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 31, 1994
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
FLEMING COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
Oklahoma 48-0222760
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6301 Waterford Boulevard, Box 26647
Oklahoma City, Oklahoma 73126
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (405) 840-7200
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- -------------------------
Common Stock, $2.50 Par Value 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.
------
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 March 3, 1995, 37,429,000 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 $750 million.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of Part III has been incorporated by reference from the
registrant's proxy statement dated March 17, 1995, in connection with
its annual meeting of shareholders to be held on May 3, 1995.
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 food marketing and distribution industry with both wholesale and
retail operations. In July 1994, pursuant to a stock purchase agreement
between the company and Franz Haniel & Cie. GmbH, Fleming acquired all of the
outstanding stock of Haniel Corporation ("Haniel"). Haniel, its sole direct
subsidiary, Scrivner, Inc., and Scrivner, Inc.'s subsidiaries are collectively
referred to herein as "Scrivner." Fleming paid $388 million in cash and
refinanced substantially all of Scrivner's existing indebtedness (approximately
$670 million in aggregate principal and premium). In connection with the
acquisition, Fleming refinanced approximately $340 million in aggregate
principal amount of its own indebtedness.
The company currently serves as the principal source of supply for
approximately 10,000 retail food stores, including approximately 3,700
supermarkets. Company supplied supermarkets have a total area of
approximately 100 million square feet. The company serves food stores of
various sizes operating in a wide variety of formats, including conventional
full-service stores, supercenters, price impact stores (including warehouse
stores), combination stores (which typically carry a higher proportion of
non-food items) and convenience stores. These food stores are predominantly
independent stores, many of which operate and advertise under a common name
to promote greater consumer recognition. Fleming's retail customers also
include national and regional corporate chains. With customers in 43 states
and several international markets, the company services a geographically
diverse area.
The company's food distribution operations offer a wide variety of national
brand and private label products, including groceries, meat, dairy and
delicatessen products, frozen foods, produce, bakery goods and a variety of
general merchandise and related items. In addition, Fleming offers a wide
range of support services to its customers to help them compete more
effectively with other food retailers in their respective market areas.
In addition, the company has a significant presence in food retailing,
owning and operating 350 retail food stores, including 270 supermarkets with
an aggregate of approximately 9.5 million square feet. Company-owned stores
operate under a number of names and vary in format from super warehouse
stores and conventional supermarkets to convenience stores.
The company operates in two segments: food distribution and retail store
operations. Segment information as required by Statement of Financial
Accounting Standards No. 14 is presented in Item 8. Financial Statements and
Supplementary Data.
THE CONSOLIDATION, REORGANIZATION AND RE-ENGINEERING PLAN
Fleming has determined that its performance during the past several years,
along with the performance of a number of its retail customers, has been
unfavorably affected by a number of changes taking place within the food
marketing and distribution industry, which has become increasingly
competitive in an environment of relatively static over-all demand.
Alternative format food stores (such as warehouse stores and supercenters)
have gained retail food market share at the expense of traditional
supermarket operators, including independent grocers, many of whom are
customers of the company. Vendors, seeking to ensure that more of their
promotional dollars are used by retailers to increase sales volume,
increasingly direct promotional dollars to large self-distributing chains.
The company believes that these changes have led to reduced margins and lower
profitability among many of its customers and at the company itself. Having
identified these market forces, Fleming initiated specific actions to respond
to, and help its retail customers respond to, changes in the marketplace.
In January 1994, Fleming announced the details of a plan to improve
operating performance by consolidating facilities, eliminating regional
operations and re-engineering the distribution and pricing of goods and
services. The company believes consolidation, reorganization and
re-engineering will result in significant cost savings through lower product
handling expenses, lower selling and administrative expenses and reduced
staffing of retailer services (or increased income from retailers to offset
the cost of retailer services). Estimated pre-tax cost savings are expected
to grow to at least $65 million per year beginning in 1997 after the plan has
been fully implemented. The company believes these expense savings and income
offsets will allow it to deliver goods and services to its customers at a
lower all-in cost, while increasing the company's profitability. However,
unforeseen events or circumstances could cause the company to alter planned
work force reductions or facilities consolidations, thereby delaying or
reducing expected cost savings.
CONSOLIDATION. In order to improve operating efficiencies, the company
closed four distribution centers, with the closing of one more facility to be
announced. The business formerly conducted through these closed distribution
centers has been transferred to certain other company facilities. During
1994, approximately 450 associate positions were eliminated through
facilities consolidation.
2
OPERATIONAL REORGANIZATION. Historically, Fleming's operations were
organized around geographical divisions each of which functioned as a
separate business unit. Each division contained sales, merchandising, human
resources, distribution, procurement, accounting, store development and
management information functions, and provided services to a number of retail
stores of various formats located within a certain geographical area. As the
first step in its organizational realignment, Fleming closed its regional
administrative offices. This resulted in the elimination of approximately 100
associate positions. Staff functions previously performed at the regional
offices were moved to corporate headquarters, moved into the divisions or
eliminated.
RE-ENGINEERING. Fleming commissioned an internal management task force to
re-engineer Fleming's business processes at both the divisional and corporate
level. The task force made specific re-engineering recommendations, which were
approved by Fleming's Board of Directors, to enhance value-added services and
to eliminate non-value-added services.
The company is reorganizing itself around four core business units:
customer management, retailer services, category marketing and product
supply. Customer management, retailer services, and category marketing
represent the marketing functions of the company. Product supply represents
the procurement and distribution functions of the company. A fifth unit,
support services, will provide a variety of administrative support services
to all of the Company's operations.
Through customer management, the company will manage its relationships
with customers primarily on the basis of customer type instead of on the
basis of geography. This will enable the company to be more effective in
serving its diverse customer base. Through retailer services, the company
will offer retailers the same services it currently offers, except that these
services will be offered on a fee basis to those retailers choosing to
purchase such services. In the past, Fleming has offered many services
without a direct charge but has indirectly charged all customers for such
services. Through category marketing, the company will more efficiently
manage its relationships with vendors, manufacturers and other suppliers,
working to obtain the best possible promotional benefits offered by suppliers
and will pass through directly to retailers 100% of those benefits related to
grocery, frozen foods and dairy products. Through product supply, which will
be comprised of all food distribution centers and operations, the company
will work to provide retailers with the lowest possible "landed" cost of
goods (i.e., the total of cost of product and all related charges plus the
company's distribution fee).
A new flexible marketing plan for grocery, frozen foods and dairy products
will be introduced throughout the company's market areas. The flexible
marketing plan will be based on a new pricing policy whereby retailers will
pay the company's actual cost of acquiring goods, receiving 100% of available
promotional benefits from the vendor arranged by the company, including those
derived from forward buying. Customers will pay all costs incurred by the
company for transportation (which currently are often subsidized by the
company). Instead of paying a basic distribution fee, customers will pay
handling and storage charges, which will be higher than the prior
distribution fee. Additionally, retail customers will pay for all other
retailer services purchased.
The company estimates that the re-engineering process will be
substantially completed by the end of 1996. Re-engineering is currently being
implemented at certain of the company's operations in the western United
States and should be implemented throughout the remainder of the company's
operations over the course of 1995 and 1996.
3
PRODUCTS
The company supplies its customers with a full line of national brand
products as well as an extensive range of private and controlled label
products, perishables and non-food items. Controlled labels are those which
the company controls and private labels are those which may be offered only
in stores operating under specific banners, which may or may not be under the
company's control. Among the controlled labels offered by the company are
TV-R-, Hyde Park-R-, Marquee-R-, Bonnie Hubbard-R-, Montco-R-, Best Yet-R-
and Rainbow-R-. Among the private labels handled by the company are IGA-R-,
Piggly Wiggly-R-, and Sentry-R-. Controlled label and private label products
offer both the wholesaler and the retailer opportunities for higher margins as
the costs of national advertising campaigns can be eliminated. The controlled
label program is augmented with marketing and promotional support programs
developed by the company.
Certain categories of perishables also offer both the wholesaler and the
retailer opportunities for improved margins as consumers are generally
willing to pay relatively higher prices for produce and bakery goods and high
quality frozen foods. Furthermore, retailers are increasingly competing for
business through an emphasis on perishables and private label products.
SERVICES TO CUSTOMERS
The company offers value-added services to its customers. These services
include, among others, merchandising and marketing assistance, in-house
advertising, consumer education programs, retail electronic services and
employee training. See also "-- Capital Invested in Customers."
In addition, the company provides its customers with assistance in the
development and expansion of retail stores, including retail site selection
and market surveys; store design, layout, and decor assistance; and equipment
and fixture planning. The company also has expertise in developing sales
promotions, including employee and customer incentive programs, such as
"continuity programs" designed to entice the customer to return regularly to
the store.
SALE TERMS
The company charges customers for products based generally on an agreed
price which includes the company's defined "cost" (which does not give effect
to promotional fees and allowances from vendors), to which is added a fee
determined by the volume of the customer's purchase. In some geographic
areas, product charges are based upon a percentage markup over cost. A
delivery charge is usually added based on order size and mileage from the
distribution center to the customer's store. Payment may be received upon
delivery of the order, or within credit terms that generally are weekly or
semi-weekly.
As part of the re-engineering process and pursuant to its new flexible
marketing plan, the company will begin to charge the actual costs of acquiring
its grocery, frozen food and dairy products while passing through to its
customers all promotional fees and allowances received from vendors. In
addition, the company will charge customers for the costs of transportation
and will charge for handling and storage, which charges will be higher than
the previous basic distribution fee. The company will also begin charging
retailers directly for services for which they formerly paid indirectly. As
a result, the company believes it will lower the cost of products to most of
its customers while increasing the company's profitability.
DISTRIBUTION
The company currently operates 38 distribution centers which are
responsible for the distribution of national brand and private label
groceries, meat, dairy and delicatessen products, frozen foods, produce,
bakery goods and a variety of related food and non-food items. Six general
merchandise distribution centers distribute health and beauty care items and
other non-food items. One distribution center serves convenience stores and
one distribution center handles only dairy, delicatessen and fresh meat
products. Substantially all facilities are equipped with modern material
4
handling equipment for receiving, storing and shipping large quantities of
merchandise. As a result of the acquisition of Scrivner, the company has
closed four Scrivner distribution centers, and expects to close an additional
five distribution centers during 1995. Pursuant to the consolidation,
reorganization and re-engineering plan, the company has closed four
distribution centers and will close one additional distribution center.
The company's distribution facilities comprise more than 21 million square
feet of warehouse space. Additionally, the company rents, on a short-term
basis, approximately 7 million square feet of off-site temporary storage
space.
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. During 1994 and early 1995 the company engaged dedicated contract
carriers to deliver its products to customers from certain distribution
centers.
RETAIL STORES SERVED
The company serves approximately 10,000 retail stores ranging in size from
small convenience outlets to conventional supermarkets, combination units,
price impact stores and large supercenters. Among the stores served are
approximately 3,700 supermarkets with an aggregate of approximately 100
million square feet. Fleming's customers are geographically diverse, with
operations in 43 states and several international markets. The company'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 non-food items, including health and beauty care products and
general merchandise such as housewares, soft goods and stationery. Most
supermarkets also operate one or more specialty departments such as in-store
bakeries, delicatessens, seafood departments and floral departments.
The company believes that its focus on quality service, broad product
offerings, competitive prices and value-added services enables the company to
maintain long-term customer relationships while attracting new customers. The
company has targeted self-distributing chains and operators of alternative
format stores as sources of incremental sales. These operations have gained
increasing market share in the retail food industry in recent years. The
company currently serves 980 chain stores, compared to 810 at year-end 1993.
In late 1993, Fleming signed a six-year supply agreement with Kmart to serve
new Super Kmart Centers in areas where Fleming has distribution facilities.
The company also licenses or grants franchises to retailers to use certain
trade names such as IGA-R-, Piggly Wiggly-R-, Food 4 Less-R-, Big Star-R-, Big
T-R-, Buy-for-Less-R-, Checkers-R-, Festival Foods-R-, Jubilee Foods-R-,
Jamboree Foods-R-, MEGA MARKET-R-, Minimax-R-, Sentry-TM-, Shop 'n Bag-R-, Shop
'n Kart-R-, Super 1 Foods-R-, Super Save-R-, Super Thrift-R-, Thriftway-R-,
United Supers-R-, and Value King-R-. There are approximately 2,200 food stores
operating under company franchises or licenses.
COMPANY-OWNED STORES
Principally as a result of the acquisition of Scrivner, the number of
company-owned stores increased from 72 at December 25, 1993 to 350 at
December 31, 1994, including 270 supermarkets with an aggregate of
approximately 9.5 million square feet. Company-owned stores are located
in 14 states and are all served by the company's distribution centers.
Formats vary from super warehouse stores and conventional supermarkets to
convenience stores. Generally in the industry, an average super warehouse
store is 58,000 square feet, a conventional supermarket is 23,000 square feet
and a convenience store is 2,500 square feet. All company-owned supermarkets
are designed and equipped to offer a broad selection of both national brands
as well as private label products at attractive prices while maintaining high
levels of service. Most supermarket formats
5
have extensive produce sections and complete meat departments together with
one or more specialty departments such as in-store bakeries, delicatessens,
seafood departments and floral departments. Specialty departments generally
produce higher gross margins per selling square foot than general grocery
sections.
The company-owned stores provide added purchasing power as they enable the
company to commit to certain promotional efforts at the retail level. The
company, through its owned stores, is able to retain many of the promotional
savings offered by vendors in exchange for volume increases.
Until recently, the company conducted its retail operations primarily as an
extension of its wholesale business. Each company-owned retail store was managed
by personnel at the distribution center serving such store and did not benefit
from any coordinated retail strategy. The company emphasized wholesale
operations, and many of its retail stores, while making a positive contribution
to overall company profitability through increased wholesale volume, were not
profitable on a stand-alone basis.
In 1993, the company determined that its retail operations were
underperforming and that, as a part of its overall business strategy, the
company would pursue stand-alone profitability in its retail operations. The
company recruited a senior officer to assume responsibility for retail
operating results for all company-owned stores and to focus on the
development of successful retail strategies.
TECHNOLOGY
Fleming has played a leading role in employing technology for internal
operations as well as for its independent retail customers. The company may
enter into agreements with one or more technology partners to maintain this
position.
Over the past three years, Fleming has introduced radio-frequency
terminals in its distribution centers to track inventory, further improve
customer service levels, reduce out-of-stock conditions and obtain other
operational improvements. Most Fleming distribution centers are managed by
computerized inventory control systems, along with warehouse productivity
monitoring and scheduling systems. Fleming intends to add these technological
aids to the Scrivner distribution system. Most of Fleming's truck fleet is
equipped with on-board computers to monitor the efficiency of deliveries to
its customers.
Additonally, the company has developed and is introducing an advanced
on-line communications vehicle, called Visionet, for instant electronic
connection of Fleming with vendors and retailers. Visionet is a retail-driven,
two-way rapid response communication system that ties vendors, product supply,
category managers, local category advisors and retailers together. One of
Visionet's features is the Opportunity Wire, which enables Fleming to
electronically offer retailers unique opportunities to buy products at
advantageous prices as well as assist in coordinating delivery.
SUPPLIERS
The company purchases its products from numerous vendors and growers. As the
largest single customer of many of its suppliers, the company is able to secure
favorable terms and volume discounts on most of its purchases, leading to lower
unit costs. The company purchases products from a diverse group of suppliers and
believes it has adequate and alternative sources of supply for substantially all
of its products.
6
CAPITAL INVESTED IN CUSTOMERS
As part of its services to retailers, the company provides capital to
customers in several ways. In making credit and investment decisions, the
company considers many factors, including estimated return on capital, risk
and the benefits to be derived from sustained or increased product sales. Any
equity investment or loan of $250,000 or more must be approved by the
company's business development committee and any investment or loan in excess
of $5 million must be approved by the Board of Directors. For equity
investments, the company has active representation on the customer's board of
directors. The company also conducts periodic credit reviews, receives and
analyzes customers' financial statements and visits customers' locations
regularly. On an ongoing basis, senior management reviews the company's
largest investments and credit exposures.
The company provides capital to certain customers by becoming primarily or
secondarily liable for store leases, by extending credit for inventory
purchases, and by guaranteeing loans and making secured loans to and equity
investments in customers.
STORE LEASES. The company leases stores for sublease to certain customers.
Sublease rentals are generally higher than the base rental to the company. As of
December 31, 1994, the company was the primary lessee of approximately 1,000
retail store locations subleased to and operated by customers. In certain
circumstances, the company also guarantees the lease obligations of certain
customers.
EXTENSION OF CREDIT FOR INVENTORY PURCHASES. The company has supply
agreements with customers in which it invests and, in connection with supplying
such customers, will, in certain circumstances, extend credit for inventory
purchases. Customary trade credits terms are up to seven days; the company has
extended credit for additional periods under certain circumstances.
GUARANTEES AND SECURED LOANS. The company guarantees the obligations of
certain of its customers. Loans are also made to customers primarily for
store expansions or improvements. These loans are typically secured by
inventory and store fixtures, bear interest at rates at or above the prime
rate, and are for terms of up to ten years. During fiscal year 1993 and 1992
Fleming sold, with limited recourse, $68 million and $45 million,
respectively, of notes evidencing such loans. During fiscal years 1993 and
1992, Scrivner sold, with limited recourse, $51 million and $40 million,
respectively, of notes evidencing similar loans. Neither Scrivner nor the
company sold any notes during 1994. The company believes its loans to
customers are illiquid and would not be investment grade if rated.
EQUITY INVESTMENTS. The company has made equity investments in strategic
multi-store customers, which it refers to as Business Development Ventures, and
in smaller operators, referred to as Equity Stores. Equity Store participants
typically retain the right to purchase the company's investment over a five to
ten-year period. Many of the customers in which the company has made equity
investments are highly leveraged, and the company believes its equity
investments are highly illiquid.
7
The following table sets forth the components of Fleming's portfolio of
loans to and investments in customers at year end 1994 and 1993.
CUSTOMERS WITH EQUITY INVESTMENTS
---------------------------------------------
TOTAL LOAN
RETAIL TO AND CUSTOMERS
BUSINESS STORES EQUITY IN WITH
DEVELOPMENT EQUITY HELD FOR EQUITY NO EQUITY
VENTURES STORES RESALE CUSTOMERS INVESTMENTS TOTAL
----------- ------ --------- ---------- ------------ ------
1994
- -----
Loans (a) $ 52 $55 $ 1 $108 $267 $375
Equity Investments 45 6 25 76 - 76
---- --- --- ---- ---- ----
Total $ 97 $61 $26 $184 $267 $451
==== === === ==== ==== ====
1993
- -----
Loans (a) $ 78 $55 $ 2 $135 $178 $313
Equity Investments 28 15 12 55 - 55
---- --- --- ---- ---- ----
Total $106 $70 $14 $190 $178 $368
==== === === ==== ==== ====
<FN>
- ------------------------
(a) Includes current portion of loans, which amounts are recorded as
receivables on the company's balance sheet.
The table does not include the company's investments in customers through
direct financing leases, lease guarantees, operating leases, loan guarantees
or credit extensions for inventory purchases. As of December 31, 1994, the
company's undiscounted obligations under direct financing leases and lease
guarantees were $213 million and $227 million, respectively.
The company has shifted its strategy to emphasize ownership of, rather
than investment in, retail stores. In addition, the company intends to
de-emphasize credit extensions to its customers and to reduce future credit
loss expense by raising the company's financial standards for credit
extensions and by conducting post-financing reviews more frequently and in
more depth. Fleming's credit loss expense, including from receivables as well
as from investments in customers, was $61 million in the year ended
December 31, 1994 and $52 million and $28 million in 1993 and 1992,
respectively.
COMPETITION
Competition in the food marketing and distribution industry is intense. The
company's primary competitors are national chains who perform their own
distribution (such as The Kroger Co. and Albertson's, Inc.), national food
distributors (such as SUPERVALU Inc.) and regional and local food distributors.
The principal competitive factors include price, quality and assortment
of product lines, schedules and reliability of delivery, and the range and
quality of customer services. The 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 the company compete with other retail food outlets in
their geographic areas on the basis of price, quality and assortment,
store location and format, sales promotions, advertising, availability of
parking, hours of operation and store appeal.
The primary competitors of the company-owned stores are national, regional
and local chains, as well as independent supermarkets and convenience stores.
The principal competitive factors include price, quality and assortment,
store location and format, sales promotions, advertising, availability of
8
parking, hours of operation and store appeal.
EMPLOYEES
At year-end 1994, the company had approximately 42,400 full time and
part-time associates. Almost half of the company's associates are covered by
collective bargaining agreements with the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America, the United Food
and Commercial Workers, the International Longshoremen's and Warehousemen's
Union and the Retail Warehouse and Department Store Union. Most of such
agreements expire at various times throughout the next five years.
The company believes it has satisfactory relationships with its unions.
9
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
------------ ------------ --------
Altoona, PA 164 Owned
Buffalo, NY 540 Leased
Columbus, OH 264 Leased
Concordia, KS 107 Owned
El Paso, TX (1) 465 Leased
Ewa Beach, HI 196 Leased
Fresno, CA 380 Owned
Garland, TX 1,206 Owned
Geneva, AL 345 Leased
Houston, TX 662 Leased
Huntingdon, PA 257 Owned
Johnson City, TN 235 Owned
Kansas City, KS 909 Leased
Knoxville, TN 202 Owned
La Crosse,WI 913 Owned
Lafayette, LA 430 Owned
Laurens, IA 368 Owned
Lincoln, NE 255 Leased
Lubbock, TX (1) 378 Owned
Marshfield, WI 156 Owned
Massillon, OH 547 Owned
Memphis, TN 780 Owned
Miami, FL 763 Owned
Minneapolis, MN (2) 479 Owned
Milwaukee, WI 600 Owned
Nashville, TN 734 Leased
North East, MD (3) 107 Owned
Oklahoma City, OK (4) 966 Owned/Leased
Peoria, KS 325 Owned
Philadelphia, PA (3) 830 Leased
Phoenix, AZ 912 Owned
Portland, OR 323 Owned
Sacramento, CA 681 Owned
Salt Lake City, UT 361 Owned
San Antonio, TX 513 Leased
Sikeston, MO 481 Owned
Superior, WI (2) 371 Owned
Syracuse, NY 284 Leased
Warsaw, NC 716 Owned
York, PA 450 Owned
------
19,655
10
GENERAL MERCHANDISE
-------------------
Dallas, TX 170 Leased
King of Prussia, PA 377 Leased
La Crosse, WI 162 Owned
Memphis, TN 339 Owned
Sacramento, CA 294 Owned
Topeka, KS 179 Leased
------
1,521
OUTSIDE STORAGE
---------------
Outside storage facilities -
typically rented on a
short-term basis. 6,731
------
Total square feet 27,907
======
<FN>
(1) Comprise the Lubbock distribution operation.
(2) The company plans to consolidate the administrative functions of
these two distribution operations effectively immediately.
(3) Comprise the Philadelphia distribution operation.
(4) The company operates two distribution operations in Oklahoma City.
One is owned and occupies 556,000 square feet and the other is
leased and occupies 410,000 square feet. The administrative
functions of these two distribution operations are consolidated.
At the end of 1994, Fleming operated a delivery fleet consisting of
approximately 2,300 power units and 4,700 trailers. Most of this
equipment is owned by the company.
Company-operated retail stores occupy approximately 9.5 million
square feet which is primarily leased.
ITEM 3. LEGAL PROCEEDINGS
TROPIN V. THENEN, ET AL., CASE NO. 93-2502-CIV-MORENO, UNITED STATES
DISTRICT COURT, SOUTHERN DISTRICT OF FLORIDA.
WALCO INVESTMENTS, INC., ET AL. V. THENEN, ET AL., CASE NO.
93-2534-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 a former subsidiary of the registrant and four
former employees of former subsidiaries of registrant. The cases contain
similar factual allegations. Plaintiffs allege, among other things, that
former employees of subsidiaries participated in fraudulent activities by
taking money for confirming diverting transactions which had not occurred and
that, in so doing, they acted within the scope of their employment.
Plaintiffs also allege that a former subsidiary allowed its name to be used
in furtherance of the alleged fraud.
The allegations against registrant's former subsidiary include common law
fraud,
11
breach of contract and negligence, conversion and civil theft. In addition,
allegations were made against the former subsidiary 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 denies the allegations and is vigorously defending the actions.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the company as of March 20, 1995:
YEAR FIRST
BECAME
NAME (AGE) PRESENT POSITION AN OFFICER
- ---------- ---------------- ----------
Robert E. Stauth (50) Chairman, President and
Chief Executive Officer 1987
Gerald G. Austin (57) Executive Vice President-
Operations 1982
E. Stephen Davis (54) Executive Vice President-
Scrivner Group 1981
Glenn E. Mealman (60) Executive Vice President-
National Accounts 1977
Harry L. Winn, Jr. (50) Executive Vice President
and Chief Financial Officer 1994
David R. Almond (55) Senior Vice President-
General Counsel and Secretary 1989
Ronald C. Anderson (52) Senior Vice President-General
Merchandise 1993
Mark K. Batenic (46) Senior Vice President-Customer
Management 1994
Darreld R. Easter (58) Senior Vice President-
Category Marketing 1988
William M. Lawson, Jr. (44) Senior Vice President-Corporate
Development/International
Operations 1994
Dixon E. Simpson (52) Senior Vice President-Retail
Services 1994
Larry A. Wagner (48) Senior Vice President-
Human Resources 1989
Thomas L. Zaricki (50) Senior Vice President-Retail
Operations 1993
Kevin J. Twomey (44) Vice President-Controller 1995
13
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.
Anderson, Lawson, Winn and Zaricki.
Mr. Anderson joined the company as Vice President-General
Merchandise in July 1993. In March 1995, he was named Senior Vice
President-General Merchandise. 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. Lawson joined the company in his present position in June 1994.
Prior to that, Mr. Lawson was a practicing attorney in Phoenix for 18 years.
Mr. Winn joined the company in his present position in May 1994.
He was with UtiliCorp United in Kansas City, an energy company, where he
was managing senior vice president and chief financial officer from 1990
to 1993.
Mr. Zaricki joined the company in his present position in October
1993. Since 1987, until joining the company, Mr. Zaricki was president
of Arizona Supermarkets, Inc., a regional supermarket chain
headquartered in Phoenix.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Fleming common stock is traded on the New York, Chicago and Pacific
stock exchanges. The ticker symbol is FLM. As of December 31, 1994, the
37.5 million outstanding shares were owned by 11,500 shareholders of
record and approximately 23,000 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.
1994 1993
--------------- ---------------
QUARTER HIGH LOW HIGH LOW
------- ------ ------ ------ ------
First $26.13 $24.25 $34.38 $30.75
Second 29.25 23.50 33.75 31.25
Third 30.00 22.88 33.75 31.13
Fourth 24.50 22.63 33.25 23.75
Cash dividends on Fleming common stock have been paid for 78
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 1993 and 1994.
15
ITEM 6. SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) 1994(a) 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------
Net sales $15,753,487 $13,092,145 $12,893,534 $12,851,129 $11,932,767
Earnings before
extraordinary
loss and
cumulative
effect(b) 56,169 37,480 118,904 64,365 97,256
Net earnings per
common share(b) 1.51 1.02 3.33 1.82 3.06
Total assets 4,608,329 3,102,632 3,117,705 2,958,416 2,767,696
Long-term debt
and capital
leases 1,994,793 1,003,828 1,038,183 951,864 981,488
Cash dividends paid
per common share 1.20 1.20 1.20 1.14 1.03
- -----------------------------------------------------------------------------------------------
<FN>
(a) The results in 1994 reflect the July 1994 acquisition of Scrivner,
Inc.
(b) 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.
See notes to consolidated financial statements and the financial
review included in Item 7 and 8.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
THE CONSOLIDATION, REORGANIZATION AND RE-ENGINEERING PLAN. In January
1994, the company announced the details of a plan to restructure its
organizational alignment, re-engineer its operations and consolidate
facilities. The company's objective is to lower product costs to retail
customers while providing the company with a fair and adequate return for
product supply and value-added services. To achieve this objective,
management is making major organizational changes, introducing a new flexible
marketing plan and investing in technology. The actions contemplated by the
plan will affect the company's food and general merchandise wholesaling
operations as well as certain retail operations and are expected to be
substantially completed by the end of 1996. The acquisition of Scrivner,
described more fully in the next section, has not changed the plan design but
has delayed implementation.
The 1993 fourth quarter results reflect a charge of $101 million to
cover four categories of charges related to the plan: elimination of
regional operations, re-engineering operations, facilities consolidation and
focus on company-owned retail stores. This is in addition to a provision of
$7 million for facilities consolidation in the second quarter of 1993.
Related cash requirements during 1994 were $21 million; additional cash
expenditures necessary to fully implement the plan during 1995 and 1996 are
estimated to be $50 million. Cash requirements have been and are expected to
be met by internally generated cash flows and borrowings under the company's
existing credit agreement. The plan is expected to produce approximate
annual pretax savings of $65 million, net of incremental expenses. These
savings will not be fully realized until after complete implementation.
Unforeseen events or circumstances could cause the company to alter the plan,
thereby delaying or reducing expected cost savings.
Elimination of the company's regional operations resulted in cash
severance payments to approximately 100 associates, as well as the
transfer of approximately 60 associates. The annual savings are
approximately $4 million, principally in payroll costs. The provision
for eliminating regional operations is approximately $8 million,
including the write-down to estimated fair value of certain related
assets.
The re-engineering component of the charge provides for the cash
costs related to the expected termination of approximately 1,500
associates brought about by re-engineering. Annual payroll savings are
projected to be approximately $40 million. The provision for
re-engineering is approximately $25 million. Management believes that
the benefits to operating results will not begin until late 1995.
Facilities consolidation has resulted in the closure of four
distribution centers and is expected to result in the closure of one
additional facility, the relocation of two operations, and consolidation
of administrative functions. During 1994, approximately 450 associate
positions were eliminated through facilities consolidations. 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. Estimated components include: severance costs - $15
million; impaired property and equipment - $13 million; other related
asset impairment and obligations - $11 million; lease and holding costs
- - $10 million; completion of actions contemplated in an earlier
restructuring charge - $7 million; and product handling and damage - $4
million. The actions are not expected to result in a material reduction
in net sales. Transportation expense is expected to increase as the
result of trucks driving farther to serve customers. It is not
practical to estimate reduced depreciation and amortization, labor or
operating costs separately. Management anticipates that, in the
aggregate, a positive annual pretax earnings impact will result from
17
administrative expense savings and working capital and productivity
improvements once the facilities consolidation plan is fully implemented.
The costs to complete activities, including the consolidation and
closure of distribution facilities contemplated in an earlier
restructuring charge, result principally from additional estimated costs
related to dispositions or related real estate assets. Such costs are
principally the result of the deterioration of the San Francisco Bay
area commercial real estate market since 1991. Increased costs to
complete the earlier facilities consolidation were partially offset by
a change in management's 1993 plans regarding the consolidation of four
existing facilities into a large, new facility to be constructed in the
Kansas City area; the revised plan, which calls for enlarging and
utilizing existing facilities, is expected to result in lower associated
closure costs.
Thirty retail supermarket locations leased or owned by the company
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 locations,
and the expected loss on a location closed in 1994. The charge consists
principally of cash costs for lease payments and the write-down of
property. A positive annual pretax benefit will result from this charge
but the annual amount will vary from year to year due to the dynamic
nature of the lease and sublease arrangements. The provision for
retail-related assets is approximately $15 million.
THE ACQUISITION. Results beginning with the third quarter of 1994
have been materially affected by the acquisition of Scrivner. Sales
have increased dramatically and gross margin and selling and
administrative expenses as a percent of sales are significantly higher
due to the increased ratio of retail food operations in Scrivner.
Interest expense increased materially as a result of the increased
borrowing level and higher interest rates and expense for the
amortization of goodwill also significantly increased, both due to the
acquisition.
As of the end of 1994, the company has closed four Scrivner
distribution centers and expects to close five more in 1995. Charges
related to the closing of the distribution centers operated by Scrivner
have been considered a direct cost of the acquisition and are included
in goodwill.
RESULTS OF OPERATIONS
Set forth in the following table is information regarding the company's
net sales and certain components of earnings expressed as a percentage
of net sales, before the effect of early debt retirement in 1993 and
1992.
1994 1993 1992
------ ------ ------
Net sales 100.00% 100.00% 100.00%
Gross margin 7.28 5.85 5.64
Less:
Selling and administrative expense 6.11 4.27 3.84
Interest expense .77 .60 .63
Interest income (.40) (.48) (.46)
Equity investment results .09 .09 .12
Facilities consolidation and
restructuring charge - .82 -
------ ------ ------
Total 6.57 5.30 4.13
Earnings before taxes .71 .55 1.51
Taxes on income .35 .26 .59
------ ------ ------
Earnings before
extraordinary items .36% .29% .92%
====== ====== ======
18
1994 AND 1993
NET SALES. Net sales for 1994 increased by $2.66 billion, or
20.3%, to $15.75 billion from $13.09 billion for 1993. The increase in
net sales was attributable to the $2.76 billion of net sales generated
by Scrivner operations since the acquisition. Without Scrivner, net
sales would have declined by $100 million, or .7%, due to several
factors, none of which individually was material to net sales,
including: the expiration of the temporary agreement with Albertson's,
Inc. as its distribution center came on line, the sale of a distribution
center, the loss of a customer at one of the company's distribution
centers and the loss of business due to the bankruptcy of Megafoods
Stores, Inc. These losses were partially offset by the addition of
business from Kmart, Florida retail operations acquired in the fourth
quarter of 1993 ("Hyde Park") and Randall's Food Markets, Inc.
Fleming measures inflation using data derived from the average cost
of a ton of product sold by the company; for 1994 food price inflation
was negligible. Tonnage of food product sold in 1994, without giving
effect to the acquisition, increased .6% compared to 1993, reflecting
the difficult retail environment. Consistent tonnage statistics for
Scrivner are not available.
GROSS MARGIN. Gross margin for 1994 increased by $381 million, or
49.9%, to $1.15 billion from $765 million for 1993 and increased as a
percentage of net sales to 7.28% for 1994 from 5.85% for 1993. The
increase in gross margin was due to retail stores, principally the 179
stores acquired with Scrivner as well as the 21 Hyde Park stores and 24
Consumers stores, which were not included for a full year in 1993.
Retail operations typically have both a higher gross margin and higher
selling expenses than wholesale operations. In addition, product
handling expenses, which consist of warehouse, truck and building
expenses, decreased as a percentage of net sales for 1994 from 1993 due
in part to the positive impact of the company's facilities consolidation
program and to higher fees charged to certain customers. These gross
margin increases were partially offset by charges to income of $6
million resulting from the LIFO method of inventory valuation in 1994
compared to credits to income of $7 million in 1993.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative
expense for 1994 increased by $405 million, or 72.4%, to $962 million
from $558 million for 1993 and increased as a percentage of net sales
to 6.11% for 1994 from 4.27% in 1993. This increase was due primarily
to the acquisition of Scrivner, particularly its retail operations, as
well as the acquisition of 21 Hyde Park stores and 24 Consumers stores
which were not included for a full year in 1993. Retail operations
typically have higher selling expenses than wholesale operations.
Selling and administrative expenses also increased by reason of the
provision for additional goodwill amortization, principally related to
the acquisition and the absence of several non-recurring items that
occurred in 1993. The increase in the operating loss-corporate shown
in the Segment Information note to the consolidated financial statements
is the result of the aforementioned absence of non-recurring items and
the increase in staff expense.
Credit loss expense included in selling and administrative expense
for 1994 increased by $9 million to $61 million from $52 million in
1993. This increase, including the $6.5 million credit loss discussed
below, was primarily due to the continued difficult retail environment
and low levels of food price inflation. Although the company has begun
to de-emphasize credit extensions to and investments in customers and
has adopted more stringent credit practices, there can be no assurance
that credit losses from existing or future investments or commitments
will not have a material adverse effect on results of operations or
financial position.
In August 1994, a customer of the company, Megafoods Stores, Inc.
and certain of its affiliates, filed Chapter 11 bankruptcy proceedings.
As of such date, Megafoods' total indebtedness to Fleming for goods sold
on open account, equipment
19
leases and loans aggregated approximately $20 million. The company holds
collateral with respect to a substantial portion of these obligations.
Megafoods is also liable to the company under store sublease agreements for
approximately $37 million, and the company is contingently liable on certain
lease guarantees given by the company on behalf of Megafoods. The company is
partially secured as to these obligations. Megafoods has alleged claims
against the company arising from breach of contract, tortious interference
with contracts and business relationships and wrongful set-off of a $12
million cash security deposit and has threatened to seek equitable
subordination of the company's claims. The company denies these allegations
and will vigorously protect its interests.
Based on this event, the company took a charge to earnings of $6.5
million in the third quarter of 1994 to cover its estimated net credit
exposure. However, the exact amount of the ultimate loss may vary
depending upon future developments in the bankruptcy proceedings
including those related to collateral values, priority issues and the
company's ultimate expense, if any, related to certain customer store
leases. An estimate of additional possible loss, or the range of
additional losses, if any, cannot be made at this stage of the
proceedings. The company estimates that its annualized sales to
Megafoods prior to the bankruptcy were approximately $335 million and
currently are approximately $170 million pursuant to a short-term
arrangement.
INTEREST EXPENSE. Interest expense for 1994 increased $42 million
to $120 million from $78 million for 1993. The increase was due to the
indebtedness incurred to finance the acquisition and higher interest
rates imposed on the company as a result thereof. Without these
factors, interest expense for 1994 is estimated to have been
approximately the same as 1993.
The company enters into interest rate hedge agreements to manage
interest costs and exposure to changing interest rates. During July
1994, management terminated all of its outstanding hedge contracts at
an immaterial net gain, which will be amortized over the original term
of each hedge instrument. The credit agreement with the company's banks
requires the company to provide interest rate protection on a
substantial portion of the indebtedness outstanding thereunder. The
company has entered into interest rate swaps and caps covering $1
billion aggregate principal amount of floating rate indebtedness. This
amount exceeds the requirements set forth in the credit agreement.
The average interest rate on the company's floating rate
indebtedness is equal to the London interbank offered interest rate
("LIBOR") plus a margin. The average fixed interest rate paid by the
company on the interest rate swaps is 6.79%, covering $750 million of
floating rate indebtedness. The interest rate swap agreements, which
were implemented through eight counterparty banks, and which have an
average remaining life of 3.5 years, provide for the company to receive
substantially the same LIBOR that the company pays on its floating rate
indebtedness. For the remaining $250 million, the company has purchased
interest rate cap agreements from an additional two counterparty banks
covering $250 million of its floating rate indebtedness. The agreements
cap LIBOR at 7.33% over the next 3.8 years. The company's payment
obligations and receivables under the interest rate swap and cap
agreements meet the criteria for hedge accounting treatment.
Accordingly, the company's payment obligations and receivables are
accounted for as interest expense.
With respect to the interest rate hedging agreements, the company
believes its exposure to potential credit loss expense is minimized
primarily due to the relatively strong credit ratings of the
counterparties for their unsecured long-term debt (A+ or higher from
Standard & Poor's Ratings Group and A1 or higher from Moody's Investors
Service, Inc.) and the size and diversity of the counterparty banks.
The hedge agreements are subject to market risk to the extent that
market interest rates for similar instruments decrease, and the company
terminates the hedges prior to their maturity. However, the company
believes the risk is minimized as it currently foresees no need to
terminate any hedge agreements prior to their maturity. Also,
20
interest rates for similar instruments have increased.
For 1994, the interest rate hedge agreements contributed $6 million
to interest expense. The estimated fair value of the hedge agreements
at December 31, 1994 was $32 million.
INTEREST INCOME. Interest income for 1994 increased by $1 million to
$64 million from $63 million for 1993. The increase was due to the
acquisition. The company has sold certain notes receivable with limited
recourse in prior years and may do so again in the future.
EQUITY INVESTMENT RESULTS. The company's portion of operating
losses from equity investments for 1994 increased by $3 million to $15
million from $12 million for 1993. The increase resulted primarily from
losses related to the company's investments in small retail operators
under the company's equity store program, offset in part by improved
results from investments in strategic multi-store customers under the
company's business development ventures program.
TAXES ON INCOME. The company's effective tax rate for 1994
increased to 50.0% from 48.0% for 1993 primarily as a result of the
lower than expected earnings for 1994, Scrivner's operations in states
with higher tax rates and increased goodwill amortization with no
related tax deduction.
OTHER. In November 1994, the company announced that Smitty's Super
Valu, a customer based in Arizona, had challenged the enforceability of
its supply contract with the company and may seek alternate
arrangements. Smitty's provided Fleming with the opportunity to match
the terms offered by a competitor. The company has determined that the
competitor's offer incorrectly excludes freight costs and is not a bona
fide offer. The supply contract will expire in 31 months if the company
matches any bona fide competing offer and in 15 months if it does not.
The company intends to comply fully with the supply contract and expects
Smitty's to do likewise. Smitty's purchased approximately $290 million
of products from the company during 1994.
The company has been named in two related legal actions filed in
the U.S. District Court in Miami in December 1993. The litigation is
complex, discovery has not commenced, and the ultimate outcome cannot
presently be determined. Furthermore, the company is unable to predict
a potential range of monetary exposure, if any, to the company. Based
on the recovery sought, an unfavorable judgment could have a material
adverse effect on the company.
Management believes that several factors negatively affecting
earnings in 1994 are likely to continue. Such factors include: flat
wholesale sales; lack of food price inflation; operating losses in
certain company-owned retail stores; increased interest expense,
goodwill amortization and integration costs related to the acquisition;
and a higher effective tax rate.
1993 AND 1992
NET SALES. Net sales in 1993 increased by $199 million, or 1.5%,
to $13.09 billion from $12.89 billion for 1992. The net sales increase
was primarily due to the following items, none of which individually was
material to net sales: the inclusion of a full year of operation of
Baker's Supermarkets Inc. in 1993, compared to 12 weeks in 1992, and the
addition of the Garland, Texas distribution center purchased in August
1993. Also contributing to the 1993 increase were the addition of new
customers, including Kmart. For 1993, the company experienced food
price deflation of 0.1% compared to deflation of 1.0% in 1992.
Tonnage of food product sold in 1993 was essentially the same as
1992. The lower tonnage growth rate reflects sluggish retail food
industry sales and the lack of net expansion of the company's customer
base.
21
GROSS MARGIN. Gross margin in 1993 increased by $39 million, or
5.3%, to $765 million from $726 million for 1992 and increased as a
percentage of net sales to 5.85% from 5.64% in 1992. The increase in
gross margin was due to increased net sales by company-owned stores
(which included the 10 Baker's Supermarkets Inc. stores acquired in
September 1992). Retail operations typically have a higher gross margin
than wholesale operations. Product handling expense for 1993 decreased
as a percentage of net sales from 1992. The resulting increase in gross
margin was offset in part by lower wholesale margins.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative
expense in 1993 increased $63 million, or 12.8%, to $558 million from
$495 million in 1992 and increased as a percentage of net sales to 4.27%
from 3.84%. The increase was due primarily to the higher selling and
administrative expense associated with a higher number of company-owned
stores (which included 10 Baker's stores acquired at the beginning of
the fourth quarter of 1992). Retail operations generally have higher
selling expenses than wholesale operations. In addition, selling and
administrative expense included credit loss expense of $52 million in
1993 compared with $28 million in 1992. The increase was due to the
combined effects on customers' financial conditions of sluggish retail
sales, intensified retail competition and lack of food price inflation.
These increases were offset in part by reductions in certain other
selling and administrative expense categories.
Furthermore, in 1993, selling and administrative expense was
affected by several non-recurring items. The company recorded $11
million of pre-tax income resulting from cash received from the
favorable resolution of litigation and a $1 million accrual for expected
settlements in other legal proceedings. The company estimated that its
contingent liability for lease obligations exceeded its previously
established reserves by $2 million and recorded this amount as an
expense. A $5 million gain from a real estate transaction was also
recorded.
INTEREST EXPENSE. Interest expense in 1993 declined $3 million,
to $78 million from $81 million in 1992. The decrease in 1993 was due
primarily to lower short-term interest rates and lower average borrowing
levels. The company entered into interest rate hedge agreements to
manage its exposure to interest rates.
INTEREST INCOME. Interest income in 1993 increased by $3 million,
to $63 million from $60 million in 1992. The increase was due to higher
outstanding notes receivable and direct financing leases, partially
offset by a slight decline in interest rates. Interest income consists
primarily of interest earned on notes receivable and income generated
from direct financing leases of retail stores and related equipment.
EQUITY INVESTMENT RESULTS. The company's share of operating losses
from equity investments in certain customers (including customers
participating in the company's equity store program or the business
development venture program) accounted for under the equity method in
1993 decreased by $3 million, to $12 million from $15 million in 1992.
The improvement was due to improved operating performance by certain of
the company's business development ventures partially offset by the
company's share of losses from customers participating in the company's
equity store program.
EARLY DEBT RETIREMENT. In the fourth quarters of 1993 and 1992,
the company recorded extraordinary losses related to the early
retirement of debt. In 1993, the company retired $63 million of the
9.5% debentures at a cost of $2 million, net of tax benefits of $2
million. In 1992, the company recorded a charge of $6 million, net of
tax benefits of $4 million. The 1992 costs related to retiring $173
million aggregate principal amount of convertible notes, $30 million
aggregate principal amount of 9.5% debentures and certain other debt.
TAXES ON INCOME. The effective income tax rate for 1993 increased
to 48% from 39% in 1992. The increase was primarily due to facilities
consolidation and related
22
restructuring charges. As a result, pre-tax income was reduced, causing
nondeductible items for tax purposes to have a larger impact on the
effective tax rate. In addition, both the federal and state income
tax rates increased by 1% due to a new tax law enacted in 1993. Moreover,
the 1992 effective rate had been reduced due to favorable settlements of
tax assessments recorded in prior years.
CERTAIN ACCOUNTING MATTERS. Statement of Financial Accounting
Standards No. 114 - Accounting by Creditors for Impairment of a Loan (as
amended by Statement of Financial Accounting Standards No. 118 -
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures) will be effective in the first quarter of 1995. These
statements require that loans that are determined to be impaired must
be measured by the present value of expected future cash flows
discounted at the loan's effective interest rate or collateral values.
The impact on the consolidated statements of earnings and financial
position is expected to be immaterial.
LIQUIDITY AND CAPITAL RESOURCES
Capital Structure (In millions) 1994 % 1993 %
------ ----- ------ -----
Long-term debt $1,752 54.8% $ 728 34.0%
Capital lease obligations 369 11.5 350 16.4
------ ----- ------ -----
Total debt 2,121 66.3 1,078 50.4
Shareholders' equity 1,079 33.7 1,060 49.6
------ ----- ------ -----
Total capital $3,200 100.0% $2,138 100.0%
====== ===== ====== =====
Includes current maturities of long-term debt and current obligations
under capital leases.
Fleming's capital structure changed significantly as a result of
the July 19, 1994 acquisition of Scrivner. The acquisition was
financed, and a large portion of the existing debt of both Fleming and
Scrivner was refinanced, through a $2.2 billion revolving credit and
term loan agreement entered into with a group of banks. Upon execution
of the new credit agreement the company terminated its $400 million and
$200 million bank credit agreements. In December, the company sold $300
million of 10.625% seven-year senior notes and $200 million of floating
rate seven-year senior notes in a public offering and retired the $500
million two-year loan tranche of the credit agreement with the proceeds.
The company's credit ratings for its senior unsecured long-term
debt were downgraded from investment grade to Ba1 and BB+ by Moody's and
Standard & Poor's, respectively, as a result of the additional debt
incurred in the acquisition. However, in late February 1995, Standard
& Poor's placed its rating of Fleming's senior unsecured long-term debt
on CreditWatch with negative implications. Standard & Poor's expressed
concerns that lower than expected earnings for the third and fourth
quarters of 1994, combined with re-engineering costs that are now
anticipated to reduce 1995 earnings below Standard & Poor's prior
expectations, will limit the company's ability to reduce
acquisition-related debt.
The company's principal sources of liquidity are cash flows from
operating activities and borrowings under the bank credit agreement.
Borrowings under the two remaining tranches of the credit agreement
totaled $1.08 billion at the end of 1994, their maximum level for the
year. Borrowings under the new agreement, excluding the $500 million
two-year tranche, averaged $998 million. At year end, the $800 million
six-year amortizing term loan was fully drawn and $280 million was drawn
on the $900 million five-year revolving credit facility.
Borrowings under the credit agreement are guaranteed by most of the
company's subsidiaries and are secured by the company's accounts
receivable, inventories and a pledge of the stock of most subsidiaries.
These security provisions will terminate
23
at such time that the company's credit ratings for unsecured senior
long-term debt improve to investment grade status. The company was also
required to pledge its intercompany receivables as security for its
medium-term notes and its 9.5% debentures and to provide guarantees
from most of its subsidiaries. Additionally, it has provided guarantees
from most of its subsidiaries in favor of the senior notes.
The credit agreement and the indentures for the senior notes
contain customary covenants associated with similar facilities. The
bank credit agreement currently contains the following covenants:
maintenance of a consolidated-debt-to-net-worth ratio of not more than
2.45 to 1; maintenance of a minimum consolidated net worth of at least
$857 million; maintenance of a fixed charge coverage ratio of at least
1.40 to 1; a limitation on restricted payments (including dividends and
company stock repurchases); prohibition of certain liens; prohibitions
of certain mergers, consolidations and sales of assets; restrictions on
the incurrence of debt and additional guarantees; limitations on
transactions with affiliates; limitations on acquisitions and
investments; limitations on capital expenditures; and a limitation on
payment restrictions affecting subsidiaries. The company is permitted
to pay dividends or repurchase capital stock in the aggregate amount of
approximately $50 million each year. At year-end 1994 the
consolidated-debt-to-net-worth test would have allowed the company to
borrow an additional $489 million and the fixed charge coverage test
would have allowed the company to incur an additional $22 million of
annual interest expense. Covenants associated with the senior notes are
generally less restrictive than those of the bank facility. At year-end
1994, the company was in compliance with all financial covenants under
the credit agreement and the senior note indentures. Continued
compliance over the near-term will depend on the company's ability to
generate sufficient earnings during the implementation of re-engineering
and integration of Scrivner.
Pricing under the credit agreement automatically increases with
respect to certain rating declines. Despite the effect of reduced
earnings and the CreditWatch action by Standard & Poor's, the company
believes that appropriate means are available to maintain adequate
liquidity for the foreseeable future at acceptable rates.
The credit agreement may be terminated in the event of a defined
change of control. Under the indentures for the senior notes, the
noteholders may require the company to repurchase the notes in the event
of a defined change of control and defined decline in credit ratings.
In October 1994, the company acquired $33 million of a $97 million
series of medium-term notes pursuant to an offer to purchase which
resulted from the Scrivner acquisition and the related downgrade of the
company's long-term credit ratings. This redemption was funded by
borrowings under the credit agreement.
At year-end 1994 the company had $130 million of contingent
obligations under undrawn letters of credit, primarily related to
insurance reserves associated with its normal risk management
activities. To the extent that any of these letters of credit would be
drawn, payments would be financed by borrowings under the credit
agreement.
Operating activities generated $333 million of net cash flows for
1994 compared to $209 million in 1993. The increase is principally due
to the Scrivner acquisition, lower working capital requirements
(excluding Scrivner) and higher deferred taxes. Working capital was
$496 million at year end, an increase from $442 million at year-end
1993. The current ratio decreased to 1.38 to 1, from 1.48 to 1 at
year-end 1993. Management believes that cash flows from operating
activities and the company's ability to borrow under the credit
agreement will be adequate to meet working capital needs, capital
expenditures and cash needs of approximately $50 million for the
facilities consolidation and restructuring plan.
Capital expenditures for 1994 were approximately $140 million. The
increase over prior year is due to expansion projects at several
distribution centers and
24
additions of normal Scrivner expenditures subsequent to the acquisition.
Management expects that 1995 capital expenditures, excluding acquisitions,
if any, will approximate $100 million.
Uncommitted bank lines were used prior to the Scrivner acquisition
when rates were lower than commercial paper rates. During 1994,
borrowings under these lines averaged $115 million and ranged up to $280
million. There were no borrowings outstanding at year-end 1994.
Commercial paper borrowings, which ceased prior to the Scrivner
acquisition, averaged $41 million during 1994 and ranged up to $166
million.
Fleming makes investments in and loans to its retail customers,
primarily in conjunction with the establishment of long-term supply
agreements. At year-end 1994 these investments and loans of $471
million, combined with trade receivables of $297 million, totaled $768
million, a $157 million net increase from 1993 due primarily to the
Scrivner acquisition. Net investments and loans increased $92 million,
from $379 million to $471 million. However, there was no sale of notes
in 1994, compared to a $67 million sale in 1993. In addition, net trade
receivables increased $65 million, from $232 million to $297 million.
These increases primarily resulted from the Scrivner acquisition.
Trade receivables in 1994 had a turnover rate of 50.4 times, up
from 45.3 times the prior year. Inventory turns increased slightly to
13.2 times in 1994 compared to 13.1 times the year before. Both of these
changes were influenced by the large mix of retail operations of
Scrivner.
Long-term debt and capital lease obligations increased $1.04
billion to $2.12 billion during 1994 as a result of the acquisition.
Shareholders' equity at the end of 1994 was $1.08 billion.
The year-end debt-to-capital ratio increased to 66.3%, above last
year's ratio of 50.4%. The company's long-term target ratio is
approximately 50%. Total capital was $3.2 billion at year end, up $1.06
billion from the prior year.
The composite interest rate for total funded debt (excluding
capital lease obligations) before the effect of interest rate hedges was
7.6% at year end, versus 4.8% a year earlier, principally due to higher
interest rates and to a lesser extent refinancing activities associated
with the Scrivner acquisition. Including the effect of interest rate
hedges, the composite interest rate of debt was 8.4% and 4.9% at the end
of 1994 and 1993, respectively. See the Long-Term Debt note to
consolidated financial statements for additional discussion regarding
derivatives.
The dividend payments of $1.20 per common share in 1994 and 1993
were 79% and 125% of primary net earnings per share in 1994 and 1993
respectively. The payout ratio would have been 44% in 1993 before
fourth quarter charges for facilities consolidation and restructuring
and debt prepayment.
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.
25
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 17, 1995, in connection with its
annual meeting of shareholders to be held on May 3, 1995. 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 11 through 20 of the
company's proxy statement dated March 17, 1995, in connection with its
annual meeting of shareholders to be held on May 3, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to pages 9 and 10 of the company's
proxy statement dated March 17, 1995, in connection with its annual
meeting of shareholders to be held on May 3, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: Page No.
--------
- Consolidated Statements of Earnings -
For the years ended December 31, 1994,
December 25, 1993, and December 26, 1992 28
- Consolidated Balance Sheets -
At December 31, 1994, and December 25, 1993 29
- Consolidated Statements of Shareholders' Equity -
For the years ended December 31, 1994,
December 25, 1993, and December 26, 1992 30
- Consolidated Statements of Cash Flows -
For the years ended December 31, 1994,
December 25, 1993, and December 26, 1992 31
- Notes to Consolidated Financial Statements -
For the years ended December 31, 1994,
December 25, 1993, and December 26, 1992 32
- Independent Auditors' Report 50
- Quarterly Financial Information (Unaudited) 51
(a) 2. Financial Statement Schedule:
- Schedule II - Valuation and Qualifying Accounts 53
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.
27
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, 1994, December 25, 1993, and December 26, 1992
(In thousands, except per share amounts)
================================================================================
1994 1993 1992
- --------------------------------------------------------------------------------
Net sales $15,753,487 $13,092,145 $12,893,534
Costs and expenses:
Cost of sales 14,606,963 12,326,778 12,166,858
Selling and administrative 962,929 558,470 494,983
Interest expense 120,408 78,029 81,102
Interest income (63,943) (62,902) (59,477)
Equity investment results 14,793 11,865 15,127
Facilities consolidation and - 107,827 -
restructuring
- --------------------------------------------------------------------------------
Total costs and expenses 15,641,150 13,020,067 12,698,593
- --------------------------------------------------------------------------------
Earnings before taxes 112,337 72,078 194,941
Taxes on income 56,168 34,598 76,037
- --------------------------------------------------------------------------------
Earnings before extraordinary loss 56,169 37,480 118,904
Extraordinary loss from early - 2,308 5,864
retirement of debt
- --------------------------------------------------------------------------------
Net earnings $ 56,169 $ 35,172 $ 113,040
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net earnings per share:
Primary before extraordinary loss $1.51 $1.02 $3.33
Extraordinary loss - .06 .16
- --------------------------------------------------------------------------------
Primary $1.51 $ .96 $3.16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fully diluted before extraordinary $1.51 $1.02 $3.21
loss
Extraordinary loss - .06 .15
- --------------------------------------------------------------------------------
Fully diluted $1.51 $ .96 $3.06
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Weighted average shares outstanding 37,254 36,801 35,759
================================================================================
Sales to customers accounted for under the equity method were approximately $1.6
billion, $1.6 billion and $1.3 billion in 1994, 1993 and 1992, respectively.
See notes to consolidated financial statements.
28
CONSOLIDATED BALANCE SHEETS
At December 31, 1994, and December 25, 1993
(In thousands, except per share amounts)
================================================================================
Assets 1994 1993
- --------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 28,352 $ 1,634
Receivables 364,884 301,514
Inventories 1,301,980 923,280
Other current assets 124,865 134,229
- --------------------------------------------------------------------------------
Total current assets 1,820,081 1,360,657
Investments and notes receivable 402,603 309,237
Investment in direct financing leases 230,357 235,263
Property and equipment:
Land 66,702 49,580
Buildings 366,109 268,317
Fixtures and equipment 656,068 466,904
Leasehold improvements 199,713 133,897
Leased assets under capital leases 167,362 143,207
- --------------------------------------------------------------------------------
1,455,954 1,061,905
Less accumulated depreciation and amortization 467,830 426,846
- --------------------------------------------------------------------------------
Net property and equipment 988,124 635,059
Other assets 179,332 90,633
Goodwill 987,832 471,783
- --------------------------------------------------------------------------------
Total assets $4,608,329 $3,102,632
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 960,333 $ 682,988
Current maturities of long-term debt 110,321 61,329
Current obligations under capital leases 15,780 13,172
Other current liabilities 237,197 161,043
- -------------------------------------------------------------------------------
Total current liabilities 1,323,631 918,532
Long-term debt 1,641,390 666,819
Long-term obligations under capital leases 353,403 337,009
Deferred income taxes 51,279 27,500
Other liabilities 160,071 92,366
Shareholders' equity:
Common stock, $2.50 par value, authorized -
100,000 shares, issued and outstanding -
37,480 and 36,940 shares 93,705 92,350
Capital in excess of par value 494,966 489,044
Reinvested earnings 503,962 492,250
Cumulative currency translation adjustment (2,972) (288)
- -------------------------------------------------------------------------------
1,089,661 1,073,356
Less ESOP note 11,106 12,950
- -------------------------------------------------------------------------------
Total shareholders' equity 1,078,555 1,060,406
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $4,608,329 $3,102,632
================================================================================
Receivables include $37 million and $48 million in 1994 and 1993, respectively,
due from customers accounted for under the equity method.
See notes to consolidated financial statements.
29
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1994, December 25, 1993, and December 26, 1992
(In thousands)
==========================================================================================
1994 1993 1992
---------------- ---------------- ---------------
Shares Amount Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------
Common stock:
Beginning of year 36,940 $ 92,350 36,698 $ 91,746 35,433 $ 88,584
Incentive stock and
stock ownership plans 540 1,355 242 604 191 478
Stock issued for acquisition - - - - 1,074 2,684
- ------------------------------------------------------------------------------------------
End of year 37,480 93,705 36,940 92,350 36,698 91,746
====== ------ ====== ------ ====== ------
Capital in excess of par value:
Beginning of year 489,044 482,107 445,501
Incentive stock and
stock ownership plans 5,922 6,937 5,165
Stock issued for acquisition - - 31,441
- ------------------------------------------------------------------------------------------
End of year 494,966 489,044 482,107
- ------------------------------------------------------------------------------------------
Reinvested earnings:
Beginning of year 492,250 501,231 431,120
Net earnings 56,169 35,172 113,040
Cash dividends, $1.20 per share (44,457) (44,153) (42,929)
- ------------------------------------------------------------------------------------------
End of year 503,962 492,250 501,231
- ------------------------------------------------------------------------------------------
Cumulative currency translation adjustment:
Beginning of year (288) -
Currency translation adjustments (2,684) (288)
- ------------------------------------------------------------------------------------------
End of year (2,972) (288)
- ------------------------------------------------------------------------------------------
ESOP note:
Beginning of year (12,950) (14,650) (16,218)
Payments 1,844 1,700 1,568
- ------------------------------------------------------------------------------------------
End of year (11,106) (12,950) (14,650)
- ------------------------------------------------------------------------------------------
Total shareholders' equity, end of year $1,078,555 $1,060,406 $1,060,434
==========================================================================================
See notes to consolidated financial statements.
30
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, December 25, 1993, and December 26, 1992
(In thousands)
========================================================================================
1994 1993 1992
- ----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 56,169 $ 35,172 $ 113,040
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 145,910 101,103 93,827
Credit losses 61,218 52,018 28,258
Deferred income taxes 30,430 (24,471) 11,343
Equity investment results 14,793 11,865 15,128
Consolidation and reserve activities, net (29,304) 87,211 (31,226)
Change in assets and liabilities, excluding
effect of acquisitions:
Receivables 1,964 (16,420) (75,924)
Inventories 57,689 58,625 (440)
Other assets 13,346 (48,984) (10,218)
Accounts payable 30,691 (38,472) (41,285)
Other liabilities (50,083) (10,883) (16,566)
Other adjustments, net 39 1,779 3,918
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 332,862 208,543 89,855
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Collections on notes receivable 111,149 82,497 88,851
Notes receivable funded (122,206) (130,846) (168,814)
Notes receivable sold - 67,554 44,970
Businesses acquired (387,488) (51,110) (8,233)
Proceeds from sale of businesses 6,682 - -
Purchase of property and equipment (150,057) (55,554) (66,376)
Proceeds from sale of property and equipment 14,917 2,955 3,603
Investments in customers (12,764) (37,196) (17,315)
Proceeds from sale of investments 4,933 7,077 9,763
Other investing activities (2,793) 197 (353)
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (537,627) (114,426) (113,904)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 2,225,751 331,502 462,726
Principal payments on long-term debt (1,912,717) (373,693) (383,188)
Principal payments on capital lease obligations (13,990) (11,316) (10,904)
Sale of common stock under incentive stock and
stock ownership plans 7,277 7,541 5,653
Dividends paid (44,457) (44,153) (42,929)
Redemption of preferred stock - - (19,100)
Other financing activities (30,381) (7,076) (4,587)
- -----------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 231,483 (97,195) 7,671
- -----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 26,718 (3,078) (16,378)
Cash and cash equivalents, beginning of year 1,634 4,712 21,090
- -----------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 28,352 $ 1,634 $ 4,712
=========================================================================================
See notes to consolidated financial statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1994, December 25, 1993, and December 26, 1992
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR: The company's fiscal year ends on the last Saturday in
December. Fiscal year 1994 was 53 weeks; 1993 and 1992 were 52 weeks. The
impact of the additional week in 1994 is not material to the results of
operations or financial position.
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 entities in which the company has an investment in common stock of
between 20% and 50%. Under the equity method, original investments are
recorded at cost and adjusted by the company's share of earnings or losses of
these entities and for declines in estimated realizable values deemed to be
other than temporary.
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 $68 million (1994) and $70 million (1993). Receivables are
shown net of allowance for credit losses of $40 million (1994) and $44
million (1993). 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. Asset impairments are recorded when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Such impairment losses are measured by the excess of the
carrying amount of the asset over the fair value of the related asset.
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.
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 $97
million (1994) and $74 million (1993). Goodwill is written down if it is
probable that estimated undiscounted operating income generated by the
related assets will be less than the carrying amount.
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. 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.
TAXES ON INCOME: Deferred income taxes arise from temporary differences
between financial and tax bases of certain assets and liabilities.
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 SHARE: Primary earnings per share are computed based on
net earnings divided by the weighted average shares outstanding. The impact
of common stock options on primary earnings per common share is not
materially dilutive. Fully diluted earnings per share in 1992 assume
conversion of convertible subordinated notes redeemed that year.
32
ACQUISITIONS
As of July 1994, the company completed the acquisition of all the
outstanding stock of Haniel Corporation, the parent of Scrivner Inc.
("Scrivner"). The company paid $388 million in cash and refinanced
substantially all of Scrivner's existing indebtedness (approximately $670
million in aggregate principal and premium). In connection with the
acquisition, the company refinanced approximately $340 million in aggregate
principal amount of its own indebtedness.
The acquisition has been accounted for as a purchase and the results of
operations of Scrivner have been included in the consolidated financial
statements since the beginning of the third quarter of 1994. The purchase
price was allocated based on estimated fair values at the date of the
acquisition. At December 31, 1994, the excess of purchase price over assets
acquired was $540 million and is being amortized on a straight-line basis
over 40 years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the company and Scrivner as if the
acquisition had occurred at the beginning of 1993, with pro forma adjustments
to give effect to amortization of goodwill, interest expense on acquisition
debt and certain other adjustments, together with related income tax effects.
=============================================================================
Dec. 31, Dec. 25,
(In thousands, except per share amounts) 1994 1993
- -----------------------------------------------------------------------------
Net sales $18,977,000 $19,109,000
Net earnings $43,000 $19,000
Net earnings per share $1.15 $.53
=============================================================================
33
In 1994, the company acquired the remaining common stock of a
supermarket operator of a 24-store chain with locations in Missouri and
Kansas. The acquisition was accounted for as a purchase. The results are not
material to the company.
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.
In 1992, the company acquired the common stock of Baker's Supermarkets,
the operator of 10 supermarkets located in Omaha, Nebraska. The acquisition
was accounted for as a purchase. The results of Baker's operations are not
material to the company.
INVENTORIES
Inventories are valued as follows:
==============================================================================
Dec. 31, Dec. 25,
(In thousands) 1994 1993
- ------------------------------------------------------------------------------
LIFO method $1,014,381 $638,383
FIFO method 287,599 284,897
- ------------------------------------------------------------------------------
Inventories $1,301,980 $923,280
==============================================================================
Current replacement cost of LIFO inventories were greater than the
carrying amounts by approximately $19 million at December 31, 1994, and $13
million at December 25, 1993.
INVESTMENTS AND NOTES RECEIVABLE
Investments and notes receivable consist of the following:
==============================================================================
Dec. 31, Dec. 25,
(In thousands) 1994 1993
- ------------------------------------------------------------------------------
Investments in and advances to customers $ 163,090 $ 164,292
Notes receivable from customers 219,852 133,935
Other investments and receivables 19,661 11,010
- ------------------------------------------------------------------------------
Investments and notes receivable $402,603 $309,237
==============================================================================
The company extends long-term credit to certain retail customers. Loans
are primarily collateralized by inventory and fixtures. Investments and notes
receivable are shown net of allowance for credit losses of $9 million and $18
million in 1994 and 1993, 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 (as amended by SFAS No. 118 - Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures). These new
statements require 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 or collateral values. The new standards are effective
for the first quarter of 1995. The impact on the consolidated statements of
earnings and financial position is expected to be immaterial.
34
The company has sold certain notes receivable at face value with limited
recourse. The outstanding balance at year-end 1994 on all notes sold is $162
million, of which the company is contingently liable for $29 million should
all the notes become uncollectible.
LONG-TERM DEBT
Long-term debt consists of the following:
==============================================================================
Dec. 31, Dec. 25,
(In thousands) 1994 1993
- -------------------------------------------------------------------------------
Term bank loans, due 1995 to 2000,
average interest rates of 6.6% and 3.7% $ 800,000 $160,000
10.625% senior notes due 2001 300,000 -
Revolving bank credit, average interest
rate of 6.6% 280,000 -
Floating rate senior notes due 2001, annual
payments of $1,000 in 1999 and 2000,
current rate of 8.7% 200,000 -
Medium-term notes, due 1995 to 2003,
average interest rates of 6.9% and 7.5% 155,950 222,450
Commercial paper, average interest
rate of 3.3% - 165,866
Unsecured credit lines, average
interest rates of 3.3% - 145,000
9.5% debentures, due 2010, annual
sinking fund payments of
$5,000 commencing in 1997 7,000 7,000
Guaranteed bank loan of employee
stock ownership plan - 12,950
Mortgaged real estate notes and other debt,
varying interest rates from 4% to
14.35%, due 1995 to 2003 8,761 14,882
- ------------------------------------------------------------------------------
1,751,711 728,148
Less current maturities 110,321 61,329
- ------------------------------------------------------------------------------
Long-term debt $1,641,390 $666,819
==============================================================================
FIVE YEAR MATURITIES: Aggregate maturities of long-term debt for the
next five years are as follows: 1995-$110 million; 1996-$58 million;
1997-$136 million; 1998-$191 million and 1999-$234 million.
35
REVOLVING CREDIT AND TERM LOAN AGREEMENT: In 1994, in connection with the
acquisition of Scrivner, the company redeemed a portion of its medium-term
notes and repaid all of its borrowings under uncommitted credit lines,
commercial paper programs, all term bank loans, the employee stock ownership
plan loan and certain other debt. The company also repaid substantially all
the debt of Scrivner and its parent. The debt redemptions and repayments, as
well as the purchase price of $388 million for the common stock, were
financed by borrowing $1.6 billion under a new $2.2 billion committed
revolving credit and term loan agreement with a group of banks. Upon
execution of the credit agreement, the company terminated its $400 million
and $200 million bank credit agreements.
The credit agreement carries an annual facility fee and a commitment fee
on any unused amount for the revolving credit portion. Interest rates are
based on various money market rate options selected by the company at the
time of borrowing. Borrowings under the revolving credit portion of the
credit agreement mature in 1999 and the term bank loans mature in 2000.
In December 1994, the company repaid $500 million of term bank loans
under the credit agreement upon the sale of the 10.625% $300 million senior
notes and $200 million floating rate senior notes.
The credit agreement and senior note indentures contain customary
covenants associated with similar facilities. The credit agreement currently
contains the following financial covenants: maintenance of a
consolidated-debt-to-net-worth ratio of not more than 2.45 to 1; maintenance
of a minimum consolidated net worth of at least $857 million; and maintenance
of a fixed charge coverage ratio of at least 1.40 to 1. The company is
currently in compliance with all financial covenants under the credit
agreement and senior note indentures. As of December 31, 1994, the restricted
payments test would have allowed the company to pay dividends or repurchase
capital stock in the aggregate amount of $50 million. The
consolidated-debt-to-net-worth test would have allowed the company to borrow
an additional $489 million. The fixed charge coverage test would have allowed
the company to incur an additional $22 million of annual interest expense.
The credit agreement and the senior note indentures also place
significant restrictions on the company's ability to incur additional
indebtedness, to create liens or other encumbrances, to make certain
payments, investments, loans and guarantees and to sell or otherwise dispose
of a substantial portion of assets to, or merge or consolidate with, an
unaffiliated entity.
The credit agreement contains a provision that, in the event of a
defined change of control, the agreement may be terminated. The indentures
for the senior notes provide an option for the noteholders to require the
company to repurchase the notes in the event of a defined change of control
and defined decline in credit ratings.
Prior to the acquisition of Scrivner, the company employed a financing
program for variable financing needs consisting of uncommitted bank credit
lines and two commercial paper programs supported by committed bank credit.
The agreement effectively restricts borrowings under these facilities.
MEDIUM-TERM NOTES: The company has registered $565 million in medium-term
notes. Of this, $290 million may be issued from time to time, at fixed or
floating rates, as determined at the time of issuance. The agreement effectively
limits any new issues to debt with maturities after December 2000. The security
provisions for the agreement required the company to equitably and ratably
secure the medium-term notes. Security for the medium-term notes consists of
guarantees from most of the company's subsidiaries and a pledge of intercompany
receivables.
The carrying value of assets collateralized under mortgaged real estate
notes and other debt is not material.
36
INTEREST EXPENSE: Components of interest expense are as follows:
===============================================================================
(In thousands) 1994 1993 1992
- -------------------------------------------------------------------------------
Interest costs incurred:
Long-term debt $ 83,748 $44,628 $50,524
Capital lease obligations 33,718 31,355 29,103
Other 3,306 2,046 1,475
- -------------------------------------------------------------------------------
Total incurred 120,772 78,029 81,102
Less interest capitalized 364 - -
- -------------------------------------------------------------------------------
Interest expense $120,408 $78,029 $81,102
===============================================================================
EARLY RETIREMENT OF DEBT: 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 million, after income tax benefits of $2 million, or $.06 per share. The
funding source for the early redemption was the sale of notes receivable. In
1992, the company retired the $173 million of convertible subordinated notes,
$30 million of the 9.5% debentures and certain other debt. The extraordinary
loss was $6 million, after income tax benefits of $4 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.
37
SUBSIDIARY GUARANTEE OF SENIOR NOTES: The senior notes are guaranteed by
all direct and indirect subsidiaries of the company (except for certain
inconsequential subsidiaries), all of which are wholly owned. The guarantees
are joint and several, full, complete and unconditional. There are currently
no restrictions on the ability of the subsidiary guarantors to transfer funds
to the company in the form of cash dividends, loans or advances. Full
financial statements for the subsidiary guarantors are not presented herein
because management does not believe such information would be material.
The following summarized financial information for the combined
subsidiary guarantors has been prepared from the books and records maintained
by the subsidiary guarantors and the company. Intercompany transactions are
eliminated. The summarized financial information may not necessarily be
indicative of the results of operations or financial position had the
subsidiary guarantors been operated as independent entities. The summarized
financial information includes allocations of material amounts of expenses
such as corporate services and administration, interest expense on
indebtedness and taxes on income. The allocations are generally based on
proportional amounts of sales or assets, and taxes on income are allocated
consistent with the asset and liability approach used for consolidated
financial statement purposes. Management believes these allocation methods
are reasonable.
==============================================================================
(In thousands) 1994 1993
- ------------------------------------------------------------------------------
Current assets $754,000 $1,168,000
Noncurrent assets $1,405,000 $1,579,000
Current liabilities $501,000 $764,000
Noncurrent liabilities $875,000 $936,000
==============================================================================
==============================================================================
(In thousands) 1994 1993 1992
- ------------------------------------------------------------------------------
Net sales $3,318,000 $11,759,000 $11,488,000
Costs and expenses $3,341,000 $11,674,000 $11,321,000
Earnings (loss) before
extraordinary items $(12,000) $44,000 $102,000
Net earnings (loss) $(12,000) $42,000 $97,000
==============================================================================
During 1994, the company merged a significant number of subsidiaries,
resulting in a substantial reduction in the amounts appearing in the
summarized financial information.
EMPLOYEE STOCK OWNERSHIP PLAN: The company's employee stock ownership
plan (ESOP) allows substantially all associates to participate. ln 1989, 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 until 1994, when the company
paid off the loan and the ESOP entered into a note with the company. The note
terms are the same as the bank loan. The receivable from the ESOP is
presented as a reduction of shareholders' equity. The ESOP will repay to the
company the remaining loan balance with proceeds from company contributions.
The company makes contributions based on fixed debt service requirements of
the ESOP note. The ESOP used approximately $.5 million of common stock dividends
for debt service in each of 1994, 1993 and 1992. During 1994, 1993 and 1992, the
company recognized $1 million each year in compensation expense. Interest
expense of $.8 million, $.5 million and $.7 million was recognized at average
rates of 4.2%, 3.7% and 4.4% in 1994, 1993 and 1992, respectively.
38
DERIVATIVES: The company enters into interest rate hedge agreements with
the objective of managing interest costs and exposure to changing interest
rates. The classes of derivative financial instruments used include interest
rate swaps and caps. The credit agreement requires the company to provide
interest rate protection on a substantial portion of the indebtedness
outstanding thereunder. Strategies for achieving the company's objectives
have resulted in the company entering into interest rate swaps and caps
covering $1 billion aggregate principal amount of floating rate indebtedness
at year-end 1994. This amount exceeds the requirements set forth in the
credit agreement.
The average interest rate on the company's floating rate indebtedness is
equal to the London interbank offered rate ("LIBOR") plus a margin. The
average fixed interest rate paid by the company on the interest rate swaps is
6.79%, covering $750 million of floating rate indebtedness. The interest rate
swap agreements, which were implemented through eight counterparty banks, and
which have an average remaining life of 3.5 years, provide for the company to
receive substantially the same LIBOR that the company pays on its floating
rate indebtedness. For the remaining $250 million, the company has purchased
interest rate cap agreements from an additional two counterparty banks
covering $250 million of its floating rate indebtedness. The agreements cap
LIBOR at 7.33% over the next 3.8 years.
The company believes its exposure to potential credit loss expense is
minimized primarily due to the relatively strong credit ratings of the
counterparty banks for their unsecured long-term debt (A+ or higher from
Standard & Poor's Ratings Group and A1 or higher from Moody's Investor
Service, Inc.) and the size and diversity of the counterparty banks.
The hedge agreements are subject to market risk to the extent that
market interest rates for similar instruments decrease, and the company
terminates the hedges prior to maturity. However, the company believes this
risk is minimized as it currently foresees no need to terminate any hedge
agreements prior to their maturity. Also, interest rates for similar
instruments have increased.
At year-end 1994 and 1993, hedge agreements were in place that
effectively fixed rates on $1 billion (referenced above) and $70 million,
respectively, of the company's floating rate debt. Additionally, for 1993,
$60 million of agreements converted fixed rate debt to floating and a $100
million transaction hedged the company's risk of fluctuation between prime
rate and LIBOR. The maturities for hedge agreements covering $1 billion of
debt range from 1995 to 2000. The counterparties to these agreements are
major national and international financial institutions.
39
Derivative financial instruments are reported in the balance sheet where
the company has made a cash payment upon entering into the transaction. The
carrying amount is amortized over the initial life of the hedge agreement.
The company has a financial basis of $6.8 million in the interest rate cap
agreements at year-end 1994. In addition, accrued interest payable or
receivable for the interest rate agreements is included in the balance sheet.
At year-end 1993, the company did not have any financial basis in the hedge
agreements other than accrued interest payable or receivable.
The company's payment obligations under the interest rate swap and cap
agreements meet the criteria for hedge accounting treatment. Accordingly, the
company's payment obligations and receivables are accounted for as interest
expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of long-term debt as
of year-end 1994 and 1993 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 1994,
the carrying value of debt exceeded the fair value by $14 million. At
year-end 1993, the fair value of debt exceeded the carrying amount by $14
million.
For interest rate agreements, the fair value was estimated using
termination cash values. At year-end 1994, the fair value of interest rate
hedge agreements was $32 million. At year-end 1993, swap agreements had no
fair value.
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.
The company leases company-owned 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 other 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 $45 million and $42 million at year-end 1994 and 1993, respectively.
Future minimum lease payment obligations for leased assets under capital
leases as of year-end 1994 are set forth below:
==============================================================================
(In thousands) Lease
Years Obligations
- ------------------------------------------------------------------------------
1995 $ 21,199
1996 21,005
1997 20,491
1998 20,058
1999 19,733
Later 175,078
- ------------------------------------------------------------------------------
Total minimum lease payments 277,564
Less estimated executory costs 285
- ------------------------------------------------------------------------------
Net minimum lease payments 277,279
Less interest 129,646
- ------------------------------------------------------------------------------
Present value of net minimum lease payments 147,633
Less current obligations 7,463
- ------------------------------------------------------------------------------
Long-term obligations $140,170
==============================================================================
40
Future minimum lease payments required at year-end 1994 under operating
leases that have initial noncancelable lease terms exceeding one year are
presented in the following table:
==============================================================================
(In thousands) Facility Facilities Equipment Equipment Net
Years Rentals Subleased Rentals Subleased Rentals
- ------------------------------------------------------------------------------
1995 $ 162,677 $ 80,440 $33,121 $ 6,419 $ 108,939
1996 151,015 71,572 24,693 6,314 97,822
1997 139,247 64,395 14,241 4,182 84,911
1998 128,031 55,231 8,266 2,126 78,940
1999 112,932 44,338 5,106 1,404 72,296
Later 781,195 208,948 2,451 1,290 573,408
- ------------------------------------------------------------------------------
Total lease
payments $1,475,097 $524,924 $87,878 $21,735 $1,016,316
==============================================================================
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) 1994 1993 1992
- ------------------------------------------------------------------------------
Minimum rentals $160,065 $126,040 $123,189
Contingent rentals 866 182 247
Less sublease income 77,684 57,308 54,348
- ------------------------------------------------------------------------------
Rental expense $ 83,247 $ 68,914 $ 69,088
==============================================================================
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.
41
The following table shows the future minimum rentals receivable under
direct financing leases and future minimum lease payment obligations under
capital leases in effect at December 31, 1994:
==============================================================================
(In thousands) Lease Rentals Lease
Years Receivable Obligations
- ------------------------------------------------------------------------------
1995 $ 43,306 $ 29,234
1996 41,964 29,294
1997 40,136 29,357
1998 37,415 29,339
1999 33,247 29,314
Later 273,566 258,304
- ------------------------------------------------------------------------------
Total minimum lease payments 469,634 404,842
Less estimated executory costs 1,948 1,941
- ------------------------------------------------------------------------------
Net minimum lease payments 467,686 402,901
Less unearned income 222,848 -
Less interest - 181,351
- ------------------------------------------------------------------------------
Present value of net minimum
lease payments 244,838 221,550
Less current portion 14,481 8,317
- ------------------------------------------------------------------------------
Long-term portion $230,357 $213,233
==============================================================================
Contingent rental income and contingent rental expense is not material.
FACILITIES CONSOLIDATION AND RESTRUCTURING
The results in 1993 include a charge of $108 million for facilities
consolidations, re-engineering, impairment of retail-related assets and
elimination of regional operations. Facilities consolidations has resulted in
the closure of four distribution centers and is expected to result in the
closure of one additional facility the relocation of two operations and the
consolidation of a center's administrative function. 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.
The table presented below reflects changes to the facilities
consolidation and restructuring reserves recorded in the balance sheets.
==============================================================================
Re-engineering/ Consolidation
Severance Costs/Assets
(In thousands) Total Costs Impairments
- ------------------------------------------------------------------------------
Balance, December 28, 1991 $54,000 $11,000 $43,000
Expenditures and write-offs (24,108) (2,852) (21,256)
- ------------------------------------------------------------------------------
Balance, December 26, 1992 29,892 8,148 21,744
Charged to costs and expenses 107,827 25,136 82,691
Expenditures and write-offs (52,198) (8,148) (44,050)
- ------------------------------------------------------------------------------
Balance, December 25, 1993 85,521 25,136 60,385
Expenditures and write-offs (31,142) (2,686) (28,456)
- ------------------------------------------------------------------------------
Balance, December 31, 1994 $54,379 $22,450 $31,929
==============================================================================
42
TAXES ON INCOME
Components of taxes on income (tax benefit) are as follows:
==============================================================================
(In thousands) 1994 1993 1992
- ------------------------------------------------------------------------------
Current:
Federal $ 18,536 $48,742 $55,473
State 7,202 10,327 11,814
- ------------------------------------------------------------------------------
Total current 25,738 59,069 67,287
- ------------------------------------------------------------------------------
Deferred:
Federal 22,188 (20,160) 7,280
State 8,242 (4,311) 1,470
- ------------------------------------------------------------------------------
Total deferred 30,430 (24,471) 8,750
- ------------------------------------------------------------------------------
Taxes on income $56,168 $34,598 $76,037
==============================================================================
Deferred tax expense (benefit) relating to temporary differences
includes the following components:
==============================================================================
(In thousands) 1994 1993 1992
- ------------------------------------------------------------------------------
Depreciation and amortization $ (4,967) $ 516 $ 2,161
Asset valuations and reserves 20,396 (28,849) 14,807
Equity investment results 6,255 (6,767) (4,292)
Credit losses 11,728 (5,417) (4,539)
Prepaid expenses 374 3,200 -
Lease transactions (1,448) (2,307) (230)
Noncompete agreement 388 2,170 2,552
Associate benefits (3,665) 10,979 (2,977)
Note sales (2,547) 1,880 623
Other 3,916 124 645
- ------------------------------------------------------------------------------
Deferred tax expense (benefit) $30,430 $(24,471) $ 8,750
==============================================================================
43
Temporary differences that give rise to deferred tax assets and
liabilities as of December 31, 1994 and December 25, 1993 are as follows:
==============================================================================
(In thousands) 1994 1993
- ------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Depreciation and amortization $ 6,028 $ 4,333
Asset valuations and
reserve activities 78,622 57,522
Associate benefits 68,595 33,447
Credit losses 26,775 22,579
Equity investment results 10,969 13,848
Lease transactions 11,009 8,857
Inventory 14,993 7,743
Acquired loss carryforwards 10,690 4,514
Other 18,533 7,385
- ------------------------------------------------------------------------------
Gross deferred tax assets 246,214 160,228
Less valuation allowance (4,514) (6,514)
- ------------------------------------------------------------------------------
Total deferred tax assets 241,700 153,714
- ------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Depreciation and amortization 154,688 88,609
Equity investment results 4,036 1,758
Lease transactions 1,743 1,623
Inventory 63,666 18,401
Associate benefits 18,287 16,568
Asset valuations 6,552 -
Note sales 3,373 3,555
Prepaid expenses 3,799 3,200
Other 15,476 8,582
- ------------------------------------------------------------------------------
Total deferred tax liabilities 271,620 142,296
- ------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (29,920) $ 11,418
==============================================================================
The effect of the 1993 increase in the federal statutory rate to 35% on
deferred tax assets and liabilities was immaterial. The valuation allowance
contains $4 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:
==============================================================================
1994 1993 1992
- ------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 34.0%
State income taxes, net of
federal tax benefit 8.9 5.4 4.4
Acquisition-related differences 7.1 6.6 2.3
Possible assessments - - (1.4)
Other (1.0) 1.0 (.3)
- ------------------------------------------------------------------------------
Effective rate 50.0% 48.0% 39.0%
==============================================================================
SHAREHOLDERS' 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 242,000 and 174,000
new shares in 1994 and 1993, respectively. Additional shares totaling 28,000
and 9,000 in 1994 and 1993, respectively, were purchased at market value by
shareholders. In 1994, the company registered an additional 600,000 shares
pursuant to this plan.
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.
44
SEGMENT INFORMATION
The following table sets forth, for each of the last three years the
composition of the company's net sales and operating earnings.
==============================================================================
(In thousands) 1994 1993 1992
- ------------------------------------------------------------------------------
NET SALES
- ------------------------------------------------------------------------------
Marketing and distribution $15,680,925 $13,174,214 $13,125,801
Less: Elimination 1,976,984 954,810 876,441
- ------------------------------------------------------------------------------
Net marketing and distribution 13,703,941 12,219,404 12,249,360
Retail food 2,123,146 943,972 692,839
Corporate (73,600) (71,231) (48,665)
- ------------------------------------------------------------------------------
Total $15,753,487 $ 13,092,145 $12,893,534
- ------------------------------------------------------------------------------
OPERATING EARNINGS
- ------------------------------------------------------------------------------
Marketing and distribution $222,951 $200,179 $222,335
Retail food 7,905 9,371 6,868
Corporate (47,261) (2,653) 2,490
- ------------------------------------------------------------------------------
Total operating earnings 183,595 206,897 231,693
Interest expense 120,408 78,029 81,102
Interest income (63,943) (62,902) (59,477)
Equity investment results 14,793 11,865 15,127
Facilities consolidation and
restructuring - 107,827 -
- ------------------------------------------------------------------------------
Earnings before taxes $112,337 $ 72,078 $194,941
- ------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
- ------------------------------------------------------------------------------
Marketing and distribution $ 98,806 $ 80,540 $75,885
Retail food 33,455 14,922 9,135
Corporate 13,649 5,641 8,807
- ------------------------------------------------------------------------------
Total $145,910 $101,103 $93,827
- ------------------------------------------------------------------------------
CAPITAL EXPENDITURES
- ------------------------------------------------------------------------------
Marketing and distribution $107,550 $ 42,045 $52,092
Retail food 25,647 8,134 7,933
Corporate 7,274 3,005 2,206
- ------------------------------------------------------------------------------
Total $140,471 $53,184 $62,231
- ------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
- ---------------------------------------------------------------
Marketing and distribution $3,261,711 $2,185,861
Retail food 547,019 177,891
Corporate 799,599 738,880
- ---------------------------------------------------------------
Total $4,608,329 $3,102,632
===============================================================
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 1994 and 1993, options with SARs were exercisable for 20,000 and
35,000 shares, respectively. Options without SARs were exercisable for 790,000
shares in 1994 and 841,000 shares in 1993. At year-end 1994, there were
208,000 shares available for grant under the stock option plans.
Stock option transactions are as follows:
=============================================================================
(Shares in thousands) Options Price Range
- -----------------------------------------------------------------------------
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
Granted 1,782 $24.81 - 29.75
Exercised (7) $4.72 - 25.19
Canceled and forfeited (288)
- -----------------------------------------------------------------------------
Outstanding, December 31, 1994 2,470 $10.29 - 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. At year-end 1994, 62,000 shares were available for grant under
the stock incentive plan. Certain restricted common shares issued in 1991
were forfeited and returned to the company since the performance objectives
contained in the plans were not met and the plan expired. These shares were
recorded at the market value when issued, $4 million, and were amortized to
expense as earned. No amounts were expensed in 1993 or 1994, since objectives
in those years were not met. In 1993, the $2 million unamortized portion was
netted against capital in excess of par value within shareholders' equity.
This unamortized portion was eliminated upon expiration of the plan. The
shares reverted to treasury shares and $2 million is netted against capital
in excess of par value within shareholders' equity.
During 1994, 262,000 restricted shares were awarded. These shares were
recorded at market value when issued, $6 million, and will be amortized to
expense as earned. Approximately $500,000 of compensation expense was
recognized during 1994. The unamortized portion 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.
46
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 $6 million, $2 million and $1 million in 1994, 1993 and 1992,
respectively.
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 1994 and 1993 are: discount rate -
8.75% and 7.5%, respectively; compensation increases - 4.5% and 4%,
respectively; and return on assets - 9.5% for both years.
======================================================================================
December 31, 1994 December 25, 1993
----------------- -----------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(In thousands) Benefits Exceed Assets Benefits Exceed Assets
- --------------------------------------------------------------------------------------
Actuarial present
value of accumulated
benefit obligations:
Vested $169,132 $ 9,126 $166,474 $ 9,587
Total $176,380 $15,469 $174,332 $16,577
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Projected benefit
obligations $191,637 $17,342 $187,833 $18,302
Plan assets at
fair value 185,180 - 176,307 -
- --------------------------------------------------------------------------------------
Projected benefit
obligation in
excess of
plan assets 6,457 17,342 11,526 18,302
Unrecognized net
loss (37,980) (5,034) (42,195) (7,672)
Unrecognized prior
service cost (1,684) (667) (2,293) (777)
Unrecognized
net asset (obligation) 159 - 291 (216)
- --------------------------------------------------------------------------------------
Pension liability (asset) $(33,048) $11,641 $(32,671) $ 9,637
======================================================================================
Net pension expense includes the following components:
============================================================================
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------------------
Service cost $ 7,476 $ 5,323 $ 4,997
Interest cost 16,583 14,792 13,503
Actual (return) loss
on plan assets 5,064 (19,103) (8,159)
Net amortization
and deferral (20,611) 8,039 (5,030)
- ----------------------------------------------------------------------------
Net pension expense $ 8,512 $ 9,051 $ 5,311
============================================================================
47
Certain associates have pension and health care benefits provided under
collectively bargained multiemployer agreements. Expenses for these benefits
were $56 million, $44 million and $40 million for 1994, 1993 and 1992,
respectively
ASSOCIATE POSTRETIREMENT HEALTH CARE BENEFITS
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) 1994 1993 1992
- ----------------------------------------------------------------------------
Service cost $ 223 $ 140 $ 108
Interest cost 1,542 1,628 1,430
Amortization of net loss 196 138 -
- ----------------------------------------------------------------------------
Postretirement expense $1,961 $1,906 $1,538
============================================================================
The composition of the accumulated postretirement benefit obligation
(APBO) and the amounts recognized in the balance sheets are presented below.
============================================================================
(In thousands) 1994 1993
- ----------------------------------------------------------------------------
Retirees $16,385 $13,299
Fully eligible actives 1,046 1,916
Others 2,569 1,680
- ----------------------------------------------------------------------------
APBO 20,000 16,895
Unrecognized net loss 2,010 3,333
- ----------------------------------------------------------------------------
Accrued postretirement benefit cost $17,990 $13,562
============================================================================
During 1993, a postretirement benefit obligation was settled. No
additional benefit payments will be made for this terminated obligation.
48
The weighted average discount rate used in determining the APBO was
8.75% and 7.5% for 1994 and 1993, respectively. For measurement purposes in
1994 and 1993, a 14% annual rate of increase in the per capita cost of
covered medical care benefits was assumed. In both years, the rate was
assumed to decrease to 8% by 2000, then to 7.5% in 2001 and 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) 1994 1993 1992
- ----------------------------------------------------------------------------
Acquisitions:
Fair value of assets acquired $1,575,323 $111,077 $88,721
Less:
Liabilities assumed or created 1,198,050 9,057 39,781
Existing company investment (15,281) 50,628 -
Common stock issued - - 34,125
Cash acquired 5,066 282 6,582
- ----------------------------------------------------------------------------
Cash paid, net of cash acquired $ 387,488 $ 51,110 $ 8,233
Cash paid during the year for:
Interest, net of
amounts capitalized $98,254 $79,634 $82,051
Income taxes $40,414 $74,320 $65,884
Direct financing leases
and related obligations $15,640 $33,594 $27,507
Property and equipment
additions by capital leases $30,606 $21,011 $22,513
============================================================================
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. Plaintiffs seek damages, treble
damages, attorney's fees, costs, expenses and other appropriate relief. While
the amount of damages sought under most claims is not specified, plaintiffs
allege that hundreds of millions of dollars were lost as the result of the
allegations contained in the complaint.
The litigation is complex, discovery has not commenced and the ultimate
outcome cannot presently be determined. Furthermore, management is unable to
predict a potential range of monetary exposure, if any, to the company. Based
on the large recovery sought, an unfavorable judgment could have a material
adverse effect on the company. Management believes, however, that a material
adverse effect on the company's consolidated financial position is not likely.
The company intends to vigorously defend the actions.
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 addition, the company is addressing several
other environmental cleanup matters involving its properties, all of which
the company believes are immaterial.
The company has been designated by the U. S. Environmental Protection
Agency ("EPA") as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") with
others, with respect to EPA-designated Superfund sites. While liability
under CERCLA for remediation at such sites is joint and several with other
responsible parties, the company believes that, to the extent it is
ultimately determined to be liable for clean up 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.
The company has aggregate contingent liabilities for future minimum
rental commitments made on behalf of customers of $227 million in 1994 and
$370 million in 1993.
49
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Fleming Companies, Inc.
We have audited the accompanying consolidated balance sheets of Fleming
Companies, Inc. and subsidiaries as of December 31, 1994 and December 25,
1993, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1994. Our audits also included the financial statement schedule
listed in the index at item 14. These financial statements and financial
statement schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the consolidated financial position of Fleming
Companies, Inc. and subsidiaries as of December 31, 1994 and December 25,
1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion such financial
statement schedule, when considered in relation to the basic consolidated
statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
Oklahoma City, Oklahoma
February 23, 1995
50
QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
(Unaudited)
======================================================================================================
1994 First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------------
Net sales $4,031,980 $2,883,648 $4,141,538 $4,696,321 $15,753,487
Costs and expenses:
Cost of sales 3,777,967 2,699,029 3,818,129 4,311,838 14,606,963
Selling and administrative 201,535 144,157 289,449 327,788 962,929
Interest expense 21,828 16,365 37,498 44,717 120,408
Interest income (16,252) (11,811) (18,821) (17,059) (63,943)
Equity investment results 3,257 2,640 5,130 3,766 14,793
- ------------------------------------------------------------------------------------------------------
Total costs and expenses 3,988,335 2,850,380 4,131,385 4,671,050 15,641,150
- ------------------------------------------------------------------------------------------------------
Earnings before taxes 43,645 33,268 10,153 25,271 112,337
Taxes on income 19,248 14,671 7,437 14,812 56,168
- ------------------------------------------------------------------------------------------------------
Net earnings $ 24,397 $ 18,597 $ 2,716 $ 10,459 $ 56,169
- ------------------------------------------------------------------------------------------------------
Net earnings per share $.66 $.50 $.07 $.28 $1.51
Dividends paid per share $.30 $.30 $.30 $.30 $1.20
Weighted average shares outstanding 37,093 37,247 37,332 37,424 37,254
=======================================================================================================
The first quarter of both years consists of 16 weeks, all other quarters are
12 weeks, except for the fourth quarter of 1994 which was 13 weeks. The year
1994 was a 53-week year, 1993 consists of 52 weeks.
The results of Scrivner are included effective at the beginning of the third
quarter. A customer filed for bankruptcy during the third quarter, resulting
in a credit loss of $6.5 million.
51
QUARTERLY FINANCIAL INFORMATION
=============================================================================================================
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 expense 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:
Earnings before extraordinary loss $1.02 $.73 $.55 $(1.28) $1.02
Extraordinary loss - - - .06 .06
- -------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $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 second quarter of 1993 includes $11 million of pretax income resulting
from the favorable resolution of a litigation matter and a $1 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 $5
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.
52
SCHEDULE II
FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994,
DECEMBER 25, 1993, AND DECEMBER 26, 1992
(In thousands)
ALLOWANCE
FOR
CREDIT LOSSES CURRENT NONCURRENT
------------- ------- ----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
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,
less recoveries (32,954)
--------
BALANCE, December 25, 1993 62,595 $44,320 $18,275
======= =======
Acquired reserves, Scrivner
acquisition, July 19, 1994 25,950
Charged to costs and expenses 61,218
Uncollectible accounts written off,
less recoveries (101,196)
--------
BALANCE, December 31, 1994 $ 48,567 $39,506 $ 9,061
======== ======= =======
53
(a), (c) 3. Exhibits:
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
3.1 Certificate of Incorporation Exhibit 3.1 to
Form 10-K
for year ended
December 28, 1991.
3.2 By-Laws Exhibit 28.2 to
Form 8-K dated
August 22, 1989.
4.0 Credit Agreement, dated as of Exhibit 4.0 to
July 19, 1994, among Fleming Form 8-K dated
Companies, Inc., the Banks July 19, 1994
listed therein and Morgan
Guaranty Trust Company of New
York, as Managing Agent
4.1 Pledge Agreement, dated as of Exhibit 4.1 to
July 19, 1994, among Fleming Form 8-K dated
Companies, Inc. and Morgan July 19, 1994
Guaranty Trust Company of
New York, as Collateral Agent
4.2 Security Agreement dated as of Exhibit 4.2 to
July 19, 1994, between Fleming Form 8-K dated
Companies, Inc. in favor of July 19, 1994
Morgan Guaranty Trust Company
of New York, as Collateral Agent
4.3 Amendment No. 1 to Credit Exhibit 4.3 to
Agreement dated as of Form 8-K dated
July 21, 1994 July 19, 1994
4.4 Amendment No. 2 to Credit
Agreement dated as of
November 14, 1994
4.5 Agreement to furnish copies of
other long-term debt
instruments
4.6 Rights Agreement dated as of Exhibit 28 to
July 7, 1986, between the Form 8-K dated
Registrant and Morgan June 24, 1986.
Guaranty Trust Company of New
York
4.7 Amendment to Rights Agreement Exhibit 28.1 to
dated as of August 22, 1989, Form 8-K dated
between the Registrant August 22, 1989.
and First Chicago Trust Company
of New York, as Rights Agent
4.8 Indenture dated as of December Exhibit 4 to
1, 1989, between the Registrant Registration
and Morgan Guaranty Trust Statement No.
Company of New York, as trustee 33-29633.
4.9 Indenture dated as of
December 15, 1994, between the
Registrant, the Subsidiary
Guarantors and Texas Commerce
Bank National Association, as
Trustee, regarding $300 million
of 10 5/8% Senior Notes
4.10 Indenture dated as of December
15, 1994, between the Registrant,
the Subsidiary Guarantors and the
Texas Commerce Bank National
Association, as Trustee,
regarding $200 million of
Floating Rate Senior Notes
54
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
10.0 Stock Purchase Agreement by and Exhibit 2.0 to
Fleming Companies, Inc. and Form 8-K dated
Franz Haniel & Cie. GmbH dated July 19, 1994
as of July 15, 1994
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 Form 10-K for year
Merrill Lynch, Pierce, Fenner ended December 30,
& Smith Incorporated dated 1989.
December 5, 1989
10.3 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.
10.4* 1985 Stock Option Plan Exhibit 28(a) to
Registration
Statement No.
2-98602.
10.5* Form of Award Agreement for Exhibit 10.6 to Form
1985 Stock Option Plan (1994) 10-K for year ended
December 25, 1993.
10.6* 1990 Stock Option Plan Exhibit 28.2 to
Registration
Statement No.
33-36586.
10.7* Form of Award Agreement for Exhibit 10.8 to Form
1990 Stock Option Plan (1994) 10-K for year ended
December 25, 1993.
10.8* Fleming Management Incentive Exhibit 10.4 to
Compensation Plan Registration
Statement No.
33-51312.
55
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
10.9* Directors' Deferred Exhibit 10.5 to
Compensation Plan Registration
Statement No.
33-51312.
10.10* Amended and Restated
Supplemental Retirement Plan
10.11* Form of Amended and Restated
Supplemental Retirement
Income Agreement
10.12* Godfrey Company 1984 Non- Appendix II to
qualified Stock Option Plan Registration
Statement No.
33-18867.
10.13* Form of Amended and Restated
Severance Agreement
between the Registrant and
certain of its officers
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, Exhibit 10.16 to
Inc. Stock Incentive Plan and Form 10-K for year
Form of Awards Agreement ended December 30,
1989.
10.16* Phase II of Fleming Companies, Exhibit 10.12 to
Inc. Stock Incentive Plan Form 10-K for year
ended December 26,
1992.
10.17* Phase III of Fleming Companies, Exhibit 10.17 to
Inc. Stock Incentive Plan Form 10-K for year
ended December 25,
1993.
10.18* Fleming Companies, Inc. Exhibit 10.14 to
Directors' Stock Form 10-K for year
Equivalent Plan ended December 28,
1991.
10.19* Agreement between the Exhibit 10.19 to
Registrant and Form 10-K for year
E. Dean Werries ended December 25,
1993.
10.20* Supplemental Income Trust
10.21* Form of Employment
Agreement between Registrant
and certain of the employees
10.22* Economic Value Added Exhibit A to Proxy
Incentive Bonus Plan Statement for year
ended December 31, 1994
11 Earnings per share computation
12 Computation of ratio of
earnings to fixed charges
56
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
24 Power of attorney instruments
signed by certain directors
and officers of the Registrant
appointing Harry L. Winn, Jr.,
Executive Vice President 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
27 Financial Data Schedule
99 Company Undertaking
* Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K:
None.
57
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
28th day of March 1995.
FLEMING COMPANIES, INC.
/s/ Robert E. Stauth
---------------------------------
By: Robert E. Stauth
(Chairman, President
and Chief Executive 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 28th day of March 1995.
/s/ Robert E. Stauth /s/ Archie R. Dykes * /s/ Carol B. Hallett *
- ------------------------- ----------------------- -----------------------
Robert E. Stauth Archie R. Dykes Carol B. Hallett
(Chairman of the Board) (Director) (Director)
/s/ James G. Harlow, Jr.* /s/ Lawrence M. Jones * /s/ Edward C.Joullian III*
- ------------------------- ------------------------ --------------------------
James G. Harlow, Jr. 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/ E. Dean Werries *
- -------------------------
E. Dean Werries
(Director)
*By /s/ Harry L. Winn, Jr.
-------------------------
Harry L. Winn, Jr.
Attorney-In-Fact
A Power of Attorney authorizing Harry L. Winn,
Jr. 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.
58
INDEX TO EXHIBITS
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
3.1 Certificate of Incorporation Exhibit 3.1 to
Form 10-K
for year ended
December 28, 1991.
3.2 By-Laws Exhibit 28.2 to
Form 8-K dated
August 22, 1989.
4.0 Credit Agreement, dated as of Exhibit 4.0 to
July 19, 1994, among Fleming Form 8-K dated
Companies, Inc., the Banks July 19, 1994
listed therein and Morgan
Guaranty Trust Company of New
York, as Managing Agent
4.1 Pledge Agreement, dated as of Exhibit 4.1 to
July 19, 1994, among Fleming Form 8-K dated
Companies, Inc. and Morgan July 19, 1994
Guaranty Trust Company of
New York, as Collateral Agent
4.2 Security Agreement dated as of Exhibit 4.2 to
July 19, 1994, between Fleming Form 8-K dated
Companies, Inc. in favor of July 19, 1994
Morgan Guaranty Trust Company
of New York, as Collateral Agent
4.3 Amendment No. 1 to Credit Exhibit 4.3 to
Agreement dated as of Form 8-K dated
July 21, 1994 July 19, 1994
4.4 Amendment No. 2 to Credit
Agreement dated as of
November 14, 1994
4.5 Agreement to furnish copies of
other long-term debt
instruments
4.6 Rights Agreement dated as of Exhibit 28 to
July 7, 1986, between the Form 8-K dated
Registrant and Morgan June 24, 1986.
Guaranty Trust Company of New
York
4.7 Amendment to Rights Agreement Exhibit 28.1 to
dated as of August 22, 1989, Form 8-K dated
between the Registrant August 22, 1989.
and First Chicago Trust Company
of New York, as Rights Agent
4.8 Indenture dated as of December Exhibit 4 to
1, 1989, between the Registrant Registration
and Morgan Guaranty Trust Statement No.
Company of New York, as trustee 33-29633.
4.9 Indenture dated as of
December 15, 1994, between the
Registrant, the Subsidiary
Guarantors and Texas Commerce
Bank National Association, as
Trustee, regarding $300 million
of 10 5/8% Senior Notes
4.10 Indenture dated as of December
15, 1994, between the Registrant,
the Subsidiary Guarantors and the
Texas Commerce Bank National
Association, as Trustee,
regarding $200 million of
Floating Rate Senior Notes
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
10.0 Stock Purchase Agreement by and Exhibit 2.0 to
Fleming Companies, Inc. and Form 8-K dated
Franz Haniel & Cie. GmbH dated July 19, 1994
as of July 15, 1994
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 Form 10-K for year
Merrill Lynch, Pierce, Fenner ended December 30,
& Smith Incorporated dated 1989.
December 5, 1989
10.3 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.
10.4* 1985 Stock Option Plan Exhibit 28(a) to
Registration
Statement No.
2-98602.
10.5* Form of Award Agreement for Exhibit 10.6 to Form
1985 Stock Option Plan (1994) 10-K for year ended
December 25, 1993.
10.6* 1990 Stock Option Plan Exhibit 28.2 to
Registration
Statement No.
33-36586.
10.7* Form of Award Agreement for Exhibit 10.8 to Form
1990 Stock Option Plan (1994) 10-K for year ended
December 25, 1993.
10.8* Fleming Management Incentive Exhibit 10.4 to
Compensation Plan Registration
Statement No.
33-51312.
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
10.9* Directors' Deferred Exhibit 10.5 to
Compensation Plan Registration
Statement No.
33-51312.
10.10* Amended and Restated
Supplemental Retirement Plan
10.11* Form of Amended and Restated
Supplemental Retirement
Income Agreement
10.12* Godfrey Company 1984 Non- Appendix II to
qualified Stock Option Plan Registration
Statement No.
33-18867.
10.13* Form of Amended and Restated
Severance Agreement
between the Registrant and
certain of its officers
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, Exhibit 10.16 to
Inc. Stock Incentive Plan and Form 10-K for year
Form of Awards Agreement ended December 30,
1989.
10.16* Phase II of Fleming Companies, Exhibit 10.12 to
Inc. Stock Incentive Plan Form 10-K for year
ended December 26,
1992.
10.17* Phase III of Fleming Companies, Exhibit 10.17 to
Inc. Stock Incentive Plan Form 10-K for year
ended December 25,
1993.
10.18* Fleming Companies, Inc. Exhibit 10.14 to
Directors' Stock Form 10-K for year
Equivalent Plan ended December 28,
1991.
10.19* Agreement between the Exhibit 10.19 to
Registrant and Form 10-K for year
E. Dean Werries ended December 25,
1993.
10.20* Supplemental Income Trust
10.21* Form of Employment
Agreement between Registrant
and certain of the employees
10.22* Economic Value Added Exhibit A to Proxy
Incentive Bonus Plan Statement for year
ended December 31, 1994
11 Earnings per share computation
12 Computation of ratio of
earnings to fixed charges
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER REFERENCE TO
------- ----------------
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
24 Power of attorney instruments
signed by certain directors
and officers of the Registrant
appointing Harry L. Winn, Jr.,
Executive Vice President 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
27 Financial Data Schedule
99 Company Undertaking
* Management contract, compensatory plan or arrangement.