-----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, F2UUFw0bZOp1stUKGeZ+2Uytry+xAG5Bdke1KLpvHrHrDbelnXa6gMWW3Ao4dcx3 xBnaHzoJb/LPeXJYUETxow== 0000909334-00-000015.txt : 20000211 0000909334-00-000015.hdr.sgml : 20000211 ACCESSION NUMBER: 0000909334-00-000015 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000210 ITEM INFORMATION: FILED AS OF DATE: 20000210 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: 8-K SEC ACT: SEC FILE NUMBER: 001-08140 FILM NUMBER: 530291 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 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: February 10, 2000 (Date of earliest event reported) February 10, 2000 FLEMING COMPANIES, INC. (Exact name of registrant as specified in its charter) OKLAHOMA 1-8140 48-0222760 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) 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) INFORMATION TO BE INCLUDED IN THE REPORT Item 5. OTHER EVENTS The following is a descriptive narrative of Fleming Companies, Inc.'s presentation to the Donaldson, Lufkin & Jenrette Retail Equity Conference scheduled for February 10, 2000. Slide Number 1) Fleming Slide Description ----------------- A Great Place to Work A Great Place to Trade A Great Place to Invest Slide Number 2) Slide Description ----------------- Business Summary and Growth Strategy - ------------------------------------ Mark S. Hansen Chairman of the Board and Chief Executive Officer Financial Review - ---------------- Neal J. Rider Executive Vice President and Chief Financial Officer Narrative --------- Good afternoon! It is a privilege to be with you today! We appreciate being invited to participate in this conference. My name is Mark Hansen, and with me today are Neal Rider, Fleming's Executive Vice President and Chief Financial Officer, Kevin Twomey, Fleming's Senior Vice President of Finance, and Alan McIntyre, who is Vice President and Treasurer. I will present a summary of our business and growth strategy, and Neal Rider will provide the financial review. Slide Number 3) Slide Description ----------------- Mark S. Hansen Fleming Yesterday Fleming Today Growth Strategy Narrative --------- Certain information contained in today's presentation predicts or forecasts future events, or depends on future events for their accuracy. These are forward-looking statements which are subject to a number of factors which could cause actual results to differ materially. Additional information is contained in our form 10-K and form 10-Q reports, copies of which are available. Slide Number 4) Fleming Yesterday Narrative --------- Let's start by looking at the Fleming of the past. Slide Number 5) Fleming of Yesterday Slide Description ----------------- o Grocery Wholesaler to Independent Supermarkets, Regional and Small Supermarket Chains o Retail Operations Were Under-Performing Conventional Retail Formats o Sales Were Stagnant, Low-Growth or Decreasing o Financial Results Did Not Cover Cost of Capital Slide Number 6) Fleming Today Slide Description ----------------- o Let's consider where Fleming is today. Slide Number 7) Fleming Today Slide Description ----------------- o Distribution with Major Presence - Supermarkets - Convenience Stores - Supercenters - Category Killers - Non-Traditional Food Retailers o Retail with Improved Economics - High-Volume Regional Supermarket Chains - Value Retail o E-Commerce with Potential - Grocery Fulfillment --- Tomorrow's Independent - Visionet Slide Number 8) Fleming Today - Earnings Per Share* Slide Description ----------------- Q3-98 $0.02 Q4-98 $0.06 Q1-99 $0.20 Q2-99 $0.26 Q3-99 $0.27 Q4-99 Est. $0.37e Highest fourth quarter earnings in six years *Adjusted to exclude strategic plan charges and gains on sales of wholesale facilities Narrative --------- Fleming today has improved earnings We just completed our fifth straight quarter of improved earnings on an adjusted basis. This is the best fourth quarter results in 6 years. We believe our growth strategy plan is going to be successful in continuing to improve both the level of earnings as well as the growth rate of our earnings. Slide Number 9) Fleming Today Slide Description ----------------- o Strong Focus On The Future o The Market We See Is Different o Re-Positioned Business - The Turnaround o Core Competencies Slide Number 10) How We See The Retail Market The market we see is different today Slide Number 11) How We See The Retail Market Slide Number 12) How We See The Retail Market Slide Number 13) How We See The Retail Market Slide Number 14) How We See The Retail Market Slide Number 15) How We See The Retail Market Narrative --------- For the 1995 through 2005 time frame, the market share for conventional supermarkets is expected to decrease by 12%, according to several industry studies. Slide Number 16) How We See The Retail Market Narrative --------- A number of other retailing concepts are expected to gain market share at the expense of conventional supermarkets. Slide Number 17) How We See The Retail Market Narrative --------- For example, in the destination quadrant, supercenters' market shares are expected to increase 9% between 1995 and 2005. In the precision quadrant, limited assortment stores' and price impact stores market shares are also expected to grow during this period. Slide Number 18) How We See The Retail Market Slide Description ----------------- o Conventional Retail Under Siege o Highest Value for Conventional: - Be A Consolidator - Sell To A Consolidator o Opportunities Remain: - Precision Store Formats - Destination Store Formats Slide Number 19) Re-Positioned Business -The Turnaround Slide Description ----------------- o Asset Rationalization o Cost Reduction o The Business Was Right-Sized o Core Competencies Slide Number 20) Core Competencies Slide Description ----------------- o Case Pick Distribution o Piece Pick Distribution o Flow Through Distribution o Procurement o Retail Services o Value Retail o E-Commerce Slide Number 21) Growth Strategy: Distribution Slide Number 22) Growth: Distribution Slide Description ----------------- o Low Cost o Consolidation for Low Cost Higher Productivity o Improved Metrics: '98 vs. '00 Slide Number 23) Growth: Distribution Slide Description ----------------- Improved Metrics: '98 vs. '00 Avg. Volume/DC $390 MM $589 MM Avg. Volume/Employee $1.32 MM $1.43 MM DCs w/$600MM+ Volume 5 9 DCs w/$700MM+ Volume 3 5 DCs w/$1 Billion+ Volume 0 4 Slide Number 24) Growth: Distribution Slide Description ----------------- o Procurement Scale - Centralize Procurement for 60%+ of All Merchandise - Purchase Regional Products Locally - Streamline Procurement Staff - Improves Buying Efficiencies - Reduces Cost of Goods Slide Number 25) Implications Slide Description ----------------- o Grow Core Businesses - Distribution Sales Up 5 % in 2000 - Value Retail Sales Up 24.5% in 2000 - E-Commerce o Distribution Is A Cash Flow Generator o Distribution Has Renewed Growth o Better Metrics and Better Buying Leads To Improved Value Proposition - $1.4 Billion In Net New Distribution Sales in '99 - Change on Focus (quadrant slide) Slide Number 26) Growth Strategy: Value Retail Slide Number 27) Fleming Retail Business Profile Slide Description ----------------- o Leading Competitor in a Number of Major Metropolitan Markets - Rainbow Foods - #1 in Minneapolis - Baker's - #1 in Omaha - Sentry - #2 in Milwaukee - Food 4 Less - Value-Oriented Price Impact Stores in California, Utah and Arizona o Over 80% of Fleming Retail Stores are New or Remodeled in the Past Five Years o Fleming Value Retail = Food 4 Less Narrative --------- Rainbow Foods has the number one market share position in Minneapolis. Baker's is the leading food retailer in Omaha. Our Sentry Stores are a strong number two market share in Milwaukee and southeast Wisconsin. Fleming recently began to grow our Food-40-Less Group, which operates 25 stores in northern California, Utah and Arizona. Over 80% of these stores are new or have been remodeled in the past five years. Fleming Value Retail consists primarily of our Food 4 Less Group. Slide Number 28) Growth: Value Retail Slide Description ----------------- What Is Value Retail? o Differentiated Selling Position o Trade Area vs. Market Area o Superior Economics o Competitively Durable Slide Number 29) Growth: Value Retail Slide Description ----------------- What Is Food 4 Less? o Price Impact Warehouse Food Stores o High Volumes, Reduced Assortments o Flow Through Distribution Method o Appeals to Desirable Demographic: The Aspirational Consumer o Nation-Wide Growth Potential Slide Number 30) Growth: Value Retail Slide Description ----------------- Food 4 Less: 25 stores in No. California, Utah and Arizona Price Impact Format Price: EDLP Average Store Size = 53,500 Sq.Ft. Narrative --------- Fleming owns and operates 25 Food 4 Less stores located in northern California, Utah and Arizona These price impact stores offer a deep discount format with an "every day low price" pricing strategy. The average store size is 53,500 square feet. Slide Number 31) Food 4 Less - Consumer Profile Slide Description ----------------- o Aspirational Consumer Who is Price-Sensitive o Average HH Size = 3.9 Persons o Good Buying Power o College Educated o 63% Own a PC Narrative --------- Food 4 Less has great appeal with the Aspirational consumer, consumers who are planning ahead for the future and are looking for ways to save These are price-sensitive shoppers, who tend to have Good family size Good buying power And a good education including relatively high PC skills Slide Number 32) Food 4 Less - Efficient Operations Slide Description ----------------- o Flow Through Distribution o 80% Floor Space = Selling o Prices are 800 Basis Points Lower Than Conventional Supermarkets o Wall of Values Narrative --------- Price impact stores like Food 4 Less have highly efficient operations Flow through distribution, which greatly reduces product handling functions, helps to provide better economics. 80% of floor space is dedicated to sales, which is higher than conventional retail. Higher volumes, reduced assortments, and lower levels of customer service also provide better economics. Slide Number 33) Food 4 Less Market Position Slide Description ----------------- o Proven Price Impact Format o Fleming Franchises 66 Stores (incl. 25 FLM-Owned) Annual Sales greater than $1.5 billion o Average Weekly Sales/Store Over $450K o Great Competitive Profile Narrative --------- This banner is a proven retailing concept that has been in the marketplace for a number of years. In addition to the 25 stores we operate, Fleming licenses the name on 41 other stores, for a total of 66 stores licensed by Fleming. Annual sales for our 25 stores plus the stores we franchise to others is more than $1.5 billion per year. Average weekly sales per store is comfortably higher than $450 thousand. This concept has a great competitive profile. Slide Number 34) Food for Less Store Model Slide Description ----------------- o Lower Cost to Build o Lower Cost to Remodel o EBITDA Return on Sales 6% to 8% o Return on Capital Employed = 16% to 20%+ Narrative --------- The typical Food 4 Less store costs up to 25% less to build than a conventional supermarket. Remodel costs are lower, also. These stores can produce an EBITDA return on sales as high as 6% to 8%. Return on capital employed can be 16% to more than 20%. Slide Number 35) Food 4 Less Annual Sales For Fleming-Owned Stores Slide Description ----------------- Sales in $Millions 1997 $250 (8 stores) 1998 1999 Est. 2000 Est. $700 (30 stores) Narrative --------- In 1997, Fleming owned 8 Food 4 Less stores located in Northern California and in Utah. Total sales in 1997 were just above $250 million. We expect to be operating at least 30 stores this year, with annual sales to be approximately $700 million. Slide Number 36) Growth Strategy: E-Commerce Slide Number 37) E-Commerce Industry Dynamics Slide Description ----------------- 1998 63,000,000 Web Users 2003 Estimated to be 177,000,000 Web Users Narrative --------- In 1998, there were an estimated 63 million web users in the United States. In 2003, this number is expected to grow to 177 million. Slide Number 38) E-Commerce Industry Dynamics Estimated U.S. Internet Retail Sales* Slide Description ----------------- 1999 $13 billion 2000 2001 $75 billion 2002 2003 2004 $152 billion ______________ By 2004, $152 billion, or 7% of All Retail Sales for Physical Items are Expected to be Ordered Through the Internet. * Physical Items Only. Excludes Travel and Information Services Narrative --------- This chart shows that internet-based retail sales for physical goods in the U.S. is expected to reach $152 billion by 2004, compared with about $13 billion in 1999. This means about 7% of all retail sales for physical items is expected to be ordered thru the internet by 2004. Slide Number 39) E-Commerce Industry Dynamics Slide Description ----------------- 1998 $655 billion Spent in the U.S. for groceries, home meal replacements and traditional drugs Narrative --------- Total spending in the U.S. for groceries, home meal replacements, and traditional drugs were about $655 billion in 1998. It is estimated that by 2003, internet grocery sales will be about $11 billion. Slide Number 40) E-Commerce Industry Dynamics Top 5 Online Retail Segment Sales* Slide Description ----------------- Recreation Autos Food/Beverage Electronics Apparel _________________ By 2004, Food & Beverage is Expected to Grow to $16.7 billion, or 11% of Online Retail Sales *Physical Items Only. Excludes Travel and Information Services. Narrative --------- Food and beverages comprise one of the top five online retail segments today. Food as a category, now referred to as the "E-grocery" segment, is expected to grow in relative importance over the next few years Annual E-grocery sales are expected to increase to more than $16 billion by 2004. This will be a big segment, but this represents less than 4% of grocery industry sales in 1998. We believe Fleming is well-positioned with existing assets to play a major role in the e-commerce industry. Slide Number 41) Fleming E-Commerce Slide Description ----------------- o E-Grocery Fulfillment o Visionet(R) Narrative --------- Fleming is involved in e-commerce primarily through the internet-based grocers we supply, and our Visionet system. Slide Number 42) Growth: E-Grocery Slide Description ----------------- o Fleming's Current E-Grocery Customers Include: o NetGrocer.com o GroceryWorks.com o Pinkdot.com o AmericanGrocer.com o Webvan.com o Fleming Is Uniquely Equipped To Supply E-Grocers, Which Are Expected To Grow Rapidly o Full Case Pick Distribution o Piece Pick Distribution o Scale and National Presence o Expert Retail Guidance Narrative --------- Fleming supplies NetGrocer, GroceryWorks, Pinkdot, AmericanGrocer, and soon to-be supplying Webvan. We are hopeful of signing more e-grocery customers. Rapid growth in e-grocery revenues is expected, whether we are distributing food products through full case distribution or piece pick selection. Fleming's large scale and national presence are important strengths we possess. Our retail services include helping independent supermarket operators get into internet-based selling. We see tremendous growth for internet-based grocers, which are really the new independent grocers. Slide Number 43) Growth: Visionet(R) Slide Description ----------------- Fleming's Proprietary Internet-Based Communication System - Electronically Links Manufacturers, Fleming Operations and the Retailers Fleming Supplies 85% of Fleming's Retailers Subscribe to Visionet High-Velocity Information Exchange for Promotional Purchasing Potential to be Channel for Up to 10% of Fleming's Case Volume Revenues Primarily from Vendor Sponsorship Slide Number 44) Visionet Creates Information Effectiveness for Transmission of Promotions to the Grocery Supply Chain Slide Description ----------------- Manufacturers: Manufacturers crate Visionet bulletins and electronically communicate promotional offers Visionet Workstation: Retailers: Retailers log on to Visionet to receive instant access to promotions and deals; and Retailers use Visionet's electronic catalog to evaluate deals and directly place orders for goods, often benefiting from reduced prices and aggregated demand Wholesalers: Visionet transmits orders electronically to wholesalers and manufacturers, providing an early view of product demand _________________ Visionet Aggregates Demand in a Fragmented Market, Speeds Liquidation of Perishable Promotion Goods, and Facilitates the High Velocity of Information Exchange Associated with Promotional Purchasing Narrative --------- Visionet creates information effectiveness for transmission of promotions to the grocery supply chain. Visionet aggregates demand in a fragmented market, speeds liquidation of perishable promotion goods, and facilitates the high velocity of information exchange associated with promotional purchasing. Slide Number 45) Total Fleming Visionet Population Population Subscribers Manufacturers 20,800 1,549 73 Brokers 1,500 288 16 Retailers: Independents 11,170 2,761 2,169 Self-Distributing 19,530 235 235 Mass Merchandise 8,717 120 80 Manufacturers and Brokers Who Subscribe to Visionet Represent More than 25% of Total Food Manufacturer Sales to Fleming Narrative --------- Manufacturers and brokers who subscribe to Visionet represent more than 25% of total food manufacturer sales to Fleming. Slide Number 46) Visionet Is A High-Growth Community- Builder Slide Description ----------------- Visionet Subscribers and Users 1998-1999 1998-1999 Growth Rate Subscribers 365% Users 2,340% Hits per week to the Visionet System 1998-1999 Growth Rate Hits 690% Narrative --------- Visionet is a high-growth community builder as these charts show. Slide Number 47) Summary Slide Number 48) Fleming Today Slide Description ----------------- o Asset Rationalization o Cost Reduction o Core Competencies o Geographic Position o Market Focus o Growth Strategy: - Distribution - Value Retail - E-Commerce Narrative --------- Fleming today is a re-positioned business, in the midst of an exciting turnaround. Assets have been rationalized to divest under-performing and non-strategic business distribution centers and retail stores, which has led to productivity gains. Substantial cost reduction opportunities have been identified and are being pursued. Fleming's core competencies include case pick and piece pick distribution, flow through distribution, procurement, retail services, value retail and e-commerce. Fleming is an efficient, coast-to-coast distribution system, unparalleled by any other food distributor. We have focused on those markets where we have significant operations and competitive strengths. We are growing the business around our core competencies to take advantage of growth opportunities in distribution, value retail and e-commerce. Slide Number 49) Neal J. Rider Slide Description ----------------- o Financial Review Narrative --------- I'm very excited about Fleming as a great place to invest! Neal Rider will now provide an important review of financial results for 1999 as well as describe our future financial direction for 2000. Slide Number 50) Net Sales Slide Description ----------------- $MM 1998 Wholesale $ 11,480 Retail: Conventional $ 2,457 Value 304 2B Divested 828 -------- $ 3,589 -------- Total $ 15,069 Narrative --------- In 1998, before Fleming began implementing the new strategic plan, total company sales were $15.1 billion. Implementation of the new strategic plan began in 1999. As Mark said, consolidating distribution centers in our wholesale business and divesting under-performing retail stores in our retail segment are important steps on the road to Fleming's turnaround. This chart shows, for example, that more than $800 million of additional sales losses would be experienced in order to divest under-performing and non-strategic retail stores. However, the loss of sales relative to implementing our strategic plan was an intelligent loss of sales. Slide Number 51) Net Sales Slide Description ----------------- $MM 1998 1999E Wholesale $ 11,480 $ 10,950 - 4.6 % Retail: Conventional $ 2,457 $ 2,540 + 3.4 % Value 304 530 + 74.3 % 2B Divested $ 828 $ 580 - ----------------------------------- $ 3,589 $ 3,650 + 1.7 % - ----------------------------------- Total $ 15,069 $ 14,600 - 3.1 % Narrative --------- In 1999, due to the consolidation of 8 distribution centers and the loss of two major customers, our wholesale segment experienced a loss of sales as anticipated. This net loss of sales on a total year basis does not display the fact that in our 1999 fourth quarter, we experienced the first positive sales growth in our wholesale distribution business for the first time in over 4 years. In addition, even though 76 retail stores were divested in 1999, total retail segment sales were up. Slide Number 52) Net sales Slide Description ----------------- $MM 1998 1999E 2000E Wholesale $ 11,480 $ 10,950 $ 11,500 Retail: Conventional $ 2,457 $ 2,540 $ 2,660 Value 304 530 690 2B Divested 828 $ 580 190 - --------------------------------------------------- $ 3,589 $ 3,650 $ 3,500 - --------------------------------------------------- Total $ 15,069 $ 14,600 $ 15,000 Narrative --------- In 2000, the sales growth turnaround will be more apparent as the year unfolds. You are going to see higher sales in our wholesale segment, and we are very excited about this. We also expect to see sales growth in our strategic conventional and value chains. Slide Number 53) Net Sales Slide Description ----------------- $MM 1998 1999E 2000E Wholesale $ 11,480 $ 10,950 $ 11,500 + 5.0 % Retail: Conventional $ 2,457 $ 2,560 $ 2,660 + 3.9 % Value 304 530 660 + 24.5 % 2B Divested 828 $ 580 180 - ----------------------------------------------- $ 3,589 $ 3,650 $ 3,500 - 4.1 % - ----------------------------------------------- Total $ 15,069 $ 14,600 $ 15,000 + 2.7 % Narrative --------- In fact, we expect to see today company sales increase for the first time in more than 5 years in 2000. We expect sales growth of at least 2.7% this year, and there is very little inflation assumed in this growth. We are assuming our internal inflation rate will be zero point eight percent (0.8%). Healthy growth in wholesale distribution sales and sales in our strategic conventional retail and value chains is expected. Sales growth in our wholesale distribution segment is being driven by the impact of the cost reductions we have already experienced, resulting in an improved value proposition. Sales growth in our strategic retail chains is driven by the stores added in 1999, plus to a smaller extent, more than 10 stores we are planning to add in 2000. Slide Number 54) Net Sales Sources of Growth Slide Description ----------------- o Wholesale Alternative Format Retailers Wholesale Consolidation Non-Traditional Retailers Convenience Stores E-Commerce o Retail Value-Oriented Price Impact Narrative --------- Sales growth is important to every business, but is especially important to Fleming because we believe it means we are in the process of a significant turnaround in our company. And given our low profit margins, a little bit of sales growth can go a long way to grow earnings. Fundamentally, what are the key sources of our sales growth for year 2000 as well as the future? First, Fleming has developed a great capacity to serve alternative retailers, like Kmart and Target, which have elected to use Fleming as a supplier of a substantial amount of consumer packaged goods and perishable merchandise. Second, we believe consolidation in the wholesale section of our industry will provide opportunities to serve retailers currently supplied by less efficient wholesale operations. Third, non-traditional food retailers, such as drug stores and hardware stores, are an important new growth opportunity. Fourth, we see convenience stores as a strong source of growth, as well as a number of e-commerce opportunities as Mark described earlier. We also believe we can successfully grow value-oriented price impact retail sales, which today is comprised of our 25 Food 4 Less stores. Slide Number 55) Earnings Per Share* Slide Description ----------------- Q3-98 $0.02 Q4-98 $0.06 Q1-99 $0.20 Q2-99 $0.26 Q3-99 $0.27 Q4-99 Est. $0.37e - --------------- * Adjusted to exclude strategic plan charges and gains on sales of wholesale facilities. Narrative --------- Because of Fleming's operating leverage, modest cost reductions and sales growth can go a long way to grow earnings and earnings per share. We just completed our fifth straight quarter of improved earnings on an adjusted basis. We believe our strategic plan is going to be successful in helping to improve both the level of earnings as well as the growth rate of our earnings. Slide Number 56) EPS* Slide Description ----------------- $MM, Except EPS 1999E 2000E EBITDA* $ 410 $ 450 Less: Depreciation $ 160 Int. Expense 166 Eq. Inv. Results 3 - ---------------------------- EBT $ 42 Taxes 39 - ---------------------------- Net Earnings $ 42 EPS $ 1.10 $ 1.43 - --------------- * Adjusted to exclude strategic plan charges and gains on sales of wholesale facilities. Narrative --------- This chart shows that we expect earnings per share in 2000 to be at least $1.43, or at least 30% higher than 1999. We expect the improvement will be driven by an increase in operating earnings, reflected here as an increase in EBITDA. Generally speaking, this increase is driven by cost reductions not shared with customers and sales growth driven by the cost reductions we are sharing with customers. Slide Number 57) EBITDA Slide Description ----------------- $MM 1999E 2000E Wholesale $ 405 $ 430 Retail $ 95 $ 105 Corp. Expenses $( 90) $( 85) - ---------------------------------------------- $ 410 $ 450 + 10 % Narrative --------- EBITDA is expected to increase by approximately 10% this year versus 1999. This increase will be greater than the EBITDA we sacrificed to rationalize our investment in wholesale and retail operations. Improvement is expected to come from both the wholesale and retail segments. Slide Number 58) EBITDA Margin* On Sales Slide Description ----------------- Q3-98 2.6% Q3-99 3.0% - ---------------- * Adjusted to exclude strategic plan charges and gains on sales of wholesale facilities. Narrative --------- Our basic financial objective is to produce earnings comparable to the leaders in our industry. What does that mean? This chart shows Fleming has improved its EBITDA margin, from 2.6% to 3% in our 1999 third quarter. For all of 1999, our EBITDA margin was 2.8%. But this is not enough. The EBITDA margin for wholesale and retail food industry leaders applied to Fleming on a blended basis, would be about 4.4%. Slide Number 59) Potential for EBITA Improvement - What Would Fleming Be? Slide Description ----------------- Fleming $ 410 2.8% Food Distributors Profitability $ 540 3.7% Supervalu's Profitability $ 540 3.7% Fleming Blended $ 640 4.4% Regional Retailers' Profitability $ 900 6.2% Narrative --------- This chart sows what Fleming's EBITDA level would be if our profitability were comparable to a number of different benchmarks. Fleming's 1999 EBITDA was at least $410 million. If Fleming produced at the 3.7% level, the wholesale food industry sector average, then our EBITDA would be about $540 million. If Fleming produced at the 4.4% blended level, then Fleming's EBITDA would be about $640 million. It is reasonable to expect Fleming to perform at industry average levels. We believe opportunities exist to substantially improve our performance. Slide Number 60) Cash Flow Estimates in Millions Slide Description ----------------- 1999E 2000E EBITDA $ 410 $ 450 Net Working Capital 5 20 Strategic Plan Costs (75) (130) ----- ----- Cash From the Business $ 340 $ 340 Narrative --------- Cash flow from operations in 1999 was approximately $340 million, and we expect this to be about the same in 2000. Notice this level of cash flow is net of our strategic plan- related restructuring costs of $75 million in 1999 and an estimated $130 million for 2000. Otherwise, cash flow at this level is expected to improve due to sales growth, cost reductions, and more efficient working capital management. Slide Number 61) Cash Flow Estimates in Millions Slide Description ----------------- 1999E 2000E EBITDA $ 410 $ 410 Net Working Capital 5 20 Strategic Plan Costs (75) (130) ----- ----- Cash From the Business $ 340 $ 340 ----- ----- Capital Expenditures $(166) $(180) Businesses Acquired (78) - Asset Sales 41 40 Interest Expense (166) (170) All Other (91) (45) ----- ----- $(460) $(355) Narrative --------- Total expenditures for capital investment, acquisitions, interest expense and other investment spending, offset by asset sale proceeds, totaled $460 million in 1999. In 2000, spending for these items, excluding acquisition spending, is expected to be no more than $355 million. We view the strategic plan-related expenditures as investments which will help produce future cost savings. Slide Number 62) Cash Flow Estimates in Millions Slide Description ----------------- 1999E 2000E EBITDA $ 410 $ 450 Net Working Capital 5 20 Strategic Plan Costs (75) (130) ----- ------ Cash from the Business $ 340 $ 370 ----- ----- Capital Expenditures $(166) $(180) Businesses Acquired (78) - Asset Sales 41 40 Interest Expense (166) (170) All Other (91) (45) ----- ----- $(460) $(355) ----- ----- Funded Debt Increase $(120) $( 15) Narrative --------- Funded debt increased by $120 million in 1999, driven by the strategic plan costs and new business investment. In 2000, which is the last year we expect to incur substantial cash restructuring costs, funded debt is expected to increase by $15 million. Funded debt would be reduced by $85 million in 2000 if we did not have the strategic plan costs. Slide Number 63) Capital Expenditures in Millions Slide Description ----------------- 99 Est. $166 million Retail 54 million Wholesale Corporate 00 Est. $180 million Retail 65 million Wholesale Corporate Narrative --------- For 1999, capital expenditures were $166 million. For 2000, we expect to invest $180 million. We do not have a large maintenance-of-business capital requirement. We have the flexibility to invest in the best growth vehicle, whether that means building new stores, or acquiring existing stores, or both. In 1999, we initiated improvements to our capital allocation process to help ensure greater returns on capital employed. For example, required rates of return were increased. The number of authorized spenders was reduced. Executive management is more involved in capital allocation decisions. Slide Number 64) Major Achievements During Turnaround Slide Description ----------------- o Closed 8 Distribution Centers (3 More Underway) o Closed and Sold 76 Under-Performing Retail Stores o Added $1.4 Billion in Net New Distribution Sales o Opened and Acquired 26 New Retail Stores o Upgraded Senior Management Team o Developed The Low Cost Pursuit Program Narrative --------- In 1999, 8 distribution centers were closed, and 3 more are currently underway. We closed and sold 76 under-performing retail stores. We added $1.4 billion in net new distribution sales. We opened and acquired 26 additional retail stores. We upgraded the senior management team. And we developed the low cost pursuit program. Slide Number 65) Areas of Low Cost Pursuit Slide Description ----------------- o Merchandising and Procurement o Logistics and Distribution o Shared Services and Finance o Retail Operations o Customer-Related Narrative --------- Cost reduction projects covering five areas of the company taken together as a whole comprise our low cost pursuit program. In the merchandising and procurement functions, cost of goods are being reduced and administrative costs are being lowered by moving to a centralized, versus local, procurement system. In the logistics and distribution functions, removable costs associated with backhaul, in-bound transportation and other such functions were identified and are being removed. For shared services and finance, many functions are being centralized, such as non-merchandise procurement, certain employee benefit programs, accounting and information technology services. In our retail operations, we are using best demonstrated practices to reduce labor costs across our chains, and we can improve the management of many in-store operating costs. With respect to customer relations, we are establishing a single point of contact for each customer. We are making our own Visionet system the e-business portal of choice to realize greater elimination of paper-based processes. Overall, this makes our customer communications much more productive. Slide Number 66) Areas of Low Cost Pursuit Slide Description ----------------- o Merchandising and Procurement o Logistics and Distribution o Shared Services and Finance o Retail Operations o Customer-Related - ---------------------------------- greater than Low Cost Pursuit Cash Awards Narrative --------- A special incentive program, which includes all 36,000 Fleming Associates, was developed to encourage the attainment of certain program objectives. Overall, we expect to remove over $100 million of costs on a run rate basis by the end of year 2000. This means total cost savings for 2001 will be $100 million. Where are we today? At the end of 1999, we confirmed we had already taken out approximately $50 million of costs on a run rate basis. Slide Number 67) Summary Slide Number 68) Fleming Today Slide Description ----------------- o Asset Rationalization o Cost Reduction o Core Competencies o Geographic Position o Market Focus o Growth Strategy: - Distribution - Value Retail - E-Commerce Narrative --------- Fleming today is a re-positioned business, in the midst of an exciting turnaround. Assets have been rationalized to divest under-performing and non-strategic business distribution centers and retail stores, which has led to productivity gains. Substantial cost reduction opportunities have been identified and are being pursued. Fleming's core competencies include case pick and piece pick distribution, flow through distribution, procurement, retail services, value retail and e-commerce. Fleming is an efficient, coast-to-coast distribution system, unparalleled by any other food distributor. We are focused on those markets where we have significant operations and competitive strengths. We are growing the business around our core competencies to take advantage of growth opportunities in distribution, value retail and e-commerce. Slide Number 69) Fleming Slide Description ----------------- A Great Place to Work A Great Place to Trade A Great Place to Invest Narrative --------- This concludes our formal remarks. Our actual 1999 fourth quarter and fiscal year financial results are scheduled to be announced on February 18th, 2000. We will now take any questions you may have. SIGNATURE 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 hereunto duly authorized. LENORE T. GRAHAM Lenore T. Graham Sr. Vice President, General Counsel and Secretary Date: February 10, 2000 Fleming Companies, Inc. (Registrant) -----END PRIVACY-ENHANCED MESSAGE-----