-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JL+csZH1AscVQaDcLzjvXB9cRFhL7LYVhnVgdJHLlsXbSClWdrSmArc8oIgVYFuO zpRLPsuiwnk775fyH23PNw== 0000909334-00-000011.txt : 20000210 0000909334-00-000011.hdr.sgml : 20000210 ACCESSION NUMBER: 0000909334-00-000011 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990417 FILED AS OF DATE: 20000209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEMING COMPANIES INC /OK/ CENTRAL INDEX KEY: 0000352949 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 480222760 STATE OF INCORPORATION: OK FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-08140 FILM NUMBER: 529662 BUSINESS ADDRESS: STREET 1: 6301 WATERFORD BLVD STREET 2: P O BOX 26647 CITY: OKLAHOMA CITY STATE: OK ZIP: 73126 BUSINESS PHONE: 4058407200 MAIL ADDRESS: STREET 1: P O BOX 26647 CITY: OKLAHOMA CITY STATE: OK ZIP: 73216-0647 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (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 17, 1999 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 14, 1999 is as follows: Class Shares Outstanding Common stock, $2.50 par value 38,384,000 This amended filing primarily reflects additions to qualitative disclosures. There were no restatements to the financial statements. INDEX Page Number Part I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Condensed Statements of Operations - 16 Weeks Ended April 17, 1999, and April 18, 1998 Consolidated Condensed Balance Sheets - April 17, 1999, and December 26, 1998 Consolidated Condensed Statements of Cash Flows - 16 Weeks Ended April 17, 1999, and April 18, 1998 Notes to Consolidated Condensed Financial Statements Independent Accountants' Review Report Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K Signatures PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Operations For the 16 weeks ended April 17, 1999, and April 18, 1998 (In thousands, except per share amounts)
============================================================================== 1999 1998 - ------------------------------------------------------------------------------ Net sales $4,465,246 $4,567,126 Costs and expenses: Cost of sales 4,036,868 4,124,858 Selling and administrative 376,995 364,720 Interest expense 51,606 51,202 Interest income (9,350) (11,305) Equity investment results 3,556 3,589 Litigation charge - 2,954 Impairment/restructuring charge 37,036 (267) - ------------------------------------------------------------------------------ Total costs and expenses 4,496,711 4,535,751 - ------------------------------------------------------------------------------ Earnings (loss) before taxes (31,465) 31,375 Taxes on income (loss) (7,224) 16,105 - ------------------------------------------------------------------------------ Net earnings (loss) $ (24,241) $ 15,270 ============================================================================== Basic and diluted net earnings (loss) per share $(.64) $.40 Dividends paid per share $.02 $.02 Weighted average shares outstanding: Basic 38,143 37,804 Diluted 38,143 37,972 ==============================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements and independent accountants' review report. Consolidated Condensed Balance Sheets (In thousands)
============================================================================== April 17, December 26, Assets 1999 1998 - ------------------------------------------------------------------------------ Current assets: Cash and cash equivalents $ 42,012 $ 5,967 Receivables 399,705 450,905 Inventories 869,120 984,287 Other current assets 164,049 146,757 - ------------------------------------------------------------------------------ Total current assets 1,474,886 1,587,916 Investments and notes receivable 107,681 119,468 Investment in direct financing leases 154,030 177,783 Property and equipment 1,553,361 1,554,884 Less accumulated depreciation and amortization (745,512) (734,819) - ------------------------------------------------------------------------------ Net property and equipment 807,849 820,065 Deferred income taxes 53,601 51,497 Other assets 209,760 154,524 Goodwill 556,821 579,579 - ------------------------------------------------------------------------------ Total assets $3,364,628 $3,490,832 ============================================================================== Liabilities and Shareholders' Equity - ------------------------------------------------------------------------------ Current liabilities: Accounts payable $ 803,687 $ 945,475 Current maturities of long-term debt 40,368 41,368 Current obligations under capital leases 21,915 21,668 Other current liabilities 250,154 272,573 - ------------------------------------------------------------------------------ Total current liabilities 1,116,124 1,281,084 Long-term debt 1,207,307 1,143,900 Long-term obligations under capital leases 351,138 359,462 Other liabilities 143,250 136,455 Commitments and contingencies Shareholders' equity: Common stock, $2.50 par value per share 96,224 96,356 Capital in excess of par value 510,936 509,602 Reinvested earnings (1,839) 23,155 Accumulated other comprehensive income: Additional minimum pension liability (57,133) (57,133) - ------------------------------------------------------------------------------ Accumulated other comprehensive income (57,133) (57,133) Less ESOP note (1,379) (2,049) - ------------------------------------------------------------------------------ Total shareholders' equity 546,809 569,931 - ------------------------------------------------------------------------------ Total liabilities and shareholders' equity $3,364,628 $3,490,832 ==============================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements and independent accountants' review report. Consolidated Condensed Statements of Cash Flows For the 16 weeks ended April 17, 1999, and April 18, 1998 (In thousands)
============================================================================== 1999 1998 - ------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings (loss) $ (24,241) $ 15,270 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 46,317 56,379 Credit losses 7,942 2,713 Deferred income taxes (12,641) 10,323 Equity investment results 3,556 3,589 Consolidation and restructuring reserve activity (148) (5,126) Impairment/restructuring and related charges 45,546 18 Cash payments on impairment/restucturing and related charges (17,574) - Change in assets and liabilities, excluding effect of acquisitions: Receivables 48,722 (6,512) Inventories 111,128 61,809 Accounts payable (141,788) (71,108) Other assets and liabilities (35,811) (14,122) Other adjustments, net 576 (3,462) - ------------------------------------------------------------------------------ Net cash provided by operating activities 31,584 49,771 - ------------------------------------------------------------------------------ Cash flows from investing activities: Collections on notes receivable 8,031 16,890 Notes receivable funded (4,541) (10,350) Purchase of property and equipment (50,041) (38,334) Proceeds from sale of property and equipment 3,465 10,708 Investments in customers (1,935) - Proceeds from sale of investment 2,084 3,514 Businesses acquired (10,704) - Other investing activities (51) 1,382 - ------------------------------------------------------------------------------ Net cash used in investing activities (53,692) (16,190) - ------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from long-term borrowings 101,000 35,000 Principal payments on long-term debt (38,593) (55,268) Principal payments on capital lease obligations (3,614) (6,575) Sale of common stock under incentive stock and stock ownership plans 178 219 Dividends paid (787) (778) Other financing activities (31) (386) - ------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 58,153 (27,788) - ------------------------------------------------------------------------------ Net increase in cash and cash equivalents 36,045 5,793 Cash and cash equivalents, beginning of period 5,967 30,316 - ------------------------------------------------------------------------------ Cash and cash equivalents, end of period $ 42,012 $ 36,109 ============================================================================== Supplemental information: Cash paid for interest $ 41,070 $ 43,721 Cash paid for taxes $ 11,301 $ 8,967 ==============================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements and independent accountants' review report. Notes to Consolidated Condensed Financial Statements (See independent accountants' review report) 1. The consolidated condensed balance sheet as of April 17, 1999, and the consolidated condensed statements of operations and cash flows for the 16 weeks ended April 17, 1999 and April 18, 1998, have been prepared by the company, without audit. In the opinion of management, all adjustments necessary to present fairly the company's financial position at April 17, 1999, and the results of operations and cash flows for the periods presented have been made. All such adjustments are of a normal, recurring nature except as disclosed. Both basic and diluted earnings or loss per share are computed based on net earnings or loss divided by weighted average shares as appropriate for each calculation. The preparation of the consolidated condensed financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform to current year classifications. 2. 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 1998 annual report on Form 10-K. 3. 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 $48 million at April 17, 1999, and $44 million at December 26, 1998. 4. Sales and operating earnings for the company's food distribution and retail food segments are presented below.
============================================================================== For the 16 weeks ended April 17, April 18, ($ in millions) 1999 1998 - ------------------------------------------------------------------------------ Sales: Food distribution $4,002 $4,096 Intersegment elimination (675) (610) - ------------------------------------------------------------------------------ Net food distribution 3,327 3,486 Retail food 1,138 1,081 - ------------------------------------------------------------------------------ Total sales $4,465 $4,567 ============================================================================== Operating earnings: Food distribution $ 83 $ 92 Retail food 13 19 Corporate (45) (33) - ------------------------------------------------------------------------------ Total operating earnings 51 78 Interest expense (51) (51) Interest income 9 11 Equity investment results (3) (4) Litigation charge - (3) Impairment/restucturing charge (37) - - ------------------------------------------------------------------------------ Earnings (loss) before taxes $(31) $ 31 ==============================================================================
General corporate expenses are not allocated to food distribution and retail food segments. The transfer pricing between segments is at cost. 5. The company's comprehensive loss totaled $24.2 million for the 16 weeks ended April 17, 1999. The company's comprehensive income totaled $20.2 million for the 16 weeks ended April 18, 1998. The comprehensive loss in 1999 was comprised only of the reported net loss, whereas the comprehensive income in 1998 was comprised of the reported net income plus changes in foreign currency translation adjustments. 6. In accordance with applicable accounting standards, the company records a charge reflecting contingent liabilities (including those associated with litigation matters) when management determines that a material loss is "probable" and either "quantifiable" or "reasonably estimable." Additionally, the company discloses material loss contingencies when the likelihood of a material loss is deemed to be greater than "remote" but less than "probable." Set forth below is information regarding certain material loss contingencies: Class Action Suits. In 1996, certain stockholders and one noteholder filed purported class action suits against the company and certain of its present and former officers and directors, each in the U.S. District Court for the Western District of Oklahoma. In 1997, the court consolidated the stockholder cases as City of Philadelphia, et al. v. Fleming Companies, Inc., et al. The noteholder case was also consolidated, but only for pre-trial purposes. During 1998, the noteholder case was dismissed and during the first quarter of 1999, the consolidated case was also dismissed, each without prejudice. The court gave the plaintiffs the opportunity to restate their claims without prejudice and amended complaints were filed in both cases during the first quarter of 1999. In May 1999, the company filed motions to dismiss in both cases. Tru Discount Foods. Fleming brought suit in 1994 on a note and an open account against its former customer, Tru Discount Foods, which counterclaimed on various grounds. The case was initially referred to arbitration but later returned to the trial court; Fleming appealed. In 1997, the defendant amended its counterclaim against the company alleging fraud, overcharges for products and violations of the Oklahoma Deceptive Trade Practices Act. In 1998, the appellate court reversed the trial court and directed that the matter be sent again to arbitration. Although Tru Discount Foods has not quantified damages, it has made demand in the amount of $8 million. Management is unable to predict the ultimate outcome of this matter. However, an unfavorable outcome could have a material adverse effect on the company. Don's United Super (and related cases). In March 1998, the company and two retired executives were named in a suit filed in the United States District Court for the Western District of Missouri by approximately 20 current and former customers of the company (Don's United Super, et al. v. Fleming, et al.). Plaintiffs operate retail grocery stores in the St. Joseph and Kansas City metropolitan areas. Six plaintiffs who were parties to supply contracts containing arbitration clauses were permitted to withdraw from the case. Previously, two cases had been filed in the same court (R&D Foods, Inc. et al. v. Fleming, et al. and Robandee United Super, Inc. et al. v. Fleming, et al.) by 10 customers, some of whom are plaintiffs in the Don's case. The earlier two cases, which principally seek an accounting of the company's expenditure of certain joint advertising funds, have been consolidated. All causes of action in these cases have been stayed pending the arbitration of the causes of action relating to supply contracts containing arbitration clauses. The Don's suit alleges product overcharges, breach of contract, misrepresentation, fraud, and RICO violations and seeks recovery of actual, punitive and treble damages and a declaration that certain contracts are voidable at the option of the plaintiffs. Damages have not been quantified. However, with respect to some plaintiffs, the time period during which the alleged overcharges took place exceeds 25 years and the company anticipates that the plaintiffs will allege substantial monetary damages. In October 1998, a group of 14 retailers (ten of whom had been or are currently plaintiffs in the Don's case and/or the Robandee case whose claims were sent to arbitration or stayed pending arbitration) filed a new action in the United States District Court for the Western District of Missouri against the company and two former officers, one of whom was a director (Coddington Enterprises, Inc. et al. v. Dean Werries, et al.). The plaintiffs assert claims virtually identical to those set forth in the Don's complaint and have not quantified damages in their pleadings. Plaintiffs have made a settlement demand in the Don's case for $42 million and in the Coddington case for $44 million. The company intends to vigorously defend its interests in these cases. Although management is currently unable to predict the ultimate outcome of this litigation, based upon the plaintiffs' allegations, an unfavorable outcome could have a material adverse effect on the company. Storehouse Markets. In 1998, the company and one of its associates were named in a suit filed in the United States District Court for the District of Utah by three current and former customers of the company (Storehouse Markets, Inc., et al. v. Fleming Companies, Inc., et al.). The plaintiffs allege product overcharges, fraudulent misrepresentation, fraudulent nondisclosure and concealment, breach of contract, breach of duty of good faith and fair dealing and RICO violations and seek declaration of class action status and recovery of actual, punitive and treble damages. Damages have not been quantified. However, the company anticipates that the plaintiffs will seek substantial monetary damages. The company intends to vigorously defend its interests in this case but is currently unable to predict the ultimate outcome. Based upon the plaintiffs' allegations, an unfavorable outcome could have a material adverse effect on the company. Y2K. The company utilizes numerous computer systems which were developed employing six digit date structures (i.e., two digits each for the month, day and year). Where date logic requires the year 2000 or beyond, such date structures may produce inaccurate results. Management has implemented a program to comply with year-2000 requirements on a system-by-system basis. Fleming's plan includes extensive systems testing and is expected to be substantially completed by the third quarter of 1999. Although the company is developing greater levels of confidence regarding its internal systems, failure to ensure that the company's computer systems are year-2000 compliant could have a material adverse effect on the company's operations. In addition, failure of the company's customers or vendors to become year-2000 compliant could also have a material adverse effect on the company's operations. Program costs to comply with year-2000 requirements are being expensed as incurred. Through the end of the first quarter of 1999, total expenditures to third parties were approximately $7 million. Other. The company's facilities and operations are subject to various laws, regulations and judicial and administrative orders concerning protection of the environment and human health, including provisions regarding the transportation, storage, distribution, disposal or discharge of certain materials. In conformity with these provisions, the company has a comprehensive program for testing, 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 the anticipated costs of all known remediation requirements. The company and others have been designated by the U.S. Environmental Protection Agency ("EPA") and by similar state agencies as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state laws, as applicable, with respect to EPA-designated Superfund sites. While liability under CERCLA for remediation at such sites is generally joint and several with other responsible parties, the company believes that, to the extent it is ultimately determined to be liable for the expense of remediation 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 human health and to achieving full compliance with all applicable laws, regulations and orders. The company is a party to various other litigation and contingent loss situations arising in the ordinary course of its business including: disputes with customers and former customers; disputes with owners and former owners of financially troubled or failed customers; disputes with employees and former employees regarding labor conditions, wages, workers' compensation matters and alleged discriminatory practices; disputes with insurance carriers; tax assessments and other matters, some of which are for substantial amounts. However, the company does not believe any such action will result in a material adverse effect on the company. 7. Certain indebtedness is 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 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, which includes allocations of material corporate-related expenses, for the combined subsidiary guarantors may not necessarily be indicative of the results of operations or financial position had the subsidiary guarantors been operated as independent entities.
April 17, April 18, (In millions) 1999 1998 Current assets $28 $31 Noncurrent assets $51 $72 Current liabilities $15 $15 Noncurrent liabilities $7 $7
16 weeks ended April 17, April 18, (In millions) 1999 1998 Net sales $104 $110 Costs and expenses $106 $112 Net earnings (loss) $(1) $(1)
8. The accompanying operating statements include the following:
16 weeks ended April 17, April 18, (In thousands) 1999 1998 Depreciation and amortization (includes amortized costs in interest expense) $46,317 $56,379 Amortized costs in interest expense $1,498 $1,839
9. In December 1998, the company announced the implementation of a strategic plan designed to improve the competitiveness of the retailers the company serves and improve the company's performance by building stronger operations that can better support long-term growth ("strategic plan"). Described below are the four major initiatives of the strategic plan along with a status update of each initiative: o Consolidate food distribution operations. This initially required divestiture of seven operating units - two in 1998 and five in 1999. Of the five divestitures in 1999, all but one have been completed. An additional closing has taken place in 1999 (Peoria, IL) which was not originally part of the strategic plan, but was added to the plan when costs associated with continuing to service customers during a strike coupled with costs of reopening the operating unit made closing the operating unit an economically sound decision. Sales for Peoria totaled $120 million in 1998. The divestiture of an additional four operating units is still planned. The company anticipates that a significant amount of the sales will be retained by transferring customer business to its higher volume, better utilized facilities. The company believes that this will benefit customers with better product variety and improved buying opportunities. The company will also benefit with better coverage of fixed expenses. The closings are expected to result in savings due to reduced depreciation, payroll, lease and other operating costs, and we expect to begin recognizing these savings upon closure. Although the divestiture will proceed as quickly as practical, the company is very sensitive to customer requirements and will pace the divestitures to meet those requirements. The capital returned from the divestitures will be reinvested in the business. o Grow food distribution sales aggressively. Higher volume, better- utilized food distribution operations and the dynamics of the market place represent an opportunity for sales growth. The improved efficiency and effectiveness of the remaining food distribution operations enhances their competitiveness and the company intends to capitalize on these improvements. During the first quarter of 1999, significant new customers were added in the food distribution segment of the business. o Improve retail food performance. This not only requires divestiture of under-performing company-owned retail chains or groups, but also requires increased investments in market leading chains or groups. During the first quarter of 1999, the divestiture of a second under- performing company-owned retail chain (Consumers Food & Drug) was announced per the strategic plan. Consumers sales totaled $145 million in 1998. The divestiture of both chains is well underway. The divestiture of three more retail chains is still planned. Also during the first quarter of 1999, the company negotiated and recently finalized the purchase of a number of retail stores that are considered to fit in well strategically with its existing chains. A number of remodels of existing retail stores have also been completed during the quarter. Same-store sales for the first quarter of 1999, although still negative, improved over previous quarters. o Reduce overhead expense. Overhead will be reduced at both the corporate and operating unit levels through organization and process changes. In addition, several initiatives to reduce complexity in business systems are underway. These initiatives should reduce costs and improve the company's profitability and competitiveness. During the first quarter of 1999, the company worked with specialists in supply chain management on plans to begin implementing cost reductions. The total pre-tax charge of the strategic plan is presently estimated at $810 million. The pre-tax charge recorded to-date is $714 million ($46 million in the first quarter of 1999 and $668 million recorded in 1998). After tax, the expense for the first quarter of 1999 was $32 million or $.84 per share. The $96 million of costs relating to the strategic plan not yet charged against income will be recorded throughout the rest of 1999 and 2000 at the time such costs are accruable. The $46 million charge was included on several lines of the Consolidated Condensed Statements of Operations for the first quarter of 1999 as follows: $6 million was included in cost of sales and was primarily related to inventory valuation adjustments; $3 million was included in selling and administrative expense as disposition related costs recognized on a periodic basis; and the remaining $37 million was included in the impairment/ restructuring charge line. The $46 million charge consisted of the following components: o Impairment of assets of $24 million. The impairment components were $22 million for goodwill and $2 million for other long-lived assets. All of the goodwill charge of $22 million was related to the 1994 "Scrivner" acquisition. o Restructuring charges of $13 million. The restructuring charges consisted of severance related expenses and pension withdrawal liabilities for the Peoria food distribution operating unit and Consumers retail chain. The restructuring charges also consisted of operating lease liabilities for the Peoria food distribution operating unit. o Other disposition and related costs of $9 million. These costs consist primarily of inventory valuation adjustments, disposition related costs recognized on a periodic basis and other costs. The $46 million charge relates to the company's segments as follows: $32 million relates to the food distribution segment and $8 million relates to the retail food segment with the balance relating to corporate overhead expenses. The strategic plan includes workforce reductions which have been recorded to- date as follows:
($'s in thousands) Amount Headcount 1998 Activity: Charge $25,441 1,430 Terminations (3,458) (170) Ending Liability $21,983 1,260 1999 Activity: Charge 8,565 910 Terminations (12,039) (900) Qtr 1 Ending Liability $18,509 1,270
The breakdown of the 910 headcount reduction recorded during 1999 is: 29 from the food distribution segment; 811 from the retail food segment; and 70 from corporate. Additionally, the strategic plan includes charges related primarily to lease obligations which totaled approximately $30 million ($2 million in the first quarter and $28 million in 1998) which will be utilized as operating units or retail stores close, but ultimately reduced over remaining lease terms ranging from 1 to 20 years. The charges and utilization have been recorded to-date as follows:
($'s in thousands) Amount - ---------------------------------------------------- 1998 Activity: Charge $28,101 Utilized (385) ------- 1998 Ending Liability 27,716 1999 Quarter 1 Activity: Charge 2,337 Utilized (3,870) ------- Qtr 1 Ending Liability $26,183
Asset impairments were recognized in accordance with SFAS No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and such assets were written down to their estimated fair values based on estimated proceeds of operating units to be sold or discounted cash flow projections. The operating costs of operating units to be sold or closed are treated as normal operations during the period they remain in use. Salaries, wages and benefits of employees at these operating units are charged to operations during the time such employees are actively employed. Depreciation expense is continued for assets that the company is unable to remove from operations. Independent Accountants' Review Report TO THE BOARD OF DIRECTORS AND SHAREHOLDERS FLEMING COMPANIES, INC. We have reviewed the accompanying condensed consolidated balance sheet of Fleming Companies, Inc. and subsidiaries as of April 17, 1999, and the related condensed consolidated statements of income and of cash flows for the sixteen weeks ended April 17, 1999 and April 18, 1998. These financial statements are the responsibility of the company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Fleming Companies Inc. and subsidiaries as of December 26, 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 18, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 26, 1998 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Oklahoma City, Oklahoma May 5, 1999 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations General The company's performance for the past three years was disappointing and concerning. In early 1998 the Board of Directors and senior management began an extensive strategic planning process that evaluated all aspects of the business. With the help of a consulting firm, the evaluation and planning process was completed late in 1998. In December 1998, a new strategic plan was approved and implementation efforts began. The strategic plan involves three key strategies to restore sales and earnings growth: focus resources to improve performance, build sales and revenues more aggressively in our wholesale business and company-owned retail stores, and reduce overhead and operating costs to improve profitability system-wide. The three strategies are further defined in the following four major initiatives: o Consolidate food distribution operations. This initially required divestiture of seven operating units - two in 1998 and five in 1999. Of the five divestitures in 1999, all but one have been completed. An additional closing has taken place in 1999 (Peoria, IL) which was not originally part of the strategic plan, but was added to the plan when costs associated with continuing to service customers during a strike coupled with costs of reopening the operating unit made closing the operating unit an economically sound decision. Sales for Peoria totaled $120 million in 1998. The divestiture of an additional four operating units is still planned. The company anticipates that a significant amount of the sales will be retained by transferring customer business to its higher volume, better utilized facilities. The company believes that this will benefit customers with better product variety and improved buying opportunities. The company will also benefit with better coverage of fixed expenses. The closings are expected to result in savings due to reduced depreciation, payroll, lease and other operating costs, and we expect to begin recognizing these savings upon closure. Although the divestiture will proceed as quickly as practical, the company is very sensitive to customer requirements and will pace the divestitures to meet those requirements. The capital returned from the divestitures will be reinvested in the business. o Grow food distribution sales aggressively. Higher volume, better- utilized food distribution operations and the dynamics of the market place represent an opportunity for sales growth. The improved efficiency and effectiveness of the remaining food distribution operations enhance their competitiveness and the company intends to capitalize on these improvements. Growth is expected from increasing the amount of sales with existing customers and attracting new customers. During the first quarter of 1999, significant new customers were added in the food distribution segment of the business. o Improve retail food performance. This not only requires divestiture of under-performing company-owned retail chains or groups, but also requires increased investments in market leading chains or groups. During the first quarter of 1999, the divestiture of a second under- performing company-owned retail chain (Consumers Food & Drug) was announced per the strategic plan. Consumers sales totaled $145 million in 1998. The divestiture of both chains is well underway. The divestiture of three more retail chains is still planned. Also during the first quarter of 1999, the company negotiated and recently finalized the purchase of a number of retail stores that are considered to fit in well strategically with its existing chains. A number of remodels of existing retail stores have also been completed during the quarter. Same-store sales for the first quarter of 1999, although still negative, improved over previous quarters. o Reduce overhead expense. Overhead will be reduced at both the corporate and operating unit levels through organization and process changes, such as a reduction in workforce through productivity improvements and elimination of work, centralization of administrative and procurement functions, and reduction in the number of management layers. In addition, several initiatives to reduce complexity in business systems are underway, such as reducing the number of SKU's, creating a single point of contact with customers, reducing the number of decision points within the company, and centralizing vendor negotiations. These initiatives are expected to reduce costs and improve the company's profitability and competitiveness. During the first quarter of 1999, the company worked with specialists in supply chain management on plans to begin implementing cost reductions later this year. Implementation of the strategic plan is expected to continue through the year 2000. This time frame design accommodates the company's limited resources and customers' seasonal marketing requirements. Additional expenses will continue for some time beyond the year 2000 because certain disposition related costs can only be expensed when incurred. The total pre-tax charge of the strategic plan is presently estimated at $810 million. The pre-tax charge recorded to-date is $714 million ($46 million in the first quarter of 1999 and $668 million recorded in 1998). Of the $46 million charge in the first quarter of 1999, only $15 million is expected to require cash expenditures. The remaining $31 million consisted of noncash items. The $46 million charge consisted of the following components: o Impairment of assets of $24 million. The impairment components were $22 million for goodwill and $2 million for other long-lived assets. The entire $24 million impairment related to assets to be sold or closed. o Restructuring charges of $13 million. The restructuring charges consisted of severance related expenses and pension withdrawal liabilities for the Peoria food distribution operating unit and Consumers retail chain. The restructuring charges also consisted of operating lease liabilities for the Peoria food distribution operating unit. o Other disposition and related costs of $9 million. These costs consist primarily of inventory valuation adjustments, disposition related costs recognized on a periodic basis and other costs. The company recorded a net loss of $24 million or $.64 per share for the first quarter of 1999. The after-tax effect of the strategic plan charge on the company's first quarter of 1999 was $32 million or $.84 per share. Excluding the strategic plan charge, the company would have recorded net income of $8 million or $.20 per share. Adjusted EBITDA for the first quarter of 1999 was $114 million. "Adjusted EBITDA" is earnings before extraordinary items, interest expense, income taxes, depreciation and amortization, equity investment results and one-time adjustments (e.g., strategic plan charges and specific litigation charges). Adjusted EBITDA should not be considered as an alternative measure of the company's net income, operating performance, cash flow or liquidity. It is provided as additional information related to the company's ability to service debt; however, conditions may require conservation of funds for other uses. Although the company believes adjusted EBITDA enhances a reader's understanding of the company's financial condition, this measure, when viewed individually, is not necessarily a better indicator of any trend as compared to conventionally computed measures (e.g., net sales, net earnings, net cash flows, etc.). Finally, amounts presented may not be comparable to similar measures disclosed by other companies. The following table sets forth the calculation of adjusted EBITDA for the first quarter of 1999 (in millions): Net Loss $ (24) Add back: Taxes on Loss (7) Depreciation/Amortization 45 Interest Expense 51 Equity Investment Results 3 ----- EBITDA 68 Add back Noncash Strategic Plan Charges 31 ----- EBITDA excluding Noncash Strategic Plan Charges 99 Add back Strategic Plan Charges requiring Cash 15 ----- Adjusted EBITDA $ 114 =====
The adjusted EBITDA amount represents cash flow from operations excluding unusual or infrequent items. In the company's opinion, adjusted EBITDA is the best starting point when evaluating the company's ability to service debt. In addition, the company believes it is important to identify the cash flows relating to unusual or infrequent charges and strategic plan charges, which should also be considered in evaluating the company's ability to service debt. Additional pre-tax expense relating to the strategic plan of approximately $96 million is expected throughout the rest of 1999 and 2000 as implementation of the strategic plan continues. Approximately $63 million of these future expenses are expected to require cash expenditures. The remaining $33 million of the future expense relates to noncash items. These future expenses will consist primarily of severance, real estate-related divestiture expenses, pension withdrawal liabilities and other costs expensed when incurred. The expected benefits of the plan are improved earnings and increased sales. Based on management's plan, earnings are expected to improve every year approaching one percent of net sales and exceed $3 per share by the year 2003. Sales are also expected to increase, but the growth will not be evident in 1999 and 2000 because of the previously announced loss of three significant customers. The company has assessed the strategic significance of all operating units. Under the plan, certain divestitures have been announced and are planned as described above. The company anticipates the improved performance of several strategic operating units. However, in the event that performance is not improved, the strategic plan will be revised and additional operating units could be sold or closed. 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 percent of sales which are referred to in the accompanying discussion:
============================================================================== April 17, April 18, For the 16-weeks ended 1999 1998 - ------------------------------------------------------------------------------ Net sales 100.00 % 100.00 % Gross margin 9.60 9.68 Less: Selling and administrative 8.44 8.00 Interest expense 1.16 1.12 Interest income (.21) (.25) Equity investment results .08 .08 Litigation charge - .06 Impairment/restructuring charge .83 (.01) - ------------------------------------------------------------------------------ Total expenses 10.30 9.00 - ------------------------------------------------------------------------------ Earnings (loss) before taxes (.70) .68 Taxes on income (loss) (.16) .35 - ------------------------------------------------------------------------------ Net income (loss) (.54)% .33 % ============================================================================== Net sales. Sales for the first quarter (16 weeks) of 1999 decreased by $102 million, or 2%, to $4.5 billion from the same period in 1998. Net sales for the food distribution segment were $3.3 billion in 1999 compared to $3.5 billion in 1998. The loss of sales from customers moving to self- distribution, Furr's (in 1998), Randall's (in 1999) and United (in 2000), will result in sales comparisons to prior periods being negative for some time. In 1998, sales to these three customers accounted for approximately 8% of the company's sales. Retail food segment sales increased $57 million, or 5%, in 1999 to $1.1 billion from the same period in 1998. The increase in sales was due primarily to new stores added since first quarter 1998. This was offset partially by a decrease of 0.8% in same-store sales for the first quarter of 1999 compared to the same period in 1998 and the closing of non-performing stores. Although the same store comparison is a negative 0.8%, it is an improvement from the negative 4.5% reported in the first quarter of 1998. Fleming measures inflation using data derived from the average cost of a ton of product sold by the company. Food price inflation for the first quarter of 1999 was up slightly at 2.3% compared to 2.0% for the same period in 1998. Gross margin. Gross margin for the first quarter of 1999 decreased by $14 million, or 3%, to $428 million from $442 million for the same period in 1998, and also decreased as a percentage of net sales to 9.60% from 9.68% for the same period in 1998. The decrease was due, in part, to the overall sales decrease combined with unfavorable adjustments resulting from additional stores being closed. Additionally, gross margin in the first quarter of 1999 was adversely affected by costs relating to the strategic plan, primarily inventory valuation adjustments. The decreases were offset somewhat by an overall increase in the retail food segment, which has the better margins of the two segments. Selling and administrative expenses. Selling and administrative expenses for the first quarter of 1999 increased by $12 million, or 3%, to $377 million from $365 million for the same period in 1998 and increased as a percentage of net sales to 8.44% for 1999 from 8.00% in 1998. The increase was partly due to increased operating expense in the retail food segment. The increase was also partly due to costs relating to the strategic plan, including $3 million in disposition related costs. Credit loss expense is included in selling and administrative expenses and was $8 million for the first quarter of 1999 compared to $3 million for the same period in 1998. As more fully described in the 1998 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 and equity investments in and secured and unsecured loans to certain customers. Secured loans generally have terms up to ten years. Operating earnings. Operating earnings for the food distribution segment decreased by $9 million, or 10%, to $83 million for the first quarter of 1999 from $92 million for the same period of 1998. Operating earnings were affected primarily by costs relating to the strategic plan, lower sales and higher credit loss expense, offset in part by improved results in continuing operations. Operating earnings for the retail food segment decreased by $6 million, or 32%, to $13 million for the first quarter of 1999 from $19 million for the same period of 1998. Operating earnings were affected primarily by costs relating to the strategic plan and a 0.8% decrease in same-store sales. Partially offsetting these decreases were improved expense controls. Corporate expenses increased in the first quarter of 1999 compared to the same period of 1998 by $12 million, or 36%, to $45 million from $33 million. Closed store expense, the LIFO charge and incentive compensation expense were higher in 1999 than in 1998. Interest expense. Interest expense for the first quarter of 1999 was less than $1 million higher than 1998 due primarily to higher average debt balances offset by lower average interest rates. The company's derivative agreements consist of simple "floating-to-fixed rate" interest rate swaps. For the first quarter of 1999, interest rate hedge agreements contributed $1.5 million of interest expense which is unchanged from the contribution made in the same period of 1998. For a description of these derivatives, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the company's Annual Report on Form 10-K for the fiscal year ended December 26, 1998. Interest income. Interest income for the first quarter of 1999 was $2 million lower than 1998 due to lower average balances and interest rates for the company's notes receivable and investment in direct financing leases. Equity investment results. The company's portion of operating losses from equity investments remained unchanged at $4 million for the first quarter of 1999 compared to the same period of 1998. Litigation charge. In October 1997, the company began paying Furr's $800,000 per month as part of a settlement agreement. In 1998, the $3 million charge in the first quarter represented this payment. The payments ceased upon the closing of the sale of the El Paso product supply center to Furr's in October 1998. Impairment/restructuring charge. In December 1998, the company announced the implementation of a strategic plan designed to improve the competitiveness of the retailers the company serves and to improve the company's performance by building stronger operations that can better support long-term growth. The pre-tax charge recorded in the Consolidated Condensed Statements of Operations was $46 million for the first quarter of 1999. The net charge for the first quarter of 1998 was not significant. The $46 million charge in 1999 was recorded with $37 million reflected in the Impairment/restructuring charge line and the balance reflected in other financial statement lines. See -General above and Note 9. in the notes to the consolidated condensed financial statements for further discussion regarding the strategic plan. Taxes on income. The effective tax rate used for the first quarter of 1999 was 23.0%. This is a blended rate taking into account operations activity, strategic plan activity, write-offs of non-deductible goodwill and the timing of these transactions during the year. The tax rate used for the first quarter of 1998 was 51.3%. Other. Several factors negatively affecting earnings in the first 16-weeks of 1999 are likely to continue for the near term. Management believes that these factors include lower sales and operating losses in certain company-owned retail stores. Liquidity and Capital Resources Set forth below is certain information regarding the company's capital structure at the end of the first quarter of 1999 and at the end of fiscal 1998:
============================================================================== Capital Structure (In millions) April 17, 1999 December 26, 1998 - ------------------------------------------------------------------------------ Long-term debt $1,248 57.6% $1,185 55.5% Capital lease obligations 373 17.2 381 17.8 - ------------------------------------------------------------------------------ Total debt 1,621 74.8 1,566 73.3 Shareholders' equity 547 25.2 570 26.7 - ------------------------------------------------------------------------------ Total capital $2,168 100.0% $2,136 100.0% ==============================================================================
Note: The above table includes current maturities of long-term debt and current obligations under capital leases. Long-term debt was $63 million higher at the end of the first quarter of 1999 compared to year-end 1998 because cash requirements for capital expenditures and other investments, plus the increase in cash balances, exceeded net cash provided from operations and sales of assets. Capital lease obligations were $8 million lower because repayments exceeded leases added for new retail stores. The debt-to-capital ratio at the end of the first quarter of 1999 was 74.8%, up from 73.3% at year-end 1998. Operating activities generated $32 million of net cash flows for the first quarter of 1999 compared to $50 million for the same period in 1998. Working capital was $359 million at the end of the first quarter of 1999, an increase from $307 million at year-end 1998. The current ratio increased to 1.32 to 1, from 1.24 to 1 at year-end 1998. Capital expenditures were $50 million in the first quarter of 1999, an increase of $12 million compared to the same period in 1998. Total capital expenditures in 1999 are expected to be approximately $200 million. The company's strategic plan involves the divesting of a number of food distribution and retail food facilities and other assets, and focusing resources in the remaining food distribution and retail food operations. The company intends to increase its retail operations by making investments in its existing stores and by adding approximately 20 stores per year for the foreseeable future. Acquisitions of supermarket chains or groups or other food distribution operations will be made only on a selective basis. The company has recently purchased an eight-store Food 4 Less group in northern California. Over the next few years, the implementation of the strategic plan is expected to result in fewer, higher-volume, more efficient food distribution operating units; fewer and more profitable retail food stores; reduced overhead expenses; and substantial increases in net earnings. Cash costs related to the implementation and completion of these initiatives (on a pre-tax basis) were $17 million in the first quarter of 1999, and are estimated to be a total of $45 million in 1999, $51 million in 2000, and $65 million thereafter. Management believes working capital reductions, proceeds from the sale of assets, and increased earnings related to the successful implementation of the strategic plan are expected to provide substantially more than enough cash flow to cover these incremental costs. The company makes investments in and loans to certain retail customers. Net investments and loans decreased $12 million in the first quarter of 1999, from $137 million at year-end 1998 to $125 million, due primarily to a reduced level of investment in these assets by the company. In the first quarter of 1999, the company's primary sources of liquidity were cash flows from operating activities, borrowings under its credit facility, and the sale of certain assets and investments. The company's principal sources of capital, excluding shareholders' equity, are banks and other lenders and lessors. The company's credit facility consists of a $600 million revolving credit facility, with a final maturity of July 25, 2003, and a $250 million amortizing term loan, with a final maturity of July 25, 2004. Up to $300 million of the revolver may be used for issuing letters of credit, and borrowings and letters of credit issued under the credit facility may be used for general corporate purposes. Outstanding borrowings and letters of credit are secured by a first priority security interest in the accounts receivable and inventories of the company and its subsidiaries and in the capital stock of or other equity interests owned by the company in its subsidiaries. In addition, the credit facility is guaranteed by substantially all company subsidiaries. The stated interest rate on borrowings under the credit agreement is equal to a referenced index rate, normally the London interbank offered interest rate ("LIBOR"), plus a margin. The level of the margin is dependent on credit ratings on the company's senior secured bank debt. The credit agreement and the indentures under which other company debt instruments were issued contain customary covenants associated with similar facilities. The credit agreement currently contains the following more significant financial covenants: maintenance of a fixed charge coverage ratio of at least 1.7 to 1, based on adjusted earnings, as defined, before interest, taxes, depreciation and amortization and net rent expense; maintenance of a ratio of inventory-plus-accounts receivable to funded bank debt (including letters of credit) of at least 1.4 to 1; and a limitation on restricted payments, including dividends. Covenants contained in the company's indentures under which other company debt instruments were issued are generally less restrictive than those of the credit agreement. The company is in compliance with all financial covenants under the credit agreement and its indentures. The credit facility may be terminated in the event of a defined change in control. Under the company's indentures, noteholders may require the company to repurchase notes in the event a defined change of control coupled with a defined decline in credit ratings. At the end of the first quarter of 1999, borrowings under the credit facility totaled $211 million in term loans and $170 million of revolver borrowings, and $78 million of letters of credit had been issued. Letters of credit are needed primarily for insurance reserves associated with the company's 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 revolver. At the end of the first quarter of 1999, the company would have been allowed to borrow an additional $352 million under the revolving credit facility contained in the credit agreement based on actual borrowings and letters of credit outstanding. Under the company's most restrictive borrowing covenant, which is the fixed charge coverage ratio contained in the credit agreement, $12 million of additional annualized fixed charges could have been incurred. On December 7, 1998, Standard & Poor's rating group ("S&P") announced it had placed its BB corporate credit rating, BB- senior unsecured debt rating, B+ subordinated debt rating, and BB+ bank loan rating for the company on CreditWatch with negative implications. The CreditWatch listing followed the company's December 7, 1998 announcement of its new strategic plan. S&P said that its action reflected its concern and opinion that, despite the positive moves included in the new strategic plan, it would be difficult for Fleming to restore measures of earnings and cash flow protection to levels appropriate for the current rating. On December 8, 1998, Moody's Investors Service ("Moody's") announced it had confirmed its credit ratings of the company and had changed its rating outlook from stable to negative following the company's December 7, 1998 announcement of its new strategic plan. Moody's confirmed its Ba3 senior secured bank agreements rating, B1 senior unsecured sinking fund debentures, medium-term notes, senior notes, and issuer rating, and B3 senior subordinated unsecured notes rating. In addition, Moody's said failure of the company to achieve cost reductions or operational disruptions from the execution of the new strategic initiatives could negatively impact financial returns and exert downward pressure on the ratings. Dividend payments in the first quarter of 1999 were $0.02 per share, which was the same per share amount as in the first quarter of 1998. The credit agreement and the indentures for the $500 million of senior subordinated notes limit restricted payments, including dividends, to $67 million at the end of the first quarter of 1999, based on a formula tied to net earnings and equity issuances. For the foreseeable future, the company's principal sources of liquidity and capital are expected to be cash flows from operating activities, the company's ability to borrow under its credit agreement and asset sale proceeds. In addition, lease financing may be employed for new retail stores and certain equipment. Management believes these sources will be adequate to meet working capital needs, capital expenditures (including expenditures for acquisitions, if any), strategic plan implementation costs and other capital needs for the next 12 months. Three of the company's largest customers (Furr's, Randall's, and United) are moving or have moved to self-distribution, which together represent approximately 8% of the company's sales in 1998. The effect of the loss of this business is not expected to have a substantial impact on the company's liquidity due to implementation of cost cutting measures and anticipated new business, although if these measures are not successful or the anticipated new business does not materialize, the company's liquidity could be adversely affected. Contingencies From time to time the company faces litigation or other contingent loss situations resulting from owning and operating its assets, conducting its business or complying (or allegedly failing to comply) with federal, state and local laws, rules and regulations which may subject the company to material contingent liabilities. In accordance with applicable accounting standards, the company records as a liability amounts reflecting such exposure when a material loss is deemed by management to be both "probable" and "quantifiable" or "reasonably estimable." Furthermore, the company discloses material loss contingencies in the notes to its financial statements when the likelihood of a material loss has been determined to be greater than "remote" but less than "probable." Such contingent matters are discussed in Note 6 in the notes to the consolidated condensed financial statements. An adverse outcome experienced in one or more of such matters, or an increase in the likelihood of such an outcome, could have a material adverse effect on the company. Also see Legal Proceedings. Fleming has numerous computer systems which were developed employing six digit date structures (i.e., two digits each for month, day and year). Where date logic requires the year 2000 or beyond, such date structures may produce inaccurate results. Management has implemented a program to comply with year-2000 requirements on a system-by-system basis including both information technology (IT) and non-IT systems (e.g., microcontrollers). Fleming's plan includes extensive systems testing and is expected to be substantially completed by the third quarter of 1999. Code for the company's largest and most comprehensive system, FOODS, has been completely remediated, reinstalled and tested. Based on these tests, the company believes FOODS and the related systems which run the company's distribution system will be year-2000 ready and in place at all food distribution operating units. At year-end 1998, the company was substantially complete with the replacement and upgrading necessary to make its nearly 5,000 PCs year-2000 ready. Although the company believes contingency plans will not be necessary based on progress to date, contingency plans have been developed for each critical system. The content of the contingency plans varies depending on the system and the assessed probability of failure and such plans are modified periodically based on remediation and testing. The alternatives include reallocating internal resources, obtaining additional outside resources, implementing temporary manual processes or temporarily rolling back internal clocks. Although the company is developing greater levels of confidence regarding its internal systems, failure to ensure that the company's computer systems are year-2000 compliant could have a material adverse effect on the company's operations. The company is also assessing the status of its vendors' and customers' year-2000 readiness through meetings, discussions, notices and questionnaires. Vendor and customer responses and feedback are varied and in some cases inconclusive. Accordingly, the company believes the most likely worst case scenario could be customers' failure to serve and retain consumers resulting in a negative impact on the company's sales. Failure of the company's suppliers or its customers to become year-2000 compliant might also have a material adverse impact on the company's operations. Program costs to comply with year-2000 requirements are being expensed as incurred. Total expenditures to third parties in 1997 through completion in 1999 are not expected to exceed $10 million, none of which is incremental. Through the end of the first quarter of 1999, these third party expenditures totaled approximately $7 million. To compensate for the dilutive effect on results of operations, the company has delayed other non-critical development and support initiatives. Accordingly, the company expects that annual information technology expenses will not differ significantly from prior years. Forward-Looking Information This report includes statements that (a) predict or forecast future events or results, (b) depend on future events for their accuracy, or (c) embody assumptions which may prove to have been inaccurate, including the company's ability to successfully achieve the goals of its strategic plan and reverse sales declines, cut costs and improve earnings; the company's assessment of the probability and materiality of losses associated with litigation and other contingent liabilities; the company's ability to develop and implement year-2000 systems solutions; the company's ability to expand portions of its business or enter new facets of its business; and the company's expectations regarding the adequacy of capital and liquidity. These forward-looking statements and the company's business and prospects are subject to a number of factors which could cause actual results to differ materially including the: risks associated with the successful execution of the company's strategic business plan; adverse effects of the changing industry environment and increased competition; continuing sales declines and loss of customers; exposure to litigation and other contingent losses; failure of the company to achieve necessary cost savings; failure of the company, its vendors or its customers to develop and implement year-2000 system solutions; and the negative effects of the company's substantial indebtedness and the limitations imposed by restrictive covenants contained in the company's debt instruments. These and other factors are described in the company's Annual Report on Form 10-K for the fiscal year ended December 26, 1998 and in other periodic reports available from the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number Page Number 3.1 Amended and Restated Certificate ** of Incorporation as amended May 19, 1999 3.2 Bylaws as amended May 19, 1999 ** 10.49* Amendment to Fleming Companies, ** Inc. 1990 Stock Incentive Plan 10.50* Employment Agreement for John T. ** Standley dated as of May 17, 1999 10.51* Restricted Stock Agreement for John ** T. Standley dated as of May 17, 1999 10.52* Letter Agreement for William H. ** Marquard dated as of May 26, 1999 12 Computation of Ratio of Earnings ** to Fixed Charges 15 Letter from Independent Accountants *** As to Unaudited Interim Financial Information 27 Financial Data Schedule ** _______________ * Management contract, compensatory plan or arrangement. ** Exhibit filed with Form 10-Q for quarter ended April 17, 1999. *** Exhibit filed with this amendment. (b) Reports on Form 8-K: On April 16, 1999, the company announced that it was closing its Peoria, Illinois food distribution division. The Peoria division was under strike by the union. The company's LaCrosse, Wisconsin division was serving and will continue to serve the retail customers previously supplied by Peoria. On April 23, 1999, the company announced that the closing of its Peoria, Illinois food distribution division was not originally part of the company's strategic plan, but was added to the plan. The closing was expected to result in a pre-tax charge of approximately $27 million ($25 million after income tax benefits or $.65 per share) for the first quarter of 1999. $24 million ($23 million after income tax benefits or $.60 per share) of the $27 million represented non-cash charges. Additional cash costs were expected to total approximately $2 million over the next two years. 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: February 9, 2000 KEVIN TWOMEY Kevin Twomey Senior Vice President Finance (Principal Accounting Officer) EXHIBIT INDEX
Exhibit No. Description Method of Filing - --- ----------- ---------------- 15 Letter from Independent Accountants Filed herewith electronically As to Unaudited Interim Financial Information
EX-15 2 Exhibit 15 Fleming Companies, Inc. 6301 Waterford Boulevard, Box 26647 Oklahoma City, OK 73126 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Fleming Companies, Inc. and subsidiaries for the sixteen weeks ended April 17, 1999 and April 18, 1998, as indicated in our report dated May 5, 1999; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q/A for the sixteen weeks ended April 17, 1999, is incorporated by reference in the following: (i) Registration Statement No. 2-98602 (1985 Stock Option Plan) on Form S-8; (ii) Registration Statement No. 33-36586 (1990 Fleming Stock Option Plan) on Form S-8; (iii) Registration Statement No. 33-56241 (Dividend Reinvestment and Stock Purchase Plan) on Form S-3; (iv) Registration Statement No. 333-11317 (1996 Stock Incentive Plan) on Form S-8; (v) Registration Statement No. 333-35703 (Senior Subordinated Notes) on Form S-4; (vi) Registration Statement No. 333-28219 (Associate Stock Purchase Plan) on Form S-8; (vii) Registration Statement No. 333-80445 (1999 Stock Incentive Plan) on Form S-8; and (viii) Registration Statement No. 333-89375 (Consolidated Savings Plus and Stock Ownership Plan) on Form S-8. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Oklahoma City, Oklahoma February 9, 2000 -----END PRIVACY-ENHANCED MESSAGE-----