 million and $2.1 million in 1993 and 1992, respectively, is netted against
capital in excess of par value within shareholders' equity. In the event of a
change of control, the company may accelerate the vesting and payment of any
award or make a payment in lieu of an award.
ASSOCIATE RETIREMENT PLANS
The company sponsors retirement and profit sharing plans for substantially
all nonunion and some union associates. The company also has nonqualified,
unfunded supplemental retirement plans for selected associates. These plans
comprise the company's defined benefit pension plans.
Contributory profit sharing plans maintained by the company are 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. Expenses for these plans were
$2 million, $1.1 million and $.8 million in 1993, 1992 and 1991, respectively.
-46-
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.
The following table sets forth the company's defined benefit pension plans'
funded status and the amounts recognized in the statements of earnings.
Substantially all the plans' assets are invested in listed stocks, short-term
investments and bonds. The significant actuarial assumptions used in the
calculation of funded status for 1993 and 1992 are: discount rate - 7.5% and
8.5%, respectively; compensation increases - 4% and 5%, respectively; and return
on assets - 9.5% and 10%, respectively.
December 25, 1993 December 26, 1992
----------------- -----------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Excced Accumulated Exceed
(In thousands) Benefits Assets Benefits Assets
- ----------------------------------------------------------------------
Actuarial present
value of accumulated
benefit obligations:
Vested $166,474 $9,587 $129,248 $11,701
Total $174,332 $16,577 $135,895 $12,444
-------- ------- -------- -------
-------- ------- -------- -------
Projected benefit
obligations $187,833 $18,302 $149,108 $13,886
Plan assets at
fair value 176,307 - 139,989 -
-------- ------- -------- -------
Projected benefit
obligation in
excess of
plan assets 11,526 18,302 29,119 13,886
Unrecognized net
loss (42,195) (7,672) (19,800) (5,416)
Unrecognized prior
service cost (2,293) (777) (2,910) -
Unrecognized
net asset (obligation) 291 (216) 1,447 (749)
------- ------- -------- ------
Pension liability
(asset) $(32,671) $ 9,637 $(12,144) $ 7,721
-------- ------- -------- -------
-------- ------- -------- -------
-47-
Net pension expense includes the following components:
(In thousands) 1993 1992 1991
------- ------- -------
Service cost $ 5,323 $ 4,997 $ 4,651
Interest cost 14,792 13,503 11,955
Actual return
on plan assets (19,103) (8,159) (24,159)
Net amortization
and deferral 8,039 (5,030) 15,170
------- ------- -------
Net pension expense $ 9,051 $ 5,311 $ 7,617
------- ------- -------
------- ------- -------
Certain associates have pension and health care benefits provided under
collectively bargained multiemployer agreements. Expenses for these benefits
were $44 million, $40 million and $37.1 million for 1993, 1992 and 1991,
respectively.
ASSOCIATE POSTRETIREMENT HEALTH CARE BENEFITS
In 1991, the company adopted SFAS No. 106 - Employers' Accounting for
Postretirement Benefits Other Than Pensions. The company elected to recognize
immediately the accumulated postretirement benefit obligation, resulting in a
charge to net earnings of $9.3 million. The effect of the change on 1991 net
earnings, excluding the cumulative effect upon adoption, was not material.
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.
Components of postretirement benefits expense are as follows:
(In thousands) 1993 1992 1991
------ ------ ------
Service cost $ 140 $ 108 $ 194
Interest cost 1,628 1,430 1,210
Amortization of net loss 138 - -
----- ----- -----
Postretirement expense $1,906 $1,538 $1,404
----- ----- -----
----- ----- -----
-48-
The composition of the accumulated postretirement benefit obligation (APBO)
and the amounts recognized in the balance sheets are presented below.
(In thousands) 1993 1992
------ ------
Retirees $13,299 $13,824
Fully eligible actives 1,916 1,695
Others 1,680 1,485
APBO 16,895 17,004
Unrecognized net loss 3,333 -
------ ------
Accrued postretirement benefit cost $13,562 $17,004
------ ------
------ ------
During 1993, a postretirement benefit obligation was settled. No
additional benefit payments will be made for this terminated obligation.
The weighted average discount rate used in determining the APBO was 7.5%
and 9.5% for 1993 and 1992, respectively. For measurement purposes in 1993 and
1992, a 14% and 15%, respectively, annual rate of increase in the per capita
cost of covered medical care benefits was assumed. In 1993, the rate was
assumed to decrease to 8% by 2000, then to 7.5% in 2001 and thereafter. In
1992, the rate was assumed to decrease to 8% by 1999 and remain at 8%
thereafter. If the assumed health care cost increased by 1% for each future
year, the current cost and the APBO would have increased by 3% to 5% for all
periods presented.
The company also provides other benefits for certain inactive associates.
Expenses related to these benefits are immaterial.
SUPPLEMENTAL CASH FLOWS INFORMATION
(In thousands) 1993 1992 1991
------ ------ ------
Cash paid during the year for:
Interest, net of
amounts capitalized $79,634 $82,051 $91,301
Income taxes $74,320 $65,884 $61,437
Direct financing leases
and related obligations $33,594 $27,507 $44,055
Property and equipment
additions by capital leases $21,011 $22,513 $9,182
-49-
In 1993, the company acquired the assets or common stock of three
businesses. In August, the company purchased distribution center assets located
in Garland, Texas. In September and November, the company purchased certain
assets and the common stock, respectively, of two supermarket operators in
southern Florida. The acquisitions were accounted for as purchases. The
results of these entities are not material to the company. Cash paid for the
acquisitions, net of cash acquired, was $51.1 million. The fair value of
assets acquired was $111.1 million, with liabilities assumed or created of $9
million.
In 1992, the company acquired the common stock of Baker's Supermarkets, the
operator of 10 supermarkets located in Omaha, Neb. The acquisition was
accounted for as a purchase. The results of Baker's operations are not material
to the company. The company issued 1,073,512 shares of common stock at a price
of $31.79 per share, or $34.1 million. The fair value of assets acquired was
$88.7 million, with liabilities assumed or created of $39.8 million. Cash paid
for the acquisition, net of cash acquired, was $8.2 million.
LITIGATION AND CONTINGENCIES
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 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.
Because the litigation is in its preliminary stages, management has been
unable to conclude that an adverse resolution is not reasonably likely and its
ultimate outcome cannot presently be determined. Accordingly, management cannot
predict the potential liability, if any, to the company. However, the company
has begun an investigation and, based on available information, management does
not believe that an adverse outcome is likely that would materially affect the
company's consolidated financial position. The company intends to vigorously
defend against the suits.
The company's facilities are subject to various laws and regulations
regarding the discharge of materials into the environment. In conformity with
these provisions, the company has a comprehensive program for testing and
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 anticipated costs of all known
remediation requirements. In
-50-
addition, the company is addressing several other environmental cleanup matters
involving its properties, all of which the company believes are immaterial.
From time to time the company is named as a potentially responsible party,
with others, with respect to EPA-designated superfund sites. Under current law,
the company's liability for remediation of such sites may be joint and several
with other responsible parties, regardless of the extent of the company's use of
the sites in relation to other users. However, the company believes that, to
the extent it is ultimately determined to be liable for hazardous waste
deposited 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 to achieving full compliance with all applicable laws and
regulations.
The company is a party to various other litigation, possible tax
assessments and other matters, some of which are for substantial amounts,
arising in the ordinary course of business. While the ultimate effect of such
actions cannot be predicted with certainty, the company expects that the outcome
of these matters will not result in a material adverse effect on its
consolidated financial position or results of operations.
-51-
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, 1993 and December 26, 1992,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended December 25, 1993.
Our audits also included the financial statement schedules listed in the Index
at Item 14. These financial statements and financial statement schedules are
the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules 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 financial position of Fleming Companies, Inc. and
subsidiaries as of December 25, 1993 and December 26, 1992, and the results of
their operations and their cash flows for each of the three years in the period
ended December 25, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules when
considered in relation to the basic consolidated statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche
Oklahoma City, Oklahoma
February 10, 1994
-52-
QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
1993 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------
Net sales $4,044,894 $2,964,655 $2,936,010 $3,146,586 $13,092,145
Costs and expenses:
Cost of sales 3,803,545 2,787,087 2,767,074 2,969,072 12,326,778
Selling and administrative 170,893 121,366 125,106 141,105 558,470
Interest expenses 23,481 17,804 17,796 18,948 78,029
Interest income (18,548) (14,469) (14,885) (15,000) (62,902)
Equity investment results 2,067 805 2,952 6,041 11,865
Facilities consolidation
and restructuring - 6,500 - 101,327 107,827
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 3,981,438 2,919,093 2,898,043 3,221,493 13,020,067
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) before taxes 63,456 45,562 37,967 (74,907) 72,078
Taxes on income (tax benefit) 26,081 18,726 17,662 (27,871) 34,598
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) before
extraordinary loss 37,375 26,836 20,305 (47,036) 37,480
Extraordinary loss from early
retirement of debt - - - 2,308 2,308
- ---------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 37,375 $ 26,836 $ 20,305 $ (49,344) $ 35,172
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net earnings (loss) per share:
Primary before extraordinary
loss $1.02 $.73 $.55 $(1.28) $1.02
Extraordinary loss - - - .06 .06
- ---------------------------------------------------------------------------------------------------------
Primary $1.02 $.73 $.55 $(1.34) $.96
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Fully diluted before
extraordinary loss $1.02 $.73 $.55 $(1.28) $1.02
Extraordinary loss - - - .06 .06
- ---------------------------------------------------------------------------------------------------------
Fully diluted $1.02 $.73 $.55 $(1.34) $ .96
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Dividends paid per share $.30 $.30 $.30 $.30 $1.20
Weighted average shares
outstanding 36,722 36,780 36,833 36,896 36,801
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
The first quarter of both years consists of 16 weeks, all other quarters are 12
weeks.
The second quarter of 1993 includes $11.2 million of pretax income resulting
from the favorable resolution of a litigation matter and a $1.2 million accrual
for charges in other legal proceedings. Also included is a $2 million charge for
an increase to previously established reserves related to the company's
contingent liability for lease obligations. The company also recorded a $4.6
million gain from a real estate transaction during the second quarter of 1993.
The effective tax rate was increased in the third quarter of 1993 due to the new
tax law enacted in August 1993.
See discussion of facilities consolidation and restructuring charges in the
notes to consolidated financial statements.
-53-
QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
1992 First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------------------------
Net sales $3,905,861 $2,955,934 $2,926,805 $3,104,934 $12,893,534
Costs and expenses:
Cost of sales 3,678,598 2,796,876 2,773,220 2,918,164 12,166,858
Selling and administrative 151,033 107,633 107,154 129,163 494,983
Interest expense 26,332 18,577 18,626 17,567 81,102
Interest income (17,032) (14,524) (13,585) (14,336) (59,477)
Equity investment results 3,486 3,931 4,013 3,697 15,127
- ------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,842,417 2,912,493 2,889,428 3,054,255 12,698,593
- ------------------------------------------------------------------------------------------------------------------------
Earnings before taxes 63,444 43,441 37,377 50,679 194,941
Taxes on income 24,749 16,943 14,573 19,772 76,037
- ------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary loss 38,695 26,498 22,804 30,907 118,904
Extraordinary loss from
early retirement of debt - - - 5,864 5,864
- ------------------------------------------------------------------------------------------------------------------------
Net earnings $ 38,695 $ 26,498 $ 22,804 $ 25,043 $ 113,040
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Net earnings per share:
Primary before extraordinary loss $1.09 $.75 $.64 $.84 $3.33
Extraordinary loss - - - .16 .15
- ------------------------------------------------------------------------------------------------------------------------
Primary $1.09 $.75 $.64 $.68 $3.16
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Fully diluted before
extraordinary loss $1.04 $.72 $.62 $.83 $3.21
Extra ordinary loss - - - .16 .15
- ------------------------------------------------------------------------------------------------------------------------
Fully diluted $1.04 $.72 $.62 $.68 $3.06
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Dividends paid per share $.30 $.30 $.30 $.30 $1.20
Weighted average common
shares outstanding 35,449 35,493 35,541 36,657 35,759
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
The fourth quarter of 1992 reflects $4.9 million of income related to
litigation settlement.
-54-
SCHEDULE V
----------
FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
SCHEDULE V - PROPERTY AND EQUIPMENT
-----------------------------------
YEARS ENDED DECEMBER 25, 1993,
DECEMBER 26, 1992, AND DECEMBER 28, 1991
----------------------------------------
(In thousands)
Leased
Lease- Assets
Fixtures hold Under
and Improve- Capital
Land Buildings Equipment ments Leases Total
------- --------- --------- -------- -------- --------
BALANCE,
December 29,
1990 $44,802 $239,481 $368,777 $113,422 $120,237 $886,719
Additions
at cost 1,756 8,517 56,507 5,722 9,181 81,683
Retirements
or sales (146) (725) (30,038) (3,204) (1,708) (35,821)
------- --------- --------- -------- -------- ----------
BALANCE,
December 28,
1991 46,412 247,273 395,246 115,940 127,710 932,581
Additions
at cost 23 5,014 53,194 7,961 22,490 88,682
Business
acquired --- --- 10,469 1,576 13,629 25,674
Retirements
or sales (142) (967) (20,841) (1,743) (11,092) (34,785)
------- --------- --------- -------- -------- ----------
BALANCE,
December 26,
1992 46,293 251,320 438,068 123,734 152,737 1,012,152
Additions
at cost 4 7,257 39,859 7,613 21,011 75,744
Businesses
acquired 5,354 15,620 19,956 7,132 1,509 49,571
Retirements,
impairments
or sales (2,071) (5,880) (30,979) (4,582) (32,050) (75,562)
------- --------- --------- -------- -------- ----------
BALANCE,
December 25,
1993 $49,580 $268,317 $466,904 $133,897 $143,207 $1,061,905
------- --------- --------- -------- -------- ----------
------- --------- --------- -------- -------- ----------
In general, 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; mechanized warehouse
equipment - 15 years; and data processing equipment - 5 to 7 years.
Impairments in 1993 includes $16.7 million of property writedown recognized
through facilities consolidation and restructuring charge.
-55-
SCHEDULE VI
-----------
FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
SCHEDULE VI - ACCUMULATED DEPRECIATION
AND AMORTIZATION OF PROPERTY AND EQUIPMENT
------------------------------------------
YEARS ENDED DECEMBER 25, 1993,
DECEMBER 26, 1992 AND DECEMBER 28, 1991
---------------------------------------
(In thousands)
Leased
Lease- Assets
Fixtures hold Under
and Improve- Capital
Buildings Equipment ments Leases Total
--------- --------- -------- ------- --------
BALANCE,
December 29, 1990 $42,323 $179,570 $32,536 $53,877 $308,306
Charged to costs and expenses 10,275 47,147 8,524 6,750 72,696
Retirement or sales (417) (21,314) (2,133) (1,708) (25,572)
--------- --------- -------- ------- --------
BALANCE,
December 28, 1991 52,181 205,403 38,927 58,919 355,430
Charged to costs and expenses 10,077 47,539 7,943 6,262 71,821
Retirement or sales (661) (17,876) (1,633) (5,635) (25,805)
--------- --------- -------- ------- --------
BALANCE,
December 26, 1992 61,597 235,066 45,237 59,546 401,446
Charged to costs and expenses 10,892 49,709 9,130 6,853 76,584
Retirement, impairments
or sales (183) (23,934) (2,337) (24,730) (51,184)
--------- --------- -------- ------- --------
BALANCE,
December 25, 1993 $72,306 $260,841 $52,030 $41,669 $426,846
--------- --------- -------- ------- --------
--------- --------- -------- ------- --------
Impairments in 1993 includes $1.3 million of accumulated amortization written
off through facilities consolidation and restructuring charge.
-56-
SCHEDULE VIII
-------------
FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------------------
YEARS ENDED DECEMBER 25, 1993,
DECEMBER 26, 1992, AND DECEMBER 28, 1991
----------------------------------------
(In thousands)
Allowance
for
ALLOWANCE FOR DOUBTFUL ACCOUNTS Credit Losses Current Noncurrent
- ------------------------------- ------------- ------- ----------
BALANCE, December 29, 1990 $28,232
Charged to costs and expenses 17,281
Charge for noncurrent account
impairments 7,428
Uncollectible accounts written off,
less recoveries (20,183)
------
BALANCE, December 28, 1991 32,758 $25,330 $7,428
------ -----
------ -----
Charged to costs and expenses 28,258
Uncollectible accounts written off,
less recoveries (17,485)
------
BALANCE, December 26, 1992 43,531 $25,298 $18,233
------ -----
------ -----
Charged to costs and expenses 52,018
Uncollectible accounts written off, 32,954
less recoveries
BALANCE, December 25, 1993 $62,595 $44,320 $18,275
------- ------- -------
------- ------- -------
-57-