-----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, LpkIOUfB+1SAIpgdCVWcoZ4x5u66WZVM/zzzhNKnA993olfYlkQ6VOQFFvBQJdSP AAI5z2eMK+0rtrTv6tAaqQ== 0000909334-00-000013.txt : 20000210 0000909334-00-000013.hdr.sgml : 20000210 ACCESSION NUMBER: 0000909334-00-000013 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 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: 529676 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 October 2, 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 October 30, 1999 is as follows: Class Shares Outstanding Common stock, $2.50 par value 38,821,000 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 - 12 Weeks Ended October 2, 1999, and October 3, 1998 Consolidated Condensed Statements of Operations - 40 Weeks Ended October 2, 1999, and October 3, 1998 Consolidated Condensed Balance Sheets - October 2, 1999, and December 26, 1998 Consolidated Condensed Statements of Cash Flows - 40 Weeks Ended October 2, 1999, and October 3, 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 12 weeks ended October 2, 1999, and October 3, 1998 (In thousands, except per share amounts)
============================================================================== 1999 1998 - ------------------------------------------------------------------------------ Net sales $3,243,192 $3,438,766 Costs and expenses: Cost of sales 2,906,749 3,115,371 Selling and administrative 291,990 284,497 Interest expense 36,987 37,348 Interest income (7,075) (8,559) Equity investment results 2,431 2,669 Litigation charge - 2,215 Impairment/restructuring charge 36,151 6,038 - ------------------------------------------------------------------------------ Total costs and expenses 3,267,233 3,439,579 - ------------------------------------------------------------------------------ Loss before taxes (24,041) (813) Taxes on loss (9,695) 1,512 - ------------------------------------------------------------------------------ Net loss $ (14,346) $ (2,325) ============================================================================== Basic and diluted net loss per share $(.37) $(.06) Dividends paid per share $.02 $.02 Weighted average shares outstanding: Basic 38,459 38,039 Diluted 38,459 38,039 ==============================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements and independent accountants' review report. Consolidated Condensed Statements of Operations For the 40 weeks ended October 2, 1999, and October 3, 1998 (In thousands, except per share amounts)
============================================================================== 1999 1998 - ------------------------------------------------------------------------------ Net sales $11,057,800 $11,511,835 Costs and expenses: Cost of sales 9,965,771 10,404,403 Selling and administrative 955,550 933,363 Interest expense 127,240 124,411 Interest income (23,319) (28,172) Equity investment results 8,402 9,506 Litigation charge - 7,385 Impairment/restructuring charge 79,356 6,687 - ------------------------------------------------------------------------------ Total costs and expenses 11,113,000 11,457,583 - ------------------------------------------------------------------------------ Earnings (loss) before taxes (55,200) 54,252 Taxes on income (loss) (14,275) 27,668 - ------------------------------------------------------------------------------ Net earnings (loss) $ (40,925) $ 26,584 ============================================================================== Basic and diluted net earnings (loss) per share $(1.07) $.70 Dividends paid per share $.06 $.06 Weighted average shares outstanding: Basic 38,256 37,848 Diluted 38,256 38,058 ==============================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements and independent accountants' review report. Consolidated Condensed Balance Sheets (In thousands)
============================================================================== October 2, December 26, Assets 1999 1998 - ------------------------------------------------------------------------------ Current assets: Cash and cash equivalents $ 39,604 $ 5,967 Receivables 416,930 450,905 Inventories 894,169 984,287 Other current assets 216,776 146,757 - ------------------------------------------------------------------------------ Total current assets 1,567,479 1,587,916 Investments and notes receivable 114,986 119,468 Investment in direct financing leases 130,524 177,783 Property and equipment 1,584,720 1,554,884 Less accumulated depreciation and amortization (739,012) (734,819) - ------------------------------------------------------------------------------ Net property and equipment 845,708 820,065 Deferred income taxes 61,390 51,497 Other assets 158,273 154,524 Goodwill 575,027 579,579 - ------------------------------------------------------------------------------ Total assets $3,453,387 $3,490,832 ============================================================================== Liabilities and Shareholders' Equity - ------------------------------------------------------------------------------ Current liabilities: Accounts payable $ 910,531 $ 945,475 Current maturities of long-term debt 61,378 41,368 Current obligations under capital leases 21,986 21,668 Other current liabilities 255,368 272,573 - ------------------------------------------------------------------------------ Total current liabilities 1,249,263 1,281,084 Long-term debt 1,192,260 1,143,900 Long-term obligations under capital leases 365,103 359,462 Other liabilities 114,331 136,455 Commitments and contingencies Shareholders' equity: Common stock, $2.50 par value per share 97,091 96,356 Capital in excess of par value 513,299 509,602 Reinvested earnings (deficit) (20,827) 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 - (2,049) - ------------------------------------------------------------------------------ Total shareholders' equity 532,430 569,931 - ------------------------------------------------------------------------------ Total liabilities and shareholders' equity $3,453,387 $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 40 weeks ended October 2, 1999, and October 3, 1998 (In thousands)
============================================================================== 1999 1998 - ------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings (loss) $(40,925) $ 26,584 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 123,545 140,735 Credit losses 17,790 11,969 Deferred income taxes (31,047) 9,507 Equity investment results 8,284 9,506 Impairment/restructuring and related charges 107,305 7,078 Cash payments on impairment/restructuring and related charges (45,096) (4,306) Change in assets and liabilities, excluding effect of acquisitions: Receivables 30,682 (106,791) Inventories 82,540 (6,595) Accounts payable (34,944) 79,508 Other assets and liabilities (49,943) (35,340) Other adjustments, net (7,644) (4,888) - ------------------------------------------------------------------------------ Net cash provided by operating activities 160,547 126,967 - ------------------------------------------------------------------------------ Cash flows from investing activities: Collections on notes receivable 24,399 34,842 Notes receivable funded (34,476) (21,236) Purchase of property and equipment (123,102) (146,275) Proceeds from sale of property and equipment 24,831 12,708 Investments in customers (8,006) (1,007) Proceeds from sale of investment 2,203 3,483 Businesses acquired (78,075) (6,557) Proceeds from sale of businesses 14,165 - Other investing activities 3,928 5,818 - ------------------------------------------------------------------------------ Net cash used in investing activities (174,133) (118,224) - ------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds from long-term borrowings 126,000 50,000 Principal payments on long-term debt (57,630) (53,133) Principal payments on capital lease obligations (22,030) (14,620) Sale of common stock under incentive stock and stock ownership plans 3,236 4,997 Dividends paid (2,322) (2,296) Other financing activities (31) (468) - ------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 47,223 (15,520) - ------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 33,637 (6,777) Cash and cash equivalents, beginning of period 5,967 30,316 - ------------------------------------------------------------------------------ Cash and cash equivalents, end of period $ 39,604 $ 23,539 ============================================================================== Supplemental information: Cash paid for interest $122,449 $115,146 Cash paid for taxes $ 15,521 $ 12,026 ==============================================================================
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 October 2, 1999, and the consolidated condensed statements of operations and cash flows for the 12-week and 40-week periods ended October 2, 1999, and for the 12-week and 40-week periods ended October 3, 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 October 2, 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 subject to antidilution limitations. 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 $53 million at October 2, 1999, and $44 million at December 26, 1998. The LIFO charges for the 12 weeks ended October 2, 1999 and October 3, 1998 were $3 million and $2 million, respectively. The LIFO charges for the 40 weeks ended October 2, 1999 and October 3, 1998 were $9 million and $5 million, respectively. 4. Sales and operating earnings for the company's wholesale and retail segments are presented below.
============================================================================== For the 12 weeks ended Oct 2, Oct 3, ($ in millions) 1999 1998 - ------------------------------------------------------------------------------ Sales: Wholesale $2,896 $3,126 Intersegment elimination (489) (495) - ------------------------------------------------------------------------------ Net wholesale 2,407 2,631 Retail 836 808 - ------------------------------------------------------------------------------ Total sales $3,243 $3,439 ============================================================================== Operating earnings: Wholesale $ 69 $ 53 Retail 4 11 Corporate (28) (26) - ------------------------------------------------------------------------------ Total operating earnings 45 38 Interest expense (37) (37) Interest income 7 9 Equity investment results (3) (3) Litigation charge - (2) Impairment/restructuring charge (36) (6) - ------------------------------------------------------------------------------ Loss before taxes $ (24) $ (1) ============================================================================== For the 40 weeks ended Oct 2, Oct 3, ($ in millions) 1999 1998 - ------------------------------------------------------------------------------ Sales: Wholesale $9,881 $10,361 Intersegment elimination (1,671) (1,556) - ------------------------------------------------------------------------------ Net wholesale 8,210 8,805 Retail 2,848 2,707 - ------------------------------------------------------------------------------ Total sales $11,058 $11,512 ============================================================================== Operating earnings: Wholesale $214 $207 Retail 21 51 Corporate (98) (84) - ------------------------------------------------------------------------------ Total operating earnings 137 174 Interest expense (127) (124) Interest income 23 28 Equity investment results (9) (10) Litigation charge - (7) Impairment/restructuring charge (79) (7) - ------------------------------------------------------------------------------ Earnings (loss) before taxes $(55) $ 54 ==============================================================================
General corporate expenses are not allocated to wholesale and retail segments. The transfer pricing between segments is at cost. 5. The company's comprehensive loss for the 12 weeks ended October 2, 1999 and October 3, 1998 totaled $14.3 million and $2.3 million, respectively. The company's comprehensive loss for the 40 weeks ended October 2, 1999 totaled $40.9 million compared to comprehensive income for the 40 weeks ended October 3, 1998 which totaled $31.5 million. The comprehensive amounts for both periods in 1999 and the 12 week period in 1998 were comprised only of the reported net loss, whereas the comprehensive income for the 40 week period 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 two noteholders 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 consolidated noteholder case was dismissed and during the first quarter of 1999, the consolidated stockholder case was also dismissed, each without prejudice. 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, and in July 1999, the plaintiffs responded. The court has not yet ruled on the motions. Tru Discount Foods. Fleming brought suit in 1994 on a note and an open account against its former customer, Tru Discount Foods. The case was initially referred to arbitration but later restored to the trial court; Fleming appealed. In 1997, the defendant amended its counter claim 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. The arbitration hearing resumed and was concluded in July, 1999. During this hearing, the respondents, Tru Discount and its former operators, claimed that they were entitled to recover damages of approximately $13 million on their counterclaims. On September 28, 1999, the arbitration panel entered its award in favor of Fleming against Tru Discount Foods and its principals in the net amount of $579,443 plus interest at the rate of six percent per annum from October 29, 1999. In addition, Tru Discount Foods and its principals were ordered to pay Fleming $4,679 in satisfaction of outstanding fees and expenses, each party to bear its own attorney fees. All of their counterclaims, with the exception of one, were denied. Under the Uniform Arbitration Act, they have until December 27, 1999 to seek an order modifying or vacating the award from the Creek County, Oklahoma district court. Fleming will seek confirmation from the court of the award which will not be final until confirmed by the court. Don's United Super (and related cases). In 1998, the company and two retired executives were named in a suit filed 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, breach of fiduciary duty, 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. During the third quarter of 1999, plaintiffs asserted approximately $109 million in 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 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. In July 1999, the court in the Coddington case (i) granted the company's motion to compel arbitration as to two of the plaintiffs and denied it as to the other plaintiffs, (ii) denied the company's motion to consolidate the Coddington and Robandee cases and (iii) denied the company's motion for summary judgment as to one of the plaintiffs. The company has appealed the ruling. 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 customers and one former customer 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. In 1996, management implemented a program to comply with year-2000 requirements on a system-by-system basis, which included extensive systems testing. As of the end of the third quarter of 1999, the program was substantially complete. Although the company has a high level of confidence regarding its internal systems, year-2000 failures in the company's computer systems 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 third quarter of 1999, total expenditures to third parties were approximately $8 million since the beginning of 1997. 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. Oct 2, Oct 3, (In millions) 1999 1998 Current assets $39 $34 Noncurrent assets $122 $70 Current liabilities $26 $12 Noncurrent liabilities $32 $7 40 weeks ended Oct 2, Oct 3, (In millions) 1999 1998 Net sales $416 $269 Costs and expenses $420 $277 Net loss $(2) $(4) 8. The accompanying operating statements include the following: 12 weeks ended Oct 2, Oct 3, (In thousands) 1999 1998 Depreciation and amortization (includes amortized costs in interest expense) $39,669 $42,509 Amortized costs in interest expense $1,123 $1,083 40 weeks ended Oct 2, Oct 3, (In thousands) 1999 1998 Depreciation and amortization (includes amortized costs in interest expense) $123,545 $140,735 Amortized costs in interest expense $3,746 $4,058 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. The four major initiatives of the strategic plan are to consolidate wholesale operations, grow wholesale sales, improve retail performance, and reduce overhead and operating expenses. The total pre-tax charge of the strategic plan is presently estimated at $915 million ($227 million cash and $688 million non- cash). The plan originally announced in December 1998 had an estimated pre-tax charge totaling $782 million. The increase is due primarily to closing the Peoria division ($28 million), updating impairment amounts on certain retail chains ($37 million), increasing costs associated with initiatives to reduce overhead and complexity in business systems ($76 million), and decreasing costs related to a scheduled closing no longer planned ($8 million). Updating the impairment amounts was necessary as sales negotiations provided more current information regarding the fair value on certain chains. The cost of severance, relocation and other periodic expenses was more than expected in reducing overhead and business complexities. The pre-tax charge recorded to-date is $775 million ($45 million, $16 million and $46 million in the third, second and first quarters of 1999, respectively, and $668 million recorded in 1998). After tax, the expense for the first three quarters of 1999 was $72 million or $1.88 per share ($28 million or $.73 per share for quarter three, $12 million or $.31 per share for quarter two and $32 million or $.84 per share for quarter one). The $140 million of costs relating to the strategic plan not yet charged against income will primarily be recorded throughout the rest of 1999 and 2000 at the time such costs are accruable. The $45 million charge ($10 million cash and $35 million non- cash) in the third quarter of 1999 (partly due to the announcement to sell or close the New York and Pennsylvania retail chains as well as the one retail chain not yet announced) was included on several lines of the Consolidated Condensed Statements of Operations: $3 million was included in cost of sales; $6 million was included in selling and administrative expense; and the remaining $36 million was included in the impairment/restructuring charge line. The $45 million charge consisted of the following components: o Impairment of assets of $30 million. The impairment components were $14 million for goodwill and $16 million for other long-lived assets. The goodwill charge of $14 million related to two retail acquisitions. o Restructuring charges of $6 million. The restructuring charges consisted of severance related expenses to sell or close the New York and Pennsylvania retail chains. The restructuring charges also consisted of professional fees incurred related to the restructuring process. o Other disposition and related costs of $9 million. These costs consisted primarily of inventory valuation adjustments, impairment of an investment, disposition related costs recognized on a periodic basis and other costs. The $45 million charge relates to the company's segments as follows: $7 million relates to the wholesale segment and $34 million relates to the retail segment with the balance relating to corporate overhead expenses. The $107 million year-to-date charge was included in the following lines of the Consolidated Condensed Statements of Operations: $16 million was included in cost of sales; $12 million was included in selling and administrative expense; and the remaining $79 million was included in the impairment/ restructuring charge line. The $107 million charge consisted of the following components: o Impairment of assets of $55 million. The impairment components were $36 million for goodwill and $19 million for other long-lived assets. Of the goodwill charge of $36 million, $22 million related to the 1994 "Scrivner" acquisition with the remaining amount related to two retail acquisitions. o Restructuring charges of $24 million. The restructuring charges consisted of severance related expenses and pension withdrawal liabilities for the Peoria division and the Consumers, Boogaarts, New York and Pennsylvania retail chains. The restructuring charges also consisted of operating lease liabilities and professional fees incurred related to the restructuring process. o Other disposition and related costs of $28 million. These costs consisted primarily of inventory valuation adjustments, impairment of an investment, disposition related costs recognized on a periodic basis and other costs. The $107 million year-to-date charge ($37 million cash and $70 million non-cash) relates to the company's segments as follows: $43 million relates to the wholesale segment and $49 million relates to the retail segment with the balance relating to corporate overhead expenses. The strategic plan includes workforce reductions which have been recorded to-date as follows: ($'s in thousands) Amount Headcount 1998 Activity: Charge $25,441 1,430 Terminations (3,458) (170) 1998 Ending Liability $21,983 1,260 1999 Quarter 1 Activity: Charge 8,565 910 Terminations (12,039) (900) Qtr 1 Ending Liability $18,509 1,270 1999 Quarter 2 Activity: Charge 1,912 170 Terminations (7,433) (980) Qtr 2 Ending Liability $12,988 460 1999 Quarter 3 Activity: Charge 2,177 80 Terminations (3,537) (70) Qtr 3 Ending Liability $11,628 470 The breakdown of the 1,160 headcount reduction recorded during 1999 is: 95 from the wholesale segment; 915 from the retail segment; and 150 from corporate. Additionally, the strategic plan includes charges related to lease obligations which will be utilized as operating units or retail stores close, but ultimately reduced over remaining lease terms ranging from 1 to 20 years. The charges and utilization have been recorded to-date as follows: ($'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 1999 Quarter 2 Activity: Charge 39 Utilized (7,323) Qtr 2 Ending Liability $18,899 1999 Quarter 3 Activity: Charge 1,525 Utilized (615) Qtr 3 Ending Liability $19,809 The total pre-tax charge relating to the strategic plan for the third quarter and year-to-date periods in 1998 was $6 million and $7 million, respectively, and were only in the impairment/ restructuring charge line. The charge consisted of $3 million impairment of long-lived assets from the wholesale segment with the remainder made up primarily of corporate severance. 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 October 2, 1999, and the related condensed consolidated statements of operations for the 12 and 40 weeks ended October 2, 1999 and October 3, 1998 and condensed consolidated statements of cash flows for the 40 weeks ended October 2, 1999 and October 3, 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 October 19, 1999 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations General In early 1998 the Board of Directors and senior management began an extensive strategic planning process that evaluated all aspects of Fleming's business. With the help of a consulting firm, the evaluation and planning process was completed late in 1998. In December 1998, the strategic plan was approved and implementation efforts began. The strategic plan consists of the following four major initiatives: o Consolidate wholesale operations. The strategic plan initially included closing seven operating units - two in 1998 and five in 1999. Of the five in 1999, all but one have been completed. An additional closing has taken place in 1999 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. The divestiture of an additional three 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 the company expects 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 wholesale sales. Higher volume, better-utilized wholesale operations and the dynamics of the market place represent an opportunity for sales growth. During the first three quarters of 1999, significant new customers were added in the wholesale segment, including increased business with Kmart Corporation which is expected to result in approximately $1 billion in annualized new sales. o Improve retail performance. The strategic plan not only requires selling or closing under-performing company-owned retail chains or groups, but also calls for increased investments in market leading company-owned chains or groups. The strategic plan includes the divestiture of six retail chains. During the third quarter of 1999, the sale or closing of the New York and Pennsylvania retail chains was announced per the strategic plan. The combined 1998 sales of the two chains totaled $377 million. Also during the third quarter, the company decided to close another chain which has not been announced and was not part of the original strategic plan, but was added due to unacceptable performance. The sale or closing of the three previously announced under-performing company-owned retail chains is well under way. The sale or closing of all six chains is expected to be substantially completed by the end of the first quarter of 2000. Also during the first three quarters of 1999, the company built or acquired more than 25 retail stores that are expected to fit in well strategically with its existing chains. A number of remodels of existing retail stores were also completed during the first three quarters of 1999. o Reduce overhead and operating expenses. 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 are underway to reduce complexity in business systems and remove non-value-added costs from operations, 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. Early in 1999, the company worked with specialists in supply chain management on plans to begin implementing cost reductions. Over the last two quarters, the company has been finalizing those plans and implementing them. During 1999, the company has eliminated approximately 150 corporate positions. Implementation of the strategic plan is expected to continue through the year 2000. This time frame 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 $935 million ($246 million cash and $689 million non- cash). The plan originally announced in December 1998 had an estimated pre-tax charge totaling $802 million. The increase is due primarily to closing the Peoria division, updating impairment amounts on certain retail chains, and increasing costs associated with initiatives to reduce overhead and complexity in business systems. The pre-tax charge recorded to-date is $775 million ($45 million, $16 million and $46 million in the third, second and first quarters of 1999, respectively, and $668 million recorded in 1998). Of the $45 million charge in the third quarter of 1999, $10 million is expected to require cash expenditures. The remaining $35 million consisted of noncash items. The $45 million charge consisted of the following components: o Impairment of assets of $30 million. The impairment components were $14 million for goodwill and $16 million for other long-lived assets. The entire $30 million impairment related to assets to be sold or closed. o Restructuring charges of $6 million. The restructuring charges consisted of severance related expenses to sell or close the New York and Pennsylvania retail chains. Severance related expenses relating to the chain to be closed or sold, but not yet announced, have not yet been recorded. The restructuring charges also consisted of operating lease liabilities and professional fees incurred related to the restructuring process. o Other disposition and related costs of $9 million. These costs consisted primarily of inventory valuation adjustments, impairment of an investment, disposition related costs recognized on a periodic basis and other costs. The company recorded a net loss of $14 million or $.37 per share for the third quarter of 1999. The after-tax effect of the strategic plan charge on the company's third quarter of 1999 was $28 million or $.73 per share. Excluding the strategic plan charge and one-time gains on the sales of distribution facilities, the company would have recorded net income of $11 million or $.27 per share. Adjusted EBITDA for the third quarter of 1999 was $97 million. "Adjusted EBITDA" is earnings before extraordinary items, interest expense, income taxes, depreciation and amortization, equity investment results, LIFO provision 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 third quarter of 1999 (in millions): Net Loss $ (14) Add back: Taxes on Loss (10) Depreciation/Amortization 39 Interest Expense 37 Equity Investment Results 2 LIFO Provision 3 ------ EBITDA 57 Add back Noncash Strategic Plan Charges 35 ------ EBITDA excluding Noncash Strategic Plan Charges 92 Add back unusual or infrequent charges and Strategic Plan Charges requiring Cash 5 ------ Adjusted EBITDA $ 97 ====== 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 of approximately $160 million is primarily expected throughout the rest of 1999 and 2000 relating to the continuing implementation of the strategic plan. Approximately $135 million of these future expenses are expected to require cash expenditures. The remaining $25 million of the future expense relates to noncash items. These future expenses will consist primarily of severance, real estate-related expenses, pension withdrawal liabilities and other costs expensed when incurred. The pre-tax charge relating to the strategic plan for the third quarter and year-to-date periods in 1998 was entirely reflected in the Impairment/ restructuring charge line and totaled $6 million and $7 million, respectively. The charge consisted of $3 million impairment of long-lived assets with the remainder made up primarily of severance. The company has assessed the strategic significance of all operating units. Under the plan, the sale or closing of certain operating units has been announced and is 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: ============================================================================== Oct 2, Oct 3, For the 12 weeks ended 1999 1998 - ------------------------------------------------------------------------------ Net sales 100.00 % 100.00 % Gross margin 10.37 9.40 Less: Selling and administrative 9.00 8.27 Interest expense 1.14 1.09 Interest income (.22) (.25) Equity investment results .07 .08 Litigation charge - .06 Impairment/restructuring charge 1.12 .18 - ------------------------------------------------------------------------------ Total expenses 11.11 9.43 - ------------------------------------------------------------------------------ Loss before taxes (.74) (.03) Taxes on loss (.30) .04 - ------------------------------------------------------------------------------ Net income (loss) (.44)% .07 % ============================================================================== Oct 2, Oct 3, For the 40 weeks ended 1999 1998 - ------------------------------------------------------------------------------ Net sales 100.00 % 100.00 % Gross margin 9.88 9.62 Less: Selling and administrative 8.64 8.11 Interest expense 1.15 1.08 Interest income (.21) (.24) Equity investment results .08 .08 Litigation charge - .06 Impairment/restructuring charge .72 .06 - ------------------------------------------------------------------------------ Total expenses 10.38 9.15 - ------------------------------------------------------------------------------ Earnings (loss) before taxes (.50) .47 Taxes on income (loss) (.13) .24 - ------------------------------------------------------------------------------ Net income (loss) (.37)% .23 % ============================================================================== Net sales. Sales for the third quarter (12 weeks) of 1999 decreased by $196 million, or 6%, to $3.2 billion from the same period in 1998. Year to date, sales decreased by $454 million, or 4%, to $11.1 billion from the same period in 1998. Net sales for the wholesale segment were $2.4 billion for the third quarter of 1999 compared to $2.6 billion from the same period in 1998. Year to date, sales decreased to $8.2 billion in 1999 compared to $8.8 billion in 1998. The sales decreases were primarily due to the previously announced loss of sales to Furr's (in 1998) and Randall's (in 1999) and the disposition of the Portland division (in 1999). These sales losses plus the prospective loss of sales to United in 2000 will be partially offset by the increase in sales to Kmart Corporation. In 1998, sales to Furr's, Randall's and United accounted for approximately 8% of the company's sales. Retail segment sales increased $28 million, or 3%, in the third quarter of 1999 to $836 million from the same period in 1998. Year to date, retail segment sales increased $141 million, or 5%, to $2.8 billion from the same period in 1998. The increase in sales was due primarily to new stores added since early in 1998. This was offset partially by the closing of non-performing stores and a decrease in same-store sales of 4.3% and 2.1% for the third quarter and year-to-date periods in 1999 compared to the same periods in 1998. Fleming measures inflation using data derived from the average cost of a ton of product sold by the company. Food price inflation year-to-date was down slightly at 1.4% compared to 1.8% for the same period in 1998. Gross margin. Gross margin for the third quarter of 1999 increased by $13 million, or 4%, to $336 million from $323 million for the same period in 1998, and increased as a percentage of net sales to 10.37% from 9.40% for the same period in 1998. The strategic plan charges and one-time gains on sales of distribution facilities had little effect on these comparisons. The increase in dollars reflects positive results from leveraging the company's buying power and cutting costs. The increase in percentage to net sales was also due to the impact of the growing retail segment compared to the wholesale segment. The retail segment has the higher margins of the two segments. This increase was partly offset by lower margins in the retail segment due to competitive pricing at company-owned new stores. Year to date, gross margin decreased by $15 million, or 1%, to $1.09 billion in 1999 from $1.11 billion in 1998, but increased as a percentage of net sales to 9.88% from 9.62% for the same period in 1998. After excluding the strategic plan charges and one-time gains on sales of distribution facilities, gross margin dollars still decreased compared to the same period in 1998 and gross margin as a percentage of net sales still increased compared to the same period in 1998. The decrease in dollars was due primarily to the overall sales decrease, but was partly offset by positive results from leveraging the company's buying power and cutting costs. The increase in percentage to net sales was due to the impact of the growing retail segment compared to the wholesale segment. The retail segment has the higher margins of the two segments. This increase was partly offset by lower margins in the retail segment due to competitive pricing at company-owned new stores. Selling and administrative expenses. Selling and administrative expenses for the third quarter of 1999 increased by approximately $8 million, or 3%, to $292 million from $284 million for the same period in 1998 and increased as a percentage of net sales to 9.00% for 1999 from 8.27% in 1998. Year to date, selling and administrative expenses increased approximately $23 million, or 2%, to $956 million in 1999 from $933 million in 1998 and increased as a percentage of net sales to 8.64% for 1999 from 8.11% in 1998. For both the quarter and year-to-date periods: a)the increase in dollars was partly due to costs relating to the strategic plan; and b)the increase in percentage to net sales was also partly due to costs relating to the strategic plan and to the impact of the growing retail segment compared to the wholesale segment - the retail segment has higher operating expenses as a percent to sales compared to the wholesale segment. Credit loss expense is included in selling and administrative expenses and increased slightly for the third quarter of 1999 to $5 million compared to the same period in 1998 at $4 million. Year to date, credit loss expense was $18 million in 1999 compared to $12 million 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 wholesale segment increased by approximately $16 million to $69 million for the third quarter of 1999 from $53 million for the same period of 1998. Year to date, operating earnings increased for the wholesale segment by approximately $7 million to $214 million in 1999 from $207 million in 1998. Excluding the costs relating to the strategic plan and one-time gains on sales of distribution facilities, operating earnings would have increased by approximately $18 million to $71 million for the third quarter of 1999 from $53 million for the same period of 1998 and would have increased by approximately $17 million year-to-date to $224 million in 1999 from $207 million in 1998. Operating earnings for the retail segment decreased by approximately $7 million to $4 million for the third quarter of 1999 from $11 million for the same period of 1998. Year to date, operating earnings decreased for the retail segment by $30 million to $21 million in 1999 from $51 million in 1998. Excluding the costs relating to the strategic plan, operating earnings would have decreased by approximately $6 million to $5 million for the third quarter of 1999 from $11 million for the same period of 1998 and would have decreased by approximately $20 million year-to-date to $31 million in 1999 from $51 million in 1998. Operating earnings were affected primarily by negative same-store sales and the dilutive effect of new stores. Corporate expenses were up slightly in the third quarter of 1999 at $28 million compared to $26 million for the same period of 1998. Year to date, corporate expenses were $14 million higher at $98 million in 1999 compared to $84 million in 1998. Closed store expense, the LIFO charge and incentive compensation expense were higher in 1999 than in 1998. Costs relating to the strategic plan had little effect on corporate expenses during these periods. Interest expense. Interest expense for the third quarter of 1999 was relatively unchanged from the same period in 1998 at $37 million. Year to date, interest expense was $3 million higher in 1999 compared to 1998 due primarily to 1998's low interest expense as a consequence of a favorable settlement of tax assessments. The higher 1999 expense was also due to higher average debt balances. The company's derivative agreements consist of simple "floating- to-fixed rate" interest rate swaps. For the third quarter of 1999, interest rate hedge agreements contributed $1.2 million of interest expense compared to the $0.8 million contribution made in the same period of 1998. Year to date, interest rate hedge agreements contributed $4.1 million to interest expense compared to $3.2 million in 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 third quarter of 1999 was $1 million lower than the same period in 1998 due to lower average balances for the company's investment in direct financing leases. Year to date, interest income was $5 million lower than the same period in 1998 for primarily the same reason. Equity investment results. The company's portion of operating losses from equity investments reflected a small improvement for both the third quarter and year- to-date periods in 1999 compared to the same periods in 1998. Litigation charge. In 1998, the $2 million charge in the third quarter and the $7 million year-to-date charge represented an $800,000 per month payment to Furr's as part of a settlement agreement. 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. The pre-tax charge for the strategic plan recorded in the Consolidated Condensed Statements of Operations totaled $45 million for the third quarter of 1999 and $107 million for 1999 year-to-date. Of these totals, $36 million and $79 million were reflected in the Impairment/restructuring charge line for the third quarter and year-to-date periods, respectively, with the balance of the charges reflected in other financial statement lines. Amounts recorded for the third quarter and year-to-date periods in 1998 were entirely reflected in the Impairment/ restructuring charge line and totaled $6 million and $7 million, respectively. 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 40 weeks ended October 2, 1999 was 25.9%, representing a tax benefit. 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 effective tax rate for the 40 weeks ended October 3, 1998 was 51.0%, representing a tax expense. The tax amount for the third quarter of both years was derived using the 40 week tax amount with that year's estimated effective tax rate compared to the tax amount recorded for the first 28 weeks of the year. Other. Several factors negatively affecting earnings in the first 40 weeks of 1999 are likely to continue for the near term. Management believes that these factors include costs related to the strategic plan, lower same-store sales and operating losses in certain company-owned retail stores. Liquidity and Capital Resources In the three quarters ended October 2, 1999, the company's principal 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, during this period were banks and lessors. Net cash provided by operating activities. Operating activities generated $161 million of net cash flows for the three quarters ended October 2, 1999, compared to $127 million for the same period in 1998. Included in 1999 net operating cash flows were $113 million from a reduction in receivables and inventories, $35 million reduction in accounts payable, and $45 million in payments for strategic plan-related restructuring charges. Cash requirements related to the implementation and completion of the strategic plan (on a pre-tax basis) are estimated to be a total of $57 million in 1999, $114 million in 2000, and $65 million thereafter. Total expected cash requirements (pre-tax) have increased by $65 million since the end of the second quarter due to increasing costs associated with initiatives to reduce overhead and complexity in business systems. 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 adequate cash flows to cover all of these costs. Net cash used in investing activities. Total net investment expenditures were $174 million for the three quarters ended October 2, 1999, compared to $118 million in net investment expenditures for the same period in 1998. Included in 1999 net investment expenditures were $123 million for capital expenditures, $78 million for acquisitions of retail stores and a total of $42 million in loans and equity investments in customers. Offsetting these expenditures in part were sales of assets and investments totaling $41 million and collections on notes receivable totaling $24 million. Capital expenditures are estimated to be a total of $200 million for 1999, and between $150 million and $200 million for 2000. The company intends to increase its retail operations by making investments in its existing stores and by adding new stores through store construction or acquisitions for the foreseeable future. Acquisitions of supermarket groups or chains or wholesale operations will be made only on a selective basis. The company's strategic plan involves the divesting of certain wholesale and retail facilities and other assets, and focusing resources on the remaining wholesale and retail operations. Net cash provided by financing activities. Net cash provided by financing activities was $47 million for the three quarters ended October 2, 1999, compared to $16 million in net cash used in financing activities for the same period in 1998. Included in 1999 net cash provided by financing activities was a net increase in long-term debt of $68 million since the end of 1998. The increase in long-term debt reflects net cash required from external sources to finance net cash used in investment activities and certain financing activities such as $22 million of principal payments on capital lease obligations and $2 million of dividends paid, offset in part by $3 million from the sale of common stock under stock ownership plans. Approximately $28 million in net capital value has been provided by lessors through capital lease obligations since the end of 1998. At the end of the third quarter of 1999, borrowings under the credit facility totaled $198 million in term loans and $200 million of revolver borrowings, and $81 million of letters of credit had been issued. Based on actual borrowings and letters of credit issued, the company could have borrowed an additional $319 million under the revolver. 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 facility, 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, 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) have announced they are moving or have moved to self-distribution, which together represent approximately 8% of the company's sales in 1998. This is expected to have no significant future impact on the company's liquidity due to the implementation of cost cutting measures and the new business gained so far this year, particularly from Kmart Corporation. 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. The company 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. In 1996, management 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). The program included extensive systems testing and contingency planning. As of the end of the third quarter of 1999, the program was substantially complete. All significant and critical computer systems and date-sensitive equipment and business processes have been checked, replaced or remediated, and tested for year-2000 compliance. In cases where compliance could not be achieved or any uncertainty exists, alternatives and contingency plans are in place. The company will continue to work on testing and validation of the readiness of our systems and supply chain up to and through the millennium transition. Contingency plans are documented and published for all corporate offices, distribution centers and retail stores. A senior management task force is continually reviewing and expanding contingency plans for both internal and external failures that could disrupt the supply chain. These plans deal with such external variables as loss of power or water, unusual consumer buying patterns, availability of cash, and other infrastructure issues, in addition to the potential failure of year-2000 compliant systems. Although the company has a high level of confidence regarding its internal systems, year-2000 failures in the company's computer systems could have a material adverse effect on the company's operations. The company has also assessed the status of its vendors' and customers' year-2000 readiness through meetings, discussions, notices and surveys. Vendor and customer responses and feedback are varied and in some cases inconclusive. Moreover, it is uncertain whether there is sufficient elasticity in the supply chain and the public infrastructure to handle demand fluctuations caused by consumer stockpiling or panic. Accordingly, the company believes the most likely worst case scenario could be breakdowns in the food supply chain or public infrastructure resulting in our customers' failure to serve and retain consumers resulting in a negative impact on the company's sales. Year-2000 failures in the systems and processes of the company's suppliers, customers or external service providers 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 third quarter of 1999, these third party expenditures totaled approximately $8 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 12 Computation of Ratio of Earnings * to Fixed Charges 15 Letter from Independent Accountants ** as to Unaudited Interim Financial Information 27 Financial Data Schedule * __________________ * Exhibit filed with Form 10-Q for quarter ended October 2, 1999. ** Exhibit filed with this amendment. (b) Reports on Form 8-K: On September 28, 1999, an arbitration panel entered its award in favor of the company against Tru Discount Foods and its principals. 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 12 and 40 weeks ended October 2, 1999 and October 3, 1998, as indicated in our report dated October 19, 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 12 and 40 weeks ended October 2, 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-----