EXHIBIT 99.1
NEWS RELEASE
[FLEMING LETTERHEAD]
FOR IMMEDIATE RELEASE CONTACTS:
(Media) Shane Boyd 972.906.2125
(Investors-Equity) Meredith Anderson 972.906.8592
(Investors-Debt) Matt Hildreth 972.906.8126
FLEMING TO DIVEST RETAIL OPERATIONS
COMPANY TO FOCUS ON MORE PROFITABLE CORE WHOLESALE DISTRIBUTION BUSINESS
PROCEEDS FROM SALE TO BE USED FOR SIGNIFICANT DEBT REDUCTION
UPDATED EPS AND CASH FLOW GUIDANCE FOR 2002
AND 2003 TO BE FOCUS OF COMPANY CONFERENCE CALL
DALLAS, TEXAS, SEPTEMBER 24, 2002 - Fleming Companies, Inc. (NYSE: FLM)
today announced that, having concluded the strategic review of its retail
operations, the company has made the decision to divest Fleming's 110 existing
price-impact stores, which operate under the Food 4 Less and Rainbow Foods
banners.
The decision - the result of a strategic review initiated subsequent to
the Core-Mark and Head Distributing acquisitions - was based on a number of
factors including: the advantages of focusing resources and investments
completely on Fleming's growing supply chain distribution network; the greater
return on invested capital opportunities that exist in the core wholesale
distribution business as compared to the retail business; the increasingly
competitive conditions in the retail environment; and the unique advantage that
Fleming could gain from not competing with its distribution customers in the
retail markets.
Mark Hansen, Fleming's chairman of the board and chief executive
officer, said, "Following the completion of our Core-Mark and Head Distributing
transactions, which accelerated the transformation of Fleming's multi-tiered
supply chain network and the diversification of our customer base, we initiated
a strategic review of our retail business to ensure that it was still
appropriately complementing our core distribution business. The conclusion of
the review was that, based on the greater growth opportunities and the higher
relative returns on invested capital generated by our distribution supply chain
business, the divestiture of our price-impact retail business was in the best
interest of our shareholders, distribution customers and the company.
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"We concluded that by exiting the retail business, and not competing
with the very customers with whom we are cultivating strong relationships, we
would be in a unique position among our peers insofar as we would be the only
independent, pure-play wholesale distributing company with a national footprint
that covers all key retailing segments--independent supermarkets, convenience
stores, chain stores, supercenters, discount stores, and other retail outlets.
This perspective was underscored by the fact that being in retail requires fuel
centers today and we simply don't want to compete with our new and valuable
convenience store customer base."
Not only will the divestiture of the retail business allow Fleming to
focus fully and completely on its growing and profitable distribution business,
but the proceeds from the sale of the retail operations, anticipated to be in
excess of $450 million net of taxes, will contribute to Fleming's ongoing
actions to reduce its debt.
Hansen continued, "We are pleased with the progress our company has
made to date in transforming our core distribution business into a multi-tiered,
diversified supply network. The divestiture of our retail business represents
the next major decision in the strategic repositioning of Fleming. Other aspects
of that repositioning include strengthening our balance sheet, continuing our
cost-cutting and right-sizing initiatives, implementing efficiency improvements
in our centralized procurement functions and integrating our F1 technology. The
expected cash inflow that will be generated by the sale, combined with other
recent actions -- such as improving our operating cash flow, reducing capital
expenditures, cutting administrative costs and eliminating any material debt
maturities until 2007 -- further demonstrate Fleming's commitment to strengthen
its balance sheet for long-term growth and success."
Fleming has already initiated conversations with a number of potential
buyers for these retail operations. Discussions and due diligence are in process
with both self-distributing chains and regional and independent supermarket
operators. The actual dispositions of the retail assets are anticipated to occur
in a series of sales to multiple buyers, beginning in the fourth quarter of 2002
and completed in 2003. It is likely that following the sale of the stores,
Fleming will retain a significant portion of the distribution volume for these
stores.
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UPDATED EARNINGS AND CASH FLOW GUIDANCE
Concurrent with its plans to divest the price-impact retail operations
and to enable investors to better evaluate the company on a going forward basis,
Fleming has updated its 2002 and 2003 earnings and cash flow guidance
accordingly. Based on the intent to sell the retail operations, the retail
segment will be classified as a "discontinued operation," in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Additionally, the updated guidance reflects the recent economic
slowdown in consumer spending across the country and the increasingly
competitive environment in retail, which has negatively impacted the entire
industry. This industry-wide slowdown has resulted in lower sales and higher
operating expenses as a percent of sales in Fleming's distribution operations.
An integral slide presentation that provides significant detail
regarding the guidance calculations is available on the Fleming website at
www.fleming.com. Investors and interested parties are encouraged to visit the
website to learn more about the company's guidance.
Fleming's earnings guidance for continuing operations in the third
quarter 2002 is between ($0.05) and $0.00 per share; for the fourth quarter
2002, earnings guidance is between $0.35 and $0.45 per share. EBITDA for
continuing operations in the third quarter 2002 is anticipated to be in a range
between $65 million to $70 million; for the fourth quarter 2002 EBITDA is
anticipated to be in the range of $95 million to $105 million. Full year 2002
sales for continuing operations are anticipated to be approximately $15.4
billion.
"Sales shortfalls in the third quarter reflect the pervasively weak and
increasingly competitive retail environment throughout the country," said
Hansen. "Fleming has already taken decisive action to lower costs, particularly
administrative expenses, in response to the generally soft sales environment."
The effect of these cost-reducing actions will be approximately $40
million on an annualized basis. The reductions in expenses are being achieved in
part by leveraging technology, making process improvements and continually
matching the organizational structure to the company's business needs. The
benefits that will follow from reductions in force will be realized beginning in
the fourth quarter of 2002. Fleming remains committed to achieving additional
operating efficiencies through its low-cost-pursuit initiatives.
The third quarter EPS projection for continuing operations includes the
impact of severance-related expenses, anticipated to be approximately $0.10 per
share. It also includes an
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impact of approximately $0.12 per share related to expenses incurred in the
start-up of the company's new distribution center in Tulsa and the shutdown
expenses of its Oklahoma City and Dallas facilities. The fourth quarter EPS
projection reflects a modest improvement in sales trends over the prior quarter
to factor in the generally higher fourth quarter seasonal sales and the
realization of a portion of the company's targeted cost-cutting initiatives.
For 2003, Fleming expects continuing operations to generate EPS of
between $1.95 and $2.05 per share, and EBITDA of between $475 million and $490
million. Continuing operations sales for 2003 are expected to be approximately
$18 billion and are expected to generate approximately $235 million in operating
cash flow, which will allow for additional debt repayments of an estimated $100
million and capital expenditures to approximately $135 million in 2003.
BALANCE SHEET IMPROVEMENT
Fleming has taken the following steps to strengthen its balance sheet
and continues to improve credit metrics in the second half of 2002 and beyond:
- Eliminated all material long-term debt that matures before 2007.
- More efficient management of seasonal inventory builds, resulting in
improved operating cash flow.
- Cut administrative costs.
- Reduced capital expenditures.
The company's expectation is that it will generate approximately $190
million in operating cash flow in the second half of 2002. The company will use
approximately $100 million of this cash to repay debt, including fully paying
down the amounts outstanding under its $550 million revolving credit facility by
year-end, regardless of the status of the retail disposition. The company will
also use approximately $90 million of this cash to fund capital expenditures.
Proceeds from the sale of price-impact retail stores will also further pay down
debt. As a result of this anticipated debt reduction, the company expects
continual improvement in all three primary credit ratios - debt-to-EBITDA,
EBITDA-to-interest and debt-to-capitalization.
CONFERENCE CALL AND WEBCAST
A teleconference and webcast to review the information in this press
release and discuss the slide presentation (which is available on the company's
website) will be held on Wednesday,
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September 25, 2002 at 8:30 a.m. Eastern Time. To access the call, dial in to the
conference line at 913.981.5537. Interested parties may listen to the conference
call over the Internet on the company's website at www.fleming.com.
Additionally, the teleconference will be available for replay beginning at 1:30
p.m. Eastern Time, September 25, 2002 by dialing 888.203.1112. The confirmation
code for both the calls is 791851.
ABOUT FLEMING
With its national, multi-tier supply chain network, Fleming is the #1
supplier of consumer package goods to retailers of all sizes and formats in the
United States. Fleming serves nearly 50,000 retail locations, including
supermarkets, convenience stores, supercenters, discount stores, concessions,
limited assortment, drug, specialty, casinos, gift shops, military commissaries
and exchanges and more. To learn more about Fleming, visit our Web site at
www.fleming.com.
FORWARD-LOOKING STATEMENT
This document includes forward-looking statements regarding future
events and Fleming's future financial performance, including anticipated
earnings. These forward-looking statements are based on management's current
expectations and subject to a number of factors that could cause actual results
to differ materially from those stated in this release, including without
limitation: changes in general economic conditions; adverse effects of the
changing industry and increased competition; sales declines and/or loss of
customers; the ability of Kmart to continue as a going concern, to operate
pursuant to the terms of its debtor-in-possession financing, or to complete its
reorganization according to its plan; unanticipated problems with product
procurement; exposure to litigation and other contingent losses; the inability
to integrate acquired companies and to achieve operating improvements at those
companies; increases in labor costs and disruptions in labor relations with
union bargaining units representing Fleming's employees; and the negative
effects of Fleming's substantial indebtedness and the limitations imposed by
restrictive covenants contained in Fleming's debt instruments. Additional
information about these factors is contained in Fleming's reports and filings
with the Securities and Exchange Commission, including its 2001 Form 10-K.
Fleming undertakes no obligation to update forward-looking statements to reflect
developments or information obtained after the date of this release.
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