SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 21, 2001
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.)
1945 Lakepointe Dr, Box 299013
Lewisville, Texas 75029
(Address of principal executive offices) (Zip Code)
(972) 906-8000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock, as of May 18, 2001 is as follows:
Class Shares Outstanding
Common stock, $2.50 par value 43,818,000
INDEX
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Statements of Operations -
16 Weeks Ended April 21, 2001,
and April 15, 2000
Consolidated Condensed Balance Sheets -
April 21, 2001, and December 30, 2000
Consolidated Condensed Statements of Cash Flows -
16 Weeks Ended April 21, 2001,
and April 15, 2000
Notes to Consolidated Condensed Financial
Statements
Independent Accountants' Review Report
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings
Item 4. Results of Votes of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations For the 16 weeks ended April 21,
2001, and April 15, 2000 (In thousands, except per share amounts)
==================================================================================
2001 2000
----------------------------------------------------------------------------------
Net sales $ 4,161,191 $ 4,331,498
Costs and expenses:
Cost of sales 3,794,947 3,914,824
Selling and administrative 317,313 372,307
Interest expense 57,502 53,101
Interest income (9,272) (9,505)
Equity investment results 351 1,891
Impairment/restructuring charge (credit) (26,859) 42,145
----------------------------------------------------------------------------------
Total costs and expenses 4,133,982 4,374,763
----------------------------------------------------------------------------------
Income (loss) before taxes 27,209 (43,265)
Taxes on income (loss) 11,743 (17,392)
----------------------------------------------------------------------------------
Income (loss) before extraordinary charge 15,466 (25,873)
Extraordinary charge from early retirement
of debt (net of taxes) (3,469) -
----------------------------------------------------------------------------------
Net income(loss) $ 11,997 $ (25,873)
==================================================================================
Basic net income (loss)per share:
Income (loss) before extraordinary charge $ .39 $ (.67)
Extraordinary charge from early retirement
of debt (net of taxes) (.09) -
----------------------------------------------------------------------------------
Net income (loss) $ .30 $ (.67)
Diluted net income (loss)per share:
Income (loss) before extraordinary charge $ .37 $ (.67)
Extraordinary charge from early retirement
of debt (net of taxes) (.08) -
----------------------------------------------------------------------------------
Net income (loss) $ .29 $ (.67)
Dividends paid per share $ .02 $ .02
Weighted average shares outstanding:
Basic 40,190 38,515
Diluted 42,245 38,515
==================================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements
and independent accountants' review report.
Consolidated Condensed Balance Sheets
(In thousands)
================================================================================
April 21, December 30,
Assets 2001 2000
--------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 27,273 $ 30,380
Receivables, net 490,671 509,045
Inventories 779,249 831,265
Assets held for sale 58,975 165,800
Other current assets 78,497 86,583
--------------------------------------------------------------------------------
Total current assets 1,434,665 1,623,073
Investments and notes receivable, net 102,195 104,467
Investment in direct financing leases 98,372 102,011
Property and equipment 1,387,036 1,370,430
Less accumulated depreciation
and amortization (691,518) (653,973)
--------------------------------------------------------------------------------
Net property and equipment 695,518 716,457
Deferred income taxes 122,877 139,852
Other assets 212,083 172,632
Goodwill, net 510,518 544,319
--------------------------------------------------------------------------------
Total assets $ 3,176,228 $ 3,402,811
================================================================================
Liabilities and Shareholders' Equity
--------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 730,081 $ 943,279
Current maturities of long-term debt 36,171 38,171
Current obligations under capital leases 20,299 21,666
Other current liabilities 197,914 229,272
--------------------------------------------------------------------------------
Total current liabilities 984,465 1,232,388
Long-term debt 1,239,427 1,232,400
Long-term obligations under capital leases 339,988 377,239
Other liabilities 118,454 133,592
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value per share 109,272 99,044
Capital in excess of par value 558,122 513,645
Reinvested earnings (deficit) (132,471) (144,468)
Accumulated other comprehensive income -
additional minimum pension liability (41,029) (41,029)
--------------------------------------------------------------------------------
Total shareholders' equity 493,894 427,192
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 3,176,228 $ 3,402,811
================================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements
and independent accountants' review report.
Consolidated Condensed Statements of Cash Flows
For the 16 weeks ended April 21, 2001, and April 15, 2000
(In thousands)
================================================================================
2001 2000
--------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $ 11,997 $ (25,873)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 50,667 53,749
Amortization costs in interest expense 2,180 1,496
Credit losses 4,517 7,698
Deferred income taxes 10,996 8,208
Gain/loss on sale of business (1,542) -
Equity investment results 351 1,891
Impairment/restructuring and related
charges, net of impairment credit
(not in other lines) (1,899) 59,322
Cash payments on impairment/restructuring
and related charges (22,904) (41,081)
Cost of early debt retirement 5,787 -
Change in assets and liabilities:
Receivables 12,556 47,639
Inventories (2,572) 129,927
Accounts payable (213,201) (192,306)
Other assets and liabilities 24,826 3,592
Other adjustments, net 2,168 384
--------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (116,073) 54,646
--------------------------------------------------------------------------------
Cash flows from investing activities:
Collections on notes receivable 9,127 9,021
Notes receivable funded (7,585) (5,710)
Purchase of property and equipment (48,173) (38,498)
Proceeds from sale of property and equipment 15,968 7,627
Investments in customers - (1,514)
Proceeds from sale of investment - 2,616
Proceeds from sale of businesses 111,088 36,952
Other investing activities 3,373 3,753
--------------------------------------------------------------------------------
Net cash provided by investing activities 83,798 14,247
--------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 615,602 60,000
Principal payments on long-term debt (610,575) (107,251)
Payments on cost of debt (21,050) -
Principal payments on capital lease obligations (5,416) (6,982)
Proceeds from sale of common stock 51,392 151
Dividends paid (785) (775)
--------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 29,168 (54,857)
--------------------------------------------------------------------------------
Net change in cash and cash equivalents (3,107) 14,036
Cash and cash equivalents, beginning of period 30,380 6,683
Cash and cash equivalents, end of period $ 27,273 $ 20,719
================================================================================
Supplemental information:
Cash paid for interest $ 43,422 $ 41,333
Cash refunded for taxes $ (5,949) $ (50,491)
================================================================================
Fleming Companies, Inc. See notes to consolidated condensed financial statements
and independent accountants' review report.
Notes to Consolidated Condensed Financial Statements
(See independent accountants' review report)
1. The consolidated condensed balance sheet as of April 21, 2001, and the
consolidated condensed statements of operations and cash flows for the 16 weeks
ended April 21, 2001 and April 15, 2000, have been prepared by Fleming without
audit. In our opinion, all adjustments necessary to present fairly the financial
position at April 21, 2001, 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 income (loss) per
share are computed based on net income (loss) divided by weighted average shares
as appropriate for each calculation.
The preparation of the consolidated condensed financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us 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, including the reclassification of net sales and
cost of goods due to the adoption of SAB No. 101 and EITF 99-19 in the fourth
quarter of 2000.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America 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 our 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 $59 million at April 21, 2001 ($4
million of which is recorded in assets held for sale in current assets), and $58
million at December 30, 2000 ($13 million of which is recorded in assets held
for sale in current assets).
4. Sales and operating earnings for our distribution and retail segments are
presented below.
================================================================================
For the 16 weeks ended
April 21, April 15,
($ in millions) 2001 2000
--------------------------------------------------------------------------------
Sales:
Distribution $ 3,743 $ 3,842
Intersegment elimination (426) (572)
--------------------------------------------------------------------------------
Net distribution 3,317 3,270
Retail 844 1,061
--------------------------------------------------------------------------------
Total sales $ 4,161 $ 4,331
================================================================================
Operating earnings:
Distribution $ 109 $ 83
Retail 16 12
Support services (76) (51)
--------------------------------------------------------------------------------
Total operating earnings 49 44
Interest expense (58) (53)
Interest income 9 10
Equity investment results - (2)
Impairment/restructuring (charge)credit 27 (42)
--------------------------------------------------------------------------------
Income (loss) before taxes $ 27 $ (43)
================================================================================
General support services expenses are not allocated to distribution and retail
segments. The transfer pricing between segments is at cost.
Kmart Corporation, our largest customer, represented 10% of our total net sales
during the first quarter of 2001, and just under 10% in the first quarter of
2000.
5. Our comprehensive income for the 16 weeks ended April 21, 2001, totaled $12.0
million and our comprehensive loss for the 16 weeks ended April 15, 2000,
totaled $25.9 million. The comprehensive income and loss in 2001 and 2000,
respectively, were comprised only of the reported net income and loss.
6. In accordance with applicable accounting standards, we record a charge
reflecting contingent liabilities (including those associated with litigation
matters) when we determine that a material loss is "probable" and either
"quantifiable" or "reasonably estimable." Additionally, we disclose 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, we and certain of our present and former officers
and directors were named as defendants in nine purported class action suits
filed by certain stockholders and one purported class action suit filed by two
noteholders. All cases were filed in the United States District Court for the
Western District of Oklahoma. In 1997, the court consolidated the stockholder
cases; the noteholder case was also consolidated, but only for pre-trial
purposes. The plaintiffs in the consolidated cases sought undetermined but
significant damages, and asserted liability for our alleged "deceptive business
practices," and our alleged failure to properly account for and disclose the
contingent liability created by the David's Supermarkets case, a lawsuit we
settled in April 1997 in which David's sued us for allegedly overcharging for
products. The plaintiffs claimed that these alleged practices led to the David's
case and to other material contingent liabilities, caused us to change our
manner of doing business at great cost and loss of profit and materially
inflated the trading price of our common stock.
During 1998 the complaint in the noteholder case was dismissed, and during 1999
the complaint in the consolidated stockholder case was also dismissed, each
without prejudice. The court gave the plaintiffs the opportunity to restate
their claims in each case, and they did so in amended complaints. We again filed
motions to dismiss all claims in both cases. On February 4, 2000, the court
dismissed the amended complaint in the stockholder case with prejudice. The
stockholder plaintiffs filed a notice of appeal on March 3, 2000. Briefing is
complete in the Court of Appeals for the Tenth Circuit, and oral argument was
conducted on May 15, 2001. The Tenth Circuit has not yet issued an opinion.
On August 1, 2000, the court dismissed the claims in the noteholder complaint
alleging violations of the Securities Exchange Act of 1934, but the court
determined that the noteholder plaintiffs had stated a claim under Section 11 of
the Securities Act of 1933. On September 15, 2000, defendants filed a motion to
allow an immediate appeal of the court's denial of their motion to dismiss
plaintiffs' claim under Section 11. That motion was denied on January 8, 2001.
The case was set for a status and scheduling conference on January 30, 2001. The
court has entered an order setting this case for trial in October 2001.
On April 30, 2001, a Memorandum of Understanding was signed which provides,
among other things, for the parties in the noteholder case to proceed to agree
on a Settlement Agreement which will include a payment by defendants and our
insurer of $2.5 million in full satisfaction of the claim. The settlement will
require court and class approval.
In 1997, we won a declaratory judgment against certain of our insurance carriers
regarding policies issued to us for the benefit of our officers and directors.
On motion for summary judgment, the court ruled that our exposure, if any, under
the class action suits is covered by D&O policies written by the insurance
carriers, aggregating $60 million in coverage, and that the "larger settlement
rule" will apply to the case. According to the trial court, under the larger
settlement rule, a D&O insurer is liable for the entire amount of coverage
available under a policy even if there is some overlap in the liability created
by the insured individuals and the uninsured corporation. If a corporation's
liability is increased by uninsured parties beyond that of the insured
individuals, then that portion of the liability is the sole obligation of the
corporation. The court also held that allocation is not available to the
insurance carriers as an affirmative defense. The insurance carriers appealed.
In 1999, the appellate court affirmed the decision that the class actions were
covered by D&O policies aggregating $60 million in coverage but reversed the
trial court's decision as to allocation as being premature.
We intend to vigorously defend any remaining claims in these class action suits
and pursue the issue of insurance discussed above, but we cannot predict the
outcome of the cases. An unfavorable outcome could have a material adverse
effect on our financial condition and prospects.
Don's United Super (and related cases). We and two of our retired executives
have been named in a suit filed in 1998 in the United States District Court for
the Western District of Missouri by several of our current and former customers
(Don's United Super, et al. v. Fleming, et al.). The 19 plaintiffs operate
retail grocery stores in the St. Joseph and Kansas City metropolitan areas. The
plaintiffs in this suit allege product overcharges, breach of contract, breach
of fiduciary duty, misrepresentation, fraud and RICO violations, and they are
seeking actual, punitive and treble damages, as well as a declaration that
certain contracts are voidable at the option of the plaintiffs.
During the fourth quarter of 1999, plaintiffs produced reports of their expert
witnesses calculating alleged actual damages of approximately $112 million.
During the first quarter of 2000, plaintiffs revised a portion of these damage
calculations, and although it is not clear what the precise damage claim will
be, it appears that plaintiffs will claim approximately $120 million, exclusive
of any punitive or treble damages.
On May 2, 2000, the court granted partial summary judgment to the defendants,
holding that plaintiffs' breach of contract claims that relate to events that
occurred more than four years before the filing of the litigation are barred by
limitations, and that plaintiffs' fraud claims based upon fraudulent inducement
that occurred more than 15 years before the filing of the lawsuit likewise are
barred. It is unclear what impact, if any, these rulings may have on the damage
calculations of the plaintiffs' expert witnesses.
The court has set August 13, 2001 as the date on which trial of the Don's case
will commence.
In October 1998, we and the same two retired executives were named in a suit
filed by another group of retailers in the same court as the Don's case
(Coddington Enterprises, Inc., et al. v. Fleming, et al.). Currently, 16
plaintiffs are asserting claims in the Coddington case, all but one of which
have arbitration agreements with us. The plaintiffs assert claims virtually
identical to those set forth in the Don's case, and although plaintiffs have not
yet quantified the damages in their pleadings, it is anticipated that they will
claim actual damages approximating the damages claimed in the Don's case.
In July 1999, the court ordered two of the plaintiffs in the Coddington case to
arbitration, and otherwise denied arbitration as to the remaining plaintiffs. We
have appealed the court's denial of arbitration to the United States Court of
Appeals for the Eighth Circuit. The two plaintiffs that were ordered to
arbitration have filed motions asking the court to reconsider the arbitration
ruling.
Two other cases had been filed before the Don's case 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 also plaintiffs in the
Don's case. The earlier two cases, which principally seek an accounting of our
expenditure of certain joint advertising funds, have been consolidated. All
proceedings in these cases have been stayed pending the arbitration of the
claims of those plaintiffs who have arbitration agreements with us.
In March 2000, we and one former executive were named in a suit filed in the
United States District Court for the Western District of Missouri by current and
former customers that operated five retail grocery stores in and around Kansas
City, Missouri, and four retail grocery stores in and around Phoenix, Arizona
(J&A Foods, Inc., et al. v. Dean Werries and Fleming Companies, Inc.). The
plaintiffs have alleged product overcharges, fraudulent misrepresentation,
fraudulent nondisclosure and concealment, breach of contract, breach of duty of
good faith and fair dealing and RICO violations, and they are seeking actual,
punitive and treble damages, as well as other relief. The damages have not been
quantified by the plaintiffs; however, we anticipate that substantial damages
will be claimed.
On August 8, 2000, the Judicial Panel on Multidistrict Litigation granted our
motion and ordered the related Missouri cases (Don's United Super, Coddington
Enterprises, Inc. and J&A Foods, Inc.) and the Storehouse Markets case
(described below) transferred to the United States District Court for the
Western District of Missouri for coordinated or consolidated pre-trial
proceedings.
On March 2, 2001, the court ordered the parties in the related Missouri cases,
the Storehouse Markets case and the Welsh case (described below)to mediate their
claims within 45 days of the order. On April 9 -- 11, 2001, the parties to the
related Missouri cases participated in a mediation process held in Kansas City,
Missouri pursuant to the court's order. Although the precise details of the
mediation are subject to a confidentiality agreement among the parties and may
not be disclosed, the mediation confirmed our expectation that the plaintiffs in
the Don's and related cases will claim substantial damages. In addition, based
on discussions with plaintiffs' counsel during the mediation, it appears
unlikely that these related cases will be resolved before trial.
We intend to vigorously defend against the claims in these related cases, but we
are currently unable to predict the outcome of the cases. An unfavorable outcome
could have a material adverse effect on our financial condition and prospects.
Storehouse Markets. In 1998, we and one of our former division officers were
named in a suit filed in the United States District Court for the District of
Utah by several of our current and former customers (Storehouse Markets, Inc.,
et al. v. Fleming Companies, Inc., et al.). The plaintiffs have alleged product
overcharges, fraudulent misrepresentation, fraudulent nondisclosure and
concealment, breach of contract, breach of duty of good faith and fair dealing
and RICO violations, and they are seeking actual, punitive and treble damages.
Damages have not been quantified by the plaintiffs; however, we anticipate that
substantial damages will be claimed.
The plaintiffs have made these claims on behalf of a class that would
purportedly include current and former customers of our Salt Lake City division
covering a four-state region. On June 12, 2000, the court entered an order
certifying the case as a class action. On July 11, 2000, the United States Court
of Appeals for the Tenth Circuit granted our request for a discretionary appeal
of the class certification order, and we are pursuing that appeal on an
expedited basis.
On August 8, 2000, the Judicial Panel on Multidistrict Litigation granted our
motion and ordered the Storehouse Markets case and the related Missouri cases
(described above) transferred to the United States District Court for the
Western District of Missouri for coordinated or consolidated pre-trial
proceedings.
On March 2, 2001, the court ordered the parties in the related Missouri cases,
the Storehouse Markets case and the Welsh case to mediate their claims within 45
days of the order. On April 9 -- 11, 2001, the parties to the Storehouse case
participated in a mediation process held in Kansas City, Missouri pursuant to
the court's order. Although the precise details of the mediation are subject to
a confidentiality agreement among the parties and may not be disclosed, the
mediation confirmed our expectation that the plaintiffs in Storehouse will claim
substantial damages.
We intend to vigorously defend against these claims, but we cannot predict the
outcome of the case. An unfavorable outcome could have a material adverse effect
on our financial condition and prospects.
Welsh. In April 2000, the operators of two grocery stores in Van Horn and Marfa,
Texas filed an amended complaint in the United States District Court for the
Western District of Texas, Pecos Division (Welsh v. Fleming Foods of Texas,
L.P.). The amended complaint alleges product overcharges, breach of contract,
fraud, conversion, breach of fiduciary duty, negligent misrepresentation and
breach of the Texas Deceptive Trade Practices Act. The amended complaint seeks
unspecified actual damages, punitive damages, attorneys' fees and pre-judgment
and post-judgment interest. Pursuant to the order of the Judicial Panel on
Multidistrict Litigation, the Welsh case has been transferred to the Western
District of Missouri for pre-trial proceedings. No trial date has been set in
this case.
On March 2, 2001, the court ordered the parties in the related Missouri cases,
the Storehouse Markets case and the Welsh case to mediate their claims within 45
days of the order. The parties in the Welsh case have not yet mediated their
claims.
Other. Our 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, we have a comprehensive program for testing, removal,
replacement or repair of our underground fuel storage tanks and for site
remediation where necessary. We have established reserves that we believe will
be sufficient to satisfy the anticipated costs of all known remediation
requirements.
We and others have been designated by the U.S. Environmental Protection Agency
and by similar state agencies as potentially responsible parties under the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
or similar state laws, as applicable, with respect to EPA-designated Superfund
sites. While liability under CERCLA for remediation at these sites is generally
joint and several with other responsible parties, we believe that, to the extent
we are ultimately determined to be liable for the expense of remediation at any
site, such liability will not result in a material adverse effect on our
consolidated financial position or results of operations. We are committed to
maintaining the environment and protecting natural resources and human health
and to achieving full compliance with all applicable laws, regulations and
orders.
We are a party to or threatened with various other litigation and contingent
loss situations arising in the ordinary course of our business including:
disputes with customers and former customers; disputes with owners and former
owners of financially troubled or failed customers; disputes with landlords and
former landlords; 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. Except as noted above, we do not
believe that any such claim will have a material adverse effect on us.
7. Long-term debt consists of the following:
April 21, December 30,
(In thousands) 2001 2000
-------------- ---- ----
10 1/8% senior notes due 2008 $ 355,000 $ -
5 1/4% convertible senior subordinated notes due 2009 150,000 -
10 5/8% senior notes due 2001 - 300,000
10 1/2% senior subordinated notes due 2004 250,000 250,000
10 5/8% senior subordinated notes due 2007 250,000 250,000
Revolving credit, average interest rates of
7.4% for 2001 and 7.3% for 2000, due 2003 130,000 300,000
Term loans, due 2001 to 2004, average interest
rate of 8.1% for 2001 and 7.2% for 2000 145,786 154,421
Other debt (including discounts) (5,188) 16,150
----------- -----------
1,275,598 1,270,571
Less current maturities (36,171) (38,171)
----------- -----------
Long-term debt $ 1,239,427 $ 1,232,400
=========== ===========
Five-year Maturities: Aggregate maturities of long-term debt for the next five
years are as follows: 2001-$28 million; 2002-$40 million; 2003-$172 million;
2004-$287 million; and 2005-$0.
The 10 5/8% $300 million senior notes due 2001 were issued in 1994. During the
first quarter of 2001, we redeemed these notes with the proceeds from the
issuance of $355 million of senior notes, as described below. In connection with
the redemption of $300 million of 10 5/8% senior notes due 2001, we recognized a
$3.5 million after-tax extraordinary charge from early retirement of debt.
On March 15, 2001, we issued $355 million of 10 1/8% senior notes that mature on
March 15, 2008. Most of the net proceeds were used to redeem all of the 10 5/8%
senior notes due 2001, including an amount to cover accrued interest and the
redemption premium. The balance of the net proceeds was used to pay down
outstanding revolver loans. The new senior notes are unsecured senior
obligations, ranking the same as all other existing and future senior
indebtedness and senior in right of payment to the subordinated notes. The
senior notes are effectively subordinated to secured senior indebtedness with
respect to assets securing such indebtedness, including loans under our senior
secured credit facility. The 10 1/8% senior notes are guaranteed by
substantially all of our subsidiaries (see -Subsidiary Guarantee of Senior Notes
and Senior Subordinated Notes below).
On March 15, 2001, we issued $150 million of 5.25% convertible senior
subordinated notes that mature on March 15, 2009 and have a conversion price of
$30.27 per share. The net proceeds were used to pay down outstanding revolver
loans. The convertible notes are callable after 2004, and are general unsecured
obligations, subordinated in right of payment to all existing and future senior
indebtedness, and rank senior to or of equal rank with all of our existing and
future subordinated indebtedness.
Subsidiary Guarantee of Senior Notes and Senior Subordinated Notes: The senior
notes, convertible senior subordinated notes, and senior subordinated notes are
guaranteed by substantially all of Fleming's wholly-owned direct and indirect
subsidiaries. The guarantees are joint and several, full, complete and
unconditional. There are currently no restrictions on the ability of the
subsidiary guarantors to transfer funds to Fleming (the parent) in the form of
cash dividends, loans or advances.
The following condensed consolidating financial information depicts, in separate
columns, the parent company, those subsidiaries which are guarantors, those
subsidiaries which are non-guarantors, elimination adjustments and the
consolidated total. The financial information may not necessarily be indicative
of the results of operations or financial position had the subsidiaries been
operated as independent entities.
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
April 21, 2001
------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents.................. $ 23,637 $ 1,951 $ 1,685 $ - $ 27,273
Receivables, net........................... 410,955 77,886 1,830 - 490,671
Inventories................................ 626,569 149,141 3,539 - 779,249
Other current assets....................... 129,521 7,909 42 - 137,472
----------- ----------- ---------- ----------- ----------
Total current assets.................. 1,190,682 236,887 7,096 - 1,434,665
Investment in subsidiaries.................. 53,381 - - (53,381) -
Intercompany receivables.................... 290,888 - - (290,888) -
Property and equipment, net................. 452,722 235,768 7,028 - 695,518
Goodwill, net............................... 410,434 96,392 3,692 - 510,518
Other assets................................ 491,744 25,129 18,654 - 535,527
----------- ----------- ---------- ----------- ----------
$ 2,889,851 $ 594,176 $ 36,470 $ (344,269) $3,176,228
=========== =========== ========== =========== ==========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................... $ 637,242 $ 90,335 $ 2,504 $ - $ 730,081
Intercompany payables...................... - 244,564 46,324 (290,888) -
Other current liabilities.................. 216,805 34,583 2,996 - 254,384
----------- ----------- ---------- ----------- ----------
Total current liabilities.............. 854,047 369,482 51,824 (290,888) 984,465
Obligations under capital leases............ 209,342 130,646 - - 339,988
Long-term debt and other liabilities........ 1,332,568 25,265 48 - 1,357,881
Equity (deficit)............................ 493,894 68,783 (15,402) (53,381) 493,894
----------- ----------- ---------- ----------- ----------
$ 2,889,851 $ 594,176 $ 36,470 $ (344,269) $3,176,228
=========== =========== ========== =========== ==========
December 30, 2000
------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents.................. $ 22,487 $ 6,753 $ 1,140 $ - $ 30,380
Receivables, net........................... 406,203 101,884 958 - 509,045
Inventories................................ 635,227 192,499 3,539 - 831,265
Other current assets....................... 247,400 4,943 40 - 252,383
----------- ----------- ---------- ----------- ----------
Total current assets.................. 1,311,317 306,079 5,677 - 1,623,073
Investment in subsidiaries.................. 53,381 - - (53,381) -
Intercompany receivables.................... 384,450 - - (384,450) -
Property and equipment, net................. 424,321 285,117 7,019 - 716,457
Goodwill, net............................... 411,094 129,440 3,785 - 544,319
Other assets................................ 463,008 42,918 13,036 - 518,962
----------- ----------- ---------- ----------- ----------
$ 3,047,571 $ 763,554 $ 29,517 $ (437,831) $3,402,811
=========== =========== ========== =========== ==========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................... $ 821,407 $ 120,145 $ 1,727 $ - $ 943,279
Intercompany payables...................... - 342,627 41,823 (384,450) -
Other current liabilities.................. 244,524 43,275 1,310 - 289,109
----------- ----------- ---------- ----------- ----------
Total current liabilities.............. 1,065,931 506,047 44,860 (384,450) 1,232,388
Obligations under capital leases............ 214,611 162,628 - - 377,239
Long-term debt and other liabilities........ 1,339,837 26,096 59 - 1,365,992
Equity (deficit)............................ 427,192 68,783 (15,402) (53,381) 427,192
----------- ----------- ---------- ----------- ----------
$ 3,047,571 $ 763,554 $ 29,517 $ (437,831) $3,402,811
=========== =========== ========== =========== ==========
CONDENSED CONSOLIDATING OPERATING STATEMENT INFORMATION
16 Weeks Ended April 21, 2001
--------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net sales................................... $ 3,465,166 $ 1,035,055 $ 22,210 $ (361,240) $ 4,161,191
Costs and expenses:
Cost of sales............................. 3,280,265 859,049 16,873 (361,240) 3,794,947
Selling and administrative................ 150,323 161,907 5,083 - 317,313
Other..................................... 16,457 28,605 3,519 - 48,581
Impairment/restructuring charge (credit).. 6,255 (33,114) - - (26,859)
Equity loss from subsidiaries............. (3,598) - - 3,598 -
----------- ----------- ---------- ---------- -----------
Total costs and expenses................ 3,449,702 1,016,447 25,475 (357,642) 4,133,982
----------- ----------- ---------- ---------- -----------
Income (loss) before taxes................. 15,464 18,608 (3,265) (3,598) 27,209
Taxes on income (loss)..................... (2) 13,117 (1,372) - 11,743
----------- ----------- ---------- ---------- -----------
Income (loss) before extraordinary charge $ 15,466 $ 5,491 $ (1,893) $ (3,598) $ 15,466
=========== =========== ========== ========== ===========
16 Weeks Ended April 15, 2000
---------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net sales................................... $ 3,569,998 $ 1,175,704 $ 22,715 $ (436,919) $ 4,331,498
Costs and expenses:
Cost of sales............................. 3,360,908 973,622 17,213 (436,919) 3,914,824
Selling and administrative................ 185,768 181,648 4,891 - 372,307
Other..................................... 2,964 39,851 2,672 - 45,487
Impairment/restructuring charge........... 41,437 708 - - 42,145
Equity loss from subsidiaries............. 12,912 - - (12,912) -
----------- ----------- ---------- ----------- -----------
Total costs and expenses............... 3,603,989 1,195,829 24,776 (449,831) 4,374,763
----------- ----------- ---------- ----------- -----------
Income (loss) before taxes.................. (33,991) (20,125) (2,061) 12,912 (43,265)
Taxes on income (loss)...................... (8,118) (8,409) ( 865) - (17,392)
----------- ----------- ---------- ----------- -----------
Net income (loss)........................... $ (25,873) $ (11,716) $ (1,196) $ 12,912 $ (25,873)
=========== =========== ========== =========== ===========
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
16 Weeks Ended April 21, 2001
---------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net cash provided by (used in)
operating activities.................. $ (117,559) $ 6,588 $ (5,102) $ - $ (116,073)
----------- ----------- ---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment..... (37,721) (9,704) (748) - (48,173)
Other................................... 28,573 103,398 - - 131,971
----------- ----------- ---------- ----------- -----------
Net cash provided by (used in) investing
activities............................ (9,148) 93,694 (748) - 83,798
----------- ----------- ---------- ----------- -----------
Cash flows from financing activities:
Repayments on capital lease obligations. (3,886) (1,530) - - (5,416)
Advances (to) from parent............... 97,159 (103,554) 6,395 - -
Other................................... 34,584 - - - 34,584
----------- ----------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities............................ 127,857 (105,084) 6,395 - 29,168
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................... 1,150 (4,802) 545 - (3,107)
Cash and cash equivalents at beginning
of year............................... 22,487 6,753 1,140 - 30,380
----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at end of year. $ 23,637 $ 1,951 $ 1,685 $ - $ 27,273
=========== =========== ========== =========== ===========
16 Weeks Ended April 15, 2000
---------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net cash provided by operating activities.. $ 48,545 $ 4,962 $ 1,139 $ - $ 54,646
----------- ----------- ---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........ (11,416) (25,979) (1,103) - (38,498)
Other...................................... 52,705 40 - - 52,745
----------- ----------- ---------- ----------- -----------
Net cash provided by (used in) investing
activities............................... 41,289 (25,939) (1,103) - 14,247
----------- ----------- ---------- ----------- -----------
Cash flows from financing activities:
Repayments on capital lease obligations.... (5,323) (1,659) - - (6,982)
Advances (to) from parent.................. (41,545) 30,741 10,804 - -
Other...................................... (47,875) - - - (47,875)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities............................... (94,743) 29,082 10,804 - (54,857)
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. (4,909) 8,105 10,840 - 14,036
Cash and cash equivalents at beginning
of year.................................. (54,803) 61,307 179 - 6,683
----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at end of year... $ (59,712) $ 69,412 $ 11,019 $ - $ 20,719
=========== =========== ========== =========== ===========
8. The accompanying operating statements include the following:
16 weeks ended
--------------
April 21, April 15,
(In thousands) 2001 2000
-------------------------------------------------------------------
Depreciation and amortization
(includes depreciation and
amortization due to
strategic plan) $50,667 $53,749
Excess depreciation and
amortization due to the
strategic plan $ - $ 4,395
Amortized costs in interest
expense $ 2,180 $ 1,496
9. In December 1998, we announced the implementation of a strategic plan
designed to improve the competitiveness of the retailers we serve and improve
our performance by building stronger operations that can better support
long-term growth. The four major initiatives of the strategic plan were to
consolidate distribution operations, grow distribution sales, improve retail
performance, and reduce overhead and operating expenses. Additionally, in 2000
we decided to reposition certain retail operations into our price impact format
and sell or close the remaining conventional retail chains. During the first
quarter of 2001, we sold or closed 66 retail stores. We plan to sell or close
the remaining 31 retail stores by the end of July 2001.
The plan, as expected, took two years to implement and is now substantially
complete. Additional charges of approximately $20 million are estimated in 2001.
The remaining charges represent severance related expenses, inventory markdowns
for clearance for closed operations, and other exit costs that cannot be
expensed until incurred. Charges after 2001 are expected to be minimal.
The net effect of the strategic plan in the first quarter of 2001 was pre-tax
income of $1 million. The after-tax effect was income of less than $1 million,
or $.01 per share. The $1 million pre-tax income was included on several lines
of the Consolidated Statement of Operations as follows: $3 million charge was
included in net sales; $18 million charge was included in cost of sales and was
primarily related to inventory markdowns for clearance for closed operations; $5
million charge was included in selling and administrative expense as disposition
related costs recognized on a periodic basis. These charges were offset by $27
million of income in the Impairment/restructuring line related to the recovery
of previously recorded asset impairment resulting from the planned sale of some
retail stores, offset partially by severance related expenses. The first quarter
charge consisted of the following components:
o Net impairment recovery of $35 million. The components included recovering
previously recorded goodwill impairment of $14 million and long-lived asset
impairment of $24 million. Also included was impairment of $3 million
related to other long-lived assets.
o Restructuring charges of $8 million. The restructuring charges consisted
primarily of severance related expenses for the divested or closed
operating units. The restructuring charges also included professional fees
incurred related to the restructuring process.
o Other disposition and related costs of $26 million. These costs consisted
primarily of inventory markdowns for clearance for closed operations and
disposition related costs recognized on a periodic basis.
The first quarter of 2001 charge relates to our business segments as follows: $7
million charge relates to the distribution segment and $12 million of income
relates to the retail segment with the balance relating to support services
expenses.
The charges related to workforce reductions are as follows:
($'s in thousands) Amount Headcount
------------------ ------ ---------
1998 Activity:
Charge $ 25,441 1,430
Terminations (3,458) (170)
-------- ------
Ending Liability 21,983 1,260
1999 Activity:
Charge 12,029 1,350
Terminations (24,410) (1,950)
-------- ------
Ending Liability 9,602 660
2000 Activity:
Charge 53,906 5,610
Terminations (26,180) (1,860)
-------- ------
Ending Liability 37,328 4,410
2001 Quarter 1 Activity:
Charge 6,760 520
Terminations (10,186) (3,320)
-------- ------
Ending Liability $ 33,902 1,610
======== ======
The ending liability of approximately $34 million includes payments over time to
associates already severed as well as union pension withdrawal liabilities. The
breakdown of the 520 headcount reduction recorded during 2001 was: 145 from the
distribution segment; 360 from the retail segment; and 15 from support services.
Additionally, the strategic plan includes charges related to lease obligations
which will be utilized as operating units or retail stores close, but ultimately
reduced over remaining lease terms ranging from 1 to 20 years. The charges and
utilization have been recorded to-date as follows:
($'s in thousands) Amount
------------------ ------
1998 Activity:
Charge $ 28,101
Utilized (385)
--------
Ending Liability 27,716
1999 Activity:
Charge 15,074
Utilized (10,281)
--------
Ending Liability 32,509
2000 Activity:
Charge 37,149
Utilized (48,880)
--------
Ending Liability 20,778
2001 Quarter 1 Activity:
Charge 500
Utilized (5,263)
--------
Ending Liability $ 16,015
========
Assets held for sale included in other current assets at the end of the first
quarter of 2001 were approximately $59 million, consisting of $24 million of
distribution operating units and $35 million of retail stores.
The pre-tax charge of the strategic plan in the first quarter of 2000 totaled
$64 million. After tax, the expense for the first quarter of 2000 was $38
million or $.98 per share. The $64 million charge was included on several lines
of the Consolidated Condensed Statement of Operations for the first quarter of
2000 as follows: $14 million was included in cost of sales and was primarily
related to inventory markdowns for clearance for closed operations and
additional depreciation and amortization on assets to be disposed of but not yet
held for sale; $8 million was included in selling and administrative expense and
equity investment results as disposition related costs recognized on a periodic
basis; and the remaining $42 million was included in the
Impairment/restructuring charge line. The $64 million charge consisted of the
following components:
o Impairment of assets of $2 million. The impairment related to other
long-lived assets.
o Restructuring charges of $40 million. The restructuring charges
consisted primarily of severance related expenses and pension
withdrawal liabilities for the divested or closed operating units that
were closed during the first quarter of 2000. The restructuring
charges also included operating lease liabilities and professional
fees incurred related to the restructuring process.
o Other disposition and related costs of $21 million. These costs
consist primarily of inventory markdowns for clearance for closed
operations, additional depreciation and amortization on assets to be
disposed of but not yet held for sale, disposition related costs
recognized on a periodic basis.
The $64 million charge relates to our business segments as follows: $37 million
relates to the distribution segment and $17 million relates to the retail
segment with the balance relating to support services expenses.
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 periods they remain in use. Salaries,
wages and benefits of employees at these operating units are charged to
operations during the time such employees are actively employed. Depreciation
expense is continued for assets that the company is unable to remove from
operations.
Independent Accountants' Review Report
To the Board of Directors and Shareholders
Fleming Companies, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Fleming Companies, Inc. and subsidiaries as of April 21, 2001, and the related
condensed consolidated statements of operations and of cash flows for the
sixteen weeks ended April 21, 2001 and April 15, 2000. 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 auditing standards generally accepted in the United States of
America, 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 accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Fleming Companies Inc. and subsidiaries as of December 30, 2000, 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 14,
2001 (except for the information under long-term debt and contingencies included
in the notes to consolidated financial statements as to which the date is March
22, 2001), 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 30, 2000 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
May 24, 2001
Item 2. Management's Discussion and Analysis of Financial Condition And Results
of Operations
General
In early 1998, our board of directors and senior management began an extensive
strategic planning process that evaluated all aspects of our business. In
December 1998, the strategic plan was approved and implementation efforts began.
In the course of implementing our strategic initiatives, since 1998 we have,
among other accomplishments:
o closed or consolidated 12 of our distribution centers, which resulted in:
o increased average sales per full-line distribution center by more than
40% from $390 million in 1998 to $550 million in 2000, and
o increased average sales per full-line distribution center employee by
more than 12% from 1998 to 2000;
o centralized the majority of our purchasing operations in our customer
support center near Dallas, Texas;
o centralized our accounting, human resources, information technology and
other support services in our shared services center in Oklahoma City,
Oklahoma;
o sold or closed 207 conventional supermarkets through the end of the first
quarter of 2001 with 31 more to be sold or closed in the next few months;
o opened 22 additional price impact supermarkets; and
o instituted a "culture of thrift" among our employees, in part through our
Low Cost Pursuit Program.
The plan, as expected, took two years to implement and is now substantially
complete. Additional charges of approximately $20 million are estimated in 2001.
The remaining charges represent severance related expenses, inventory markdowns
for clearance for closed operations and other exit costs that cannot be expensed
until incurred. Charges after 2001 are expected to be minimal.
The first quarter of 2001 included pre-tax income of approximately $1 million
(less than $1 million after-tax or $.01 per share) related to the strategic
plan, including non-cash impairment adjustments of asset values, inventory
markdowns for clearance for closed operations, and cash restructuring costs for
severance related and other expenses. The first quarter of 2000 included a
pre-tax charge of $64 million ($38 million after-tax or $.98 per share) related
to the strategic plan, including non-cash impairments of asset values, inventory
markdowns for clearance for closed operations, and cash restructuring cost for
severance related expenses, lease terminations, and other expenses.
The first quarter of 2001 also included one-time adjustments, including
approximately $2 million in charges from litigation settlements and net
additional interest expense of approximately $2 million due to the early
retirement of debt, netting to a $3 million charge ($2 million after-tax or $.05
per share). There were no one-time adjustments for the first quarter of 2000.
We recorded net income of $12 million or $.29 per share for the first quarter of
2001. Excluding the after-tax extraordinary charge of $3 million, or $.08 per
share, related to the early retirement of debt and the strategic plan and
one-time items, our net income was $17 million or $.41 per share. Net earnings
for the first quarter of 2000 after excluding strategic plan charges was $12
million or $.30 per share. Currently, our expectations for 2001 are earnings per
share of $1.96, excluding extraordinary charges, strategic plan and one-time
items.
Adjusted EBITDA for the first quarters of 2001 and 2000 were $136 million and
$128 million, respectively. "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 non-recurring expense or income items). Adjusted EBITDA should
not be considered as an alternative measure of our net income, operating
performance, cash flow or liquidity. It is provided as additional information
related to our ability to service debt; however, conditions may require
conservation of funds for other uses. Although we believe adjusted EBITDA
enhances a reader's understanding of our financial condition, this measure, when
viewed individually, is not necessarily a better indicator of any trend as
compared to conventionally computed measures (e.g., net sales, net earnings, net
cash flows, etc.). Finally, amounts presented may not be comparable to similar
measures disclosed by other companies. The following table sets forth the
calculation of adjusted EBITDA for the first quarters of 2001 and 2000 (in
millions):
April 21, April 15,
2001 2000
---- ----
Net income (loss) before extraordinary charge: $ 15 $ (26)
Add back:
Taxes on income (loss) 12 (17)
Depreciation/amortization 51 54
Interest expense 58 53
Equity investment results - 2
LIFO provision 1 3
----- -----
EBITDA 137 69
Add back noncash strategic plan and
one-time items* (18) 8
----- -----
EBITDA excluding noncash strategic
plan and one-time items 119 77
Add back strategic plan and one-time
items ultimately requiring cash 17 51
----- -----
Adjusted EBITDA $ 136 $ 128
===== =====
* Excludes amounts for depreciation/amortization and equity investment
results already added back.
Depreciation and amortization for the first quarter of 2000 includes $4 million
of strategic plan charges. The adjusted EBITDA amount represents cash flow from
operations excluding unusual or infrequent items. In our opinion, adjusted
EBITDA is the best starting point when evaluating our ability to service debt.
In addition, we believe 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 our ability to service debt.
Results of Operations
Set forth in the following table is information regarding our net sales and
certain components of earnings expressed as a percent of sales which are
referred to in the accompanying discussion:
================================================================================
April 21, April 15,
For the 16-weeks ended 2001 2000
--------------------------------------------------------------------------------
Net sales 100.00 % 100.00 %
Gross margin 8.80 9.62
Less:
Selling and administrative 7.63 8.60
Interest expense 1.38 1.23
Interest income (.22) (.22)
Equity investment results .01 .04
Impairment/restructuring charge (credit) (.65) .97
--------------------------------------------------------------------------------
Total expenses 8.15 10.62
--------------------------------------------------------------------------------
Income (loss) before taxes .65 (1.00)
Taxes on income (loss) .28 (.40)
--------------------------------------------------------------------------------
Income(loss)before extraordinary charge .37 % (.60)%
================================================================================
Net sales.
Sales for the first quarter (16 weeks) of 2001 decreased by $0.2 billion, or 4%,
to $4.2 billion from the same period in 2000.
Net sales for the distribution segment were $3.32 billion in 2001 compared to
$3.27 billion in 2000. The increase in sales was due to growth in sales to both
conventional food retail and new retail channel customers, offset partially by
the loss of sales to United Supermarkets during the second quarter of 2000. In
2000, sales to United accounted for less than 3% of our total company sales.
Kmart Corporation, our largest customer, accounted for 10.2% (or $424 million)
and 9.7%(or $420 million) of our total net sales in the first quarter of 2001
and 2000, respectively. We expect annual sales to Kmart for 2001 to be
approximately $2.6 billion, with an increase to approximately $4.5 billion
annually in 2002.
Retail segment sales decreased $0.2 billion, or 20%, in 2001 to $0.8 billion
from the same period in 2000. The decrease in sales was due to the continued
disposition of conventional retail stores in order to increase focus on our
price impact retail stores. During the first quarter of 2001, we sold or closed
66 retail stores and reached agreements to sell 29 of the 31 remaining to sell
or close. This is in addition to the 70 stores sold or closed during 2000.
During the first quarter of 2001, we opened five Yes!Less stores and a Food 4
Less store with an additional seven Food 4 Less stores acquired early in the
second quarter of 2001.
Gross margin.
Gross margin for the first quarter of 2001 decreased by $50 million, or 12%, to
$366 million from $417 million for the same period in 2000, and also decreased
as a percentage of net sales to 8.80% from 9.62% for the same period in 2000.
After excluding the strategic plan charges and one-time items, gross margin for
the first quarter of 2001 decreased by $45 million, or 10%, compared to the same
period in 2000, and decreased as a percentage of net sales to 9.27% from 9.94%
for the same period in 2000. The decrease in dollars was due primarily to the
overall sales decrease, but was partly offset by positive results from
centralizing procurement which leverages our buying power and improving
warehouse productivity.
After excluding the strategic plan charges and one-time items for the
distribution segment, gross margin as a percentage of net sales improved
slightly in the first quarter of 2001 compared to the same period in 2000
reflecting the benefits of the centralization of procurement. For the retail
segment, gross margin as a percentage of net sales also improved in the first
quarter of 2001 compared to the same period in 2000 due to the divesting or
closing of underperforming stores and the centralization of procurement. The
strategic plan charges and one-time items were lower in the first quarter of
2001 compared to the same period in 2000 for the distribution segment primarily
due to additional depreciation and amortization on assets to be disposed of but
not yet held for sale in 2000, but were higher for the retail segment primarily
due to higher inventory markdowns for clearance for closed operations.
Selling and administrative expenses.
Selling and administrative expenses for the first quarter of 2001 decreased by
$55 million, or 15%, to $317 million from $372 million for the same period in
2000 and decreased as a percentage of net sales to 7.63% for 2001 from 8.60% in
2000. After excluding the strategic plan charges and one-time items, selling and
administrative expenses for the first quarter of 2001 decreased as a percentage
of net sales to 7.43% from 8.41% for the same period in 2000. The decreases were
due to rationalization of assets, centralization of administrative functions,
and reduction of the significance of retail. The sales of the distribution
segment represent a larger portion of total company sales than the retail
segment and the distribution segment has lower operating expenses as a
percentage of sales versus the retail segment.
After excluding the strategic plan charges and one-time items for the
distribution segment, selling and administrative expenses as a percentage of net
sales improved in the first quarter of 2001 compared to the same period in 2000
due to the centralization of administrative functions and low cost pursuit
initiatives. For the retail segment, selling and administrative expenses as a
percentage of net sales decreased in the first quarter of 2001 compared to the
same period in 2000 primarily due to selling and closing higher cost retail
operations, reflecting the lower cost structure of our continuing retail
operations. The strategic plan charges and one-time items were lower in the
first quarter of 2001 compared to the same period in 2000 for the distribution
segment due primarily to moving, recruitment, and training costs incurred during
the first quarter of 2000 that were not incurred in 2001, but were higher for
the retail segment due to costs of selling and closing 66 retail stores in the
first quarter of 2001 compared to 24 retail stores in the first quarter of 2000.
Operating earnings.
Operating earnings for the distribution segment for the first quarter of 2001
increased $26 million, or 31%, to $109 million from $83 million in the same
period of 2000. After excluding the strategic plan charges and one-time items,
operating earnings increased by $21 million, or 22%, to $115 million from $94
million for the same period of 2000. Operating earnings improved primarily due
to the benefits of consolidating distribution operating units, reducing costs
partially due to warehouse productivity improvements, and centralizing certain
procurement and administrative functions in support services.
Operating earnings for the retail segment increased by $4 million to $16 million
for the first quarter of 2001 from $12 million for the same period of 2000.
After excluding the strategic plan charges and one-time items, operating
earnings increased by $17 million to $35 million in the first quarter of 2001
from $18 million for the same period of 2000. Operating earnings were improved
by the performance in continuing retail operations and the divesting or closing
of underperforming retail operations. Operating earnings were also improved by
centralizing certain administrative functions in support services.
Support services expenses increased in the first quarter of 2001 compared to the
same period of 2000 by approximately $26 million to $77 million from $51
million. After excluding the strategic plan charges and one-time items, support
services expenses increased by $27 million to $73 million in the first quarter
of 2001 from $46 million for the same period of 2000. The increase in expense
was primarily due to centralizing certain procurement and administrative
functions from the distribution and retail segments. Strategic plan charges were
lower in 2001 due to moving and training expenses associated with the
centralization of the procurement and administrative functions in 2000.
Interest expense.
Interest expense for the first quarter of 2001 increased approximately $5
million, or 8%, to $58 million for the first quarter of 2001 from $53 million
for the same period in 2000 due primarily to $3 million of additional interest
expense related to the early retirement of debt. The remaining increase was due
to higher average debt balances and slightly higher rates.
Interest income.
Interest income of $9 million for the first quarter of 2001 was slightly lower
than the same period of 2000 primarily due to lower average balances for direct
financing leases with customers.
Equity investment results.
Our portion of operating losses from equity investments decreased to less than
$1 million for the first quarter of 2001 from $2 million for the first quarter
of 2000 primarily due to improved results of operations in certain of the
underlying equity investments.
Impairment/restructuring charge.
The net pre-tax amount recorded in the Consolidated Condensed Statements of
Operations (associated with the implementation of our strategic plan announced
in 1998) was income of less than $1 million for the first quarter of 2001
compared to a $64 million charge for the same period of 2000. The amount in 2001
was recorded with income of $27 million reflected in the Impairment/
restructuring line and the balance reflected in other financial statement lines.
The $64 million charge in 2000 was recorded with $42 million reflected in the
Impairment/restructuring charge line and the balance reflected in other
financial statement lines. See "General" above and Note 9 in the notes to the
consolidated condensed financial statements for further discussion regarding the
strategic plan.
Taxes on income.
The effective tax rates used for the first quarters of 2001 and 2000 were 43.2%
and 40.2%, respectively. These were both blended rates taking into account
operations activity, strategic plan activity, write-offs of non-deductible
goodwill and the timing of these items during the year.
Extraordinary charge.
We reflected an extraordinary after-tax charge of $3 million ($6 million
pre-tax) in the first quarter of 2001 due to the early retirement of debt. See
Note 7 in the notes to the Consolidated Condensed Financial Statements for
further discussion regarding the debt retirement.
Certain Accounting Matters.
The Financial Accounting Standards Board (FASB) issued an exposure draft for
Business Combinations and Intangible Assets in late 2000. One of the provisions
of this exposure draft is to require use of a non-amortization approach to
account for purchased goodwill. Under that approach, goodwill would not be
amortized to earnings over a period of time. Instead, it would be reviewed for
impairment and expensed against earnings only in the periods in which the
recorded value of goodwill is more than its implied fair value. Goodwill
amortization impacted the basic and diluted per share amount for the quarter by
$0.12 and $0.13 in 2001 and 2000, respectively. This exposure draft is not final
and may change before any new accounting standard is adopted.
The FASB Emerging Issues Task Force (EITF) has recently reached a consensus on
EITF 00-25 - Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products. EITF 00-25 provides guidance on income
statement classification on consideration paid to a reseller of a vendor's
products. This consensus will be implemented by the end of 2001, as required. We
anticipate this consensus will provide for reclassifications of revenues and
cost of sales within our financial statements with no effect on gross margin or
earnings.
Liquidity and Capital Resources
In the first quarter ended April 21, 2001, our principal sources of liquidity
were borrowings under our credit facility and the sale of certain assets. Our
principal source of capital, excluding shareholders' equity, was generated by
issuing bonds in the capital markets.
Net cash provided by (used in) operating activities.
Net cash expended by operating activities was $116 million in the first quarter
of 2001 compared to a net inflow of $55 million for the same period in 2000. The
primary use of funds was for working capital.
Cash requirements related to the implementation and completion of the strategic
plan (on a pre-tax basis) were $23 million in the first quarter of 2001 and are
currently estimated to be $73 million for the full year 2001. We believe working
capital reductions, proceeds from asset sales, and continued positive earnings
will provide adequate cash flows to cover all of these costs.
Net cash provided by investing activities.
Total investment-related activity resulted in $84 million of positive net cash
flow for the first quarter ended April 21, 2001, compared to $14 million in the
same period of 2000. Cash provided by asset sales, collections on notes
receivable and other investing-related activities was only partially offset by
capital expenditures.
Net cash provided by (used in) financing activities.
Financing activities generated $29 million of net cash flows for the quarter
ended April 21, 2001, compared to a $55 million use of cash flows for the same
period of 2000. Total debt, including capital leases, decreased slightly in the
first quarter of 2001.
On March 23, 2001, we received approximately $50 million of proceeds from the
sale of common stock to Yucaipa Companies, a transaction which gave Yucaipa 8.7%
ownership of Fleming's outstanding common stock.
We believe successful access to the credit and capital markets is dependent in
part on maintaining credit ratings acceptable to institutional and individual
investors. On February 28, 2001, Standard & Poor's ratings group announced it
was upgrading its credit rating outlook for Fleming from "stable" to "positive".
On March 5, 2001, Moody's Investors Service announced it was upgrading its
credit ratings for Fleming. Listed below is a summary of our credit ratings.
Moody's Standard & Poor's
------- -----------------
From: To: From: To:
----- --- ----- ---
Credit agreement loans Ba3 Ba2 BB BB
Senior implied debt B1 Ba3 BB- BB-
Senior unsecured debt B1 Ba3 B+ B+
Senior subordinated notes B3 B2 B B
Outlook Positive Stable Stable Positive
On March 15, 2001, we sold $355 million of new 10 1/8% senior notes due 2008,
and we deposited $315 million with the trustee to redeem all of the 10 5/8%
senior notes due 2001, including an amount to cover accrued interest and the
redemption premium. On April 16, 2001, our obligations under the indenture were
discharged. The balance of the net proceeds was used to pay down our revolver
loans. An extraordinary after-tax charge of approximately $3 million was
recorded in connection with the early redemption. On March 15, 2001, we also
sold $150 million of new 5.25% convertible senior subordinated notes due 2009
with a conversion price of $30.27 per share. The net proceeds of $146 million
were used to pay down our revolver loans. At the end of the first quarter of
2001, outstanding loans and letters of credit under the credit facility totaled
$175 million of term loans, consisting of $130 million of revolver loans, and
$45 million of letters of credit. As of April 21, 2001, we could have borrowed
an additional $425 million under the revolver.
For the foreseeable future, our principal sources of liquidity and capital are
expected to be cash flows from operating activities, our ability to borrow under
our credit facility, and asset sale proceeds. In addition, lease financing may
be employed for new retail stores and certain equipment. We believe these
sources will be adequate to meet working capital needs, capital expenditures,
strategic plan costs and other capital needs in the normal course of business
for the next 12 months.
Contingencies
From time to time we face litigation or other contingent loss situations
resulting from owning and operating our assets, conducting our business or
complying (or allegedly failing to comply) with federal, state and local laws,
rules and regulations which may subject us to material contingent liabilities.
In accordance with applicable accounting standards, we record as a liability
amounts reflecting such exposure when a material loss is deemed to be both
"probable" and "quantifiable" or "reasonably estimable." Furthermore, we
disclose material loss contingencies in the notes to our 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. Also see
Legal Proceedings.
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
projections and assumptions which may prove to have been inaccurate, including
expectations for years 2001 and beyond regarding (i) our ability to successfully
sustain the goals of our strategic plan and continue to reverse sales declines,
cut costs and improve earnings; (ii) our assessment of the probability and
materiality of losses associated with litigation and other contingent
liabilities; (iii) our ability to expand portions of our business or enter new
facets of our business; and (iv) our expectations regarding the proceeds from
asset sales and adequacy of capital and liquidity. We have prepared the
financial projections and other forward-looking statements included in this
document on a reasonable basis, and such projections and statements reflect the
best estimates and judgments currently available and present, to the best of our
knowledge and belief, the expected course of action and the expected future
financial performance of Fleming. However, this information is not fact and
should not be relied upon as necessarily indicative of future results, and
readers of this document are cautioned not to place undue reliance on the
projected financial information or other forward-looking information. The
projections were not prepared with a view to compliance with the guidelines
established by the American Institute of Certified Public Accountants regarding
projections. These projections, forward-looking statements and our business and
prospects are subject to a number of factors which could cause actual results to
differ materially including the ability to achieve the expected synergies and
anticipated cost savings from the Kmart alliance; unanticipated transition and
start-up costs associated with the Kmart alliance; unanticipated problems in the
supply chain due to the increased volumes resulting from the Kmart alliance; the
ability to successfully generate new business; the risks associated with the
successful execution of our strategic business plan; adverse effects of labor
disruptions; adverse effects of the changing industry environment and increased
competition; continuing sales declines and loss of customers; adverse results in
pending or threatened litigation and legal proceedings, and exposure to other
contingent losses; failure to achieve necessary cost savings; and the negative
effects of our substantial indebtedness and the limitations imposed by
restrictive covenants contained in our debt instruments. These and other items
are described in our Annual Report on Form 10-K for the fiscal year ended
December 30, 2000 and in other periodic reports available from the Securities
and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In order to help maintain liquidity and finance business operations, we obtain
long-term credit commitments from banks and other financial institutional
lenders under which term loans and revolving loans are made. Such loans carry
variable interest rates based on the London interbank offered interest rate
("LIBOR") plus a borrowing margin for different interest periods, such as one
week, one month, and other periods up to one year. To assist in managing our
debt maturities and diversify our sources of debt capital, we also use long-term
debt which carries fixed interest rates.
Changes in interest rates in the credit and capital markets and our improved
credit ratings had a material impact on the fair values for our outstanding debt
obligations. The table below presents a summary of certain categories of our
financial instruments according to their respective interest rate profiles. For
debt obligations, the table shows the principal amount of cash we expect to pay
each year according to the scheduled maturities, as well as the average interest
rates applicable to such maturities.
SUMMARY OF FINANCIAL INSTRUMENTS
Maturities of Principal by Fiscal Year
------------------------------------------------------
(In millions, Fair Value Fair Value
except rates) at 12/30/00 at 4/21/01 2001 2002 2003 2004 2005 Thereafter
------------- ----------- ---------- ---- ---- ---- ---- ---- ----------
Debt with Variable Interest Rates
---------------------------------
Principal payable $ 427 $ 270 $ 28 $ 40 $ 172 $ 37 $ - $ -
Average variable rate
payable 8.1% 7.7% Based on LIBOR plus a margin
Debt with Fixed Interest Rates
------------------------------
Principal payable $ 668 $1,060 $ - $ - $ - $ 250 $ - $ 755
Average fixed rate
payable 10.6% 9.6% 5.9% 6.5% 5.1% 10.5% - 9.3%
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Set forth below and in Note 6 in the notes to the consolidated condensed
financial statements, which information is incorporated herein by reference, is
information regarding litigation which became reportable or as to which a
material development has occurred since the date of our Annual Report on Form
10-K for the fiscal year ended December 30, 2000:
(1) Class Action Suits. In 1996, we and certain of our present and former
officers and directors were named as defendants in nine purported class action
suits filed by certain stockholders and one purported class action suit filed by
two noteholders. All cases were filed in the United States District Court for
the Western District of Oklahoma. In 1997, the court consolidated the
stockholder cases; the noteholder case was also consolidated, but only for
pre-trial purposes. The plaintiffs in the consolidated cases sought undetermined
but significant damages, and asserted liability for our alleged "deceptive
business practices," and our alleged failure to properly account for and
disclose the contingent liability created by the David's Supermarkets case, a
lawsuit we settled in April 1997 in which David's sued us for allegedly
overcharging for products. The plaintiffs claimed that these alleged practices
led to the David's case and to other material contingent liabilities, caused us
to change our manner of doing business at great cost and loss of profit and
materially inflated the trading price of our common stock.
During 1998 the complaint in the noteholder case was dismissed, and during 1999
the complaint in the consolidated stockholder case was also dismissed, each
without prejudice. The court gave the plaintiffs the opportunity to restate
their claims in each case, and they did so in amended complaints. We again filed
motions to dismiss all claims in both cases. On February 4, 2000, the court
dismissed the amended complaint in the stockholder case with prejudice. The
stockholder plaintiffs filed a notice of appeal on March 3, 2000. Briefing is
complete in the Court of Appeals for the Tenth Circuit, and oral argument was
conducted on May 15, 2001. The Tenth Circuit has not yet issued an opinion.
On August 1, 2000, the court dismissed the claims in the noteholder complaint
alleging violations of the Securities Exchange Act of 1934, but the court
determined that the noteholder plaintiffs had stated a claim under Section 11 of
the Securities Act of 1933. On September 15, 2000, defendants filed a motion to
allow an immediate appeal of the court's denial of their motion to dismiss
plaintiffs' claim under Section 11. That motion was denied on January 8, 2001.
The case was set for a status and scheduling conference on January 30, 2001. The
court has entered an order setting this case for trial in October 2001.
On April 30, 2001, a Memorandum of Understanding was signed which provides,
among other things, for the parties in the noteholder case to proceed to agree
on a Settlement Agreement which will include a payment by defendants and our
insurer of $2.5 million in full satisfaction of the claim. The settlement will
require court and class approval.
In 1997, we won a declaratory judgment against certain of our insurance carriers
regarding policies issued to us for the benefit of our officers and directors.
On motion for summary judgment, the court ruled that our exposure, if any, under
the class action suits is covered by D&O policies written by the insurance
carriers, aggregating $60 million in coverage, and that the "larger settlement
rule" will apply to the case. According to the trial court, under the larger
settlement rule, a D&O insurer is liable for the entire amount of coverage
available under a policy even if there is some overlap in the liability created
by the insured individuals and the uninsured corporation. If a corporation's
liability is increased by uninsured parties beyond that of the insured
individuals, then that portion of the liability is the sole obligation of the
corporation. The court also held that allocation is not available to the
insurance carriers as an affirmative defense. The insurance carriers appealed.
In 1999, the appellate court affirmed the decision that the class actions were
covered by D&O policies aggregating $60 million in coverage but reversed the
trial court's decision as to allocation as being premature.
We intend to vigorously defend any remaining claims in these class action suits
and pursue the issue of insurance discussed above, but we cannot predict the
outcome of the cases. An unfavorable outcome could have a material adverse
effect on our financial condition and prospects.
(2) Don's United Super (and related cases). We and two of our retired executives
have been named in a suit filed in 1998 in the United States District Court for
the Western District of Missouri by several of our current and former customers
(Don's United Super, et al. v. Fleming, et al.). The 19 plaintiffs operate
retail grocery stores in the St. Joseph and Kansas City metropolitan areas. The
plaintiffs in this suit allege product overcharges, breach of contract, breach
of fiduciary duty, misrepresentation, fraud and RICO violations, and they are
seeking actual, punitive and treble damages, as well as a declaration that
certain contracts are voidable at the option of the plaintiffs.
During the fourth quarter of 1999, plaintiffs produced reports of their expert
witnesses calculating alleged actual damages of approximately $112 million.
During the first quarter of 2000, plaintiffs revised a portion of these damage
calculations, and although it is not clear what the precise damage claim will
be, it appears that plaintiffs will claim approximately $120 million, exclusive
of any punitive or treble damages.
On May 2, 2000, the court granted partial summary judgment to the defendants,
holding that plaintiffs' breach of contract claims that relate to events that
occurred more than four years before the filing of the litigation are barred by
limitations, and that plaintiffs' fraud claims based upon fraudulent inducement
that occurred more than 15 years before the filing of the lawsuit likewise are
barred. It is unclear what impact, if any, these rulings may have on the damage
calculations of the plaintiffs' expert witnesses.
The court has set August 13, 2001 as the date on which trial of the Don's case
will commence.
In October 1998, we and the same two retired executives were named in a suit
filed by another group of retailers in the same court as the Don's case
(Coddington Enterprises, Inc., et al. v. Fleming, et al.). Currently, 16
plaintiffs are asserting claims in the Coddington case, all but one of which
have arbitration agreements with us. The plaintiffs assert claims virtually
identical to those set forth in the Don's case, and although plaintiffs have not
yet quantified the damages in their pleadings, it is anticipated that they will
claim actual damages approximating the damages claimed in the Don's case.
In July 1999, the court ordered two of the plaintiffs in the Coddington case to
arbitration, and otherwise denied arbitration as to the remaining plaintiffs. We
have appealed the court's denial of arbitration to the United States Court of
Appeals for the Eighth Circuit. The two plaintiffs that were ordered to
arbitration have filed motions asking the court to reconsider the arbitration
ruling.
Two other cases had been filed before the Don's case 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 also plaintiffs in the
Don's case. The earlier two cases, which principally seek an accounting of our
expenditure of certain joint advertising funds, have been consolidated. All
proceedings in these cases have been stayed pending the arbitration of the
claims of those plaintiffs who have arbitration agreements with us.
In March 2000, we and one former executive were named in a suit filed in the
United States District Court for the Western District of Missouri by current and
former customers that operated five retail grocery stores in and around Kansas
City, Missouri, and four retail grocery stores in and around Phoenix, Arizona
(J&A Foods, Inc., et al. v. Dean Werries and Fleming Companies, Inc.). The
plaintiffs have alleged product overcharges, fraudulent misrepresentation,
fraudulent nondisclosure and concealment, breach of contract, breach of duty of
good faith and fair dealing and RICO violations, and they are seeking actual,
punitive and treble damages, as well as other relief. The damages have not been
quantified by the plaintiffs; however, we anticipate that substantial damages
will be claimed.
On August 8, 2000, the Judicial Panel on Multidistrict Litigation granted our
motion and ordered the related Missouri cases (Don's United Super, Coddington
Enterprises, Inc. and J&A Foods, Inc.) and the Storehouse Markets case
(described below) transferred to the United States District Court for the
Western District of Missouri for coordinated or consolidated pre-trial
proceedings.
On March 2, 2001, the court ordered the parties in the related Missouri cases,
the Storehouse Markets case and the Welsh case (described below) to mediate
their claims within 45 days of the order. On April 9 -- 11, 2001, the parties to
the related Missouri cases participated in a mediation process held in Kansas
City, Missouri pursuant to the court's order. Although the precise details of
the mediation are subject to a confidentiality agreement among the parties and
may not be disclosed, the mediation confirmed our expectation that the
plaintiffs in the Don's and related cases will claim substantial damages. In
addition, based on discussions with plaintiffs' counsel during the mediation, it
appears unlikely that these related cases will be resolved before trial.
We intend to vigorously defend against the claims in these related cases, but we
are currently unable to predict the outcome of the cases. An unfavorable outcome
could have a material adverse effect on our financial condition and prospects.
(3) Storehouse Markets. In 1998, we and one of our former division officers were
named in a suit filed in the United States District Court for the District of
Utah by several of our current and former customers (Storehouse Markets, Inc.,
et al. v. Fleming Companies, Inc., et al.). The plaintiffs have alleged product
overcharges, fraudulent misrepresentation, fraudulent nondisclosure and
concealment, breach of contract, breach of duty of good faith and fair dealing
and RICO violations, and they are seeking actual, punitive and treble damages.
Damages have not been quantified by the plaintiffs; however, we anticipate that
substantial damages will be claimed.
The plaintiffs have made these claims on behalf of a class that would
purportedly include current and former customers of our Salt Lake City division
covering a four-state region. On June 12, 2000, the court entered an order
certifying the case as a class action. On July 11, 2000, the United States Court
of Appeals for the Tenth Circuit granted our request for a discretionary appeal
of the class certification order, and we are pursuing that appeal on an
expedited basis.
On August 8, 2000, the Judicial Panel on Multidistrict Litigation granted our
motion and ordered the Storehouse Markets case and the related Missouri cases
(described above) transferred to the United States District Court for the
Western District of Missouri for coordinated or consolidated pre-trial
proceedings.
On March 2, 2001, the court ordered the parties in the related Missouri cases,
the Storehouse Markets case and the Welsh case (described below)to mediate their
claims within 45 days of the order. On April 9 -- 11, 2001, the parties to the
Storehouse case participated in a mediation process held in Kansas City,
Missouri pursuant to the court's order. Although the precise details of the
mediation are subject to a confidentiality agreement among the parties and may
not be disclosed, the mediation confirmed our expectation that the plaintiffs in
Storehouse will claim substantial damages.
We intend to vigorously defend against these claims but we cannot predict the
outcome of the case. An unfavorable outcome could have a material adverse effect
on our financial condition and prospects.
(4) Welsh. In April 2000, the operators of two grocery stores in Van Horn and
Marfa, Texas filed an amended complaint in the United States District Court for
the Western District of Texas, Pecos Division (Welsh v. Fleming Foods of Texas,
L.P.). The amended complaint alleges product overcharges, breach of contract,
fraud, conversion, breach of fiduciary duty, negligent misrepresentation and
breach of the Texas Deceptive Trade Practices Act. The amended complaint seeks
unspecified actual damages, punitive damages, attorneys' fees and pre-judgment
and post-judgment interest. Pursuant to the order of the Judicial Panel on
Multidistrict Litigation, the Welsh case has been transferred to the Western
District of Missouri for pre-trial proceedings. No trial date has been set in
this case.
On March 2, 2001, the court ordered the parties in the related Missouri cases,
the Storehouse Markets case and the Welsh case to mediate their claims within 45
days of the order. The parties in the Welsh case have not yet mediated their
claims.
(5) Other. Our 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, we have a comprehensive program for testing, removal,
replacement or repair of our underground fuel storage tanks and for site
remediation where necessary. We have established reserves that we believe will
be sufficient to satisfy the anticipated costs of all known remediation
requirements.
We and others have been designated by the U.S. Environmental Protection Agency
and by similar state agencies as potentially responsible parties under the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
or similar state laws, as applicable, with respect to EPA-designated Superfund
sites. While liability under CERCLA for remediation at these sites is generally
joint and several with other responsible parties, we believe that, to the extent
we are ultimately determined to be liable for the expense of remediation at any
site, such liability will not result in a material adverse effect on our
consolidated financial position or results of operations. We are committed to
maintaining the environment and protecting natural resources and human health
and to achieving full compliance with all applicable laws, regulations and
orders.
We are a party to or threatened with various other litigation and contingent
loss situations arising in the ordinary course of our business including:
disputes with customers and former customers; disputes with owners and former
owners of financially troubled or failed customers; disputes with landlords and
former landlords; 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. Except as noted above, we do not
believe that any such claim will have a material adverse effect on us.
Item 4. Results of Votes of Security Holders
The company held its annual meeting on May 15, 2001. Matters voted on were as
follows:
Election of directors - Carol B. Hallett, Guy A. Osborn, Herbert M. Baum,
Kenneth M. Duberstein, Archie R. Dykes, Robert S. Hamada, and Mark S. Hansen
were each elected members of the Board of Directors for terms expiring in 2002.
Key Executive Retention Plan - Shareholders approved the proposed key executive
retention plan pursuant to the terms of the plan.
Ratification of independent auditors - Shareholders ratified the appointment of
Deloitte & Touche LLP as independent auditors for 2001.
The number of votes cast is as follows (votes in thousands):
For Withheld
--- --------
Election of directors
Carol B. Hallett 35,443 143
Guy A. Osborn 35,446 140
Herbert M. Baum 35,444 142
Kenneth M. Duberstein 35,444 142
Archie R. Dykes 35,439 147
Robert S. Hamada 35,437 149
Mark S. Hansen 35,435 151
For Against Abstain
--- ------- -------
Key executive retention plan 32,838 2,326 422
Ratification of independent auditors 35,488 71 27
No other business came before the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
--------------
4.10 Stock and Warrant Purchase Agreement by and between the
Registrant and U.S. Transportation, LLC dated February 6,
2001,filed as Exhibit 4.1 to Form S-3 (Registration No.333-60176)
filed on May 3, 2001 and incorporated herein by reference.
4.11 Registration Rights Agreement by and between the Registrant and
U.S. Transportation, LLC dated March 22, 2001, filed as Exhibit
4.2 to Form S-3 (Registration No. 333-60176)filed on May 3, 2001
and incorporated herein by reference.
4.12 Indenture, dated as of March 15, 2001, among Fleming Companies,
Inc., the Subsidiary Guarantors named therein and Bankers Trust
Company, as Trustee, regarding the 10 1/8% Senior Notes due 2008,
filed as Exhibit 4.9 to Form S-3(Registration No. 333-60184)
filed on May 3, 2001 and incorporated herein by reference.
4.13 Indenture, dated as of March 15, 2001, among Fleming Companies,
Inc., the Subsidiary Guarantors named therein and Bank One, N.A.,
as Trustee, regarding the 5.25% Convertible Senior Subordinated
Notes due 2009, filed as Exhibit 4.3 to Form S-3 (Registration
No. 333-60178) filed on May 3, 2001 and incorporated herein by
reference.
4.14 Registration Rights Agreement, dated as of March 15, 2001,among
Fleming Companies, Inc., the Subsidiary Guarantors named therein,
Deutsche Banc Alex. Brown Inc., Bear, Stearns & Co. Inc., Lehman
Brothers Inc., Chase Securities Inc. and UBS Warburg LLC., filed
as Exhibit 4.11 to Form S-3 (Registration No. 333-60184) filed on
May 3, 2001 and incorporated herein by reference.
4.15 Registration Rights Agreement, dated as of March 15, 2001, among
Fleming Companies, Inc., the Subsidiary Guarantors named therein,
Deutsche Banc Alex. Brown Inc., Bear, Stearns & Co. Inc., Lehman
Brothers Inc., JPMorgan Securities Inc. and UBS Warburg LLC,
filed as Exhibit 4.4 to Form S-3 (Registration No. 333-60178)
filed on May 3, 2001 and incorporated herein by reference.
10.76* Fleming Companies, Inc. 2001 Corporate Officer Long-Term
Incentive Plan.
10.77* Fleming Companies, Inc. Key Executive Retention Plan,
incorporated by reference to Exhibit A to Registrant's Proxy
Statement dated April 3, 2001.
10.78* Second Amendment to Fleming Companies, Inc. 1999 Stock Incentive
Plan.
10.79* Amendment No. 1 to the Fleming Companies, Inc. Executive Deferred
Compensation Plan.
10.80** Agreement dated as of February 2, 2001 by Fleming Companies, Inc.
and Kmart Corporation.
12 Computation of Ratio of Earnings to Fixed Charges
15 Letter from Independent Accountants as to Unaudited Interim
Financial Information
---------------
* Management contract, compensatory plan or arrangement.
** Information from this agreement has been omitted because the Registrant
has requested confidential treatment. The information has been filed
separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K:
(1) On March 13, 2001, pursuant to Item 5, Registrant reported the
execution of purchase agreements for the sale of up to $150,000,000 of
5.25% convertible Senior Subordinated Notes Due 2009 and $355,000,000
of 10 1/8% Senior Notes due 2008.
(2) On March 16, 2001, pursuant to Item 5, Registrant announced the sale
of the Notes referred to in (b)(1) above.
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: May 25, 2001 NEAL RIDER
Neal Rider
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
4.10 Stock and Warrant Purchase Agreement Incorporated herein by reference
by and between the Registrant and U.S.
Transportation, LLC dated February 6,
2001
4.11 Registration Rights Agreement by and Incorporated herein by reference
between the Registrant and U.S.
Transportation, LLC dated March 22,
2001
4.12 Indenture, dated as of March 15, 2001, Incorporated herein by reference
among Fleming Companies, Inc., the
Subsidiary Guarantors named therein
and Bankers Trust Company, as Trustee,
regarding the 10 1/8% Senior Notes due
2008
4.13 Indenture, dated as of March 15, 2001, Incorporated herein by reference
among Fleming Companies, Inc., the
Subsidiary Guarantors named therein
and Bank One, N.A., as Trustee,
regarding the 5.25% Convertible Senior
Subordinated Notes due 2009
4.14 Registration Rights Agreement, dated Incorporated herein by reference
as of March 15, 2001,among Fleming
Companies, Inc., the Subsidiary
Guarantors named therein, Deutsche
Banc Alex. Brown Inc., Bear, Stearns &
Co. Inc., Lehman Brothers Inc., Chase
Securities Inc. and UBS Warburg LLC
4.15 Registration Rights Agreement, dated Incorporated herein by reference
as of March 15, 2001, among Fleming
Companies, Inc., the Subsidiary
Guarantors named therein, Deutsche
Banc Alex. Brown Inc., Bear, Stearns &
Co. Inc., Lehman Brothers Inc.,
JPMorgan Securities Inc. and UBS
Warburg LLC
10.76 Fleming Companies, Inc. 2001 Corporate Filed herewith electronically
Officer Long-Term Incentive Plan
10.77 Fleming Companies, Inc. Key Executive Incorporated herein by reference
Retention Plan
10.78 Second Amendment to Fleming Companies, Filed herewith electronically
Inc. 1999 Stock Incentive Plan
10.79 Amendment No. 1 to the Fleming Filed herewith electronically
Companies, Inc. Executive Deferred
Compensation Plan
10.80 Agreement dated as of February 2, 2001 Filed herewith electronically
by Fleming Companies, Inc. and Kmart
Corporation
12 Computation of Ratio of Earnings to Filed herewith electronically
Fixed Charges
15 Letter from Independent Accountants as Filed herewith electronically
to Unaudited Interim Financial
Information