-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, it7QUfgSnMZAee4jU6e/vVFQpmDkCLVJVMJ0RXG2j539p440myWNOWEFMIFkCfOY dsgr94qTxR3URoxoqFLk9Q== 0000909334-95-000029.txt : 19950608 0000909334-95-000029.hdr.sgml : 19950608 ACCESSION NUMBER: 0000909334-95-000029 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950422 FILED AS OF DATE: 19950607 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEMING COMPANIES INC /OK/ CENTRAL INDEX KEY: 0000352949 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 480222760 STATE OF INCORPORATION: OK FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08140 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 6301 WATERFORD BLVD STREET 2: P O BOX 26647 CITY: OKLAHOMA CITY STATE: OK ZIP: 73126 BUSINESS PHONE: 4058407200 10-Q 1 THIS DOCUMENT IS A COPY OF THE 10-Q FILED ON JUNE 7, 1995 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 22, 1995 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 1-8140 FLEMING COMPANIES, INC. (Exact name of registrant as specified in its charter) OKLAHOMA 48-0222760 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6301 Waterford Boulevard, Box 26647 Oklahoma City, Oklahoma 73126 (Address of principal executive offices) (Zip Code) (405) 840-7200 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of each of the issuer's classes of common stock, as of May 20, 1995 is as follows: Class Shares Outstanding Common stock, $2.50 par value 37,520,000 FLEMING COMPANIES, INC. INDEX Part I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Condensed Statements of Earnings - 16 Weeks Ended April 22, 1995, and April 16, 1994 Consolidated Condensed Balance Sheets - April 22, 1995, and December 31, 1994 Consolidated Condensed Statements of Cash Flows - 16 Weeks Ended April 22, 1995, and April 16, 1994 Notes to Consolidated Condensed Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. OTHER INFORMATION: Item 4. Results of Votes of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Consolidated Condensed Statements of Earnings For the 16 weeks ended April 22, 1995, and April 16, 1994 (In thousands, except per share amounts) First Interim Period 1995 1994 ---------- ---------- Net sales $5,485,403 $4,031,980 Costs and expenses: Cost of sales 5,049,364 3,777,967 Selling and administrative 363,944 201,535 Interest expense 56,397 21,828 Interest income (21,769) (16,252) Equity investment results 6,473 3,257 Facilities consolidation and restructuring (8,982) - ---------- --------- Total costs and expenses 5,445,427 3,988,33 ---------- --------- Earnings before taxes 39,976 43,645 Taxes on income 20,428 19,248 ---------- ---------- Net earnings $ 19,548 $ 24,397 ========== ========== Net earnings per share $.52 $.66 Dividends paid per share $.30 $.30 Weighted average shares outstanding 37,497 37,093 ---------- ---------- Fleming Companies, Inc. See notes to consolidated condensed financial state- ments. Consolidated Condensed Balance Sheets (In thousands) April 22, December 31, Assets 1995 1994 - ----------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 4,616 $ 28,352 Receivables 373,486 364,884 Inventories 1,139,323 1,301,980 Other current assets 78,923 124,865 --------- --------- Total current assets 1,596,348 1,820,081 Investments and notes receivable 353,268 402,603 Investment in direct financing leases 239,359 230,357 Property and equipment 1,462,731 1,455,954 Less accumulated depreciation and amortization (496,176) (467,830) Property and equipment, net 966,555 988,124 Other assets 176,557 179,332 Goodwill 985,235 987,832 --------- --------- Total assets $4,317,322 $4,608,329 ============================================================================ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 820,969 $ 960,333 Current maturities of long-term debt 110,194 110,321 Current obligations under capital leases 16,948 15,780 Other current liabilities 254,811 237,197 --------- --------- Total current liabilities 1,202,922 1,323,631 Long-term debt 1,473,555 1,641,390 Long-term obligations under capital leases 368,057 353,403 Deferred income taxes 36,072 51,279 Other liabilities 146,958 160,071 Shareholders' equity: Common stock, $2.50 par value per share 93,953 93,705 Capital in excess of par value 496,791 494,966 Reinvested earnings 512,361 503,962 Cumulative currency translation adjustment (2,926) (2,972) --------- --------- 1,100,179 1,089,661 Less guarantee of ESOP debt (10,421) (11,106) --------- --------- Total shareholders' equity 1,089,758 1,078,555 --------- --------- Total liabilities and shareholders' equity $4,317,322 $4,608,329 ============================================================================ Fleming Companies, Inc. See notes to consolidated condensed financial state- ments. Consolidated Condensed Statements of Cash Flows For the 16 weeks ended April 22, 1995, and April 16, 1994 (In thousands) 1995 1994 ----- ----- Net cash provided by operating activities $145,748 $ 142,479 Cash flows from investing activities: Collections on notes receivable 42,916 20,849 Notes receivable funded (25,682) (40,601) Purchase of property and equipment (29,586) (17,071) Proceeds from sale of property and equipment 9,158 376 Investments in customers (1,234) (2,534) Proceeds from sale of investments 15,901 1,576 Other investing activities (709) (2,036) ------- ------- Net cash provided (used) in investing activities 10,764 (39,441) ------- ------- Cash flows from financing activities: Proceeds from long-term borrowings - 155,000 Principal payments on long-term debt (167,962) (245,699) Principal payments on capital lease obligations (4,970) (4,002) Sale of common stock under incentive stock and stock ownership plans 2,073 1,874 Dividends paid (11,150) (11,084) Other financing activities 1,761 819 ------- ------- Net cash used in financing activities (180,248) (103,092) ------- ------- Net decrease in cash and cash equivalents (23,736) (54) Cash and cash equivalents, beginning of period 28,352 1,634 ------- ------- Cash and cash equivalents, end of period $ 4,616 $ 1,580 ============================================================================ Supplemental information: Cash paid for interest $44,860 $18,342 Cash paid for income taxes $19,770 $8,070 ============================================================================ Fleming Companies, Inc. See notes to consolidated condensed financial statements. Notes to Consolidated Condensed Financial Statements 1. The consolidated condensed balance sheet as of April 22, 1995, and the consolidated condensed statements of earnings and cash flows for the 16-week periods ended April 22, 1995, and April 16, 1994, have been pre- pared by the company, without audit. In the opinion of management, all adjustments necessary to present fairly the company's financial position at April 22, 1995, and the results of operations and cash flows for the periods presented have been made. All such adjustments are of a normal, recurring nature. Primary earnings per share are calculated using the weighted average shares outstanding. The impact of outstanding stock options on primary earnings per share is not material. 2. The statement of earnings for the 16 weeks ended April 22, 1995 reflects the effect of the change in management's estimate of the cost associated with the general merchandising portion of the facilities consolidation and restructuring plan. The estimate reflects reduced expense and cash out- flow. Accordingly, the company reversed $9 million of the provision for restructuring. The reversal is shown as a credit to the facilities con- solidation and restructuring expense line in the accompanying financial statements. 3. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the company's 1994 annual report on Form 10-K. 4. The LIFO method of inventory valuation is used for determining the cost of most grocery and certain perishable inventories. The excess of current cost of LIFO inventories over their stated value was $18 million at April 22, 1995, and $19 million at December 31, 1994. 5. In December 1993, the company and numerous other defendants were named in two suits filed in U.S. District Court in Miami. The plaintiffs allege liability on the part of the company as a consequence of an allegedly fraudulent scheme conducted by Premium Sales Corporation and others in which unspecified but large losses in the Premium-related entities occurred to the detriment of a purported class of investors which has brought one of the suits. The other suit is by the receiver/trustee of the estates of Premium and certain of its affiliated entities. Plaintiffs seek damages, treble damages, attorneys' fees, costs, expenses and other appropriate relief. While the amount of damages sought under most claims is not specified, plaintiffs allege that hundreds of millions of dollars were lost as the result of the allegations contained in the complaint. The litigation is complex and the ultimate outcome cannot presently be determined. Furthermore, management is unable to predict a potential range of monetary exposure, if any, to the company. Based on the large recovery sought, an unfavorable judgment could have a material adverse effect on the company. Management believes, however, that a material adverse effect on the company's consolidated financial position is not likely. The company is vigorously defending the actions. 6. As of July 1994, the company completed the acquisition of all the out- standing stock of Haniel Corporation, the parent of Scrivner Inc. ("Scrivner"). The company paid $388 million in cash and refinanced substantially all of Scrivner's existing indebtedness (approximately $670 million in aggregate principal and premium). The acquisition has been accounted for as a purchase and the results of operations of Scrivner have been included in the consoli- dated financial statements since the beginning of the third quarter of 1994. The purchase price was allocated based on estimated fair values at the date of the acquisition. At April 22, 1995, the excess of purchase price over assets acquired was $550 million and is being amortized on a straight-line basis over 40 years. Pro forma information for the 16 weeks ending April 16, 1994, sum- marizing the results of operations of the company (16 weeks ended April 16) and Scrivner (12 weeks ended March 19) as if the acquisition had occurred at the beginning of 1994, with pro forma adjustments to give effect to amortization of goodwill, interest expense on acquisition debt and certain other adjustments, together with related income tax effects, are as follows: net sales - $5.39 billion; net earnings - $21 million; and net earnings per share - $.57. 7. In the first quarter 1995, the company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 114 - Accounting by Creditors for Impairment of a Loan (as amended by SFAS No. 118 - Income Recognition and Disclosures). The impact on the consolidated statements of earnings and financial position was immaterial. Loans determined to be impaired are measured by the present value of expected future cash flows discounted at the loan's effective interest rate, or collateral values. 8. The senior notes issued during 1994 are guaranteed by all direct and indirect subsidiaries of the company (except for certain inconsequential subsidiaries), all of which are wholly owned. The guarantees are joint and several, full, complete and unconditional. There are currently no restrictions on the ability of the subsidiary guarantors to transfer funds to the company in the form of cash dividends, loans or advances. Full financial statements for the subsidiary guarantors are not presented herein because management does not believe such information would be material. The following summarized financial information for the combined subsidiary guarantors has been prepared from the books and records maintained by the subsidiary guarantors and the company. Intercompany transactions are eliminated. The summarized financial information includes allocations of material amounts of expenses such as corporate services and administration, interest expense on indebtedness and taxes on income. The allocations are generally based on proportional amounts of sales or assets, and taxes on income are allocated consistent with the asset and liability approach used for consolidated financial statement purposes. Management believes these alloca- tion methods are reasonable. =================================================================== (In millions) April 22, 1995 ------------------------------------------------------------------- Current assets $ 754 Noncurrent assets 1,405 Current liabilities 501 Noncurrent liabilities 875 =================================================================== 16 Weeks Ended (In millions) April 22, 1995 ------------------------------------------------------------------- Net sales $ 2,215 Costs and expenses 2,230 Earnings (loss) before extraordinary items (8) Net earnings (loss) (8) =================================================================== MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General In January 1994, the company announced the details of a plan to restruc- ture its organizational alignment, re-engineer its operations and consolidate its facilities. The company's objective is to lower product costs to retail customers while providing the company with a fair and adequate return for product supply and value-added services. To achieve this objective, management is making major organizational changes, introducing the new Fleming Flexible Marketing Plan and investing in technology. The actions contemplated by the plan will affect the company's food and general merchandise wholesaling opera- tions as well as certain retail operations and are expected to be substantially completed by the end of 1996. The acquisition of Scrivner, described more fully below, has not changed the plan's design but has delayed full implementa- tion. In the first quarter of 1995, management changed its restructuring esti- mates with respect to the general merchandising operations portion of the re- structuring plan. The revised estimate reflects reduced expense and cash out- flow. Accordingly, during the quarter the company reversed $9 million of the provision for restructuring. Facilities consolidation has resulted in the closure of four distribution centers and will result in the closure of one additional facility. During 1994 and the first quarter of 1995, approximately 450 associate positions were eliminated through facilities consolidations. Results beginning with the third quarter of 1994 have been materially af- fected by the acquisition of Scrivner. Sales have increased dramatically and gross margin and selling and administrative expenses as a percent of sales are significantly higher due to the higher percentage of retail food operations in Scrivner. Interest expense increased materially as a result of the increased borrowing level and higher interest rates and expense for the amortization of goodwill also significantly increased, both due to the acquisition. The com- pany has closed five Scrivner distribution centers, has announced plans and begun closing actions on three additional facilities and expects to close one more. Management has identified certain on-going expenses to be incurred during the transitional phases of the company's consolidation, reorganization and re- engineering plan and the integration of Scrivner. These expenses include travel and training costs, additional expenditures associated with maintaining two operational systems during the integration of Scrivner and the roll-out of the new flexible marketing plan, software installation costs and other miscel- laneous costs associated with facilities consolidations (including costs re- lating to operational inefficiencies during the change-over, deferred sales growth and lost business opportunities). These costs are difficult to isolate, quantify or predict, and the timing of various components is erratic. Never- theless, management believes that such expenses have been incurred at a significant rate since the end of the second quarter of 1994 and that such expenses will continue to negatively impact earnings until approximately mid-1997. Results of Operations Set forth in the following table is information for the first interim periods of 1995 and 1994 regarding certain components of the company's earnings expressed as a percentage of net sales: 1995 1994 ------- ------- Net sales 100.00% 100.00% Gross margin 7.95 6.30 Less: Selling and administrative expense 6.63 5.00 Interest expense 1.03 .54 Interest income (.40) (.40) Equity investment results .12 .08 Facilities consolidation and restructuring (.16) ------- ------- Total costs and expenses 7.22 5.22 Earnings before taxes .73 1.08 Taxes on income .37 .47 ------- ------- Net earnings .36% .61% ======= ======= Net sales. Sales for the first quarter (16 weeks) of 1995 increased by $1.45 billion, or 36%, to $5.49 billion from $4.03 billion for the same period in 1994. For the company's food distribution and retail food segments, the sales increase is as follows: Food distribution operations sales increased by $782 million, or 21%, to $4.47 billion from $3.69 billion for the same period in 1994: retail food operations sales increased by $664 million to $1.00 billion from $340 million for the first 16 weeks in 1994. The increases in net sales were due to the approximately $1.5 billion in sales generated by the Scrivner acquisition. Such sales were not in the comparable period in 1994. Without the acquisition, net sales would have declined slightly due to several factors, none of which is individually material to net sales, including: the expiration of the temporary agreement with Albertson's, Inc. as its Florida distribution center came on line, the sale of a distribution center, the loss of a customer and the loss of business due to the bankruptcy of Megafoods Stores, Inc. Lost business is typically replaced through normal sales efforts. Management believes that the company's aggressive consolidation schedule for Scrivner and the organizational and operational changes associated with the Fleming re-engineering program have hindered and will continue to hinder the full effectiveness of such sales activities until these major initiatives are completed in mid-1997. Sales comparisons for the second quarter of 1995 will continue to be materially affected by the acquisition. On May 16, 1995, the company received confirmation that the federal bankruptcy court in Phoenix approved Megafoods' decision to move the majority of its $150 million food distribution business in the Arizona market to a dif- ferent food supplier on June 3. Although there is no formal agreement in place, Fleming expects to continue to sell approximately $20 million of produce annually to Megafoods. Fleming will continue to have a substantial business base in its Phoenix division with sales of more than $1 billion annually to more than 400 locations. In response to the lost Megafoods business, the com- pany will adjust its Phoenix operations' overhead costs and pursue new busi- ness opportunities. Fleming measures inflation using data derived from the average cost of a ton of product sold by the company. For the first quarter of 1995, food price inflation was flat. Gross margin. Gross margin for the first quarter of 1995 increased by $182 million, or 72%, to $436 million from $254 million for the same period of 1994 and increased as a percentage of net sales to 7.95% for the first quarter of 1995 from 6.30% for the same period in 1994. The increase in gross margin was due to the addition of retail operations, principally the Scrivner retail operations, which were not in the 1994 period. Retail operations typically have a higher gross margin and higher selling expenses than wholesale opera- tions. This comparison should continue through the second quarter. Product handling expenses, consisting of warehouse, truck and building expenses, were essentially unchanged as a percentage of net sales in 1995 when compared to the 1994 period. Selling and administrative expenses. Selling and administrative ex- penses for the 16 weeks in 1995 increased by $162 million, or 81%, to $364 million from $202 million for the same period in 1994 and increased as a per- centage of net sales to 6.63% for 1995 from 5.00% in 1994. This increase was due primarily to the acquisition of Scrivner, and also includes other retail operations which were not in the 1994 period. Selling and administrative expenses also have increased due to additional goodwill amortization related to the acquisition. This comparison should continue through the second quarter of 1995. As more fully described in its 1994 Annual Report on Form 10-K, the company has a significant amount of credit extended to its customers through various methods. These methods include customary and extended credit terms for inventory purchases, secured loans with terms generally up to ten years, and equity investments in and secured and unsecured loans to certain customers. In addition, the company guarantees debt and lease obligations of certain customers. Usually, these capital investments are made in and guarantees extended to customers with whom the company enjoys long-term supply agreements. Credit loss expense, which includes the impairment of equity investments, is included in selling and administrative expenses and decreased by $5 million to $10 million from $15 million for the comparable period in 1994. The more stringent credit practices and de-emphasis of credit extensions to and investments in customers are beginning to result in lower losses. While there can be no assurance that credit losses from existing or future investments or commitments will not have a material adverse effect on results of operations or financial position, management expects that credit losses for fiscal year 1995 will be lower than those experienced in 1994. Operating earnings by segments. As a result of the above changes in sales, cost of sales and selling and administrative expenses, operating earnings increased by $20 million, or 37%, to $72 million for the 1995 period from $52 million for the same period in 1994. Operating earnings for industry segments consist of net sales less related operating expenses. Operating expenses exclude interest expense, interest income, equity investment results, income taxes and, effective in 1995, general corporate expenses. The comparable 1994 period has been restated to remove the allocations of general corporate expenses. Operating earnings for the company's food distribution and retail operations segments were as follows: Food distribu- tion for the 1995 period increased by $29 million, or 37%, to $106 million from $77 million for the same period in 1994; retail food for the first 16 weeks in 1995 increased by $3 million to $7 million from $4 million for the comparable period in 1994. General corporate expenses were $41 million in the 1995 period compared to $29 million for the 1994 period. Interest expense. Interest expense for the first quarter of 1995 in- creased $35 million to $56 million from $22 million for the same period in 1994. The increase was due to the indebtedness incurred to finance the acquisition, higher interest rates in the capital markets and higher borrowing margins resulting from changes in the company's credit rating. The company enters into interest rate hedge agreements to manage interest costs and exposure to changing interest rates. The credit agreement with the company's banks requires the company to provide interest rate pro- tection on a substantial portion of the indebtedness outstanding thereunder. The company has entered into interest rate swaps and caps covering $1 billion aggregate principal amount of floating rate indebtedness. This amount ex- ceeds the requirements set forth in the credit agreement. The average interest rate on the company's floating rate indebtedness is equal to the London interbank offered interest rate ("LIBOR") plus a margin. The average fixed interest rate paid by the company on the interest rate swaps is 6.79%, covering $750 million of floating rate indebtedness. The interest rate swap agreements, which were implemented through eight counterparty banks, and which have an average remaining life of approximately 3 years, provide for the company to receive substantially the same LIBOR that the company pays on its floating rate indebtedness. For the remaining $250 million, the company has purchased interest rate cap agreements from an additional two counterparty banks covering $250 million of its floating rate indebtedness. The agreements cap LIBOR at 7.33% over the next 3.5 years. The company's payment obligations and receivables under the interest rate swap and cap agreements meet the criteria for hedge accounting treatment. Accordingly, the company's payment obligations and receivables are accounted for as interest expense. For the first quarter of 1995, the interest rate hedge agreements added $2 million to interest expense. With respect to the interest rate hedging agreements, the company be- lieves its exposure to potential credit loss expense is minimized primarily due to the relatively strong credit ratings of the counterparties for their unsecured long-term debt (A+ or higher from Standard & Poor's Ratings Group and A1 or higher from Moody's Investors Service, Inc.) and the size and diversity of the counterparty banks. The hedge agreements are subject to market risk to the extent that market interest rates for similar instruments decrease, and the company terminates the hedges prior to their maturity. However, the company believes the risk is minimized as it currently foresees no need to terminate any hedge agreements prior to their maturity. Interest income. Interest income for the 1995 quarter increased by $6 million to $22 million from $16 million for the same period in 1994. The increase is primarily due to earnings on the notes receivable acquired in the Scrivner loan portfolio. The company has sold certain notes receivable with limited recourse in prior years and expects to sell approximately $80 million to $90 million of notes during 1995. Equity investment results. The company's portion of operating losses from equity investments for the first quarter of 1995 increased by $3 million to $6 million compared to the same period in 1994. Certain of the strategic- multi store customers in which the company has made equity investments under its business development venture program experienced poor financial results. Losses from retail stores which are part of the company's equity store pro- gram, and are accounted for under the equity method, decreased, partially offsetting the poor financial results in business development ventures. Taxes on income. The company's effective tax rate increased to 51.1% in the 1995 period from 44.1% in the same 1994 period, primarily due to increased goodwill amortization with no related tax deduction, operations in higher tax rate states and the significance of certain nondeductible expenses to pretax earnings. Other. Management believes that several factors negatively affecting earnings in 1994 and the first quarter of 1995 are likely to continue. Such factors include: flat wholesale sales; lack of food price inflation; operating losses in certain company-owned retail stores; increased interest expense, goodwill amortization and integration costs related to the acquisition; and a higher effective tax rate. Additionally, the company will continue to experi- ence certain costs associated with the transitional phases of its consoli- dation, reorganization and re-engineering plan and the integration of Scrivner until mid-1997. Liquidity and Capital Resources Set forth below is certain information regarding the company's capital position at the end of the first quarter of 1995 and at the end of fiscal 1994: Capital Structure April 22, December 31, (In millions) 1995 % 1994 % ------ ----- ------ ----- Long-term debt $1,584 51.8% $1,752 54.8% Capital lease obligations 385 12.6 369 11.5 Total debt 1,969 64.4 2,121 66.3 Shareholders' equity 1,090 35.6 1,079 33.7 ----- ----- ------ ----- Total capital $3,059 100.0% $3,200 100.0% ====== ===== ====== ===== Current maturities of long-term debt and current obligations under capital leases are included in the respective captions. Fleming's capital structure changed significantly as a result of the acquisition of Scrivner. The acquisition was financed, and a large portion of the existing debt of both Fleming and Scrivner was refinanced, through a $2.2 billion revolving credit and term loan agreement entered into with a group of banks. Upon execution of the new credit agreement the company terminated its $400 million and $200 million bank credit agreements. In December, the company sold $300 million of 10.625% seven-year senior notes and $200 million of floating rate seven-year senior notes in a public offering and retired the $500 million two-year loan tranche of the credit agreement with the proceeds. The company's credit ratings for its senior unsecured long-term debt were downgraded from investment grade to Ba1 and BB+ by Moody's and Standard & Poor's, respectively, as a result of the additional debt incurred in the acquisition. Moreover, in late February 1995, Standard & Poor's placed its rating of Fleming's senior unsecured long-term debt on CreditWatch with negative implications. Standard & Poor's expressed concerns that lower than expected earnings for the third and fourth quarters of 1994, combined with re-engineering costs that are now anticipated to reduce 1995 earnings below Standard & Poor's prior expectations, will limit the company's ability to reduce acquisition-related debt. Pricing under the credit agreement automatically increases or decreases with respect to certain credit rating declines or improvements, respectively. Despite the effect of reduced earnings and the CreditWatch action by Standard & Poor's, management believes the company can maintain adequate liquidity for the foreseeable future at acceptable rates. The company's principal sources of liquidity are cash flows from operat- ing activities and borrowings under the bank credit agreement. At quarter end 1995, $770 million was outstanding on the $800 million six-year amortizing term loan and $150 million was drawn on the $900 million five-year revolving credit facility. The credit agreement and the indentures for the company's senior notes issued in 1994 contain customary covenants associated with similar facilities. The bank credit agreement currently contains the following covenants: main- tenance of a consolidated-debt-to-net-worth ratio of not more than 2.45 to 1; maintenance of a minimum consolidated net worth of at least $869 million; maintenance of a fixed charge coverage ratio of at least 1.40 to 1; a limita- tion on restricted payments (including dividends and company stock repur- chases); prohibition of certain liens; prohibitions of certain mergers, consolidations and sales of assets; restrictions on the incurrence of debt and additional guarantees; limitations on transactions with affiliates; limitations on acquisitions and investments; limitations on capital ex- penditures; and a limitation on payment restrictions affecting subsidiaries. The company is permitted to pay dividends or repurchase capital stock in the aggregate amount of approximately $44 million for the remainder of fiscal 1995. At quarter-end 1995 the consolidated-debt-to-net-worth test would have allowed the company to borrow an additional $667 million and the fixed charge coverage test would have allowed the company to incur an additional $5 million of annual interest expense. Covenants associated with the senior notes are generally less restrictive than those of the bank facility. At the end of the first quarter 1995, the company was in compliance with all financial covenants under the credit agreement and the senior note indentures. Continued com- pliance over the near-term will depend on the company's ability to generate sufficient earnings during the implementation of its re-engineering plan and the integration of Scrivner. Operating activities generated $146 million of net cash flows for the first quarter of 1995 compared to $143 million in the comparable period in 1994. Working capital was $393 million at quarter end 1995, a decrease from $496 million at year-end 1994. The current ratio decreased to 1.33 to 1, from 1.38 to 1 at year-end 1994. Management believes that cash flows from operating activities and the company's ability to borrow under the credit agreement will be adequate to meet working capital needs, capital expenditures and cash needs for the facilities consolidation, restructuring and re- engineering plan. Capital expenditures for the first quarter of 1995 were approximately $23 million. Management expects that 1995 capital expenditures, excluding acquisitions, if any, will approximate $100 million. The debt-to-capital ratio decreased to 64.4% from 66.3% at year-end 1994. The company's long-term target ratio is approximately 50%. Total capital was $3.06 billion at quarter end, down $141 million from year-end 1994. PART II. OTHER INFORMATION Item 4. Results of Votes of Security Holders The company held its annual meeting on May 3, 1995. Directors re-elected were Archie R. Dykes, John A. McMillan, Guy A. Osborn and Robert E. Stauth. Directors whose terms of office continued were Carol B. Hallett, James G. Harlow, Lawrence M. Jones, Edward C. Joullian III, Howard H. Leach and Dean Werries. Shareholders confirmed the proposal to approve the Economic Value Added Incentive Bonus Plan for Fleming Companies, Inc. and Its Subsidiaries. This is a system for paying incentive compensation to key associates who are selected to be participants and who contribute to the long-term growth and profitability of the company. Shareholders ratified Deloitte & Touche LLP as independent auditors for 1995. The number of votes cast for the above matters is as follows (votes in thousands): Election of Directors For Against Abstain - --------------------- ------ ------- ------- Archie R. Dykes 31,612 539 --- John A. McMillan 31,630 520 --- Guy A. Osborn 28,819 3,331 --- Robert E. Stauth 31,633 517 --- Approval of Economic Value Added Incentive Bonus Plan 26,436 2,048 232 Independent auditors 31,933 111 106 No other business came before the meeting. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number 12 Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLEMING COMPANIES, INC. (Registrant) Date June 5, 1995 KEVIN J. TWOMEY Kevin J. Twomey Vice President - Controller (Chief Accounting Officer) EX-12 2 EXHIBIT 12 Exhibit 12 FLEMING COMPANIES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
16 Weeks Ended ------------------- Fiscal Year Ended the Last Saturday in December April 16, April 22, ----------------------------------------------- 1990 1991 1992 1993 1994 1994 1995 ---- ---- ---- ---- ---- ---- ---- (In thousands of dollars) Earnings: Pretax income $164,501 $104,329 $194,941 $ 72,078 $112,337 $43,645 $39,976 Fixed charges, net 117,877 117,865 105,726 102,303 148,454 28,836 67,758 ------- ------- ------- ------- ------- ------ ------ Total earnings $282,378 $222,194 $300,667 $174,381 $260,791 $72,481 $107,734 ======= ======= ======= ======= ======= ====== ======= Fixed charges: Interest expense $ 93,643 $ 93,353 $81,102 $ 78,029 $120,408 $21,828 $56,397 Portion of rental charges deemed to be interest 22,836 22,907 23,027 22,969 27,746 6,582 11,261 Capitalized interest and debt issuance cost amortization 1,250 1,464 1,287 1,005 364 326 427 ------ ------ ------ ------ ------ ------ ------ Total fixed charges $117,729 $117,724 $105,416 $102,003 $148,518 $28,736 $68,085 ------- ------- ------- ------- ------- ------ ------- Ratio of earnings to fixed charges 2.40 1.89 2.85 1.71 1.76 2.52 1.58 ==== ==== ==== ==== ==== ==== ====
"Earnings" consists of income before income taxes and fixed charges excluding capitalized interest. Capitalized interest amortized during the respective periods is added back to earnings. "Fixed charges, net" consists of interest expense, an estimated amount of rental expense which is deemed to be representative of the interest factor and amortization of capitalized interest and debt issuance cost. The pro forma ratio of earnings to fixed charges is omitted as it is not applicable. EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE FIRST QUARTERLY PERIOD ENDED APRIL 22, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000352949 FLEMING COMPANIES, INC. 1,000 4-MOS DEC-31-1995 APR-22-1995 4,616 0 418,024 (44,538) 1,139,323 1,596,348 1,462,731 (496,176) 4,317,322 1,202,922 1,473,555 93,953 0 0 996,405 4,317,322 5,485,403 5,485,403 5,049,364 5,379,477 0 9,553 56,397 39,976 20,428 19,548 0 0 0 19,548 .52 .52
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