UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2000
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 Drive, Box 299013
Lewisville, Texas 75029
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 906-8000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $2.50 Par Value New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [X]
The aggregate market value of the common shares (based upon the closing price on
March 9, 2001 of these shares on the New York Stock Exchange) of Fleming
Companies, Inc. held by nonaffiliates was approximately $930 million.
As of March 9, 2001, 39,753,000 common shares were outstanding.
Documents Incorporated by Reference
A portion of Part III has been incorporated by reference from the registrant's
proxy statement in connection with its annual meeting of shareholders to be held
on May 15, 2001.
PART I
ITEM 1. BUSINESS
Fleming is an industry leader in the distribution of consumable goods, and also
has a growing presence in operating "price impact" supermarkets. Through our
distribution segment, we distribute products to customers that operate
approximately 3,000 supermarkets, 3,000 convenience stores and nearly 1,000
supercenters, discount stores, limited assortment stores, drug stores, specialty
stores and other stores across the U.S. We expect to substantially increase our
distribution volume in connection with, among other things, our recently
announced ten-year, $4.5 billion per year strategic alliance with our largest
customer, Kmart Corporation. In addition, our retail segment currently operates
94 supermarkets. In the fiscal year ended December 30, 2000, we generated total
net sales of $14.4 billion.
Our distribution segment net sales were $11.2 billion for 2000, a 5.8% increase
over the prior year, and represented approximately 77% of total net sales in
2000. To supply our customers, we have a network of 31 distribution centers that
have a total of approximately 19 million square feet of warehouse space. To
support our new business from Kmart, we expect to add up to three new
distribution centers over the next several months. Once that infrastructure is
in place, we believe that we will be the only distributor of consumable goods
serving customers in all 50 states. In addition to product storage, handling and
distribution functions, we also provide our customers with an offering of
advertising, store development, accounting, pricing and retail technology
services.
Our retail segment net sales were $3.3 billion for 2000, which represented
approximately 23% of total net sales. Of that amount, $1.9 billion was
attributable to continuing chains, which represents a 4.8% increase over the
prior year. Our continuing chains currently include 30 price impact supermarkets
under the Food 4 Less banner and ten additional supermarkets which we intend to
convert to the price impact format. Price impact supermarkets offer
deep-discount, everyday low prices in a warehouse-style format. These stores
typically cost less to build, maintain and operate than conventional
supermarkets. We also operate 44 supermarkets that are adopting certain elements
of the price impact format under the Rainbow Foods banner. In addition, we also
operate ten limited assortment stores under the Yes!Less banner. Limited
assortment stores offer a narrow selection of low-price, private label food and
other consumable goods, as well as general merchandise.
In recent years, consumers have been shifting their purchases of food and other
consumable goods away from conventional full-service grocery stores towards
other retail channels, such as price impact supermarkets, discount stores,
supercenters, convenience stores, drug stores and ethnic food stores. Since
1998, we have repositioned our distribution segment to become a highly-efficient
supplier to these retail channels, and as a result, our distribution segment has
experienced renewed sales growth. In addition, we believe price-sensitive
consumers are underserved in the retail grocery market, so we have repositioned
our retail segment to expand our presence in the price impact format.
Repositioning of Fleming
In late 1998, Mark Hansen joined Fleming as our Chairman and Chief Executive
Officer. Together with other new members of senior management, he established
the following strategic initiatives in order to reposition us for growth:
- lower the cost of goods sold and the cost of our distribution
services in order to increase sales to existing customers and attract
new customers;
- diversify our customer base by appealing to retailers beyond our
traditional conventional supermarket customers; and
- reposition our retail segment by selling or closing most of our
conventional format supermarkets and opening additional price impact
supermarkets.
In the course of implementing our strategic initiatives, since 1998, we have,
among other accomplishments:
- closed or consolidated 12 of our distribution centers, which resulted
in:
- increased average sales per full-line distribution center by more
than 40% from $390 million in 1998 to $550 million in 2000, and
- increased average sales per full-line distribution segment employee
by more than 12% from 1998 to 2000;
- centralized the majority of our purchasing operations in our customer
support center near Dallas, Texas;
- centralized our accounting, human resources, information technology
and other support services in our shared services center in Oklahoma
City, Oklahoma;
- sold or closed 152 conventional supermarkets, with 86 more to be sold
or closed;
- opened 14 additional price impact supermarkets; and
- instituted a "culture of thrift" among our employees, in part through
our Low Cost Pursuit Program.
We believe these initiatives have lowered our cost structure, improved the
economics we can offer our traditional retail customers and strengthened our
appeal to new channel retailers. We believe these improvements have been the key
to our ability to increase distribution segment sales for the last five
consecutive quarters (year-over-year comparisons). In 2000, we added
approximately $1.2 billion in gross annual distribution segment sales from both
new channel retailers and our traditional supermarket customers.
Competitive Strengths
Low-Cost, High-Volume National Distribution System: We have consolidated our
smaller distribution centers into high-volume distribution centers. Our
distribution centers produce average annual sales that are among the highest in
the consumable goods distribution industry. Our procurement and logistics
capabilities, combined with the scale of our distribution centers, have enhanced
our ability to provide customers with lower-cost merchandise and services that
improve customer acquisition and retention. Our larger, super-regional
distribution centers are able to conduct profitable operations at an extended
range, thereby increasing our potential market reach.
Efficient Centralized Purchasing: Category management decisions and vendor
negotiations for more than 60% of our merchandise procurement are conducted in
one location. Our customer support center is one of the largest buyers of
consumable goods in the U.S. Centralized purchasing generates economies of scale
because it enables us in one location to purchase goods more efficiently by
eliminating redundancy involved in purchasing through multiple locations, which
we believe increases our leverage with vendors. We believe that our centralized
purchasing capabilities are valuable to national retailers such as Kmart as well
as the smaller, independent retailers that make up our traditional customer base
because we offer greater convenience and lower cost.
Diverse Distribution Customer Base: We distribute to approximately 2,500
companies that operate almost 7,000 retail store locations under a wide variety
of formats across the U.S. Other than Kmart, no customer accounted for more than
2% of our fiscal 2000 net sales.
Successful Price Impact Retail Format: Our price impact supermarkets offer
name-brand and private label consumable goods at significantly lower prices than
conventional format supermarkets. We keep prices low by leveraging our existing
distribution and procurement capabilities and maintaining a lower cost structure
associated with operating these stores. We believe this format is profitable
because we offer a reduced number of product selections, focus on high-turnover
products and product categories, employ flow-through distribution methods which
reduce product storage and handling expense, and minimize store operating costs
through a warehouse-style operation.
Business Strategy
Our business strategy is to use our competitive strengths to achieve sales and
earnings growth in both our distribution segment and retail segment. As
principal elements of our strategy, we intend to:
Grow Sales to New Channel Retailers: We are rapidly moving beyond our historic
market position and have targeted three key growth sectors. First, we are
focusing on broad assortment/destination retailers, including supercenters and
discount stores, and have demonstrated significant penetration in this market as
evidenced by our distribution arrangements with Kmart and Target, Inc. Second,
we are concentrating on precision assortment/neighborhood retailers such as
convenience stores, drug stores and ethnic food stores. Our recent efforts in
these markets include distribution agreements with significant customers such as
Clark Retail Enterprises. Finally, we intend to focus on precision
assortment/destination retailers typified by large-store formats such as
cash-and-carries and price impact stores.
Grow Sales to Traditional Format Customers: Despite being the second largest
distributor in the $110 billion wholesale grocery industry, we account for
approximately 10% of this traditional core market, representing substantial room
for additional growth. Our repositioned distribution segment has already enabled
us to increase sales to existing and new customers, and we expect to be able to
continue this trend. We routinely conduct detailed market studies to identify
potential new customers in areas contiguous to existing customers, as we have
capacity in our high-volume distribution centers to serve additional local
independent stores or chains. Many potential customers are currently served by
local or regional wholesalers that do not have the efficiencies associated with
our procurement scale and do not provide the full scope of retail services that
we provide.
Expand Price Impact Format: We believe we have a substantial opportunity to grow
our retail segment's price impact supermarket operations. Because price impact
stores cost less to build, maintain and operate than conventional supermarkets,
we expect to be able to grow our price impact supermarket operations while
incurring fewer capital expenditures than operators of conventional retail
stores. We currently own and operate 30 price impact supermarkets, and we intend
to add up to 25 price impact supermarkets in 2001 through a combination of
construction of new stores, conversion of existing stores and acquisitions.
Leverage Efficiencies Created by Our Kmart Distribution Agreement: We believe
our new distribution agreement with Kmart and the resulting substantial increase
in our distribution volume will provide us with increased economic and
purchasing leverage that will benefit all of our existing and potential new
customers. We have established a "best practices" team with Kmart based in Troy,
Michigan that focuses on reducing costs and achieving greater efficiencies in
our product supply chain. In addition, we believe that the increased volume of
candy and tobacco that we will distribute as a result of the Kmart distribution
agreement will enable us to compete more effectively for convenience store
distribution business.
Continue to Improve Working Capital Management and Reduce Costs: We intend to
improve our working capital management primarily by improving inventory turns.
To do this, we will continue to improve vendor inventory management practices,
further develop our central procurement operations, improve ad forecasting with
our customers, effectively manage alternative channels of product delivery to
retail locations and invest in systems enhancements. In addition, to strengthen
our position as a low-cost supplier to our customers and increase our
profitability, we have instituted a "culture of thrift" among our employees and
developed initiatives to reduce our expenses through our Low Cost Pursuit
Program.
Financial results
We generated net sales of $14.4 billion, $14.3 billion and $14.7 billion for
2000, 1999 and 1998, respectively. The net loss for fiscal 2000 was $122 million
which was largely due to a $309 million pre-tax charge related to the strategic
plan. We generated net earnings before strategic plan charges and one-time
adjustments of $62 million, $43 million and $32 million for fiscal 2000, 1999
and 1998, respectively. Additionally, we generated net cash flows from
operations of $245 million, $175 million and $151 million for the same periods,
respectively, before payments related to the strategic plan. The combined
businesses generated $456 million, $411 million and $431 million of adjusted
EBITDA for fiscal 2000, 1999 and 1998, 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 other 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 (in millions):
2000 1999 1998
---- ---- ----
Net loss $(122) $ (45) $ (511)
Add back:
Taxes on loss (79) (18) (88)
Depreciation/amortization 169 158 180
Interest expense 175 165 162
Equity investment results 8 10 12
LIFO provision 3 11 8
EBITDA 154 281 (237)
--- --- ----
Add back non-cash strategic plan
charges and one-time items 129 92 594
--- --- ----
EBITDA excluding non-cash
strategic plan charges 283 373 357
Add back strategic plan charges and
one-time items ultimately requiring
requiring cash 173 38 74
--- --- ----
Adjusted EBITDA $ 456 $ 411 $ 431
===== ===== =====
Depreciation and amortization for 2000 includes $7 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.
Recent Developments
New Kmart Strategic Alliance
On February 7, 2001, we announced a ten-year strategic alliance under which we
will supply to Kmart substantially all of the food and consumable products in
all current and future Kmart and Kmart supercenter stores in the U.S. and the
Caribbean, estimated at $4.5 billion annual sales. This new supply arrangement
includes grocery, frozen, dairy, packaged meat and seafood, produce,
bakery/deli, fresh meat, cigarettes, tobacco and candy. This strategic alliance
may be further expanded to include an agreement on health and beauty products
and related categories. It is planned that certain aspects of our price impact
retail format could be incorporated into Kmart's merchandising programs, which
could extend our combined procurement leverage. In addition, Kmart will offer us
access to its strengths in general merchandise and seasonal goods. Kmart will
adopt our "BestYet" private label program and pay fees to us based on brand
management.
Yucaipa Investment
On February 7, 2001, we announced a $50 million investment in our common stock
by an affiliate of The Yucaipa Companies, an investment group controlled by Ron
Burkle. Through this investment, Yucaipa will acquire approximately 3.8 million
new shares, representing approximately 8.7% of our outstanding common stock.
Yucaipa has substantial experience in the retailing and distribution sectors,
including past investments in such food retailers as Food 4 Less Supermarkets,
Inc., Ralph's Grocery Company, Dominick's Finer Foods and Fred Meyer, Inc.
Yucaipa has also acquired a 12-month option to invest an additional $50 million
in our common stock at the then-current average market price. The Yucaipa
investment closed on March 22, 2001.
Our Distribution Segment
Our distribution segment sells food and non-food products to supermarkets,
convenience stores, supercenters, discount stores, limited assortment stores,
drug stores, specialty stores and other stores across the U.S. We also offer a
variety of retail support services to independently-owned and company-owned
retail stores. Net sales for our distribution segment were $11.2 billion for
fiscal 2000, excluding sales to our own retail stores. Sales to our own retail
stores totaled $1.8 billion during fiscal 2000.
In the course of implementing our strategic plan, since 1998 we have closed or
consolidated 12 of our distribution centers, which has increased volumes at our
remaining 31 distribution centers. As a result, we now have four distribution
divisions with net sales for 2001 expected to be over $1 billion each. We have a
total of 26 distribution divisions, some of which encompass multiple
distribution centers that have common management.
Customers Served: During 2000, our distribution segment served a wide variety of
retail operations located in 41 states. The segment serves customers operating
as conventional supermarkets (averaging approximately 23,000 total square feet),
superstores (supermarkets of 30,000 square feet or more), supercenters (a
combination of discount store and supermarket encompassing 110,000 square feet
or more), warehouse stores ("no-frills" operations of various large sizes),
combination stores (which have a high percentage of non-food offerings) and
convenience stores (generally under 4,000 square feet and offering only a
limited assortment of products).
Our top ten customers accounted for approximately 17% of our total net sales
during 2000. Kmart Corporation, our largest customer, represented approximately
10% of our total net sales in 2000, which we project will increase to a
significantly greater percentage of our total net sales in 2001. No other single
customer represented more than 2% of our fiscal 2000 net sales.
Pricing. The distribution segment uses market research and cost analyses as a
basis for pricing its products and services. In all operating units, retail
services are individually and competitively priced. We have three basic
marketing programs for our distribution business: FlexMate, FlexPro and
FlexStar.
The FlexMate marketing program prices product to customers at a quoted sell
price, a selling price established by us that may include a mark-up. The
FlexMate marketing program is available as an option in all operating units for
grocery, frozen and dairy products. In all operating units, a quoted sell price
method is used for meat, produce, bakery goods, delicatessen products, tobacco
supplies, general merchandise and health and beauty care products. A
distribution fee is usually added to the quoted sell price based upon the
product category. Under some marketing programs, freight charges are also added
to offset in whole or in part our cost of delivery services provided. Any cash
discounts, certain allowances and service income earned from vendors may be
retained by the distribution segment. This has generally been referred to as the
"traditional pricing" method.
Under FlexPro, grocery, frozen and dairy products are priced at their net
acquisition value which is generally comparable to the net cash price paid by
the distribution segment. Vendor allowances and service income are passed
through to the customer. Service charges are established using the principles of
activity-based pricing modified by marketing considerations. Activity-based
pricing attempts to identify our cost of providing certain services in
connection with the sale of products such as transportation, storage and
handling. Based on these identified costs, and with a view to market responses,
we establish charges for these activities designed to recover our cost and
provide us with a reasonable profit. These charges are then added to the net
product price. We also charge a fee for administrative services provided to
arrange and manage certain allowances and service income offered by vendors and
earned by the distribution segment and its customers.
FlexStar uses the same product pricing as FlexPro, but generally uses a less
complex presentation for distribution service charges. FlexStar averages the
charges across items and orders and provides the customer a more consistent
percentage base charge by department.
Kmart product pricing for grocery, frozen, dairy, produce, packaged meat, bakery
and deli products will follow the FlexPro/FlexStar pricing methodology, priced
at their net acquisition value, with vendor allowances passed through. Random
weight meat and deli products will be priced at our last received cost. Certain
other items will be priced at net acquisition value plus a negotiated fee. In
addition, Kmart will pay us a logistics fee equal to a percentage of purchases
based on volume, and a negotiated fixed annual procurement fee.
Fleming Brands. Fleming Brands are Fleming-owned brands that we offer
exclusively to our customers. Fleming Brands, which include BestYet, Nature's
Finest, SuperTru, Marquee, Rainbow and Exceptional Value, are positioned to
compete with national brand products and value brand products. As part of our
recent Kmart strategic alliance, Kmart has agreed to adopt our BestYet private
label program in its Kmart and Kmart supercenter stores.
Controlled labels are offered only in stores operating under specific banners
(which may or may not be controlled by us). Controlled labels are products to
which we have exclusive distribution rights to a particular customer or in a
specific region. We offer two controlled labels, IGA and Piggly Wiggly brands,
which are national quality brands.
Procurement. We have centralized the majority of our merchandise procurement.
This makes more efficient use of our procurement staff, improves buying
efficiency and reduces the cost of goods. Our customer support center near
Dallas is one of the largest buying locations of consumable goods in the U.S. We
believe that our centralized purchasing capabilities are valuable to national
retailers such as Kmart as well as the smaller, independent retailers that make
up our traditional customer base.
Retail Services. Retail services are marketed, priced and delivered separately
from other distribution operations. Our retail services marketing and sales
personnel look for opportunities to cross-sell additional retail services as
well as other distribution segment products to their customers. Through our
recently established retail account executive, or RAE, programs, we offer
consulting, strategic planning, administrative and information technology
services to customers to assist them in improving store performance. Incentive
compensation for our RAEs is based on the performance of the customers they
serve.
Facilities and Transportation. At the end of 2000 our distribution segment
operated 22 full-line distribution centers which are responsible for the
distribution of national brands and Fleming Brands, including groceries, meat,
dairy and delicatessen products, frozen foods, produce, bakery goods and a
variety of related food and non-food items. Six general merchandise and
specialty food operating units distribute health and beauty care items and other
items of general merchandise and specialty foods. Three warehouse facilities
serve convenience stores. All facilities are equipped with modern material
handling equipment for receiving, storing and shipping large quantities of
merchandise. Our distribution centers comprise approximately 19 million square
feet of warehouse space. Additionally, the distribution segment rents, on a
short-term basis, approximately 432,000 square feet of off-site temporary
storage space.
Transportation arrangements and operations vary by distribution center and may
vary by customer. Some customers prefer to handle product delivery themselves,
others prefer us to deliver products, and still others ask us to coordinate
delivery with a third party. Accordingly, many of our distribution centers
maintain a truck fleet to deliver products to customers, and several of our
distribution centers also engage dedicated contract carriers to deliver
products. We increase the utilization of our truck fleet by back-hauling
products from suppliers and others, thereby reducing the number of empty miles
traveled. To further increase our fleet utilization, we have made our truck
fleet available to other firms on a for-hire carriage basis.
Capital Invested in Customers. As part of our services to retailers, we provide
capital to certain customers by extending credit for inventory purchases, by
becoming primarily or secondarily liable for store leases, by leasing equipment
to retailers, by making secured loans and by making equity investments in
customers:
- Extension of Credit for Inventory Purchases. Customary trade credit
terms are usually the day following statement date for customers on
FlexPro or FlexStar and up to seven days for other marketing plan
customers.
- Store and Equipment Leases. We lease stores for sublease to certain
customers. At year-end 2000, we were the primary lessee of
approximately 600 retail store locations subleased to and operated by
customers. We also lease a substantial amount of equipment to
retailers. Our lease terms generally provide for a reasonable
profit.
- Secured Loans and Lease Guarantees. We make loans to customers
primarily for store expansions or improvements. These loans are
typically secured by inventory and store fixtures, bear interest at
rates above the prime rate, and are for terms of up to ten years.
Loans are approved by our business development committee following
written approval standards. We believe our loans to customers are
illiquid and would not be investment grade if rated. From time to
time, we also guarantee the lease obligations of certain of our
customers.
In making credit and investment decisions, we consider many factors, including
estimated return on capital, assumed risks and benefits (including our ability
to secure long-term supply contracts with these customers).
At year-end 2000, we had loans outstanding to customers totaling $110 million
($2 million of which were to retailers in which we also had an equity
investment). We also have investments in customers through direct financing
leases of real property and equipment, lease guarantees, operating leases or
credit extensions for inventory purchases. The present values of our obligations
under such direct financing leases and lease guarantees were $182 million and
$14 million, respectively, at year- end 2000. Our credit loss expense from
receivables as well as from investments in customers was $29 million in 2000,
which is comparable to prior years.
Franchising. We also license or grant franchises to retailers to use certain
registered trade names such as Piggly Wiggly, Food 4 Less (a registered service
mark and trademark that we are authorized to use pursuant to a restricted
license granted by Ralph's Grocery Company, a subsidiary of Kroger Co.), Sentry,
Super 1 Foods, Festival Foods, Jubilee Foods, Jamboree Foods, MEGAMARKET, Shop
`N Kart, American Family, Big Star, Big T, Buy for Less, County Pride Markets,
Red Fox, Shop N Bag, Super Duper, Super Foods, Super Thrift, Thriftway and Value
King.
We encourage independents and small chains to join one of the Fleming Banner
Groups to receive many of the same marketing and procurement efficiencies
available to larger chains. The Fleming Banner Groups are retail stores
operating under one of a number of banners representing either a conventional or
price impact retail format.
Cost-Reduction Initiatives. To strengthen our position as a low-cost supplier to
our retail customers and increase our profitability, we instituted a "culture of
thrift" among our employees and developed initiatives to reduce our expenses
through our Low Cost Pursuit Program. This program focuses on five areas:
merchandising and procurement, logistics and distribution, shared services and
finance, retail operations, and customer relations. In the merchandising and
procurement functions, we have lowered cost of goods and administrative costs by
centralizing most of our procurement functions, which were conducted in
individual distribution centers, into one national procurement center near
Dallas, which is now one of the largest procurement locations in the U.S. The
logistics and distribution functions have removed costs associated with
back-haul, in-bound transportation and other logistics functions. In addition,
we established a new shared services center in Oklahoma City where we have
centralized the management of our accounting, human resources, information
technology and other support services. Retail operations have implemented best
demonstrated practices to reduce labor costs and reduce store operating costs,
and certain administrative functions have also been centralized for retail
operations. Finally, customer relations has established a single point of
contact for each customer to eliminate many paper-based processes and improve
customer communications.
Our Retail Segment
Our retail segment operates 94 supermarkets under a variety of formats. Our
continuing chains include 30 price impact supermarkets under the Food 4 Less
banner, and ten additional supermarkets which we intend to convert to the price
impact format in 2001 and 2002. We also operate 44 supermarkets that are
adopting certain elements of the price impact format under the Rainbow Foods
banner. Price impact supermarkets offer deep-discount, everyday low prices in a
warehouse-style format. In addition, we operate ten limited assortment stores
under the Yes!Less banner, four of which we opened in 2001. Our limited
assortment stores offer a narrow selection of low-price, private label food and
other consumable goods, as well as general merchandise.
Price Impact Supermarkets. Our retail segment owns and operates 30 Food 4 Less
price impact supermarkets, of which 19 are located in Northern California, six
in the Salt Lake City, Utah area, four in the Phoenix, Arizona area and one in
Wisconsin. Of these 30 stores, 14 have opened since the beginning of 1999. These
stores offer deep-discount, everyday low prices well-below those offered by
conventional supermarkets and carry prices for grocery products which are also
generally lower than supercenters. Our price impact supermarkets are also known
for their quality meat and produce offerings. These supermarkets average 55,000
square feet in size, generate average weekly sales of more than $450,000.
Our price impact supermarkets serve price-sensitive middle-income consumers that
may have larger-than-average families. These stores have a wider trade area than
conventional supermarkets yet are generally more convenient to shop than
supercenters.
Our price impact supermarkets offer name-brand food and consumable goods at
significantly lower prices than conventional format retail store operators
because of the many low-cost features of our stores. These features include:
offering a reduced number of product selections, focusing on popular, name-brand
products and product categories; employing flow-through distribution methods
which reduce product storage and handling expense; and minimizing store
operating costs by presenting a warehouse-style operation.
These stores do not cost as much as conventional stores to construct and
maintain, as price impact stores typically feature cement floors, cinder block
walls, exposed ceilings and walk-in freezers and coolers which combine the
typically separate storage and display areas. In addition, price impact stores
produce lower operating expenses, primarily as a result of less labor content
due to pallet or case-loading display racks, fewer product categories offered
due to focusing on the more popular items, self bagging, and elimination of
on-site service departments such as a bakery or butcher shop.
We believe price-sensitive consumers are underserved on a nationwide basis. We
believe we have a substantial opportunity to grow our retail segment's price
impact supermarket operations. Our national distribution presence can adequately
support the continued growth of our price impact retail operations. Because
price impact stores cost less to build and maintain than conventional
supermarkets, we expect to be able to grow our price impact supermarket
operations while incurring fewer capital expenditures. The success of our price
impact stores is based on an underserved trade area and does not require
significant market share. Consequently, we believe the typical advertising and
marketing expenditure requirements do not apply.
In 2001, we intend to convert seven of our conventional format supermarkets
located in the greater Milwaukee, Wisconsin area to the price impact format, and
an additional three in early 2002. We also plan to open an additional 18 price
impact stores in 2001 through new store construction and acquisitions. New price
impact stores that our retail segment opens may be opened under trade names
other than Food 4 Less.
Conventional Supermarkets with Price Impact Elements. We also operate 44 Rainbow
Foods supermarkets, with 42 stores in Minnesota and two in Wisconsin. Our
Rainbow Foods stores are conventional supermarkets which we are beginning the
process of retrofitting with an increasing degree of price impact elements. As
part of this repositioning process, labor-intensive service departments will be
reduced or eliminated, and some of the merchandising strategies of our price
impact format will be implemented. Purchasing decisions will be coordinated with
our price impact stores, which should also help to increase operating margins.
We expect that the repositioning of the Rainbow Foods chain will be complete by
the end of 2002.
Limited Assortment Stores. In 2000, we began to develop our limited assortment
retail concept operating under the Yes!Less trade name, operating stores
averaging 12,000 to 15,000 square feet of selling space. Our Yes!Less concept is
designed to appeal to a needs-based consumer, primarily with low price private
label food and other consumables and an attractive selection of general
merchandise products at opening price points. With four stores opened in 2001,
there are currently ten Yes!Less retail stores open, nine in Texas and one in
Louisiana. We are currently evaluating the concept with a view toward
appropriate expansion.
Divestiture of Conventional Format Supermarkets. In addition to the 94
supermarkets described above, we also own and operate 86 conventional format
supermarkets. As part of our strategic repositioning, we decided to sell or
close these 86 conventional format supermarkets in order to focus resources on
growing our price impact stores and improving financial results.
Since 1998, we have divested 152 conventional supermarkets and we are in the
process of selling or closing the remaining 86 stores. These conventional format
supermarkets are operating under the Baker's, ABCO Desert Market, Sentry and
other trade names, and are in various stages of divestiture.
In February 2001, we sold the assets of 11 ABCO Desert Market stores located in
Arizona to Safeway, Inc. In addition, we currently have an agreement to sell the
assets of a 16-store chain of Baker's Supermarkets located in the Omaha,
Nebraska area to Kroger Co. This agreement is subject to customary conditions to
closing. Of the remaining 70 stores to be divested, we are in various stages of
discussions with numerous parties with respect to the sale of the majority of
these stores, and we currently expect that all of these stores will either be
sold or closed by the end of 2001. We expect to retain a substantial level of
the distribution business for the majority of stores that are sold.
Products
We supply a full line of national brands and Fleming Brands, including
groceries, meat, dairy and delicatessen products, frozen foods, produce, bakery
goods and a variety of general merchandise, health and beauty care and other
related items. During 2000, the average number of stock keeping units, or SKUs,
carried in full-line distribution centers was approximately 15,000. General
merchandise and specialty food operating units carried an average of
approximately 17,500 SKUs. Product sales account for over 97% of our
consolidated sales. During 2000, our product mix as a percentage of product
sales was approximately 54% groceries, 39% perishables and 7% general
merchandise.
Suppliers
We purchase our products from numerous vendors and growers. As a large customer,
we are able to secure favorable terms and volume discounts on many of our
purchases, leading to lower unit costs. We purchase products from a diverse
group of suppliers and believe we have adequate sources of supply for
substantially all of our products.
Competition
The distribution segment operates in a competitive market. Our primary
competitors are regional and local food distributors, national chains which
perform their own distribution and national food distributors. The principal
factors on which we compete include price, quality and assortment of product
lines, schedules and reliability of delivery and the range and quality of
customer services.
The primary competitors of our retail segment supermarkets and distribution
segment customers are national, regional and local grocery chains, as well as
supercenters, independent supermarkets, convenience stores, drug stores,
restaurants and fast food outlets. Principal competitive factors include price,
quality and assortment, store location and format, sales promotions,
advertising, availability of parking, hours of operation and store appeal.
Intellectual Property
We or our subsidiaries have many trade names registered at either the federal or
state level or a combination of both, such as Piggly Wiggly, Sentry, Super 1
Foods, Festival Foods, Jubilee Foods, Jamboree Foods, MEGAMARKET, Shop `N Kart,
American Family, Big Star, Big T, Buy for Less, County Pride Markets, Red Fox,
Shop N Bag, Super Duper, Super Foods, Super Thrift, Thriftway and Value King. We
have applied for trademark registration for the name Fresh 4 Less.
We license the Food 4 Less service mark and trade name from Ralph's Grocery
Company, a subsidiary of Kroger Co., and have the exclusive right to use and
sublicense the name in certain areas of California. We also have the exclusive
license to use and sublicense the name in all other states, excluding certain
areas of Southern California and certain areas in various other states
previously licensed to others by Ralph's or its predecessors. Additionally,
should the rights to such a previously licensed area terminate, we would
automatically obtain the exclusive license for that area. The Food 4 Less
license agreement generally provides for protected trade area status for five
years after the date that we, our franchisees or Ralph's commit to entering a
new market area under the Food 4 Less banner. However, we are not prohibited by
the licensing agreement from opening stores under a different trade name in any
of these areas.
Employees
At December 30, 2000, we had 29,567 full-time and part-time employees, with
9,667 employed by the distribution segment, 17,829 by the retail segment and
2,071 employed in shared services, customer support and other functions.
Approximately half of our employees are covered by collective bargaining
agreements with the International Brotherhood of Teamsters; Chauffeurs,
Warehousemen and Helpers of America; the United Food and Commercial Workers; the
International Longshoremen's and Warehousemen's Union; the Retail, Wholesale and
Department Store Union; and the International Union of Operating Engineers. Most
of these agreements expire at various times throughout the next five years. We
consider our employee relations in general to be satisfactory.
RISK FACTORS
All statements other than statements of historical facts included in this report
including, without limitation, statements under the captions "Risk Factors,"
"Management's Discussion and Analysis" and "Business," regarding our financial
position, business strategy and plans and objectives of our management for
future operations, constitute forward-looking statements. Although we believe
that the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to have
been correct. Cautionary statements describing important factors that could
cause actual results to differ materially from our expectations are disclosed
hereunder and elsewhere in this report. All subsequent written and oral
forward-looking statements attributable to Fleming or persons acting on its
behalf are expressly qualified in their entirety by such cautionary statements.
WE HAVE A SUBSTANTIAL AMOUNT OF DEBT AND DEBT SERVICE OBLIGATIONS, WHICH COULD
ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We have a substantial amount of debt outstanding which could:
- make it more difficult to satisfy our long-term debt obligations;
- require us to dedicate a substantial portion of our cash flow to
payments on our debt;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital
expenditures and other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
- limit, along with the financial and other restrictive covenants in
our debt, among other things, our ability to borrow additional funds.
If we fail to comply with those covenants, it could result in an
event of default which, if not cured or waived, could have a material
adverse effect on our financial condition.
We and our subsidiaries may be able to incur substantial additional debt in the
future, including secured debt. The terms of our existing indebtedness do not
fully prohibit us or our subsidiaries from doing so. If new debt is added to our
and our subsidiaries' current debt levels, the related risks that we and they
now face could intensify.
Our ability to make payments on and to refinance our debt will depend on our
financial and operating performance, which may fluctuate significantly from
quarter to quarter and is subject to prevailing economic conditions and to
financial, business and other factors beyond our control.
We cannot assure you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our credit
facility in an amount sufficient to enable us to pay our debt or to fund our
other liquidity needs. We may need to refinance all or a portion of our debt on
or before maturity. We cannot assure you that we will be able to refinance any
of our debt on commercially reasonable terms or at all.
WE NOW DEPEND ON KMART FOR A SUBSTANTIAL PORTION OF OUR BUSINESS. IF WE ARE
UNABLE TO REALIZE ANTICIPATED COST SAVINGS RESULTING FROM THE ADDITIONAL VOLUME
REPRESENTED BY OUR AGREEMENT, IT COULD HARM OUR FINANCIAL CONDITION AND COULD
JEOPARDIZE OUR ABILITY TO FULFILL OUR LONG- TERM DEBT OBLIGATIONS.
Kmart is our largest customer, accounting for approximately 10% of our
consolidated net sales in 2000. On February 7, 2001, we announced a ten- year
agreement with Kmart Corporation, pursuant to which we agreed to supply
substantially all of the food and consumable products in all current and future
Kmart and Kmart supercenter stores in the U.S. and the Caribbean. As a result of
this agreement, we currently anticipate that Kmart will account for a
significantly greater percentage of our net sales in 2001. Accordingly, we now
depend on Kmart for a substantial portion of our business.
We will be required to commit substantial capital and management resources in
order to perform our obligations under the Kmart agreement. If we or Kmart are
unable to successfully fulfill our respective obligations under the agreement,
it will harm our financial condition and could jeopardize our ability to fulfill
our long-term debt obligations. More specifically, the benefits that we
anticipate receiving from the Kmart agreement depend on Kmart's achievement of
certain sales projections. If Kmart fails to meet these sales projections, the
benefits that we will receive as a result of the agreement will decrease. Kmart
can also elect to terminate the agreement if we materially breach our
obligations under the agreement, if we experience certain types of changes of
control or if the volume of Kmart's purchases under the agreement declines by
certain amounts. Finally, if we are unable to capture anticipated cost savings
resulting from our increased purchasing power due to the Kmart agreement, it
could adversely affect our results of operations and financial condition.
OUR SENIOR NOTES, OUR CREDIT FACILITY AND OUR OTHER EXISTING INDEBTEDNESS
CONTAIN PROVISIONS THAT COULD MATERIALLY RESTRICT OUR BUSINESS.
Our senior notes, our credit facility and our other existing indebtedness
contain a number of significant covenants that, among other things, restrict our
ability to:
- dispose of assets;
- incur additional debt;
- guarantee third-party obligations;
- repay other debt or amend other debt instruments;
- create liens on assets;
- enter into capital leases;
- make investments, loans or advances;
- make acquisitions or engage in mergers or consolidations;
- make capital expenditures; and
- engage in certain transactions with our subsidiaries and affiliates.
In addition, under our credit facility, we are required to meet a number of
financial ratios and tests.
Our ability to comply with these covenants may be affected by events beyond our
control. If we breach any of these covenants or restrictions, it could result in
an event of default under our credit facility or the documents governing our
other existing indebtedness, which would permit our lenders to declare all
amounts borrowed thereunder to be due and payable, together with accrued and
unpaid interest, and our senior lenders could terminate their commitments to
make further extensions of credit under our credit facility. If we were unable
to repay debt to our secured lenders, they could proceed against the collateral
securing the debt.
IF THE CUSTOMERS TO WHOM WE LEND MONEY OR FOR WHOM WE GUARANTEE STORE LEASE
OBLIGATIONS FAIL TO REPAY US, IT COULD HARM OUR FINANCIAL CONDITION.
We provide subleases, extend loans to and make investments in many of our retail
store customers, often in conjunction with the establishment of long-term supply
contracts. Our loans to our customers are generally not investment grade and,
along with our equity investments in our customers, are highly illiquid. We also
make investments in our customers through direct financing leases, lease
guarantees, operating leases, credit extensions for inventory purchases and the
recourse portion of notes sold evidencing such loans. We also invest in real
estate to assure market access or to secure supply points. Although we have
strict credit policies and apply cost/benefit analyses to these investment
decisions, we face the risk that credit losses from existing or future
investments or commitments could adversely affect our financial condition.
VARIOUS CHANGES IN THE DISTRIBUTION AND RETAIL MARKETS IN WHICH WE OPERATE HAVE
LED AND MAY CONTINUE TO LEAD TO REDUCED SALES AND MARGINS AND LOWER
PROFITABILITY FOR OUR CUSTOMERS AND, CONSEQUENTLY, FOR US.
The distribution and retail markets in which we operate are undergoing
accelerated change as distributors and retailers seek to lower costs and provide
additional services in an increasingly competitive environment. An example of
this is the growing trend of large self-distributing chains consolidating to
reduce costs and gain efficiencies. Eating away from home and alternative format
food stores, such as warehouse stores and supercenters, have taken market share
from traditional supermarket operators, including independent grocers, many of
whom are our customers. Vendors, seeking to ensure that more of their
promotional fees and allowances are used by retailers to increase sales volume,
increasingly direct promotional dollars to large self-distributing chains. We
believe that these changes have led to reduced sales, reduced margins and lower
profitability among many of our customers and, consequently, for us. If the
strategies we have developed in response to these changing market conditions are
not successful, it could harm our financial condition and business prospects.
CONSUMABLE GOODS DISTRIBUTION IS A LOW-MARGIN BUSINESS AND IS SENSITIVE TO
ECONOMIC CONDITIONS.
We derive most of our revenues from the consumable goods distribution industry.
This industry is characterized by a high volume of sales with relatively low
profit margins. A significant portion of our sales are at prices that are based
on product cost plus a percentage markup. Consequently, our results of
operations may be negatively impacted when the price of consumable goods go
down, even though our percentage markup may remain constant. The consumable
goods industry is also sensitive to national and regional economic conditions,
and the demand for our consumable goods has been adversely affected from time to
time by economic downturns. Additionally, our distribution business is sensitive
to increases in fuel and other transportation-related costs.
WE FACE COMPETITION IN BOTH OUR DISTRIBUTION AND RETAIL MARKETS, AND IF WE ARE
UNABLE TO COMPETE EFFECTIVELY IN THESE MARKETS, IT COULD HARM OUR BUSINESS.
Our distribution segment operates in a competitive market. We face competition
from local, regional and national food distributors on the basis of price,
quality and assortment, schedules and reliability of deliveries and the range
and quality of services provided. We also compete with retail supermarket chains
that self-distribute, purchasing directly from vendors and distributing products
to their supermarkets for sale to the consumer. Consolidation of
self-distributing chains may produce even stronger competition for our
distribution segment.
Our retail segment competes with other food outlets on the basis of price,
quality and assortment, store location and format, sales promotions,
advertising, availability of parking, hours of operation and store appeal.
Traditional mass merchandisers have gained a growing foothold in food marketing
and distribution with alternative store formats, such as warehouse stores and
supercenters, which depend on concentrated buying power and low-cost
distribution technology. We expect that stores with alternative formats will
continue to increase their market share in the future. Retail consolidations not
only produce stronger competition for our retail segment, but may also result in
declining sales in our distribution segment if our existing customers are
acquired by self-distributing chains.
Some of our competitors have greater financial and other resources than we do.
In addition, consolidation in the industry, heightened competition among our
vendors, new entrants and trends toward vertical integration could create
additional competitive pressures that reduce our margins and adversely affect
our business. If we fail to successfully respond to these competitive pressures
or to implement our strategies effectively, it could have a material adverse
effect on our financial condition and prospects.
BECAUSE WE OWN AND OPERATE REAL ESTATE, WE FACE THE RISK OF BEING HELD LIABLE
FOR ENVIRONMENTAL DAMAGES THAT MAY OCCUR ON OUR PROPERTIES.
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. Although we have established reserves that we
believe will be sufficient to satisfy the anticipated costs of all known
remediation requirements, we cannot assure you that these reserves will be
sufficient.
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 CURRENTLY SUBJECT TO A NUMBER OF MATERIAL LITIGATION PROCEEDINGS. IF ANY
OF THESE PROCEEDINGS IS RESOLVED AGAINST US, IT COULD HARM OUR FINANCIAL
CONDITION AND BUSINESS PROSPECTS.
We are currently subject to a number of material litigation proceedings, the
costs and other effects of which are impossible to predict with any certainty.
An unfavorable outcome in any one of these cases could have a material adverse
effect on our financial condition and prospects. From time to time, we are also
party to or threatened with litigation in which claims against us are made, or
are threatened to be made, by present and former customers, sometimes in
situations involving financially troubled or failed customers. We are a party to
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 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. The current environment for
litigation involving food distributors may increase the risk of litigation being
commenced against us. We would incur the costs of defending any such litigation
whether or not any claim had merit. For more information regarding the legal
proceedings to which we are currently subject, see Item 3. Legal Proceedings.
BECAUSE WE SELL FOOD AND OTHER PRODUCTS, WE ARE SUBJECT TO PRODUCT LIABILITY
CLAIMS.
Like any other seller of food and other products, we face the risk of exposure
to product liability claims in the event that people who purchase products we
sell become injured or experience illness as a result. We believe that we have
sufficient primary and excess umbrella liability insurance to protect us against
any product liability claims that may arise. However, this insurance may not
continue to be available at a reasonable cost, or, even if it is available, it
may not be adequate to cover our liabilities. We generally seek contractual
indemnification and insurance coverage from parties supplying our products, but
this indemnification or insurance coverage is limited, as a practical matter, to
the creditworthiness of the indemnifying party and the policy limits of any
insurance provided by suppliers. If we do not have adequate insurance or
contractual indemnification to cover our liabilities, product liability claims
relating to defective food and other products could materially reduce our
earnings.
WE CANNOT ASSURE YOU THAT WE WILL BE SUCCESSFUL IN INTEGRATING NEWLY- ACQUIRED
STORES AND DISTRIBUTION CENTERS. IF WE DO NOT ACHIEVE THE BENEFITS WE EXPECT
FROM ANY OF THESE ACQUISITIONS, IT COULD HARM OUR BUSINESS AND FINANCIAL
CONDITION.
Part of our growth strategy for our retail segment involves selective strategic
acquisitions of stores operated by others. In addition, our distribution segment
intends to seek strategic acquisitions of other distribution centers on a
limited basis. Achieving the benefits of these acquisitions will depend in part
on our ability to integrate those businesses with our business in an efficient
manner. We cannot assure you that this will happen or that it will happen in an
efficient manner. Our consolidation of operations following these acquisitions
may require substantial attention from our management. The diversion of
management attention and any difficulties encountered in the transition and
integration process could have a material adverse effect on our ability to
achieve expected net sales, operating expenses and operating results for the
acquired business. We cannot assure you that we will realize any of the
anticipated benefits of any acquisition, and if we fail to realize these
anticipated benefits, our operating performance could suffer.
WE OPERATE IN A COMPETITIVE LABOR MARKET, AND THE MAJORITY OF OUR EMPLOYEES ARE
COVERED BY COLLECTIVE BARGAINING AGREEMENTS.
Our continued success will depend on our ability to attract and retain qualified
personnel in both our distribution and retail segments. We compete with other
businesses in our markets with respect to attracting and retaining qualified
employees. The labor market is currently tight and we expect the tight labor
market to continue. A shortage of qualified employees would require us to
enhance our wage and benefits packages in order to compete effectively in the
hiring and retention of qualified employees or to hire more expensive temporary
employees. In addition, about half of our employees are covered by collective
bargaining agreements, most of which expire at various times over the course of
the next five years. We cannot assure you that we will be able to renew our
collective bargaining agreements, that our labor costs will not increase, that
we will be able to recover any increases through increased prices charged to
customers or that we will not suffer business interruptions as a result of
strikes or other work stoppages. If we fail to attract and retain qualified
employees, to control our labor costs, or to recover any increased labor costs
through increased prices charged to our customers, it could harm our business.
OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE.
The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations;
- new products or services offered by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the distribution and retail industries;
- our announcement of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- adverse or unfavorable publicity regarding us or our services;
- additions or departures of key personnel; and
- sales of common stock;
In addition, the stock markets in general have experienced extreme price and
volume volatility and a cumulative decline in recent months. Such volatility and
decline have affected many companies irrespective of or disproportionately to
the operating performance of these companies. These broad market and industry
factors may materially and adversely further affect the market price of our
common stock, regardless of our actual operating performance.
ITEM 2. PROPERTIES
The following table sets forth facilities information with respect to our
distribution segment:
Approximate
Location Square Feet Owned or Leased
-------- ----------- ---------------
(in thousands)
Full-line Distribution Centers:
Ewa Beach, HI 361 Leased
Fresno, CA 828 Owned/Leased
Garland, TX 1,190 Owned
Geneva, AL 643 Leased
Kansas City, KS 1,136 Leased
La Crosse, WI 907 Owned
Lafayette, LA 437 Owned
Lincoln, NE 515 Leased
Lubbock, TX 763 Owned/Leased
Massillon, OH 874 Owned
Memphis, TN 1,071 Owned/Leased
Miami, FL 764 Owned
Milwaukee, WI 600 Owned
Minneapolis, MN 480 Owned
Nashville, TN 941 Leased
North East, MD 591 Owned/Leased
Oklahoma City, OK 529 Leased
Phoenix, AZ 1,642 Owned/Leased
Sacramento, CA 787 Owned/Leased
Salt Lake City, UT 555 Owned/Leased
Superior, WI 371 Owned
Warsaw, NC 672 Owned/Leased
------
Total 16,657
General Merchandise Distribution Centers:
Dallas, TX 262 Owned/Leased
King of Prussia, PA 377 Leased
La Crosse, WI 163 Owned
Memphis, TN 495 Owned/Leased
Sacramento, CA 438 Leased
Topeka, KS 223 Leased
------
Total 1,958
Convenience Store Distribution Centers:
Altoona, PA 172 Owned
Marshfield, WI 157 Owned
Romeoville, IL 124 Leased
------
Total 453
Temporary Storage:
Outside storage facilities - typically
rented on a short-term basis 432
------
Total for distribution 19,500
======
In addition to the above, we have ten closed facilities in various states and we
are actively marketing them.
Our retail segment operates 94 supermarkets in a variety of formats in
California, Utah, Arizona, Wisconsin, Minnesota, Texas and Louisiana. Our
continuing chains include 30 price impact supermarkets, ten supermarkets to be
converted to the price impact format, ten limited assortment stores and 44
conventional supermarkets which are adopting certain elements of the price
impact format. In addition, we are in the process of selling or closing an
additional 86 conventional supermarkets that our retail segment owns and
operates in Nebraska, Arizona and Wisconsin. For more information, see the
subsection "Our Retail Segment."
Our shared service center office is located in Oklahoma City, Oklahoma. The
shared service center occupies leased office space totaling approximately
232,000 square feet. Our customer support center near Dallas, Texas occupies
leased office space totaling approximately 136,000 square feet.
We own and lease other significant assets, such as inventories, fixtures and
equipment and capital leases.
ITEM 3. LEGAL PROCEEDINGS
The following describes various pending legal proceedings to which we are
subject. For additional information see "Litigation Charges" and "Contingencies"
in the notes to the consolidated financial statements which are included in Item
8 of this report.
(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
litigation, 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 litigation 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, and briefing
is presently under way in the Court of Appeals for the Tenth Circuit. 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 have 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.
Based upon some preliminary assumptions, plaintiffs' economic experts in the
noteholder case have estimated "baseline" damages to be approximately $10
million and pre-judgment interest of approximately $3 million.
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 against the 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 current and former customers of the
company (Don's United Super, et al. v. Fleming, et al.). The 18 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 suit
(Coddington Enterprises, Inc., et al. v. Fleming, et al.). Currently, 16
plaintiffs are asserting claims in the Coddington suit, all but one of which
have arbitration agreements with us. The plaintiffs assert claims virtually
identical to those set forth in the Don's suit, 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 suit.
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 district court's denial of arbitration to the Eighth Circuit
Court of Appeals. The two plaintiffs who were ordered to arbitration have filed
motions asking the district court to reconsider the arbitration ruling.
Two other cases had been filed before the Don's case in the same district 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 Eastern 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 Western District of Missouri for
coordinated or consolidated pre-trial proceedings.
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.
On March 2, 2001, the court ordered the parties in the Missouri cases, the
Storehouse Markets cases and the Welsh case to mediate the dispute within 45
days of the order.
(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 current and former customers of the company (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.
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 permission to appeal
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 related Missouri cases
(described above) transferred to the Western District of Missouri for
coordinated or consolidated pre-trial proceedings.
Damages have not been quantified by the plaintiffs; however, we anticipate that
substantial damages will be claimed. 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.
On March 2, 2001, the court ordered the parties in the Missouri cases, the
Storehouse Markets cases and the Welsh case to mediate the dispute within 45
days of the order.
(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 Missouri cases, the
Storehouse Markets cases and the Welsh case to mediate the dispute within 45
days of the order.
(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 herein, we do not
believe that any such claim will have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers as of March 1, 2001:
Year
First Became
Name (age) Present Position An Officer
---------- ---------------- ----------
Mark S. Hansen (46) Chairman and 1998
Chief Executive Officer
E. Stephen Davis (60) Executive Vice President and 1981
President, Wholesale
Dennis C. Lucas (53) Executive Vice President and 1999
President, Retail
William H. Marquard (41) Executive Vice President, 1999
Business Development and
Chief Knowledge Officer
Scott M. Northcutt (39) Executive Vice President, 1999
Human Resources
Neal J. Rider (39) Executive Vice President 2000
and Chief Financial Officer
Ronald C. Anderson (58) Senior Vice President, 2000
Central Operations
John F. Baldi (48) Senior Vice President, 2000
Convenience Store and
E-Commerce Fulfillment
Mark K. Batenic (52) Senior Vice President, 1994
Northern Operations
Michael J. Carey (54) Senior Vice President, 2000
Western Operations
Charles L. Hall (50) Senior Vice President, 1999
Real Estate and Store
Development
Carlos M. Hernandez (46) Senior Vice President, 2001
General Counsel and Secretary
Leonard Kaye (62) Senior Vice President, 2000
Eastern Operations
No family relationship exists among any of the executive officers listed above.
Executive officers are elected by the Board of Directors for a term of one year
beginning with the annual meeting of shareholders held in April or May of each
year.
Mark S. Hansen joined us as Chairman and Chief Executive Officer in November
1998. Prior to joining us, Mr. Hansen served as President and Chief Executive
Officer of SAM'S Club, a division of Wal-Mart Stores, Inc., from 1997 through
1998. Prior to joining Wal-Mart, Mr. Hansen served in multiple capacities at
PETsMart Inc., a retailer of pet food, pet supplies and related products,
including as President and Chief Executive Officer from 1989 to 1997. Prior to
1989, Mr. Hansen served in various management capacities in the supermarket
industry. He serves as an executive advisory board member of Swander Pace
Capital and is a director of Applebee's Restaurants.
E. Stephen Davis joined us in 1960 and has served as our Executive Vice
President and President, Wholesale since February 2000. Prior to that, Mr. Davis
has served us in various positions, including Executive Vice President, Food
Distribution from 1998 to February 2000, Executive Vice President, Operations
from 1997 to 1998, Executive Vice President, Food Operations from 1996 to 1997
and Executive Vice President, Distribution from 1995 to 1996.
Dennis C. Lucas joined us as Executive Vice President and President, Retail in
July 1999. From 1992 until joining us, Mr. Lucas served in multiple capacities
at Albertson's, including Regional President from 1998 to July 1999, Senior Vice
President and Regional Manager from 1996 to 1998, and various Vice President
positions from 1992 to 1996.
William H. Marquard joined us as Executive Vice President, Business Development
and Chief Knowledge Officer in June 1999. From 1991 until joining us, Mr.
Marquard was a partner in the consulting practice of Ernst & Young.
Scott M. Northcutt joined us as Senior Vice President, Human Resources in
January 1999 and he became Executive Vice President, Human Resources in February
2000. From 1997 until joining us, Mr. Northcutt was Vice President-People Group
at SAM's Club, a division of Wal-Mart Stores, Inc. From 1988 to 1995, he served
as Vice President-Human Resources and from 1995 to 1996, he served as Vice
President-Store Operations at Dollar General Corporation.
Neal J. Rider joined us as Executive Vice President and Chief Financial Officer
in January 2000. From 1999 until joining us, Mr. Rider was Executive Vice
President and Chief Financial Officer at Regal Cinemas, Inc. From 1980 to 1999,
Mr. Rider served in multiple capacities at American Stores Company, including
Treasurer and Controller responsibilities from 1994 to 1997 before becoming
Chief Financial Officer in 1998.
Ronald C. Anderson joined us in 1995 and has served as our Senior Vice
President, Central Operations since June 2000. Prior to that, Mr. Anderson
served as our Senior Vice President, Operating Group President from 1998 to June
2000, and our Senior Vice President, General Merchandise from 1995 to 1998.
John F. Baldi joined us as Senior Vice President, Convenience Stores and
E-Commerce Fulfillment in August 2000. From February 1996 until joining us, Mr.
Baldi was Division President at Alliant Foodservice.
Mark K. Batenic joined us in 1973 and has served as our as Senior Vice
President, Northern Operations since December 2000. Prior to that, Mr. Batenic
has served us in various Senior Vice President positions since 1994, including
Senior Vice President, Sales and Business Development Food Distribution, Senior
Vice President, Customer Management, and Senior Vice President, Operations.
Michael J. Carey joined us in 1983 and has served as our Senior Vice President,
Western Operations since June 2000. Prior to that, Mr. Carey served as our
Operating Group President from 1998 to June 2000, our President, LaCrosse
Division from 1996 to 1998, and our Director of IGA Marketing from 1994 to 1996.
Charles L. Hall joined us as Senior Vice President, Real Estate and Store
Development in June 1999. From 1998 until joining us, he was Senior Vice
President-Real Estate and Store Development at Eagle Hardware and Garden, Inc.
From 1992 to 1998, he served as Vice President of Real Estate Development at
PETsMART, Inc.
Carlos M. Hernandez joined us in March 2000 as Associate General Counsel and
Assistant Secretary and has served as our Senior Vice President, General Counsel
and Secretary since February 2001. Prior to joining us, Mr. Hernandez was
employed in various capacities at Armco Inc. from 1981 to 1999, and then as an
attorney at AK Steel Holding Corporation from October to December 1999.
Leonard Kaye joined us in 1963 and has served as our Senior Vice President,
Eastern Operations since June 2000. Prior to that, Mr. Kaye served us in various
positions, including Operating Group President, President, Memphis Division and
Operations Manager.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Fleming common stock is traded on the New York, Chicago and Pacific stock
exchanges. The ticker symbol is "FLM". As of March 9, 2001, 39.8 million
outstanding shares were owned by 14,900 shareholders of record and approximately
8,000 beneficial owners whose shares are held in street name by brokerage firms
and financial institutions. According to the New York Stock Exchange Composite
Transactions tables, the high and low prices of Fleming common stock during each
quarter of the past two years are shown below.
2000 1999
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
First $ 16.25 $ 8.69 $ 11.88 $ 7.19
Second 16.56 12.75 12.00 8.50
Third 17.63 12.38 12.50 9.81
Fourth 15.06 10.31 13.44 9.25
Cash dividends on Fleming common stock have been paid for 84 consecutive years
Dividends are generally declared on a quarterly basis with holders as of the
record date being entitled to receive the cash dividend on the payment date.
Record and payment dates for 2001 are as shown below:
Record Dates: Payment Dates:
------------- --------------
February 20 March 9
May 18 June 8
August 20 September 10
November 20 December 10
Cash dividends of $.02 per share were paid on or near each of the above four
payment dates in 2000 and 1999.
ITEM 6. SELECTED FINANCIAL DATA
2000 (a) 1999 (b) 1998 (c) 1997 (d) 1996 (e)
-------- -------- -------- -------- --------
(In millions, except per share amounts)
Net sales $ 14,444 $ 14,272 $ 14,678 $ 14,966 $ 16,051
Earnings (loss) before
extraordinary charge (122) (45) (511) 39 27
Net earnings (loss) (122) (45) (511) 25 27
Diluted net earnings (loss)
per common share before
extraordinary charge (3.15) (1.17) (13.48) 1.02 .71
Diluted net earnings (loss)
per share (3.15) (1.17) (13.48) .67 .71
Total assets 3,403 3,573 3,491 3,924 4,055
Long-term debt and
capital leases 1,610 1,602 1,503 1,494 1,453
Cash dividends declared
per common share .08 .08 .08 .08 .36
See Item 3. Legal Proceedings, notes to consolidated financial statements in
Item 8., and the financial review included in Item 7.
(a) The results in 2000 reflected an impairment/restructuring charge with
related costs totaling $309 million ($183 million after-tax) relating to
the strategic plan. 2000 also reflected one-time items ($10 million charge
related primarily to asset impairment on retail stores, income of $2
million relating to litigation settlements, and $9 million in gains from
the sale of distribution facilities) netting to less than $1 million of
income ($1 million loss after-tax).
(b) The results in 1999 reflect an impairment/restructuring charge with related
costs totaling $137 million ($92 million after-tax) related to the
strategic plan. 1999 also reflected one-time items ($31 million charge to
close 10 conventional retail stores, income of $22 million from
extinguishing a portion of the self-insured workers' compensation
liability, interest income of $9 million related to refunds in federal
income taxes from prior years, and $6 million in gains from the sale of
distribution facilities) netting to $6 million of income ($3 million
after-tax).
(c) The results in 1998 reflect an impairment/restructuring charge with related
costs totaling $668 million ($543 million after-tax) related to the
strategic plan.
(d) The results in 1997 reflect a charge of $19 million ($9 million after-tax)
related to the settlement of a lawsuit against Fleming. 1997 also reflected
an extraordinary charge of $22 million ($13 million after- tax) related to
the recapitalization program.
(e) Results in 1996 include a charge of $20 million ($10 million after- tax)
related to the settlement of two related lawsuits against Fleming.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
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 strategic plan consisted of the following four major initiatives:
- Consolidate distribution operations. The strategic plan initially included
closing eleven operating units (El Paso, TX; Portland, OR; Houston, TX;
Huntingdon, PA; Laurens, IA; Johnson City, TN; Sikeston, MO; San Antonio,
TX; Buffalo, NY; and two other operating units scheduled for closure, but
not closed due to increased cash flows). Of the nine closings announced,
all were completed by the end of 2000. Three additional closings were
announced which were not originally part of the strategic plan bringing the
total operating units closed to twelve. The closing of Peoria was added to
the plan in the first quarter of 1999 when costs associated with continuing
to service customers during a strike coupled with costs of reopening the
operating unit made closing the operating unit an economically sound
decision. During the first quarter of 2000, the closings of York and
Philadelphia were announced as part of an effort to grow in the northeast
by consolidating distribution operations and expanding the Maryland
facility. The York and Philadelphia closings are complete. The last full
year of operations for the 12 operating units closed was in 1998 with sales
totaling approximately $3.1 billion. Most of these sales have been retained
by transferring customer business to our higher volume, better utilized
facilities. We believe that this consolidation process is benefiting
customers with improved buying opportunities. We have also benefited with
better coverage of fixed expenses. The closings have resulted in savings
due to reduced depreciation, payroll, lease and other operating costs, and
we began to recognize these savings immediately upon closure. The capital
returned from the divestitures and closings was reinvested in the business.
- Grow distribution sales. Higher volume, better-utilized distribution
operations represent an opportunity for sales growth. The improved
efficiency and effectiveness of the remaining distribution operations
enhances their competitiveness, and we have capitalized on these
improvements by adding $1.2 billion in annualized sales in 2000.
- Improve retail performance. This not only required divestiture or closing
of under-performing company-owned retail chains, but also required
increased investments in the retail concepts on which we are focused. As of
year-end 1999, the strategic plan included the divestiture or closing of
seven retail chains (Hyde Park, Consumers, Boogaarts, New York Retail,
Pennsylvania Retail, Baker's(TRADEMARK) Oklahoma, and Thompson Food
Basket(REGISTERED MARK). The sale of Baker's(TRADEMARK) Oklahoma as well as
the divestiture or closing of Thompson Food Basket(REGISTERED MARK) was
added to the strategic plan because their format no longer fit into our
business strategy. The last full year of operations for these seven chains
was in 1998 with sales totaling approximately $844 million. The sale or
closing of these chains is substantially complete.
In April 2000, we announced the evaluation of strategic alternatives
for the remaining conventional retail chains (Rainbow Foods(REGISTERED
MARK), Baker's(TRADEMARK) Nebraska, Sentry(REGISTERED MARK) Foods, and ABCO
Foods(TRADEMARK). The evaluation was completed by the end of 2000 with the
decision to reposition certain retail operations into our price impact
format. The Rainbow Foods(REGISTERED MARK) chain reflected significant
improvements in sales and earnings and consequently was retained. The
Minneapolis distribution center has been dedicated to supply the Rainbow
Foods(REGISTERED MARK) operation, with the supply of Minneapolis'
independent retailers moved to the LaCrosse and Superior divisions. We
recently sold 11 of the ABCO Foods(TRADEMARK) stores to Safeway, Inc. and
we currently have an agreement to sell the assets of the 16-store Baker's
chain to Kroger Co. We also plan to convert ten company-owned
Sentry(REGISTERED MARK) Foods stores to the value retail format and steps
are being taken to sell the remaining stores to existing and new
distribution customers. The last full year of operations for ABCO
Foods(TRADEMARK), Baker's(TRADEMARK) Nebraska and Sentry(REGISTERED MARK)
Foods was in 1999 with sales totaling approximately $1,415 million. We
expect to retain a substantial level of the distribution business for these
operations and expect to receive a total of approximately $200 million in
net proceeds from the sale of these stores.
- Reduce overhead and operating expenses. We reduced overhead through our low
cost pursuit program which includes organization and process changes, such
as reducing workforce, centralizing administrative and procurement
functions, and reducing the number of management layers. The low cost
pursuit program also includes other initiatives to reduce complexity in
business systems and remove non-value-added costs from operations, such as
reducing the number of SKU's, creating a single point of contact with
customers, reducing the number of decision points within Fleming, and
centralizing vendor negotiations. These initiatives have reduced costs
which ultimately improves profitability and competitiveness.
The plan, as expected, took two years to implement. Additional charges of
approximately $20 million will be incurred in 2001 due to the time involved to
finish selling and closing certain retail stores. 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 total pre-tax charge for the strategic plan through 2000 was $1,114 million
($313 million cash and $801 million non-cash). The plan originally announced in
December 1998 had an estimated pre-tax charge totaling $782 million. The result
was an increase in the strategic plan of $332 million ($164 million cash and
$168 million non-cash). The net increase is due primarily to closing the Peoria,
York and Philadelphia divisions ($104 million); updating impairment amounts on
the five retail chains in the original plan ($18 million); the divestiture or
closing of the two chains not in the original plan ($44 million); decreasing
costs related to a scheduled closing no longer planned ($18 million); impairment
amounts relating to the recent evaluation of conventional retail ($125 million);
and other costs including those related to our low cost pursuit program and
centralization of administrative functions ($59 million). Updating the
impairment amounts was necessary as decisions to sell, close or convert
additional operating units were made. There were changes in the list of
operating units to be divested or closed since they no longer fit into the
current business strategy. Also, the cost of severance, relocation and other
periodic expenses related to our low cost pursuit program and centralization of
administrative functions has been accrued as incurred.
The pre-tax charge for 2000 was $309 million. After tax, the expense for 2000
was $183 million or $4.72 per share. Of the $309 million pre-tax charge in 2000,
$181 million is expected to require cash expenditures. The remaining $128
million consisted of non-cash items. The charge for 2000 consisted of the
following components:
- Impairment of assets of $91 million. The impairment components were $3
million for goodwill and $88 million for other long-lived assets relating
to planned disposals and closures. All of the goodwill charge was related
to a three store retail acquisition.
- Restructuring charges of $122 million. The restructuring charges consisted
partly of severance related expenses and estimated pension withdrawal
liabilities for the closings of York and Philadelphia which were announced
during the first quarter of 2000 as part of an effort to grow in the
northeast by consolidating distribution operations and expanding the
Maryland facility. The charge included severance related expenses due to
the consolidation of certain administrative departments announced during
the second quarter of 2000. Additionally, the charge included severance
related expenses, estimated pension withdrawal liabilities and operating
lease liabilities for the divestiture and closing of certain conventional
retail stores evaluated during the second and third quarters of 2000. The
restructuring charges also consisted of professional fees incurred related
to the restructuring process.
- Other disposition and related costs of $96 million. These costs consisted
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 and other costs.
The charge for 2000 related to our business segments as follows: $99 million
relates to the distribution segment and $164 million relates to the retail
segment with the balance relating to support services expenses.
The pre-tax charge for 1999 was $137 million. After tax, the expense for 1999
was $92 million or $2.39 per share. Of the $137 million pre-tax charge in 2000,
$58 million required cash expenditures. The remaining $79 million consisted of
non-cash items. The 1999 charge consisted of the following components:
- Impairment of assets of $62 million. The impairment components were $36
million for goodwill and $26 million for other long-lived assets relating
to planned disposals and closures. Of the goodwill charge of $36 million,
$22 million related to the 1994 "Scrivner" acquisition with the remaining
amount related to two retail acquisitions.
- Restructuring charges of $41 million. The restructuring charges consisted
primarily of severance related expenses and estimated pension withdrawal
liabilities for the divested or closed operating units announced during
1999. The restructuring charges also consisted of operating lease
liabilities and professional fees incurred related to the restructuring
process.
- Other disposition and related costs of $34 million. These costs consisted
primarily of inventory markdowns for clearance for closed operations,
impairment of an investment, disposition related costs recognized on a
periodic basis and other costs.
The 1999 charge relates to our business segments as follows: $48 million relates
to the distribution segment and $70 million relates to the retail segment with
the balance relating to support services expenses.
The pre-tax charge for 1998 was $668 million. After tax, the expense was $543
million in 1998 or $14.33 per share. Of the $668 million pre-tax charge in 2000,
$74 million required cash expenditures. The remaining $594 million consisted of
non-cash items. The 1998 charge consisted of the following components:
- Impairment of assets of $590 million. The impairment components were $372
million for goodwill and $218 million for other long-lived assets. Of the
goodwill charge of $372 million, approximately 87% related to the 1989
"Malone & Hyde" acquisition and the 1994 "Scrivner" acquisition. The
remaining 13% related to various other smaller acquisitions, both retail
and wholesale.
- Restructuring charges of $63 million. The restructuring charges consisted
of severance related expenses and pension withdrawal liabilities for the
operating units and the retail chain announced during 1998. The
restructuring charges also consisted of operating lease liabilities for the
distribution operating units and the retail chain announced during 1998
plus the additional planned closings at that time.
- Other disposition and related costs of $15 million. These costs consist
primarily of professional fees, inventory valuation adjustments and other
costs.
The 1998 charge relates to our business segments as follows: $491 million
relates to the distribution segment and $153 million relates to the retail food
segment with the balance relating to support services expenses.
In addition to the strategic plan related charges mentioned above, 2000 also
included one-time adjustments ($10 million charge related to retail stores ($8
million impairment and $2 million lease settlement), income of $2 million
relating to litigation settlements, and $9 million in gains from the sale of
distribution facilities) netting to less than $1 million of income ($1 million
loss after-tax). The net effect of the strategic plan charges and one-time
adjustments was a $309 million pre-tax charge or $4.71 per share.
1999 included one-time adjustments ($31 million charge to close certain retail
stores ($14 million impairment and $17 million lease settlement), income of $22
million from extinguishing a portion of the self-insured workers' compensation
liability, interest income of $9 million related to refunds of federal income
taxes from prior years, and income of $6 million in gains from the sale of
distribution facilities) netting to $6 million of income ($3 million after-tax).
The net effect of the strategic plan charges and one-time adjustments was a $131
million pre-tax charge or $2.29 per share.
1998 did not have any one-time adjustments.
We anticipate net earnings after excluding strategic plan charges and one- time
adjustments for 2001 through 2003 to be $1.90, $2.50, and $3.30 per share,
respectively.
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:
2000 1999 1998
---- ---- ----
Net sales 100.00% 100.00% 100.00%
Gross margin 9.33 10.07 9.88
Less:
Selling and administrative 8.21 8.84 8.52
Interest expense 1.21 1.16 1.10
Interest income (.23) (.28) (.25)
Equity investment results .06 .07 .08
Litigation charges - - .05
Impairment/restructuring charge 1.47 .72 4.45
---- --- ----
Total expenses 10.72 10.51 13.95
----- ----- -----
Loss before taxes (1.39) (.44) (4.07)
Taxes on loss (.54) (.13) (.59)
---- ---- ----
Net loss (.31)% (3.48)% (.85)%
==== ===== ====
2000 and 1999
Net Sales.
Our net sales for 2000 increased by 1% to $14.44 billion from $14.27 billion for
1999. 2000 was a 53-week year; 1999 was a 52-week year.
Net sales for the distribution segment were $11.2 billion in 2000 compared to
$10.6 billion in 1999, an increase of 5.8%. The sales increase was primarily due
to new business added from independent retailers, convenience stores, e-
tailers, and supercenter customers, including such customers as Clark Retail
Enterprises, Inc and additional Super Target stores. This increase was partially
offset by a loss of previously announced sales from Randall's (in 1999) and
United (in 2000). Sales have also been impacted by the planned closing and
consolidation of certain distribution operating units. In 1999, sales to
Randall's and United accounted for less than 4% of our total sales. The
distribution segment had strategic plan charges and one-time items (e.g., gain
on sale of facilities) that affected sales for both years with no significant
effect on total distribution sales. Recently, we announced a 10-year agreement
to become the sole supplier of food and consumable products to Kmart
Corporation's more that 2,100 stores and supercenters. We expect annual sales to
Kmart to increase from approximately $1.4 billion in 2000 to approximately $2.6
billion in 2001 and approximately $4.5 billion in 2002.
Retail segment sales were $3.3 billion in 2000 compared to $3.7 billion in 1999.
The decrease in sales was due primarily to the divestiture of under-performing
and non-strategic stores. Decreases in same-store sales also contributed to the
sales decline. The decrease was offset partially by sales from new stores opened
during 1999 and 2000. As additional conventional retail stores are sold or
closed, sales will continue to decrease in the retail segment.
Food price inflation for our product mix was not significant in 2000 or 1999.
Gross Margin.
Gross margin for 2000 decreased to $1.35 billion from $1.44 billion for 1999,
and decreased as a percentage of net sales to 9.33% in 2000 from 10.07% for
1999. After excluding the strategic plan charges and one- time items, gross
margin dollars in 2000 decreased to $1.40 billion from $1.45 billion for 1999
and gross margin as a percentage of net sales decreased to 9.68% in 2000 from
10.16% in 1999. The decrease in dollars was due partly to the sales decrease in
the retail segment, but was offset by positive results from leveraging our
buying power and cutting costs. The decrease in percentage of net sales was due
to a change in mix between the distribution and retail segments. The sales of
the distribution segment represent a larger portion of total company sales in
2000 compared to 1999 and the distribution segment has lower margins as a
percentage of sales versus the retail segment.
For the distribution segment, gross margin as a percentage of gross distribution
sales was down in 2000 compared to 1999. This was due to competitive pricing
actions and increased transportation costs which were partially offset by the
benefits of asset rationalization and the centralization of procurement.
For the retail segment, gross margin as a percentage of net retail sales
improved for 2000 compared to 1999 due to the divesting or closing of
under-performing stores. The strategic plan charges and one-time items increased
in 2000 compared to the same periods in 1999. The increased charges were
primarily due to inventory markdowns for clearance for closed operations,
additional depreciation and amortization of assets to be disposed of but not yet
held for sale, and periodic costs recorded as incurred such as recruiting and
training.
Selling and Administrative Expenses.
Selling and administrative expenses for 2000 decreased by 6% to $1.19 billion
from $1.26 billion for 1999, and decreased as a percentage of net sales to 8.21%
for 2000 from 8.84% for 1999. Excluding the strategic plan charges and one-time
items, selling and administrative expenses for 2000 decreased by 8% to $1.14
billion from $1.24 billion for 1999. The decreases were due to asset
rationalization, our low cost pursuit program, and centralizing administrative
functions, but also due to a reduction in the volume of the retail segment. The
sales of the distribution segment represent a larger portion of total company
sales in 2000 compared to 1999 and the distribution segment has lower selling
and administrative expenses as a percentage of sales versus the retail segment.
The strategic plan charges and one-time items were significantly higher in 2000
compared to 1999. The strategic charges were primarily made up of moving and
training costs incurred in connection with the consolidation of the accounting
and human resource functions. The one-time items in both years included costs
relating to the closing of certain retail stores. An additional one-time item in
2000 was income from net litigation settlements. An additional one-time item
recorded in 1999 was income from extinguishing a portion of our self-insured
workers' compensation liability.
For the distribution segment on an adjusted basis, selling and administrative
expenses as a percentage of net sales improved for 2000 compared to 1999 due to
asset rationalization and the centralization of administrative functions. For
the retail segment on an adjusted basis selling and administrative expenses as a
percentage of retail sales improved for 2000 compared to 1999 due to the
divestiture or closing of under-performing stores, the centralization of
administrative functions, and operating cost reductions. This was offset by
costs associated with closing certain retail stores.
We have extended credit to certain customers through various methods. These
methods include customary and extended credit terms for inventory purchases and
equity investments in and secured and unsecured loans to certain customers.
Secured loans generally have terms up to 10 years. Credit loss expense is
included in selling and administrative expenses and for 2000 increased to $29
million from $25 million for 1999.
Operating Earnings.
Operating earnings for 2000 decreased to $162 million from $176 million in 1999.
Excluding the strategic plan charges and one-time items, operating earnings
increased by 22% to $257 million from $212 million in 1999. We measure operating
earnings for segment reporting as sales less cost of sales less selling and
administrative expenses.
Operating earnings for the distribution segment increased to $297 million in
2000 from $290 million for 1999. Excluding the costs relating to the strategic
plan and one-time items, operating earnings increased by approximately $44
million, or 14%, to $346 million in 2000 from $302 million for the same period
of 1999. Operating earnings improved primarily due to the benefits of
consolidating distribution operating units, reducing costs, centralizing certain
procurement and administrative functions in support services and improving
sales. The strategic plan charges were primarily due to inventory markdowns for
clearance for closed operations, moving and training costs associated with the
consolidation of the accounting and human resource functions, and additional
depreciation and amortization on assets to be disposed of but not yet held for
sale. The one-time items were gains on sales of facilities in both years.
Operating earnings for the retail segment increased by approximately $64 million
to an income of $62 million in 2000 from a loss of $2 million for 1999.
Excluding the costs relating to the strategic plan and one-time items, operating
earnings increased by $47 million to $89 million from $42 million for the same
period of 1999. The increase was due to divesting or closing under-performing
chains and centralizing certain administrative functions in support services.
The strategic charges were primarily made up of inventory markdowns for
clearance for closed operations and moving costs in both years. The one-time
items in both years included costs relating to the closing of certain retail
stores.
Support services increased in 2000 to $197 million compared to $113 million for
1999. Excluding the costs relating to the strategic plan and one-time items,
support services increased in 2000 to $177 million compared to $133 million for
1999. The increase was due primarily to centralizing certain procurement and
administrative functions from the distribution and retail segments. Strategic
plan charges were higher in 2000 due to moving and training expenses associated
with the centralization of the procurement and administrative functions.
One-time items included income from net litigation settlements in 2000 and
income from extinguishing a portion of our self-insured workers' compensation
liability in 1999.
Interest Expense.
Interest expense of $175 million in 2000 was $9 million higher than 1999 due
primarily to higher average debt balances for revolver loans and capitalized
lease obligations, and higher average interest rates for revolver and term
loans.
For 2000, interest rate hedge agreements contributed $0.9 million of net
interest expense compared to $4.8 million in 1999. The decrease occurred because
the hedge agreements matured by mid-year 2000 and were not renewed or replaced.
These derivative agreements consisted of simple "floating-to-fixed rate"
interest rate swaps. In these transactions, we paid to the hedge counterparty a
cash flow stream equal to a designated fixed interest rate times a notional
principal amount as a proxy for a portion of our debt which carries variable
interest rates. In exchange, the hedge counterparty paid us a cash flow stream
equal to a variable or floating interest rate times the same notional principal
amount. These kind of interest rate swap transactions are designed to provide a
hedge against variable interest rates.
Interest Income.
Interest income of $33 million for 2000 was $8 million lower than 1999 due to a
one-time item in 1999 related to interest on refunds of federal income taxes
from prior years. This was partially offset by lower average balances for our
investment in direct financing leases with customers.
Equity Investment Results.
Our portion of net operating losses from equity investments for 2000 decreased
by $2 million to $8 million from $10 million for 1999. The reduction in losses
is due to improved results of operations in certain of the underlying equity
investments.
Impairment/Restructuring Charge.
The pre-tax charge for our strategic plan totaled $309 million for 2000 and $137
million for 1999. Of these totals, $213 million and $103 million were reflected
in the Impairment/ restructuring charge line with the balance of the charges
reflected in other financial statement lines.
Taxes on Income.
The effective tax rates used for 2000 and 1999 were 39.2% and 28.5%,
respectively, both representing a tax benefit. These are blended rates taking
into account operations activity, strategic plan activity, write-offs of
non-deductible goodwill and the timing of these transactions during the year.
Certain Accounting Matters.
The Financial Accounting Standards Board issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and became
effective on January, 01, 2001. We revised our written policies regarding
financial derivatives, as needed, prior to the effective date. There was no
significant impact on our financial statements upon adopting the new standard.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 - Revenue Recognition. SAB No. 101 provides guidance on
recognition, presentation and disclosure of revenue in financial statements. In
July 2000, the Financial Accounting Standards Board Emerging Issues Task Force
issued EITF 99-19 - Reporting Revenue Gross as a Principal versus Net as an
Agent. EITF 99-19 provides further guidance on reflecting revenue gross or net.
We adopted SAB No. 101 and EITF 99-19 in the fourth quarter of 2000. The
implementation had an impact on the classification of previously reported net
sales and cost of goods sold (ranging annually from $350 million to $400
million), but had no impact on earnings. Net sales and cost of goods sold have
been restated for all prior periods presented.
The Financial Accounting Standards Board has recently issued an exposure draft
for Business Combinations and Intangible Assets. 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 that its implied fair value. Goodwill amortization increased
the basic and diluted net loss per share by $0.47 and $0.54 in 2000 and 1999,
respectively. This exposure draft is not final and may change before any new
accounting standard is adopted.
Other.
Costs relating to the strategic plan have negatively affected earnings for some
time, but are expected to drastically decrease in the near future. We currently
estimate pre-tax strategic plan charges for 2001 and 2002 at $20 million ($15
million cash and $5 million non-cash) and $4 million (all cash), respectively.
These charges represent future severance related expenses, anticipated inventory
markdowns and other exit costs related to the divestiture of our conventional
retail stores.
1999 and 1998
Net Sales.
Our net sales for 1999 decreased by 3% to $14.27 billion from $14.68 billion for
1998.
Net sales for the distribution segment were $10.6 billion in 1999 compared to
$11.1 billion in 1998. The sales decrease was primarily due to the previously
announced loss of sales to Furr's (in 1998) and Randall's (in 1999) and the
disposition of the Portland division (in 1999). These sales losses were
partially offset by the increase in sales to Kmart Corporation. Sales during
1999 were also impacted by the planned closing and consolidation of certain
distribution operating units. These sales losses plus the loss of sales to
United in 2000 were partially offset by the increase in sales to Kmart
Corporation. In 1999 and 1998, sales to Furr's, Randall's and United accounted
for approximately 4% and 8%, respectively, of our total sales.
Retail segment sales were $3.7 billion in 1999 compared to $3.6 billion in 1998.
The increase in sales was due primarily to new stores added in 1999. This was
offset partially by a decrease in same-store sales and the closing of
non-performing stores.
We measure inflation using data derived from the average cost of a ton of
product we sell. For 1999, food price inflation was 1.0%, compared to 2.1% in
1998.
Gross Margin.
Gross margin for 1999 decreased by 1% to $1.44 billion from $1.45 billion for
1998, and increased as a percentage of net sales to 10.07% from 9.88% for 1998.
After excluding the strategic plan charges and one-time items, gross margin
dollars still decreased compared to the same period in 1998 and gross margin as
a percentage of net sales still increased compared to the same period in 1998.
The decrease in dollars was due primarily to the overall sales decrease, but was
partly offset by positive results from leveraging our buying power and cutting
costs. The increase in percentage of net sales was due to the impact of the
growing retail segment compared to the distribution segment. The retail segment
has the higher margins of the two segments. This increase was partly offset by
lower margins in the retail segment due to competitive pricing at company-owned
new stores.
Selling and Administrative Expenses.
Selling and administrative expenses for 1999 increased by 1% to $1.26 billion
from $1.25 billion for 1998, and increased as a percentage of net sales to 8.84%
for 1999 from 8.52% for 1998. The increase in both dollars and percentage of net
sales was primarily due to one-time items recorded in 1999: a charge to close
conventional retail stores which was partially offset by income from
extinguishing a portion of our self-insured workers' compensation liability at a
discount. The increase in percentage to net sales was also partly due to the
impact of the growing retail segment compared to the distribution segment - the
retail segment has higher operating expenses as a percent to sales compared to
the distribution segment.
We have extended a significant amount of credit to certain customers through
various methods. These methods include customary and extended credit terms for
inventory purchases and equity investments in and secured and unsecured loans to
certain customers. Secured loans generally have terms up to 10 years. Credit
loss expense is included in selling and administrative expenses and for 1999
increased to $25 million from $23 million for 1998.
Operating Earnings.
Operating earnings for 1999 decreased to $176 million from $199 million in 1998.
Excluding the strategic plan charges and one-time items, operating earnings
decreased to $212 million from $214 million in 1998.
Operating earnings for the distribution segment increased by 12% to $290 million
from $259 million for 1998, and increased as a percentage of distribution net
sales to 2.75% for 1999 from 2.34% for 1998. Excluding the costs relating to the
strategic plan and one-time items, operating earnings still increased by $29
million to $302 million from $273 million for the same period of 1998. Operating
earnings improved primarily due to the benefits of the consolidation of
distribution operating units and cost reduction.
Operating earnings for the retail segment decreased by $64 million to a loss of
$2 million from earnings of $62 million for 1998. Excluding the costs relating
to the strategic plan and one-time items (primarily a charge to close
conventional retail stores), operating earnings still decreased by $20 million
to $42 million from $62 million for the same period of 1998. The decrease was
due to the impact of new store start-up expenses plus expenses related to the
divestiture and closing of stores. Operating earnings for the retail segment
were also adversely affected by a 1.9% decrease in same-store sales.
Support services decreased in 1999 to $112 million compared to $122 million for
1998. Excluding the costs relating to the strategic plan and one-time items
(primarily income from extinguishing a portion of our self- insured workers'
compensation liability at a discount), support services increased in 1999 to
$132 million compared to $121 million for 1998. The increase was due primarily
to an increase in lease termination and real estate disposition expenses and
higher incentive compensation.
Interest Expense.
Interest expense in 1999 was $4 million higher than 1998 due primarily to 1998's
low interest expense as a consequence of a favorable settlement of tax
assessments. The higher 1999 expense was also due to higher average debt
balances.
Our derivative agreements consisted of simple "floating-to-fixed rate" interest
rate swaps. For 1999, interest rate hedge agreements contributed $4.8 million of
net interest expense compared to $4.3 million in 1998, or $0.5 million higher.
This was due to slightly higher average net interest rates underlying the hedge
agreements.
Interest Income.
Interest income for 1999 was $4 million higher than 1998 due to a one- time item
related to interest on refunds of federal income taxes from prior years. This
was partially offset by lower average balances for our investment in direct
financing leases.
Equity Investment Results.
Our portion of net operating losses from equity investments for 1999 decreased
by approximately $2 million to $10 million from $12 million for 1998. The
reduction in losses is due to improved results of operations in certain of the
underlying equity investments.
Litigation Charges.
In October 1997, we began paying Furr's $800,000 per month as part of a
settlement agreement which ceased in October 1998. Payments to Furr's totaled
$7.8 million in 1998.
Impairment/Restructuring Charge.
The pre-tax charge for our strategic plan totaled $137 million for 1999 and $668
million for 1998. Of these totals, $103 million and $653 million were reflected
in the Impairment/ restructuring charge line with the balance of the charges
reflected in other financial statement lines.
Taxes on Income.
The effective tax rates used for 1999 and 1998 were 28.5% and 14.6%,
respectively, both representing a tax benefit. These are blended rates taking
into account operations activity, strategic plan activity, write- offs of
non-deductible goodwill and the timing of these transactions during the year.
LIQUIDITY AND CAPITAL RESOURCES
In the fiscal year ended December 30, 2000, our principal sources of cash were
cash flows from operating activities, the sale of certain assets and
investments, and borrowings under our credit facility. During this period
sources of long-term capital, excluding shareholders' equity, were credit
facility lenders and lessors. On December 30, 2000, we had $30 million of cash
and cash equivalents, $257 million available under the revolving portion of our
credit facility and $391 million of net working capital (current assets minus
current liabilities).
Net cash provided by operating activities.
Operating activities generated $127 million of net cash flows for the year ended
December 30, 2000, compared to $118 million for the same period in 1999.
Included in 2000 net operating cash flows were $312 million in gross cash flows
from operations, which were reduced by a $67 million increase primarily in
working capital and $118 million in payments for strategic plan-related cash
expenditures. For fiscal 2001, incremental net working capital required to
support the expected new business with Kmart is expected to be up to $150
million.
Cash expenditures required to implement and help complete the strategic plan
were $118 million in 2000 (on a pre-tax basis). We estimate expenditures to
complete the strategic plan initiatives will be about $56 million in fiscal 2001
and $27 million in fiscal 2002. Management believes working capital reductions,
proceeds from the sale of assets, and increased after-tax earnings related to
the successful implementation of the strategic plan are expected to provide
adequate cash flows to cover the remaining expenditures.
Net cash used in investing activities.
Net cash used in investing activities totaled $48 million in fiscal 2000
compared to $213 million for 1999. Included in 2000 net investment expenditures
were $151 million for capital expenditures and $7 million for acquisitions of
retail stores. Offsetting these expenditures in part were sales of assets and
investments totaling $100 million. Cash spent to make loans and equity
investments in our customers was financed essentially by collections on customer
loans made in the past.
For fiscal 2001, capital expenditures are expected to be approximately $225
million to maintain our distribution system, grow our price impact retail
operations, expand our distribution operations to supply the expected
incremental Kmart business, and further upgrade our information technology
systems. We plan to increase our investment in price impact retail operations by
making investments in our existing stores and by adding new stores through store
construction or acquisitions. In addition, distribution operations may be
acquired to increase our ability to supply convenience stores and other
customers. Acquisitions of supermarket groups or chains or distribution
operations will be made only on a selective basis. The focus of retail
investment has shifted toward our price impact format retail stores.
On April 25, 2000, we announced the evaluation of strategic alternatives for the
remaining conventional retail chains we own. This evaluation covered our ABCO,
Baker's, Rainbow and Sentry supermarkets. We sold 11 of our ABCO Desert Market
stores to Safeway in late February, 2001, and we agreed to sell our 16 Baker's
stores to Kroger, a transaction which is expected to close in late March, 2001.
We plan to convert 10 of our Sentry supermarkets to a price impact format. We
plan to sell or close the remaining 70 conventional retail supermarkets we own.
We expect to retain a substantial level of the distribution supply business to a
large portion of these stores, and to receive a total of $200 million for the
sale of all conventional supermarkets we sell this year ($175 million in cash
and a $25 million reduction in capitalized lease obligations). We will use the
net cash proceeds from the sale of these stores to reduce debt or to help
finance business investment.
Net cash provided by (used in) financing activities.
For fiscal 2000, net cash used in financing activities was $55 million compared
to 1999 when our financing activities resulted in a $96 million net source of
cash. Included in 2000 net cash used in financing activities was a net decrease
in long-term debt of $35 million since the end of 1999. In addition, capital
lease obligations increased by $10 million even though $21 million in payments
were made to the lessors. This means $31 million in total capital was provided
by lessors. At the end of fiscal 2000, borrowings under the revolving portion of
our credit facility totaled $300 million, $154 million in term loans, and $43
million of letters of credit had been issued.
On February 7, 2001, we announced: (a) the new long-term, exclusive
strategic alliance and supply agreement with Kmart, which we expect will require
up to $150 million in net working capital requirements, and (b) an agreement
with an affiliate of Yucaipa to sell $50 million of new issue common stock. The
Yucaipa investment closed on March 22, 2001.
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 (S&P) 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
Our $300 million 10 5/8% senior notes were scheduled to be repaid on December
15, 2001, unless otherwise redeemed. On March 15, 2001, we sold $355 million of
new 10 1/8% senior notes due 2008. Most of the net proceeds were deposited with
the trustee for the 10 5/8% senior notes on March 15, 2001 to redeem all of the
10 5/8% senior notes, including an amount to cover accrued interest and the
redemption premium, on April 16, 2001 and to defease our obligations under the
indenture governing these notes. The balance of the net proceeds was used to pay
down our revolver loans. At the time the redemption is final, an extraordinary
after-tax charge of approximately $3 million will be recorded. 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
were used to pay down our revolver loans. On March 15, 2001, outstanding loans
and letters of credit under the credit facility totaled $154 million of term
loans, $270 million of revolver loans, and $43 million of letters of credit. On
that date, we could have borrowed an additional $287 million under the revolver.
For fiscal 2001, our principal sources of liquidity and capital are expected to
be cash flows from operating activities, asset sale cash proceeds of $175
million, net cash proceeds from the $355 million of 10 1/8% senior notes due
2008, net cash proceeds from the $150 million of 5.25% convertible senior
subordinated notes, net cash proceeds from the sale of $50 million of common
stock to Yucaipa, and our ability to borrow under the revolving portion of our
credit facility. In addition, lease financing may be employed for new retail
stores, distribution facilities and certain equipment. We currently expect total
debt at fiscal year-end 2001 could be up to $85 million higher than the fiscal
2000 year-end balance of $1.669 billion. Management believes the sources
mentioned will be adequate to meet working capital needs, capital expenditures,
expenditures for acquisitions (if any), strategic plan completion costs and
other capital needs for the remainder of fiscal 2001.
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 by management to
be both "probable" and either "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 the notes to consolidated financial statements included herein.
An adverse outcome experienced in one or more of such matters, or an increase in
the likelihood of such an outcome, could have a material adverse effect on our
financial condition or prospects.
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, our ability to successfully sustain the
goals of our strategic plan and continue to reverse sales declines, cut costs
and improve earnings; our assessment of the probability and materiality of
losses associated with litigation and other contingent liabilities; our ability
to expand portions of our business or enter new facets of our business; and 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 Form 10-K 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 Form 10-K 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 factors are
described in this report under Item 1. Business -- Risk Factors and in other
periodic reports available from the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to pricing risk in the financial markets consists of changes in
interest rates related to our investment in notes receivable, the balance of
debt obligations outstanding, and derivatives employed from time to time to
hedge interest rate changes on variable rate debt. We do not use foreign
currency exchange rate forward contracts or commodity contracts and do not have
any material foreign currency exposure. We do not use financial instruments or
derivatives for any trading purposes. From time to time we may use simple
derivative transactions, such as floating-to-fixed interest rate swap
transactions, to hedge our exposure to changing interest rates for our variable
interest rate debt obligations. At fiscal year-end 2000, there were no such
interest rate hedge agreements in place.
In the normal course of business Fleming carries notes receivable because we
make long-term loans to certain retail customers (see "Investments and Notes
Receivable" in the notes to the consolidated financial statements). A portion of
the notes receivable carries a variable interest rate, which is based on a prime
rate index published in a major financial publication and is reset quarterly.
The remaining portion carries fixed interest rates negotiated with each retail
customer. No derivatives have been employed to hedge our exposure to variable
interest rates on notes receivable primarily because these notes are considered
to be a partial hedge for debt with variable interest rates.
In order to help maintain liquidity and finance business operations, Fleming
obtains 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 its debt maturities and diversify its sources of debt capital, Fleming
also uses long-term debt which carries fixed interest rates.
Fleming management maintains a written policy statement which governs its
financial risk management activities including the use of financial derivatives.
The policy statement says that we will engage in a financial risk management
process to manage our defined exposures to uncertain future changes in interest
rates and foreign exchange rates which impact net earnings. The primary purpose
of this process is to control and limit the volatility of net earnings according
to pre-established targets for exposure to such changes in a manner which does
not result in unreasonable or unmanageable additional risks or expense. The
financial risk management process works under the oversight of a special
management group to ensure certain policy objectives are achieved. Such
objectives include, but are not limited to, the following: to act in accordance
with authority granted by resolution of the Board of Directors, which
specifically permits the use of derivatives to hedge interest rate or foreign
exchange rate risks and which prohibits the use of derivatives for the purpose
of speculation; to define and measure our financial risks associated with
interest and foreign exchange rates as well as with derivative instruments to be
used for hedging; and to establish exposure targets and to manage performance
against those targets.
Changes in interest rates in the credit and capital markets may have a material
impact on Fleming's interest expense and interest income, as well as on the fair
values for our investment in notes receivable, our outstanding debt obligations
and any financial derivatives used. The table below presents a summary of the
categories of Fleming's financial instruments according to their respective
interest rate profiles. For notes receivable, the table shows the principal
amount of cash we expect to collect each year according to the scheduled
maturities, as well as the average interest rates applicable to such maturities.
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. For derivatives, the table shows
when the notional principal contracts terminate.
SUMMARY OF FINANCIAL INSTRUMENTS
Maturities of Principal by Fiscal Year
--------------------------------------
Fair Fair
Value at Value at
(In millions, except rates) 12/25/99 12/30/00 2001 2002 2003 2004 2005 Thereafter
--------------------------- -------- -------- ---- ---- ---- ---- ---- ----------
Notes Receivable with Variable Interest Rates
Principal receivable $ 93 $ 97 $ 18 $ 15 $ 15 $ 10 $ 9 $ 30
Average variable rate receivable 11.0% 12.1% Based on the referenced Prime Rate plus a margin
Notes Receivable with Fixed Interest Rates
Principal receivable $ 28 $ 19 $ 2 $ 4 $ 1 $ 1 $ 1 $ 10
Average fixed rate receivable 6.0% 2.3% 3.7 1.3% 3.1% 4.4% 3.9% 2.0%
Debt with Variable Interest Rates
Principal payable $428 $427 $ 36 $ 40 $342 $ 37 $ - $ -
Average variable rate payable 7.1% 8.1% Based on LIBOR plus a margin
Debt with Fixed Interest Rates
Principal payable $808 $668 $303 $ 10 $ 5 $250 $ - $250
Average fixed rate payable 10.4% 10.6% 10.6% 8.7% 8.8% 10.5 - 10.6%
Variable-To-Fixed Rate Swaps
Amount payable $ 3 None
Average fixed rate 7.2% None
payable
Average variable rate receivable 6.2% None
Based on LIBOR
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) 1. Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to our proxy statement in connection with its
annual meeting of shareholders to be held on May 15, 2001. Information
concerning Executive Officers of Fleming is included in Part I herein which is
incorporated in this Part III by reference.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to our proxy statement in connection with its
annual meeting of shareholders to be held on May 15, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to our proxy statement in connection with its
annual meeting of shareholders to be held on May 15, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to our proxy statement in connection with its
annual meeting of shareholders to be held on May 15, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
- Consolidated Statements of Operations -
For the years ended December 30, 2000,
December 25, 1999, and December 26, 1998
- Consolidated Balance Sheets -
At December 30, 2000 and December 25, 1999
- Consolidated Statements of Cash Flows -
For the years ended December 30, 2000,
December 25, 1999, and December 26, 1998
- Consolidated Statements of Shareholders' Equity -
For the years ended December 30, 2000,
December 25, 1999, and December 26, 1998
- Notes to Consolidated Financial Statements -
For the years ended December 30, 2000,
December 25, 1999, and December 26, 1998
Independent Auditors' Report
Quarterly Financial Information (Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 30, 2000, December 25, 1999 and December 26, 1998
(In thousands, except per share amounts)
2000 1999 1998
---- ---- ----
Net sales $14,443,815 $14,272,036 $14,677,904
Costs and expenses (income):
Cost of sales 13,096,915 12,834,869 13,227,530
Selling and administrative 1,185,003 1,261,631 1,251,592
Interest expense 174,569 165,180 161,581
Interest income (32,662) (40,318) (36,736)
Equity investment results 8,034 10,243 11,622
Litigation charges - - 7,780
Impairment/restructuring charge 212,845 103,012 652,737
------- ------- -------
Total costs and expenses 14,644,704 14,334,617 15,276,106
---------- ---------- ----------
Loss before taxes (200,889) (62,581) (598,202)
Taxes on loss (78,747) (17,853) (87,607)
------- ------- -------
Net loss $ (122,142) $ (44,728) $ (510,595)
=========== =========== ===========
Basic and diluted net loss per share $(3.15) $(1.17) $(13.48)
====== ====== =======
Basic and diluted weighted
average shares outstanding 38,716 38,305 37,887
====== ====== ======
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
At December 30, 2000 and December 25, 1999
(In Thousands)
ASSETS 2000 1999
---- ----
Current assets:
Cash and cash equivalents $ 30,380 $ 6,683
Receivables, net 509,045 496,159
Inventories 831,265 997,805
Assets held for sale 165,800 68,615
Other current assets 86,583 159,488
Total current assets 1,623,073 1,728,750
--------- ---------
Investments and notes receivable, net 104,467 108,895
Investment in direct financing leases 102,011 126,309
Property and equipment:
Land 40,242 45,507
Buildings 356,376 389,651
Fixtures and equipment 565,472 636,501
Leasehold improvements 210,970 236,570
Leased assets under capital leases 197,370 231,236
------- -------
1,370,430 1,539,465
Less accumulated depreciation and amortization (653,973) (701,289)
-------- --------
Net property and equipment 716,457 838,176
Deferred income taxes 139,852 54,754
Other assets 172,632 150,214
Goodwill, net 544,319 566,120
------- -------
TOTAL ASSETS $ 3,402,811 $ 3,573,218
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 943,279 $ 981,219
Current maturities of long-term debt 38,171 70,905
Current obligations under capital leases 21,666 21,375
Other current liabilities 229,272 210,220
------- -------
Total current liabilities 1,232,388 1,283,719
Long-term debt 1,232,400 1,234,185
Long-term obligations under capital leases 377,239 367,960
Other liabilities 133,592 126,652
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value, authorized
100,000 shares, issued and outstanding -
39,618 and 38,856 shares 99,044 97,141
Capital in excess of par value 513,645 511,447
Reinvested earnings (deficit) (144,468) (22,326)
Accumulated other comprehensive income -
additional minimum pension liability (41,029) (25,560)
------- -------
Total shareholders' equity 427,192 560,702
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,402,811 $ 3,573,218
=========== ===========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 30, 2000, December 25, 1999, and December 26, 1998
(In thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net loss $ (122,142) $ (44,728) $ (510,595)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 174,107 162,379 185,368
Credit losses 28,872 25,394 23,498
Deferred income taxes (65,538) 3,357 (117,239)
Equity investment results 8,034 10,243 11,622
Impairment/restructuring and
related charges
288,408 135,346 668,028
Cash payments on impairment/
restructuring and related charges (118,190) (57,340) (10,408)
Consolidation and restructuring
reserve activity - 423 (1,008)
Change in assets and liabilities,
excluding effect of acquisitions:
Receivables (26,005) (55,692) (156,822)
Inventories 65,639 (22,049) 6,922
Accounts payable (49,121) 35,744 114,136
Other assets and liabilities (63,198) (70,112) (68,058)
Other adjustments, net 5,779 (5,348) (4,365)
----- ------ ------
Net cash provided by operating activities 126,645 117,617 141,079
------- ------- -------
Cash flows from investing activities:
Collections on notes receivable 32,943 34,798 38,076
Notes receivable funded (35,841) (43,859) (28,946)
Businesses acquired (7,320) (78,440) (30,225)
Proceeds from sale of businesses 45,693 7,042 32,277
Purchase of property and equipment (150,837) (166,339) (200,211)
Proceeds from sale of property
and equipment 50,957 35,487 17,056
Investments in customers - (8,115) (1,009)
Proceeds from sale of investments 3,552 2,745 3,529
Other investing activities 12,949 3,337 6,141
------ ----- -----
Net cash used in investing activities (47,904) (213,344) (163,312)
------- -------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings 185,000 191,000 170,000
Principal payments on long-term debt (219,519) (71,178) (159,651)
Principal payments on capital
lease obligations (20,888) (21,533) (13,356)
Sale of common stock under incentive
stock and stock ownership plans 4,051 1,267 4,830
Dividends paid (3,117) (3,082) (3,048)
Other financing activities (571) (31) (891)
---- --- ----
Net cash provided by (used in) financing
activities (55,044) 96,443 (2,116)
------- ------ ------
Net increase (decrease) in cash
and cash equivalents 23,697 716 (24,349)
Cash and cash equivalents,
beginning of year 6,683 5,967 30,316
----- ----- ------
Cash and cash equivalents, end of year $ 30,380 $ 6,683 $ 5,967
========== ========== ==========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 30, 2000, December 25, 1999 and December 26, 1998
(In thousands, except per share amounts)
Accumulated
Capital Reinvested Other
Common Stock in excess Earnings Comprehensive Comprehensive ESOP
Total Shares Amount of par value (Deficit) Income Income Note
------------------------------------------------------------------------------------------
Balance at December 27, 1997 $1,089,672 38,264 $95,660 $504,451 $ 536,792 $(42,637) $(4,594)
Comprehensive income
Net loss (510,595) (510,595) $(510,595)
Other comprehensive income,
net of tax
Currency translation
adjustment (net of $0 taxes) 4,922 4,922 4,922
Minimum pension liability
adjustment (net of $12,914
of taxes) (19,418) (19,418) (19,418)
-------
Comprehensive income $(525,091)
=========
Incentive stock and stock
ownership plans 5,847 278 696 5,151
Cash dividends, $0.08 per share (3,042) (3,042)
ESOP note payments 2,545 2,545
----- --- --- ----- ------ ------- -----
Balance at December 26, 1998 569,931 38,542 96,356 509,602 23,155 (57,133) (2,049)
Comprehensive income
Net loss (44,728) (44,728) $ (44,728)
Other comprehensive income,
net of tax
Minimum pension liability
adjustment (net of $21,049
of taxes) 31,573 31,573 31,573
------
Comprehensive income $(13,155)
========
Incentive stock and stock
ownership plans 4,955 314 785 4,170
Cash dividends, $0.08 per share (3,078) (2,325) (753)
ESOP note payments 2,049 2,049
----- --- --- ----- --- ------- -----
Balance at December 25, 1999 560,702 38,856 97,141 511,447 (22,326) (25,560) -
Comprehensive income
Net loss (122,142) (122,142) $(122,142)
Other comprehensive income,
net of tax
Minimum pension liability
adjustment (net of $10,312
of taxes) (15,469) (15,469) (15,469)
-------
Comprehensive income $(137,611)
=========
Incentive stock and stock
ownership plans 7,210 762 1,903 5,307
Cash dividends, $0.08 per share (3,109) (3,109)
------ --- ----- ------ --------- -------- -------
Balance at December 30, 2000 $ 427,192 39,618 $99,044 $513,645 $(144,468) $(41,029) $ -
========== ====== ======= ======== ========= ======== =======
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 30, 2000, December 25, 1999, and December 26, 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Fleming is an industry leader in the distribution of
consumable goods, and also has a growing presence in operating "price impact"
supermarkets. Our activities encompass two major businesses: distribution and
retail operations. Food and food-related product sales account for over 97
percent of our consolidated sales. Our largest customer accounts for
approximately 10 percent of our consolidated sales with the next largest
representing less than 2 percent.
Fiscal Year: Our fiscal year ends on the last Saturday in December. Fiscal 2000
was 53 weeks; 1999 and 1998 were 52 weeks. The impact of the additional week in
2000 is not material to the results of operations or financial position.
Basis of Presentation: The preparation of the consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Principles of Consolidation: The consolidated financial statements include all
subsidiaries. Material intercompany items have been eliminated. The equity
method of accounting is usually used for investments in certain entities in
which we have an investment in common stock of between 20% and 50% or such
investment is temporary. Under the equity method, original investments are
recorded at cost and adjusted by our share of earnings or losses of these
entities and for declines in estimated realizable values deemed to be other than
temporary.
Reclassifications: Certain reclassifications have been made to prior year
amounts to conform to current year classifications.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 - Revenue Recognition. SAB No. 101 provides guidance on
recognition, presentation and disclosure of revenue in financial statements. In
July 2000, the Financial Accounting Standards Board Emerging Issues Task Force
issued EITF 99-19 - Reporting Revenue Gross as a Principal versus Net as an
Agent. EITF 99-19 provides further guidance on reflecting revenue gross or net.
We adopted SAB No. 101 and EITF 99-19 in the fourth quarter of 2000. The
implementation had an impact on the classification of previously reported net
sales and cost of goods sold (ranging annually from $350 million to $400
million), but had no impact on earnings. Net sales and cost of goods sold have
been restated for all periods presented.
Basic and Diluted Net Loss Per Share: Both basic and diluted per share amounts
are computed based on net loss divided by weighted average shares as appropriate
for each calculation subject to anti-dilution limitations.
Taxes on Income: Deferred income taxes arise from temporary differences between
financial and tax bases of certain assets and liabilities.
Cash and Cash Equivalents: Cash equivalents consist of liquid investments
readily convertible to cash with an original maturity of three months or less.
The carrying amount for cash equivalents is a reasonable estimate of fair value.
Receivables: Receivables include the current portion of customer notes
receivable of $27 million in 2000 and $25 million in 1999. Receivables are shown
net of allowance for doubtful accounts of $34 million in 2000 and $32 million in
1999. We extend credit to our retail customers which are located over a broad
geographic base. Regional concentrations of credit risk are limited. Interest
income on impaired loans is recognized only when payments are received.
Inventories: Inventories are valued at the lower of cost or market. Grocery and
certain perishable inventories, aggregating approximately 70% of total
inventories in 2000 and 1999 are valued on a last-in, first-out (LIFO) method.
The cost for the remaining inventories is determined by the first-in, first-out
(FIFO) method. Current replacement cost of LIFO inventories was greater than the
carrying amounts by approximately $58 million at year-end 2000 ($13 million of
which is recorded in assets held for sale in current assets) and $54 million at
year-end 1999 ($4 million of which is recorded in assets held for sale in
current assets). In 2000 and 1999, the liquidation of certain LIFO layers
related to business closings decreased cost of products sold by approximately $7
million and $2 million, respectively.
Property and Equipment: Property and equipment are recorded at cost or, for
leased assets under capital leases, at the present value of minimum lease
payments. Depreciation, as well as amortization of assets under capital leases,
is based on the estimated useful asset lives using the straight-line method. The
estimated useful lives used in computing depreciation and amortization are:
buildings and major improvements - 20 to 40 years; warehouse, transportation and
other equipment - 3 to 10 years; and data processing equipment and software - 3
to 7 years.
Goodwill: The excess of purchase price over the fair value of net assets of
businesses acquired is amortized on the straight-line method over periods not
exceeding 40 years. Goodwill is shown net of accumulated amortization of $193
million and $184 million in 2000 and 1999, respectively.
Impairment: Asset impairments are recorded when the carrying amount of assets
are not recoverable. Impairment is assessed and measured, by asset type, as
follows: notes receivable - fair value of the collateral for each note; and,
long-lived assets, goodwill and other intangibles - estimate of the future cash
flows expected to result from the use of the asset and its eventual disposition
aggregated to the operating unit level for distribution and store level for
retail.
Financial Instruments: Interest rate hedge transactions and other financial
instruments have been utilized to manage interest rate exposure. The methods and
assumptions used to estimate the fair value of significant financial instruments
are discussed in the "Investments and Notes Receivable" and "Long-term Debt"
notes.
Stock-Based Compensation: We apply APB Opinion No. 25 - Accounting for Stock
Issued to Employees and related Interpretations in accounting for our plans.
Comprehensive Income: Comprehensive income is reflected in the Consolidated
Statements of Shareholders' Equity. Other comprehensive income is comprised of
foreign currency translation adjustments and minimum pension liability
adjustments. The cumulative effect of other comprehensive income is reflected in
the Shareholders' Equity section of the Consolidated Balance Sheets.
IMPAIRMENT/RESTRUCTURING CHARGE AND RELATED COSTS
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 strategic plan consisted of the following four major initiatives:
- Consolidate distribution operations. The strategic plan initially included
closing eleven operating units (El Paso, TX; Portland, OR; Houston, TX;
Huntingdon, PA; Laurens, IA; Johnson City, TN; Sikeston, MO; San Antonio,
TX; Buffalo, NY; and two other operating units scheduled for closure, but
not closed due to increased cash flows). Of the nine closings announced,
all were completed by the end of 2000. Three additional closings were
announced which were not originally part of the strategic plan bringing the
total operating units closed to twelve. The closing of Peoria was added to
the plan in the first quarter of 1999 when costs associated with continuing
to service customers during a strike coupled with costs of reopening the
operating unit made closing the operating unit an economically sound
decision. During the first quarter of 2000, the closings of York and
Philadelphia were announced as part of an effort to grow in the northeast
by consolidating distribution operations and expanding the Maryland
facility. The York and Philadelphia closings are complete. The last full
year of operations for the 12 operating units closed was in 1998 with sales
totaling approximately $3.1 billion. Most of these sales have been retained
by transferring customer business to our higher volume, better utilized
facilities. We believe that this consolidation process is benefiting
customers with improved buying opportunities. We have also benefited with
better coverage of fixed expenses. The closings have resulted in savings
due to reduced depreciation, payroll, lease and other operating costs, and
we began to recognize these savings immediately upon closure. The capital
returned from the divestitures and closings was reinvested in the business.
- Grow distribution sales. Higher volume, better-utilized distribution
operations represent an opportunity for sales growth. The improved
efficiency and effectiveness of the remaining distribution operations
enhances their competitiveness, and we have capitalized on these
improvements by adding $1.2 billion in annualized sales in 2000.
- Improve retail performance. This not only required divestiture or closing
of under-performing company-owned retail chains, but also required
increased investments in the retail concepts on which we are focused. As of
year-end 1999, the strategic plan included the divestiture or closing of
seven retail chains (Hyde Park, Consumers, Boogaarts, New York Retail,
Pennsylvania Retail, Baker's(TRADEMARK) Oklahoma, and Thompson Food
Basket(REGISTERED MARK)). The sale of Baker's(TRADEMARK) Oklahoma as well
as the divestiture or closing of Thompson Food Basket(REGISTERED MARK) was
added to the strategic plan because their format no longer fit into our
business strategy. The last full year of operations for these seven chains
was in 1998 with sales totaling approximately $844 million. The sale or
closing of these chains is substantially complete.
In April 2000, we announced the evaluation of strategic alternatives for
the remaining conventional retail chains (Rainbow Foods(REGISTERED MARK),
Baker's(TRADEMARK) Nebraska, Sentry(REGISTERED MARK) Foods, and ABCO
Foods(TRADEMARK). The evaluation was completed by the end of 2000 with the
decision to reposition certain retail operations into our price impact
format. The Rainbow Foods(REGISTERED MARK) chain reflected significant
improvements in sales and earnings and consequently, was retained. The
Minneapolis distribution center has been dedicated to supply the Rainbow
Foods(REGISTERED MARK) operation, with the supply of the division's
independent retailers moved to the LaCrosse and Superior divisions. We
recently sold 11 of the ABCO Foods(TRADEMARK) stores to Safeway, Inc. and
we currently have an agreement to sell the assets of the 16-store Baker's
chain to Kroger Co. We also plan to convert ten company-owned
Sentry(REGISTERED MARK) Foods stores to the value retail format and steps
are being taken to sell the remaining stores to existing and new
distribution customers. The last full year of operations for ABCO
Foods(TRADEMARK), Baker's(TRADEMARK) Nebraska and Sentry(REGISTERED MARK)
Foods was in 1999 with sales totaling approximately $1,415 million. We
expect to retain a substantial level of the distribution business for these
operations and expect to receive a total of approximately $200 million in
net proceeds from the sale of these stores.
- Reduce overhead and operating expenses. We reduced overhead through our low
cost pursuit program which includes organization and process changes, such
as reducing workforce, centralizing administrative and procurement
functions, and reducing the number of management layers. The low cost
pursuit program also includes other initiatives to reduce complexity in
business systems and remove non-value-added costs from operations, such as
reducing the number of SKU's, creating a single point of contact with
customers, reducing the number of decision points within Fleming, and
centralizing vendor negotiations. These initiatives have reduced costs
which ultimately improves profitability and competitiveness.
The plan, as expected, took two years to implement. Additional charges of
approximately $20 million will be incurred in 2001 due to the time involved to
finish selling and closing certain retail stores. 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 will be minimal exit costs.
The total pre-tax charge for the strategic plan through 2000 was $1,114 million
($313 million cash and $801 million non-cash). The plan originally announced in
December 1998 had an estimated pre-tax charge totaling $782 million. The result
was an increase in the estimate of the strategic plan of $332 million ($164
million cash and $168 million non-cash). The net increase is due primarily to
closing the Peoria, York and Philadelphia divisions ($104 million); updating
impairment amounts on the five retail chains in the original plan ($18 million);
the divestiture or closing of the two chains not in the original plan ($44
million); decreasing costs related to a scheduled closing no longer planned ($18
million); impairment amounts relating to the recent evaluation of conventional
retail ($125 million); and other costs including those related to our low cost
pursuit program and centralization of administrative functions ($59 million).
Updating the impairment amounts was necessary as decisions to sell, close or
convert additional operating units were made. There were changes in the list of
operating units to be divested or closed since they no longer fit into the
current business strategy. Also, the cost of severance, relocation and other
periodic expenses related to our low cost pursuit program and centralization of
administrative functions has been accrued as incurred.
The pre-tax charge for 2000 was $309 million. After tax, the expense for 2000
was $183 million or $4.71 per share. The $309 million charge in 2000 was
included on several lines of the Consolidated Statements of Operations as
follows: $2 million was included in net sales related primarily to rent income
impairment due to division closings; $57 million was included in cost of sales
and was primarily related to inventory valuation adjustments, moving and
training costs relating to procurement and product handling associates, and
additional depreciation and amortization on assets to be disposed of but not yet
held for sale; $37 million was included in selling and administrative expense
and equity investment results as disposition related costs recognized on a
periodic basis (such as moving and training costs related to the consolidation
of certain administrative functions); and the remaining $213 million was
included in the Impairment/restructuring charge line. The charge for 2000
consisted of the following components:
- Impairment of assets of $91 million. The impairment components were $3
million for goodwill and $88 million for other long-lived assets relating
to planned disposals and closures. All of the goodwill charge was related
to a three store retail acquisition.
- Restructuring charges of $122 million. The restructuring charges consisted
partly of severance related expenses and estimated pension withdrawal
liabilities for the closings of York and Philadelphia which were announced
during the first quarter of 2000 as part of an effort to grow in the
northeast by consolidating distribution operations and expanding the
Maryland facility. The charge included severance related expenses due to
the consolidation of certain administrative departments announced during
the second quarter of 2000. Additionally, the charge included severance
related expenses, estimated pension withdrawal liabilities and operating
lease liabilities for the divestiture and closing of certain conventional
retail stores evaluated during the second and third quarters of 2000. The
restructuring charges also consisted of professional fees incurred related
to the restructuring process.
- Other disposition and related costs of $96 million. These costs consisted
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 and other costs.
The charge for 2000 related to our business segments as follows: $99 million
relates to the distribution segment and $164 million relates to the retail
segment with the balance relating to support services expenses.
The pre-tax charge for 1999 was $137 million. After tax, the expense for 1999
was $92 million or $2.39 per share. The $137 million charge in 1999 was included
on several lines of the Consolidated Statements of Operations as follows: $18
million was included in cost of sales and was primarily related to inventory
valuation adjustments; $16 million was included in selling and administrative
expense and equity investment results as disposition related costs recognized on
a periodic basis; and the remaining $103 million was included in the
Impairment/restructuring charge line. The 1999 charge consisted of the following
components:
- Impairment of assets of $62 million. The impairment components were $36
million for goodwill and $26 million for other long-lived assets relating
to planned disposals and closures. Of the goodwill charge of $36 million,
$22 million related to the 1994 "Scrivner" acquisition with the remaining
amount related to two retail acquisitions.
- Restructuring charges of $41 million. The restructuring charges consisted
primarily of severance related expenses and estimated pension withdrawal
liabilities for the divested or closed operating units announced during
1999. The restructuring charges also consisted of operating lease
liabilities and professional fees incurred related to the restructuring
process.
- Other disposition and related costs of $34 million. These costs consisted
primarily of inventory markdowns for clearance for closed operations,
impairment of an investment, disposition related costs recognized on a
periodic basis and other costs.
The 1999 charge relates to our business segments as follows: $48 million relates
to the distribution segment and $70 million relates to the retail segment with
the balance relating to support services expenses.
The pre-tax charge for 1998 was $668 million. After tax, the expense was $543
million in 1998 or $14.33 per share. The $668 million charge was included on
several lines of the Consolidated Statements of Operations as follows: $9
million was included in cost of sales and was primarily related to inventory
valuation adjustments; $6 million was included in selling and administrative
expense as disposition related costs recognized on a periodic basis; and the
remaining $653 million was included in the Impairment/restructuring charge line.
The 1998 charge consisted of the following components:
- Impairment of assets of $590 million. The impairment components were $372
million for goodwill and $218 million for other long-lived assets. Of the
goodwill charge of $372 million, approximately 87% related to the 1989
"Malone & Hyde" acquisition and the 1994 "Scrivner" acquisition. The
remaining 13% related to various other smaller acquisitions, both retail
and wholesale.
- Restructuring charges of $63 million. The restructuring charges consisted
of severance related expenses and pension withdrawal liabilities for the
operating units and the retail chain announced during 1998. The
restructuring charges also consisted of operating lease liabilities for the
distribution operating units and the retail chain announced during 1998
plus the additional planned closings at that time.
- Other disposition and related costs of $15 million. These costs consist
primarily of professional fees, inventory valuation adjustments and other
costs.
The 1998 charge relates to our business segments as follows: $491 million
relates to the distribution segment and $153 million relates to the retail food
segment with the balance relating to support services expenses.
The charges related to workforce reductions are as follows:
($'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
======== =====
The ending liability of approximately $37 million represents payments over time
to associates already severed as well as union pension withdrawal liabilities.
The breakdown of the 5,610 headcount reduction recorded for 2000 is: 1,290 from
the distribution segment; 4,260 from the retail segment; and 60 from support
services.
Additionally, the strategic plan includes charges related to lease obligations
which will be utilized as operating units or retail stores close, but ultimately
reduced over remaining lease terms ranging from 1 to 20 years. The charges and
utilization have been recorded to-date as follows:
($'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
========
Asset impairments were recognized in accordance with SFAS No. 121 - Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and such assets were written down to their estimated fair values based on
estimated proceeds of operating units to be sold or discounted cash flow
projections. The operating costs of operating units to be sold or closed are
treated as normal operations during the period they remain in use. Salaries,
wages and benefits of employees at these operating units are charged to
operations during the time such employees are actively employed. Depreciation
expense is continued for assets that we are unable to remove from operations.
Assets held for sale, reflected on the balance sheet, consisted of $22 million
of distribution operating units and $144 million of retail stores as of year-end
2000 and $8 million of distribution operating units and $61 million of retail
stores as of year-end 1999. Gains on the sale of facilities for 2000 and 1999
totaled approximately $9 million and $6 million, respectively, and were included
in net sales. Also during 2000 and 1999, we recorded charges of approximately
$10 million and $31 million, respectively, related to the closing of certain
retail stores which were included in selling and administrative expense.
LITIGATION CHARGES
Furr's Supermarkets filed suit against us in 1997 claiming they were overcharged
for products. During 1997, Fleming and Furr's reached an agreement dismissing
all litigation between them. Pursuant to the settlement, Furr's purchased our El
Paso product supply center in 1998, together with related inventory and
equipment. As part of the settlement, we paid Furr's $1.7 million in 1997 and
$7.8 million in 1998 as a refund of fees and charges.
PER SHARE RESULTS
We did not reflect 1,220,000 weighted average potential shares for the 2000
diluted calculation or 364,000 weighted average potential shares for the 1999
diluted calculation because they would be antidilutive. Other options with
exercise prices exceeding market prices consisted of 4.4 million shares in 2000
and 3.8 million shares in 1999 of common stock at a weighted average exercise
price of $12.94 and $14.19 per share, respectively, that were not included in
the computation of diluted earnings per share because the effect would be
antidilutive.
SEGMENT INFORMATION
Considering the customer types and the processes for meeting the needs of
customers, senior management manages the business as two reportable segments:
distribution and retail operations.
The distribution segment sells food and non-food products (e.g., food, general
merchandise, health and beauty care, and Fleming Brands) to supermarkets,
convenience stores, supercenters, discount stores, limited assortment stores,
drug stores, specialty stores and other stores across the U.S. We also offer a
variety of retail support services to independently-owned and company-owned
retail stores. The aggregation is based primarily on the common customer base
and the interdependent marketing and distribution efforts.
Our senior management utilizes more than one measurement and multiple views of
data to assess segment performance and to allocate resources to the segments.
However, the dominant measurements are consistent with our consolidated
financial statements and, accordingly, are reported on the same basis herein.
Interest expense, interest income, equity investments, LIFO adjustments, support
services expenses, other unusual charges and income taxes are managed separately
by senior management and those items are not allocated to the business segments.
Intersegment transactions are reflected at cost.
The following table sets forth the composition of the segments' and total
company's net sales, operating earnings, depreciation and amortization, capital
expenditures and identifiable assets.
(In millions) 2000 1999 1998
------------- ---- ---- ----
Net Sales
Distribution $ 12,926 $ 12,718 $ 13,120
Intersegment elimination (1,757) (2,165) (2,031)
-------- -------- --------
Net distribution 11,169 10,553 11,089
Retail 3,275 3,719 3,589
-------- -------- --------
Total $ 14,444 $ 14,272 $ 14,678
======== ======== ========
Operating Earnings
Distribution $ 297 $ 290 $ 259
Retail 62 (2) 62
Support services (197) (112) (122)
-------- -------- --------
Total operating earnings 162 176 199
Interest expense (175) (165) (161)
Interest income 33 40 37
Equity investment results (8) (10) (12)
Litigation charges - - (8)
Impairment/restructuring charge (213) (103) (653)
-------- -------- --------
Loss before taxes $ (201) $ (62) $ (598)
======== ======== ========
Depreciation and Amortization
Distribution $ 105 $ 88 $ 107
Retail 57 64 61
Support Services 12 10 17
-------- -------- --------
Total $ 174 $ 162 $ 185
======== ======== ========
Capital Expenditures
Distribution $ 99 $ 53 $ 81
Retail
45 112 118
Support Services 7 1 1
-------- -------- --------
Total $ 151 $ 166 $ 200
======== ======== ========
Identifiable Assets
Distribution $ 2,499 $ 2,546 $ 2,524
Retail 681 848 697
Support Services 223 179 270
-------- -------- --------
Total $ 3,403 $ 3,573 $ 3,491
======== ======== ========
INCOME TAXES
Components of taxes on loss are as follows:
(In thousands) 2000 1999 1998
-------------- ---- ---- ----
Current:
Federal $ (23,291) $ (17,287) $ 23,896
State 10,082 (3,924) 5,737
--------- --------- ---------
Total current (13,209) (21,211) 29,633
--------- --------- ---------
Deferred:
Federal (41,123) 2,552 (94,254)
State (24,415) 806 (22,986)
--------- --------- ---------
Total deferred (65,538) 3,358 (117,240)
--------- --------- ---------
Taxes on loss $ (78,747) $ (17,853) $ (87,607)
========= ========= =========
Deferred tax expense (benefit) relating to temporary differences includes the
following components:
(In thousands) 2000 1999 1998
-------------- ---- ---- ----
Depreciation and amortization $ (39,106) $ (9,603) $ (64,132)
Inventory 4,313 7,019 (6,839)
Capital losses 452 (4,825) 251
Asset valuations and reserves 29,495 (18,114) 9,302
Equity investment results 8,837 (172) (403)
Credit losses 1,924 (4,527) (7,825)
Lease transactions (4,887) 7,996 (34,718)
Associate benefits (7,187) 31,700 3,200
Note sales (41) (139) (217)
Net operating loss carryforwards (62,951) - -
Other 3,613 (5,977) (15,859)
----- ------ -------
Deferred tax expense (benefit) $ (65,538) $ 3,358 $(117,240)
========= ========= =========
Temporary differences that give rise to deferred tax assets and liabilities as
of year-end 2000 and 1999 are as follows:
(In thousands) 2000 1999
-------------- ---- ----
Deferred tax assets:
Depreciation and amortization $ 57,740 $ 23,002
Asset valuations and reserve activities 21,772 48,559
Associate benefits 67,258 54,457
Credit losses 24,927 28,263
Equity investment results 2,522 9,983
Lease transactions 45,208 40,325
Inventory 26,918 26,342
Acquired loss carryforwards 0 67
Capital losses 8,152 9,372
Net operating loss carryforwards 62,951 0
Other 25,999 30,847
------- -------
Total deferred tax assets 343,447 271,217
------- -------
Deferred tax liabilities:
Depreciation and amortization 47,734 52,103
Equity investment results 4,857 3,482
Lease transactions 1,528 1,532
Inventory 61,757 56,867
Associate benefits 24,725 29,424
Asset valuations and reserve activities 5,480 2,772
Note sales 2,253 3,387
Prepaid expenses 3,277 3,874
Capital losses 320 1,088
Other 27,203 28,225
------- -------
Total deferred tax liabilities 179,134 182,754
------- -------
Net deferred tax asset $ 164,313 $ 88,463
========= =========
The change in net deferred tax asset from 1999 to 2000 is allocated $65.5
million to deferred income tax benefit and $10.3 million benefit to
stockholders' equity.
We have federal net operating loss carryforwards of approximately $122 million
and state net operating loss carryforwards of approximately $342 million that
are due to expire at various times through the year 2021. We also have
charitable contribution carryforwards of approximately $2 million that will
begin to expire in 2005. We believe it is more likely than not that all of our
deferred tax assets will be realized.
The effective income tax rates are different from the statutory federal income
tax rates for the following reasons:
2000 1999 1998
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 5.4 5.1 6.8
Acquisition-related differences (.5) 0.0 12.3
Other 2.5 (3.1) (.4)
--- ---- ---
Effective rate on operations 42.4% 37.0% 53.7%
Impairment/restructuring and
related charges (3.2) (8.5) (39.1)
---- ---- -----
Effective rate after impairment/
restructuring and related 39.2% 28.5% 14.6%
==== ==== ====
During 1999, we recorded interest income of $9 million related to refunds in
federal income taxes from prior years.
INVESTMENTS AND NOTES RECEIVABLE
Investments and notes receivable consist of the following:
(In thousands) 2000 1999
-------------- ---- ----
Investments in and advances to customers $ 7,452 $ 14,136
Notes receivable from customers 85,521 83,354
Other investments and receivables 11,493 11,405
------ ------
Investments and notes receivable $104,466 $108,895
======== ========
Investments and notes receivable are shown net of reserves of $26 million and
$23 million in 2000 and 1999, respectively. Sales to customers accounted for
under the equity method were approximately $0.2 billion, $0.3 billion and $0.6
billion in 2000, 1999 and 1998, respectively. Receivables include $4 million and
$8 million in 2000 and 1999, respectively, due from customers accounted for
under the equity method.
We extend long-term credit to certain retail customers. Loans are primarily
collateralized by inventory and fixtures. Interest rates are above prime with
terms up to 10 years.
Impaired notes receivable (including current portion) are as follows:
(In thousands) 2000 1999
-------------- ---- ----
Impaired notes with related allowances $ 45,711 $ 57,657
Credit loss allowance on impaired notes (20,101) (25,811)
Impaired notes with no related allowances 4,793 4,613
----- -----
Net impaired notes receivable $ 30,403 $ 36,459
======== ========
Average investments in impaired notes were as follows: 2000-$52 million;
1999-$65 million; and 1998-$59 million.
Activity in the allowance for credit losses is as follows:
(In thousands) 2000 1999 1998
-------------- ---- ---- ----
Balance, beginning of year $ 55,528 $ 47,232 $ 43,848
Charged to costs and expenses 28,872 25,394 23,498
Uncollectible accounts written off,
net of recoveries (24,682) (17,098) (20,114)
------- ------- -------
Balance, end of year $ 59,718 $ 55,528 $ 47,232
======== ======== ========
We sold certain notes receivable at face value with limited recourse in years
prior to 1998. The outstanding balance at year-end 2000 on all notes sold is $5
million, of which we are contingently liable for $3 million should all the notes
become uncollectible.
LONG-TERM DEBT
Long-term debt consists of the following:
(In thousands) 2000 1999
-------------- ---- ----
10 5/8% senior notes due 2001 $ 300,000 $ 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
7.7% for 2000 and 6.5% for 1999, due 2003 300,000 255,000
Term loans, due 2001 to 2004, average interest
rate of 7.8% for 2000 and 7.3% for 1999 154,421 197,594
Other debt 16,150 52,496
1,270,571 1,305,090
Less current maturities (38,171) (70,905)
------- -------
Long-term debt $1,232,400 $1,234,185
========== ==========
Five-year Maturities: Aggregate maturities of long-term debt for the next five
years are as follows: 2001-$38 million; 2002-$50 million; 2003-$347 million;
2004-$287 million; and 2005-$0.
The 10 5/8% $300 million senior notes were issued in 1994 and mature December
15, 2001. The 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.
On March 15, 2001, $355 million of 10 1/8% senior notes were issued and mature
on March 15, 2008. Most of the net proceeds were deposited with the trustee for
the 10 5/8% senior notes on March 15, 2001 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 and to defease our obligations under the indenture
governing these notes. The balance of the net proceeds was used to pay down our
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. Both the
10 5/8% and 10 1/8% senior notes are guaranteed by substantially all
subsidiaries (see -Subsidiary Guarantee of Senior Notes below).
The senior subordinated notes consist of two issues: $250 million of 10 1/2%
Notes due December 1, 2004 and $250 million of 10 5/8% Notes due July 31, 2007.
The subordinated notes are general unsecured obligations, subordinated in right
of payment to all existing and future senior indebtedness, and senior to or of
equal rank with all of our existing and future subordinated indebtedness.
On March 15, 2001, $150 million of 5.25% convertible senior subordinated notes
were issued and mature on March 15, 2009 and have a conversion price of $30.27
per share. The net proceeds were used to pay down the revolving credit facility.
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.
In July, 1997, we developed a senior secured credit facility which consists of a
$600 million revolving credit facility, with a final maturity of July 25, 2003,
and an amortizing term loan with a maturity of July 25, 2004. The term loan was
originally $250 million but has been paid down to $154 million. Up to $300
million of the revolver may be used for issuing letters of credit. Borrowings
and letters of credit issued under the new credit facility may be used for
general corporate purposes and are secured by a first priority security interest
in the accounts receivable and inventories of Fleming and our subsidiaries and
in the capital stock or other equity interests we own in our subsidiaries. In
addition, this credit facility is guaranteed by substantially all subsidiaries.
The stated interest rate on borrowings under the credit agreement is equal to a
referenced index interest rate, normally the London interbank offered interest
rate ("LIBOR"), plus a margin. The level of the margin is dependent on credit
ratings on our senior secured bank debt.
The credit agreement and the indentures under which other debt instruments were
issued contain customary covenants associated with similar facilities. The
credit agreement currently contains the following more significant financial
covenants: maintenance of a fixed charge coverage ratio of at least 1.7 to 1,
based on adjusted earnings, as defined, before interest, taxes, depreciation and
amortization and net rent expense; maintenance of a ratio of
inventory-plus-accounts receivable to funded bank debt (including letters of
credit) of at least 1.4 to 1; and a limitation on restricted payments, including
dividends, up to $71 million at year-end 2000, based on a formula tied to net
earnings and equity issuances. Under the credit agreement, new issues of certain
kinds of debt must have a maturity after January 2005. Covenants contained in
our indentures under which other debt instruments were issued are generally less
restrictive than those of the credit agreement. We are in compliance with all
financial covenants under the credit agreement and its indentures.
The credit facility may be terminated in the event of a defined change of
control. Under the indentures, noteholders may require us to repurchase notes in
the event of a defined change of control coupled with a defined decline in
credit ratings.
At year-end 2000, borrowings under the credit facility totaled $154 million in
term loans and $300 million of revolver borrowings, and $43 million of letters
of credit had been issued. Letters of credit are needed primarily for insurance
reserves associated with our normal risk management activities. To the extent
that any of these letters of credit would be drawn, payments would be financed
by borrowings under the credit agreement.
At year-end 2000, we would have been allowed to borrow an additional $257
million under the revolving credit facility contained in the credit agreement
based on the actual borrowings and letters of credit outstanding.
Medium-term Notes: Medium-term notes are included in other debt in the above
table. Between 1990 and 1993, we registered $565 million in medium-term notes
with a total of $275 million issued. The balances due at year-end 2000 and 1999
were $17 million and $53 million, respectively, with average interest rates of
7.8% for 2000 and 7.2% for 1999. The notes mature from 2001 to 2003.
Credit Ratings: On March 5, 2001, Moody's Investors Service ("Moody's")
announced it had upgraded its ratings for our various issues of long-term debt
essentially by one notch, and that it had changed its outlook from positive to
stable. On February 28, 2001, Standard & Poor's rating group ("S&P") announced
it had revised its outlook for its ratings from stable to positive. Giving
effect to these changes, the table below summarizes our credit ratings:
Moody's S&P
------- ---
Credit agreement loan Ba2 BB
Senior implied debt Ba3 BB-
Senior unsecured debt Ba3 B+
Senior subordinated notes B2 B
Outlook Stable Positive
Average Interest Rates: The average interest rate for total debt (including
capital lease obligations) before the effect of interest rate hedges was 9.5%
for 2000, versus 10.2% for 1999. Including the effect of interest rate hedges,
the average interest rate for total debt was 9.5% and 10.5% for 2000 and 1999,
respectively.
Interest Expense: Components of interest expense are as follows:
(In thousands) 2000 1999 1998
-------------- ---- ---- ----
Interest costs incurred:
Long-term debt $135,474 $127,271 $123,054
Capital lease obligations 39,609 36,768 37,542
Other 1,537 2,258 1,589
----- ----- -----
Total incurred 176,620 166,297 162,185
Less interest capitalized (2,051) (1,117) (604)
------ ------ ----
Interest expense $174,569 $165,180 $161,581
======== ======== ========
Derivatives: From time to time we may use interest rate hedge agreements with
the objective of managing interest costs and exposure to changing interest
rates. The classes of derivative financial instruments used have included
interest rate swap and cap agreements. The counterparties to these agreements
have been major U.S. and international financial institutions with credit
ratings higher than ours. Our policy regarding derivatives is to engage in a
financial risk management process to manage our defined exposures to uncertain
future changes in interest rates which impact net earnings. At fiscal year-end
2000, there were no interest rate hedge agreements outstanding.
The Financial Accounting Standards Board issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and became
effective on January 1, 2001. We revised our written policies regarding
financial derivatives, as needed, prior to the effective date. There was no
significant impact on our financial statements upon adopting the new standard.
Fair Value of Financial Instruments: The fair value of long-term debt was
determined using valuation techniques that considered market prices for actively
traded debt, and cash flows discounted at current market rates for management's
best estimate for instruments without quoted market prices. At year-end 2000,
the carrying value of total debt (excluding capital leases) was higher than the
fair value by $175 million, or 13.8% of the carrying value. Fair value was lower
than the carrying value at year-end 2000 primarily because our credit agreement
revolver and term loans were priced at borrowing margins set in 1997 which were
significantly below market prices in 2000. The fair value of our senior
subordinated notes was substantially below carrying value primarily because the
interest rates on this debt, which were set in 1997, were significantly below
market levels at year-end 2000. On March 7, 2001, the carrying value for our
debt was only 2.1% higher than fair value primarily because our credit agreement
borrowing margins have been increased and our perceived creditworthiness
improved due to the $50 million equity investment by an affiliate of Yucaipa
plus the anticipated economic benefits relating to the new Kmart strategic
alliance. At year-end 1999, the carrying value of debt was higher than the fair
value by $69 million, or 5.3% of the carrying value.
The fair value of notes receivable is comparable to the carrying value because
of the variable interest rates charged on certain notes and because of the
allowance for credit losses.
Subsidiary Guarantee of Senior Notes: The senior notes are guaranteed by all of
Fleming's direct and indirect subsidiaries (except for certain inconsequential
subsidiaries), all of which are wholly-owned. The guarantees are joint and
several, full, complete and unconditional. There are currently no restrictions
on the ability of the subsidiary guarantors to transfer funds to 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
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
=========== =========== =========== =========== ===========
December 25, 1999
---------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ (54,803) $ 61,307 $ 179 $ - $ 6,683
Receivables, net 405,076 90,128 955 - 496,159
Inventories 795,899 198,769 3,137 - 997,805
Other current assets 222,461 5,624 18 - 228,103
----------- ----------- ----------- ----------- -----------
Total current assets 1,368,633 355,828 4,289 - 1,728,750
Investment in subsidiaries 53,381 - - (53,381) -
Intercompany receivables 463,191 - - (463,191) -
Property and equipment, net 559,424 273,137 5,615 - 838,176
Goodwill, net 428,667 133,368 4,085 - 566,120
Other assets 369,500 70,646 26 - 440,172
----------- ----------- ----------- ----------- -----------
$ 3,242,796 $ 832,979 $ 14,015 $ (516,572) $ 3,573,218
=========== =========== =========== =========== ===========
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 859,694 $ 120,538 $ 987 $ - $ 981,219
Intercompany payables - 435,028 28,163 (463,191) -
Other current liabilities 246,010 56,258 232 - 302,500
----------- ----------- ----------- ----------- -----------
Total current liabilities 1,105,704 611,824 29,382 (463,191) 1,283,719
Obligations under capital leases 230,983 136,977 - - 367,960
Long-term debt and other
liabilities 1,345,407 15,395 35 - 1,360,837
Equity (deficit) 560,702 68,783 (15,402) (53,381) 560,702
----------- ----------- ----------- ----------- -----------
$ 3,242,796 $ 832,979 $ 14,015 $ (516,572) $ 3,573,218
=========== =========== =========== =========== ===========
CONDENSED CONSOLIDATING OPERATING STATEMENT INFORMATION
53 Weeks Ended December 30, 2000
---------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net sales $ 12,013,293 $ 3,768,333 $ 70,022 $ (1,407,833) $ 14,443,815
Costs and expenses:
Cost of sales 11,349,595 3,102,660 52,493 (1,407,833) 13,096,915
Selling and administrative 575,408 591,144 18,451 - 1,185,003
Other 100,721 46,796 2,424 - 149,941
Impairment/restructuring charge 155,813 56,971 61 - 212,845
Equity loss from subsidiaries 20,108 - - (20,108) -
------------ ----------- ------------ ------------ ------------
Total costs and expenses 12,201,645 3,797,571 73,429 (1,427,941) 14,644,704
------------ ----------- ------------ ------------ ------------
Income (loss) before taxes (188,352) (29,238) (3,407) 20,108 (200,889)
Taxes on income (loss) (66,210) (11,095) (1,442) - (78,747)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (122,142) $ (18,143) $ (1,965) $ 20,108 $ (122,142)
============ ============ ============ ============ ============
52 Weeks Ended December 25, 1999
---------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net sales $ 13,624,272 $ 1,043,109 $ 141,700 $ (537,045) $ 14,272,036
Costs and expenses:
Cost of sales 12,434,048 821,782 116,084 (537,045) 12,834,869
Selling and administrative 1,012,393 224,572 24,666 - 1,261,631
Other 112,593 19,400 3,112 - 135,105
Impairment/restructuring charge 101,058 1,954 - - 103,012
Equity loss from subsidiaries 16,896 - - (16,896) -
------------ ------------ ------------ ------------ ------------
Total costs and expenses 13,676,988 1,067,708 143,862 (553,941) 14,334,617
------------ ------------ ------------ ------------ ------------
Income (loss) before taxes (52,716) (24,599) (2,162) 16,896 (62,581)
Taxes on income (loss) (7,988) (8,949) (916) - (17,853)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (44,728) $ (15,650) $ (1,246) $ 16,896 $ (44,728)
============ ============ ============ ============ ============
52 Weeks Ended December 26, 1998
---------------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net sales $ 14,299,725 $ 377,970 $ 203,861 $ (203,652) $ 14,677,904
Costs and expenses:
Cost of sales 12,957,205 307,666 166,311 (203,652) 13,227,530
Selling and administrative 1,143,656 71,250 36,686 - 1,251,592
Other 139,033 1,881 3,333 - 144,247
Impairment/restructuring charge 608,378 26,495 17,864 - 652,737
Equity loss from subsidiaries 38,503 - - (38,503) -
------------ ------------ ------------ ------------ ------------
Total costs and expenses 14,886,775 407,292 224,194 (242,155) 15,276,106
------------ ------------ ------------ ------------ ------------
Income (loss) before taxes (587,050) (29,322) (20,333) 38,503 (598,202)
Taxes on income (loss) (76,455) (6,480) (4,672) - (87,607)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (510,595) $ (22,842) $ (15,661) $ 38,503 $ (510,595)
============ ============ ============ ============ ============
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
53 Weeks Ended December 30, 2000
-----------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net cash provided by operating activities $ 40,039 $ 86,008 $ 598 $ - $ 126,645
--------- --------- --------- ---------- ---------
Cash flows from investing activities:
Purchases of property and equipment (75,354) (60,221) (15,262) - (150,837)
Other 101,247 1,686 - - 102,933
--------- --------- --------- ---------- ---------
Net cash provided by (used in) investing
activities 25,893 (58,535) (15,262) - (47,904)
--------- --------- --------- ---------- ---------
Cash flows from financing activities:
Repayments on capital lease obligations (15,398) (5,490) - - (20,888)
Advances (to) from parent 60,912 (76,537) 15,625 - -
Other (34,156) - - - (34,156)
--------- --------- --------- ---------- ---------
Net cash provided by (used in) financing
activities 11,358 (82,027) 15,625 - (55,044)
--------- --------- --------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents 77,290 (54,554) 961 - 23,697
Cash and cash equivalents at beginning
of year (54,803) 61,307 179 - 6,683
--------- --------- --------- ---------- ---------
Cash and cash equivalents at end
of year $ 22,487 $ 6,753 $ 1,140 $ - $ 30,380
========= ========= ========= ========== =========
52 Weeks Ended December 25, 1999
-----------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net cash provided by (used in) operating
activities $ 86,780 $ 25,659 $ 5,178 $ - $ 117,617
--------- --------- --------- ----------- ---------
Cash flows from investing activities:
Purchases of property and equipment (121,414) (42,482) (2,443) - (166,339)
Other (51,214) 4,209 - - (47,005)
--------- --------- --------- ----------- ---------
Net cash used in investing activities (172,628) (38,273) (2,443) - (213,344)
--------- --------- --------- ----------- ---------
Cash flows from financing activities:
Repayments on capital lease obligations (18,101) (3,112) (320) - (21,533)
Advances (to) from parent (76,668) 78,853 (2,185) - -
Other 117,976 - - - 117,976
--------- --------- --------- ----------- ---------
Net cash provided by (used in) financing
activities 23,207 75,741 (2,505) - 96,443
--------- --------- --------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents (62,641) 63,127 230 - 716
Cash and cash equivalents at beginning
of year 7,838 (1,820) (51) - 5,967
--------- --------- --------- ----------- ---------
Cash and cash equivalents at end of year $ (54,803) $ 61,307 $ 179 $ - $ 6,683
========= ========= ========= =========== =========
52 Weeks Ended December 26, 1998
-----------------------------------------------------------------
Parent Non-
Company Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
(In thousands)
Net cash provided by (used in) operating
activities $ 148,865 $ 7,789 $ (15,575) $ - $ 141,079
--------- --------- --------- ---------- ---------
Cash flows from investing activities:
Purchases of property and equipment (191,357) (5,571) (3,283) - (200,211)
Other 35,551 1,348 - - 36,899
--------- --------- --------- ---------- ---------
Net cash used in investing activities (155,806) (4,223) (3,283) - (163,312)
--------- --------- --------- ---------- ---------
Cash flows from financing activities:
Repayments on capital lease obligations (12,470) (589) (297) - (13,356)
Advances (to) from parent (10,046) (8,181) 18,227 - -
Other 11,240 - - - 11,240
--------- --------- --------- ---------- ---------
Net cash provided by (used in) financing
activities (11,276) (8,770) 17,930 - (2,116)
--------- --------- --------- ---------- ---------
Net decrease in cash and cash equivalents (18,217) (5,204) (928) - (24,349)
Cash and cash equivalents at beginning
of year 26,054 3,385 877 - 30,316
--------- --------- --------- ---------- ---------
Cash and cash equivalents at end of year $ 7,837 $ (1,819) $ (51) $ - $ 5,967
========= ========= ========= ========== =========
LEASE AGREEMENTS
Capital And Operating Leases: We lease certain distribution facilities with
terms generally ranging from 20 to 35 years, while lease terms for other
operating facilities range from 1 to 15 years. The leases normally provide for
minimum annual rentals plus executory costs and usually include provisions for
one to five renewal options of five years each.
We lease company-owned store facilities with terms generally ranging from 15 to
20 years. These agreements normally provide for contingent rentals based on
sales performance in excess of specified minimums. The leases usually include
provisions for one to four renewal options of two to five years each. Certain
equipment is leased under agreements ranging from two to eight years with no
renewal options.
Accumulated amortization related to leased assets under capital leases was $59
million and $38 million at year-end 1999 and 2000, respectively.
Future minimum lease payment obligations for leased assets under capital leases
as of year-end 2000 are set forth below:
(In thousands) Lease
Years Obligations
----- -----------
2001 $ 37,889
2002 36,995
2003 37,187
2004 37,066
2005 37,628
Later 140,308
-------
Total minimum lease payments 327,073
Less estimated executory costs (50,042)
-------
Net minimum lease payments 277,031
Less interest (60,237)
-------
Present value of net minimum lease payments 216,794
Less current obligations (9,194)
-------
Long-term obligations $207,600
========
Future minimum lease payments required at year-end 2000 under operating leases
that have initial noncancelable lease terms exceeding one year are presented in
the following table:
(In thousands)
Facility Facilities Equipment Net
Years Rentals Subleased Rentals Rentals
----- ------- --------- ------- -------
2001 $ 150,123 $ (69,768) $ 13,453 $ 93,808
2002 137,987 (60,986) 9,575 86,576
2003 126,293 (53,469) 4,273 77,097
2004 70,382 113,833 (45,035) 1,584
2005 99,759 (40,878) 314 59,195
Later 296,983 (116,352) - 180,631
------- -------- ------- -------
Total lease
payments $ 924,978 $(386,488) $ 29,199 $ 567,689
========= ========= ========= =========
The following table shows the composition of annual net rental expense under
noncancelable operating leases and subleases with initial terms of one year or
greater:
(In thousands) 2000 1999 1998
-------------- ---- ---- ----
Operating activity:
Rental expense $ 76,118 $ 95,760 $100,238
Contingent rentals 902 1,329 1,971
Less sublease income (9,014) (9,868) (7,349)
------ ------ ------
68,006 87,221 94,860
------ ------ ------
Financing activity:
Rental expense 68,747 64,107 70,914
Less sublease income (66,757) (68,442) (63,920)
------- ------- -------
1,990 (4,335) 6,994
----- ------ -----
Net rental expense $ 69,996 $ 82,886 $101,854
======== ======== ========
We reflect net financing activity, as shown above, as a component of net sales.
Direct Financing Leases: We lease retail store facilities with terms generally
ranging from 15 to 20 years which are subsequently subleased to customers. Most
leases provide for a percentage rental based on sales performance in excess of
specified minimum rentals. The leases usually contain provisions for one to four
renewal options of five years each. The sublease to the customer is normally for
an initial five-year term with automatic five-year renewals at our discretion,
which corresponds to the length of the initial term of the prime lease.
The following table shows the future minimum rentals receivable under direct
financing leases and future minimum lease payment obligations under capital
leases in effect at year-end 2000:
(In thousands) Lease Rentals Lease
Years Receivable Obligations
----- ---------- -----------
2001 $ 32,714 $ 30,004
2002 26,181 29,877
2003 22,420 28,757
2004 19,532 27,938
2005 17,300 27,231
Later 55,123 92,109
------ ------
Total minimum lease payments 173,270 235,916
Less estimated executory costs (14,353) (20,888)
------- -------
Net minimum lease payments 158,917 215,028
Less interest (43,420) (32,917)
------- -------
Present value of net minimum lease payments 115,497 182,111
Less current portion (13,486) (12,472)
------- -------
Long-term portion $102,011 $169,639
======== ========
Contingent rental income and contingent rental expense are not material.
SHAREHOLDERS' EQUITY
Fleming offers a Dividend Reinvestment and Stock Purchase Plan which provides
shareholders the opportunity to automatically reinvest their dividends in common
stock at a 5% discount from market value. Shareholders also may purchase shares
at market value by making cash payments up to $5,000 per calendar quarter. Such
programs resulted in issuing 31,000 and 54,000 new shares in 2000 and 1999,
respectively.
Our employee stock ownership plan (ESOP) established in 1990 allows
substantially all associates to participate. In 1990, the ESOP entered into a
note with a bank to finance the purchase of the shares. In 1994, we paid off the
note and received a note from the ESOP. The ESOP completed payments of the loan
balance to us in 1999.
We made contributions to the ESOP based on fixed debt service requirements of
the ESOP note. Such contributions were approximately $2 million in 1999, $2.5
million in 1998, and $2 million in 1997. The ESOP note was paid off in 1999
therefore there were no contributions in 2000. Dividends used by the ESOP for
debt service and interest and compensation expense were not material.
We issue shares of restricted stock to key employees under plans approved by the
stockholders. Periods of restriction and/or performance goals are established
for each award.
The fair value of the restricted stock at the time of the grant is recorded as
unearned compensation - restricted stock which is netted against capital in
excess of par within shareholders' equity. Compensation is amortized to expense
when earned. At year-end 2000, 363,546 shares remained available for award under
all plans.
Information regarding restricted stock balances is as follows (in thousands):
2000 1999
---- ----
Awarded restricted shares outstanding 746 441
=== ===
Unearned compensation - restricted stock $1,232 $3,503
====== ======
We may grant stock options to key employees through stock option plans,
providing for the grant of incentive stock options and non-qualified stock
options. The stock options have a maximum term of 10 years and have time and/or
performance based vesting requirements. At year-end 2000, there were
approximately 1,848,000 shares available for grant under the unrestricted stock
option plans. Subsequent to year end, approximately 61,500 stock options were
granted.
Stock option transactions for the three years ended December 30, 2000 are as
follows:
Weighted Average
(Shares in thousands) Shares Exercise Price Price Range
--------------------- ------ -------------- -----------
Outstanding, year-end 1997 2,266 $ 22.65 $16.38 - 38.38
Granted 550 10.18 $ 9.72 - 18.19
Exercised (3) 16.38 $16.38 - 16.38
Canceled and forfeited (403) 25.40 $16.38 - 37.06
---- ----- ------ -----
Outstanding, year-end 1998 2,410 $ 19.35 $ 9.72 - 38.38
Granted 2,339 9.80 $ 7.53 - 12.25
Canceled and forfeited (968) 16.53 $ 7.53 - 38.38
---- ----- ------ -----
Outstanding, year-end 1999 3,781 $ 14.19 $ 7.53 - 38.38
Granted 1,586 12.79 $ 8.94 - 17.22
Exercised (59) 9.69 $ 7.53 - 11.72
Canceled and forfeited (897) 18.13 $ 7.53 - 37.06
---- ----- ------ -----
Outstanding, year-end 2000 4,411 $ 12.94 $ 7.53 - 38.38
===== ========= ====== =====
Information regarding options outstanding at year-end 2000 is as follows:
All Options
Outstanding Currently
(Shares in thousands) Options Exercisable
--------------------- ------- -----------
Option price $28.38 - $37.06:
Number of options 3 1
Weighted average exercise price 28.38 28.38
Weighted average remaining life in years 4 -
Option price $19.75 - $26.44:
Number of options 413 193
Weighted average exercise price 24.76 24.54
Weighted average remaining life in years 3 -
Option price $7.53 - $17.50:
Number of options 3,987 1,142
Weighted average exercise price 11.63 12.38
Weighted average remaining life in years 8 -
In the event of a change of control, the vesting of all awards will accelerate.
We apply APB Opinion No. 25 - Accounting for Stock Issued to Employees, and
related Interpretations in accounting for our plans. Total compensation cost
recognized in income for stock based employee compensation awards was
$3,159,000, $1,388,000 and $3,160,000 for 2000, 1999 and 1998, respectively. If
compensation cost had been recognized for the stock-based compensation plans
based on fair values of the awards at the grant dates consistent with the method
of SFAS No. 123 - Accounting for Stock-Based Compensation, reported net earnings
(loss) and earnings (loss) per share would have been $(124.7) million and
$(3.22) for 2000, $(46.6) million and $(1.22) for 1999, and $(511.7) million and
$(13.48) for 1998, respectively. The weighted average fair value on the date of
grant of the individual options granted during 2000, 1999 and 1998 was estimated
at $7.90, $5.08 and $4.82, respectively.
Significant assumptions used to estimate the fair values of awards using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 2000, 1999 and 1998 are: risk-free interest rate - 4.50% to
7.00%; expected lives of options - 10 years; expected volatility - 30% to 50%;
and expected dividend yield of 0.5% to 0.9%.
ASSOCIATE RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
Fleming sponsors pension and postretirement benefit plans for substantially all
non-union and some union associates.
Benefit calculations for our defined benefit pension plans are primarily a
function of years of service and final average earnings at the time of
retirement. Final average earnings are the average of the highest five years of
compensation during the last 10 years of employment. We fund these plans by
contributing the actuarially computed amounts that meet funding requirements.
Substantially all the plans' assets are invested in listed securities,
short-term investments, bonds and real estate.
We also have unfunded nonqualified supplemental retirement plans for selected
associates.
We offer a comprehensive major medical plan to eligible retired associates who
meet certain age and years of service requirements. This unfunded defined
benefit plan generally provides medical benefits until Medicare insurance
commences.
The following table provides a reconciliation of benefit obligations, plan
assets and funded status of the plans mentioned above.
Other
(In thousands) Pension Benefits Postretirement Benefits
-------------- ---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Change in benefit obligation:
Balance at beginning of year $ 375,603 $ 418,604 $ 15,213 $ 16,503
Service cost 9,940 14,163 124 177
Interest cost 28,924 26,511 964 1,020
Plan participants' contributions - - 773 837
Actuarial gain/loss 20,118 (53,098) 604 2,006
Benefits paid (29,181) (30,577) (4,585) (5,330)
--------- --------- --------- ---------
Balance at end of year $ 405,404 $ 375,603 $ 13,093 $ 15,213
========= ========= ========= =========
Change in plan assets:
Fair value at beginning of year $ 331,862 $ 316,539 $ - $ -
Actual return on assets (10,968) 39,608 - -
Employer contribution 28,535 6,292 4,585 5,330
Benefits paid (29,181) (30,577) (4,585) (5,330)
--------- --------- --------- ---------
Fair value at end of year $ 320,248 $ 331,862 $ - $ -
========= ========= ========= =========
Funded status $ (85,156) $ (43,741) $ (13,093) $ (15,213)
Unrecognized actuarial loss 109,585 53,401 5,937 5,564
Unrecognized prior service cost 899 1,190 - -
Unrecognized net transition asset (53) (320) - -
--------- --------- --------- ---------
Net amount recognized $ 25,275 $ 10,530 $ (7,156) $ (9,649)
========= ========= ========= =========
Amounts recognized in the
consolidated balance sheet:
Prepaid benefit cost $ 8,302 $ 26,314 $ - $ -
Accrued benefit liability (52,181) (33,028) (7,156) (9,649)
Intangible asset 773 958 - -
Accumulated other
comprehensive income 68,381 16,286 - -
--------- --------- --------- ---------
Net amount recognized $ 25,275 $ 10,530 $ (7,156) $ (9,649)
========= ========= ========= =========
The following assumptions were used for the plans mentioned above.
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Discount rate 7.50% 7.50% 7.50% 7.50%
Expected return on plan assets 9.00% 9.50% - -
assets
Rate of compensation increase 4.50% 4.00% - -
increase
Net periodic pension and other postretirement benefit costs include the
following components:
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
(In thousands) 2000 1999 1998 2000 1999 1998
-------------- ---- ---- ---- ---- ---- ----
Service cost $ 9,940 $ 14,163 $ 12,981 $ 124 $ 177 $ 139
Interest cost 28,924 26,511 25,334 964 1,020 1,052
Expected return
on plan assets (29,527) (29,257) (25,234) - - -
Amortization of
actuarial loss 4,429 11,134 9,105 231 222 -
Amortization of
prior service cost 292 291 354 - - -
Amortization of
net transition asset (268) (268) (268) - - -
---- ---- ---- --- --- ---
Net periodic
benefit cost $ 13,790 $ 22,574 $ 22,272 $ 1,319 $ 1,419 $ 1,191
======== ======== ======== ======== ======== ========
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $405 million, $370 million, and $320 million,
respectively, as of December 30, 2000, and $376 million, $341 million, and $332
million, respectively, as of December 25, 1999.
For measurement purposes in 2000 and 1999, a 9.0% annual rate of increase in the
per capita cost of covered medical care benefits was assumed. The rate was
assumed to remain constant for both the measurement year and following year,
then grade down by 0.5% per year until reaching 5.0%, then remain constant
thereafter. For the 2000 and 1999 measurement years, the ultimate trend rate was
realized at the year 2009 and 2008, respectively.
The effect of a one-percentage point increase in assumed medical cost trend
rates would have increased the accumulated postretirement benefit obligation as
of December 31, 2000 from $13.0 to $13.8 million, and increased the total of the
service cost and interest cost components of the net periodic cost from $1.09
million to $1.14 million. The effect of a one-percentage point decrease in
assumed medical cost trend rates would have decreased the accumulated
postretirement benefit obligation as of December 31, 2000 from $13.0 to $12.5
million, and decreased the total of the service cost and interest cost
components of the net periodic cost from $1.09 million to $1.04 million.
In some of the retail operations, contributory profit sharing plans were
maintained for associates who meet certain types of employment and length of
service requirements. These plans were discontinued at the beginning of 2000.
Contributions under these defined contribution plans were made at the discretion
of the Board of Directors and totaled $3 million in both 1999 and 1998.
Beginning in 2000, we changed our benefit plans to offer a matching 401(k) plan
to associates in addition to the pension plan previously offered. The pension
plan was continued, but with a reduced benefit formula. The new plan was also
offered to an increased number of associates. Under the plan, we annually commit
to a minimum funding into the plan, match 100% of the first 2% of the employee's
contribution, and match 25% of the next 4% of the employee's contribution for a
maximum match contribution of 3% of the employee's base salary.
Certain associates have pension and health care benefits provided under
collectively bargained multi-employer agreements. Expenses for these benefits
were $76 million, $77 million and $80 million for 2000, 1999 and 1998,
respectively.
SUPPLEMENTAL CASH FLOWS INFORMATION
(In thousands) 2000 1999 1998
-------------- ---- ---- ----
Acquisitions:
Fair value of assets acquired $ 18,529 $ 78,607 $ 32,080
Less:
Liabilities assumed or created 11,181 - 1,792
Cash acquired 28 167 63
-- --- --
Cash paid, net of cash acquired $ 7,320 $ 78,440 $ 30,225
========= ========= =========
Cash paid during the year for:
Interest, net of amounts capitalized $ 175,246 $ 165,676 $ 182,449
========= ========= =========
Income taxes, net of refunds $ (71,529) $ 14,863 $ 23,822
========= ========= =========
Direct financing leases and
related obligations $ 47,195 $ 45,645 $ 9,349
========= ========= =========
Property and equipment
additions by capital leases $ 32,660 $ 45,220 $ 70,684
========= ========= =========
CONTINGENCIES
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 litigation, 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
litigation 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, and briefing
is presently under way in the Court of Appeals for the Tenth Circuit. 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 have 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.
Based upon some preliminary assumptions, plaintiffs' economic experts in the
noteholder case have estimated "baseline" damages to be approximately $10
million and pre-judgment interest of approximately $3 million.
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 against the 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 current and former customers of the
company (Don's United Super, et al. v. Fleming, et al.). The 18 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 suit
(Coddington Enterprises, Inc., et al. v. Fleming, et al.). Currently, 16
plaintiffs are asserting claims in the Coddington suit, all but one of which
have arbitration agreements with us. The plaintiffs assert claims virtually
identical to those set forth in the Don's suit, 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 suit.
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 district court's denial of arbitration to the Eighth Circuit
Court of Appeals. The two plaintiffs who were ordered to arbitration have filed
motions asking the district court to reconsider the arbitration ruling.
Two other cases had been filed before the Don's case in the same district 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 Eastern 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 Western District of Missouri for
coordinated or consolidated pre-trial proceedings.
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.
On March 2, 2001, the court ordered the parties in the Missouri cases, the
Storehouse Markets cases and the Welsh case to mediate the dispute within 45
days of the order.
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 current and former customers of the company (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.
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 permission to appeal
the class certification order, and we are pursuing that appeal on an expedited
basis. Oral argument of the appeal is set for March 14, 2001.
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 Western District of Missouri for
coordinated or consolidated pre-trial proceedings.
Damages have not been quantified by the plaintiffs; however, we anticipate that
substantial damages will be claimed. 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.
On March 2, 2001, the court ordered the parties in the Missouri cases, the
Storehouse Markets cases and the Welsh case to mediate the dispute within 45
days of the order.
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 Missouri cases, the
Storehouse Markets cases and the Welsh case to mediate the dispute within 45
days of the order.
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 herein, we do not
believe that any such claim will have a material adverse effect on us.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Fleming Companies, Inc.
We have audited the accompanying consolidated balance sheets of Fleming
Companies, Inc. and subsidiaries as of December 30, 2000 and December 25, 1999,
and the related consolidated statements of operations, cash flows, and
shareholders' equity for each of the three years in the period ended December
30, 2000. Our audits also included the financial statement schedule listed in
the index at item 14. These financial statements and financial statement
schedule are the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Fleming Companies,
Inc. and subsidiaries at December 30, 2000, and December 25, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
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)
QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
(Unaudited)
2000 First Second Third Fourth Year
---- ----- ------ ----- ------ ----
Net sales $ 4,331,498 $ 3,289,878 $ 3,197,655 $ 3,624,784 $ 14,443,815
Costs and expenses (income):
Cost of sales 3,914,824 2,998,624 2,894,341 3,289,126 13,096,915
Selling and
administrative 372,307 261,374 258,103 293,219 1,185,003
Interest expense
53,101 38,447 40,111 42,910 174,569
Interest income (9,505) (9,340) (6,322) (7,495) (32,662)
Equity investment
results 1,891 1,694 2,097 2,352 8,034
Impairment/
restructuring charge 42,145 21,013 83,356 66,331 212,845
------------ ------------ ------------ ------------ ------------
Total costs and expenses 4,374,763 3,311,812 3,271,686 3,686,443 14,644,704
------------ ------------ ------------ ------------ ------------
Loss before taxes (43,265) (21,934) (74,031) (61,659) (200,889)
Taxes on loss (17,392) (8,585) (28,472) (24,298) (78,747)
------------ ------------ ------------ ------------ ------------
Net loss $ (25,873) $ (13,349) $ (45,559) $ (37,361) $ (122,142)
============ ============ ============ ============ ============
Basic and diluted net
loss per share $ (.67) $ (.35) $ (1.17) $ (.96) $ (3.15)
============ ============ ============ ============ ============
Dividends paid
per share $ .02 $ .02 $ .02 $ .02 $ .08
============ ============ ============ ============ ============
Weighted average
shares outstanding:
Basic 38,515 38,576 38,902 38,934 38,716
============ ============ ============ ============ ============
Diluted 38,515 38,576 38,902 38,934 38,716
============ ============ ============ ============ ============
1999 First Second Third Fourth Year
---- ----- ------ ----- ------ ----
Net sales $ 4,348,689 $ 3,259,368 $ 3,160,642 $ 3,503,337 $ 14,272,036
Costs and expenses (income):
Cost of sales 3,920,311 2,932,160 2,824,199 3,158,199 12,834,869
Selling and
administrative 376,995 286,565 291,990 306,081 1,261,631
Interest expense 51,606 38,647 36,987 37,940 165,180
Interest income (9,350) (6,894) (7,075) (16,999) (40,318)
Equity investment results 3,556 2,415 2,431 1,841 10,243
Impairment/
restructuring charge 37,036 6,169 36,151 23,656 103,012
------------ ------------ ------------ ------------ ------------
Total costs and expenses 4,380,154 3,259,062 3,184,683 3,510,718 14,334,617
------------ ------------ ------------ ------------ ------------
Earnings (loss)
before taxes (31,465) 306 (24,041) (7,381) (62,581)
Taxes on income (loss) (7,224) 2,644 (9,695) (3,578) (17,853)
------------ ------------ ------------ ------------ ------------
Net loss $ (24,241) $ (2,338) $ (14,346) $ (3,803) $ (44,728)
============ ============ ============ ============ ============
Basic and diluted net
loss per share $ (.64) $ (.06) $ (.37) $ (.10) $ (1.17)
============ ============ ============ ============ ============
Dividends paid
per share $ .02 $ .02 $ .02 $ .02 $ .08
============ ============ ============ ============ ============
Weighted average
shares outstanding:
Basic 38,143 38,204 38,459 38,470 38,305
============ ============ ============ ============ ============
Diluted 38,143 38,204 38,459 38,470 38,305
============ ============ ============ ============ ============
Sales and cost of sales have been restated for the first three quarters of 2000
due to the adoption of SAB No. 101 and EITF 99-19 during the fourth quarter of
2000: quarter 1 - $113 million, quarter 2 - $96 million, quarter 3 - $91
million. There was no impact on earnings. Each quarter of 2000 included charges
related to our strategic plan: quarter 1 - $64 million pre-tax, $38 million
after-tax, $.98 per share; quarter 2 - $46 million pre-tax, $27 million
after-tax, $.71 per share; quarter 3 - $101 million pre-tax, $60 million
after-tax, $1.53 per share; quarter 4 - $98 million pre-tax, $58 million
after-tax, $1.49 per share; full year - $309 million pre-tax, $183 million
after-tax, $4.72 per share. The third quarter also included one-time items ($10
million charge related primarily to asset impairment on retail stores, income of
$2 million relating to litigation settlements, and $9 million in gains from the
sale of distribution facilities) netting to less than $1 million of income ($1
million after-tax or $.04 per share). The full year impact of the strategic plan
charge and one-time items is $309 million pre-tax, $184 million after-tax or
$4.71 per share (includes a $.05 per share impact due to converting from basic
to diluted weighted average shares).
Sales and cost of sales have been restated for each quarter of 1999 due to the
adoption of SAB No. 101 and EITF 99-19 during the fourth quarter of 2000:
quarter 1 - $117 million, quarter 2 - $90 million, quarter 3 - $82 million,
quarter 4 - $85 million, full year - $374 million. There was no impact on
earnings. Each quarter of 1999 included charges related to our strategic plan:
quarter 1 - $46 million pre-tax, $32 million after-tax, $.84 per share; quarter
2 - $16 million pre-tax, $12 million after-tax, $.31 per share; quarter 3 - $45
million pre-tax, $28 million after-tax, $.73 per share; quarter 4 - $30 million
pre-tax, $20 million after-tax, $.50 per share; full year - $137 million
pre-tax, $92 million after-tax, $2.39 per share. The third quarter also included
a one-time item for gains on the sale of facilities of approximately $6 million
pre-tax ($3 million after-tax or $.09 per share). The fourth quarter included
one-time items ($31 million charge to close 10 conventional retail stores,
income of $22 million from extinguishing a portion of the self-insured workers'
compensation liability, and interest income of $9 million related to refunds in
federal income taxes from prior years) netting to less than $1 million of income
(less than $1 million after-tax with no impact per share). The full year impact
of the strategic plan charge and one-time items is $131 million pre-tax, $88
million after-tax or $2.29 per share (includes a $.01 per share impact due to
converting from basic to diluted weighted average shares).
During the fourth quarter of 2000 we adopted EITF 99-19 and restated sales and
cost of sales for all prior periods. The adoption had no effect on gross margins
or earnings. The first quarter of both years consists of 16 weeks; all other
quarters are 12 weeks, except for quarter 4, 2000 which is 13 weeks.
(a) 2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts Filed here within
(a) 3. Exhibits:
Page Number or
Exhibit Incorporation by
Number Reference to
------ ------------
3.1 Certificate of Incorporation Exhibit 3.1 to
Form 10-Q for
quarter ended
April 17, 1999
3.2 By-Laws Exhibit 3.2 to
Form
10-Q for quarter
ended April 17,
1999
4.0 Credit Agreement, dated as of Exhibit 4.16 to
July 25, 1997, among Fleming Form 10-Q for
Companies, Inc., the Lenders quarter ended
party thereto, BancAmerica July 12, 1997
Securities, Inc., as syndication
agent, Societe Generale, as
documentation agent and The Chase
Manhattan Bank, as administrative
agent
4.1 Security Agreement dated as of Exhibit 4.17 to
July 25, 1997, between Fleming Form 10-Q for
Companies, Inc., the company quarter ended
subsidiaries party thereto and July 12, 1997
The Chase Manhattan Bank, as
collateral agent
4.2 Pledge Agreement, dated as of Exhibit 4.18 to
July 25, 1997, among Fleming Form 10-Q for
Companies, Inc., the company quarter ended
subsidiaries party thereto and July 12, 1997
The Chase Manhattan Bank, as
collateral agent
4.3 Guarantee Agreement among the Exhibit 4.19 to
company subsidiaries party Form 10-Q for
thereto and The Chase Manhattan quarter ended
Bank, as collateral agent July 12, 1997
4.4 Indenture dated as of Exhibit 4.5 to
December 15, 1994, among Fleming, Registration
the Subsidiary Guarantors named Statement No. 33-
therein and Texas Commerce Bank 55369
National Association, as Trustee,
regarding $300 million of 10-5/8%
Senior Notes
4.5 Indenture, dated as of July 25, Exhibit 4.20 to
1997, among Fleming Companies, Form 10-Q for
Inc., the Subsidiary Guarantors quarter ended
named therein and Manufacturers July 12, 1997
and Traders Trust Company, as
Trustee, regarding 10-5/8% Senior
Subordinated Notes due 2007
4.6 Indenture, dated as of July 25, Exhibit 4.21 to
1997, among Fleming Companies, Form 10-Q for
Inc., the Subsidiary Guarantors quarter ended
named therein and Manufacturers July 12, 1997
and Traders Trust Company
regarding 10-1/2% Senior
Subordinated Notes due 2004
4.7 First Amendment, dated as of Exhibit 4.8 to
October 5, 1998, to Credit Form 10-Q for
Agreement dated July 25, 1997 quarter ended
October 3, 1998
4.8 Second Amendment dated as of Exhibit 4.9 to
December Form
21, 1999 to Credit Agreement 10-Q for quarter
dated ended April 15,
July 25, 1997 2000
4.9 Agreement to furnish copies of **
other long-term debt instruments
10.0 Dividend Reinvestment and Stock Exhibit 28.1 to
Purchase Plan, as amended Registration
Statement No. 33-
26648 and
Exhibit 28.3 to
Registration
Statement No. 33-
45190
10.1* 1990 Stock Option Plan Exhibit 28.2 to
Registration
Statement No. 33-
36586
10.2* Form of Option Agreement for 1990 Exhibit 10.2 to
Stock Option Plan Form 10-K for
year ended
December 25,
1999
10.3* Form of Restricted Stock Award Exhibit 10.5 to
Agreement for 1990 Stock Option Form 10-K for
Plan (1997) year ended
December 27,
1997
10.4* Fleming Management Incentive Exhibit 10.4 to
Compensation Plan Registration
Statement No. 33-
51312
10.5* Form of Amended and Restated Exhibit 10.5 to
Severance Agreement between the Form 10-K for
Registrant and certain of its year ended
officers December 25,
1999
10.6* Fleming Companies, Inc. 1996 Exhibit A to
Stock Incentive Plan dated Proxy Statement
February 27, 1996 for year ended
December 30,
1995
10.7* Form of Restricted Award Exhibit 10.12 to
Agreement for 1996 Stock Form 10-K for
Incentive Plan (1997) year ended
December 27,
1997
10.8* Phase III of Fleming Companies, Exhibit 10.8 to
Inc. Stock Incentive Plan Form 10-K for
year ended
December 25,
1999
10.9* Amendment No. 1 to the Fleming Exhibit 10.9 to
Companies, Inc. 1996 Stock Form 10-K for
Incentive Plan year ended
December 28,
1996
10.10* Supplemental Income Trust Exhibit 10.10 to
Form 10-K for
year ended
December 25,
1999
10.11* First Amendment to Fleming Exhibit 10.19 to
Companies, Inc. Supplemental Form 10-K for
Income Trust year ended
December 28,
1996
10.12* Form of Change of Control Exhibit 10.12 to
Employment Agreement between Form 10-K for
Registrant and certain of the year ended
employees December 25,
1999
10.13* Economic Value Added Incentive Exhibit A to
Bonus Plan Proxy Statement
for year ended
December 31,
1994
10.14* Agreement between the Registrant Exhibit 10.24 to
and William J. Dowd Form 10-K for
year ended
December 30,
1995
10.15* Amended and Restated Supplemental Exhibit 10.23 to
Retirement Income Agreement for Form 10-K for
Robert E. Stauth year ended
December 28,
1996
10.16* Executive Past Service Benefit Exhibit 10.23 to
Plan (November 1997) Form 10-K for
year ended
December 27,
1997
10.17* Form of Agreement for Executive Exhibit 10.24 to
Past Service Benefit Plan Form 10-K for
(November 1997) year ended
December 27,
1997
10.18* Executive Deferred Compensation Exhibit 10.25 to
Plan (November 1997) Form 10-K for
year ended
December 27,
1997
10.19* Executive Deferred Compensation Exhibit 10.26 to
Trust (November 1997) Form 10-K for
year ended
December 17,
1997
10.20* Form of Agreement for Executive Exhibit 10.27 to
Deferred Compensation Plan Form 10-K for
(November 1997) year ended
December 27,
1997
10.21* Fleming Companies, Inc. Associate Exhibit 10.28 to
Stock Purchase Plan Form 10-K for
year ended
December 27,
1997
10.22* Settlement Agreement between Exhibit 10.25 to
Fleming Companies, Inc. and Form 10-Q for
Furr's Supermarkets, Inc. dated quarter ended
October 23, 1997 October 4, 1997
10.23* Form of Amended and Restated Exhibit 10.30 to
Agreement for Fleming Companies, Form 10-Q for
Inc. Executive Past Service quarter ended
Benefit Plan October 3, 1998
10.24* Form of Amended and Restated Exhibit 10.31 to
Agreement for Fleming Companies, Form 10-Q for
Inc. Executive Deferred quarter ended
Compensation Plan October 3, 1998
10.25* Amended and Restated Supplemental Exhibit 10.32 to
Retirement Income Agreement Form 10-Q for
between William J. Dowd and quarter ended
Fleming Companies, Inc. dated October 3, 1998
August 18, 1998
10.26* Form of Amended and Restated Exhibit 10.33 to
Restricted Stock Award Agreement Form 10-Q for
under Fleming Companies, Inc. quarter ended
1996 Stock Incentive Plan October 3, 1998
10.27* Form of Amended and Restated Non- Exhibit 10.34 to
Qualified Stock Option Agreement Form 10-Q for
under the Fleming Companies, Inc. quarter ended
1996 Stock Incentive Plan October 3, 1998
10.28* First Amendment to Economic Value Exhibit 10.36 to
Added Incentive Bonus Plan for Form 10-Q for
Fleming Companies, Inc. quarter ended
October 3, 1998
10.29* Amendment No. 2 to Economic Value Exhibit 10.37 to
Added Incentive Bonus Plan for Form 10-Q for
Fleming Companies, Inc. quarter ended
October 3, 1998
10.30* Form of Amendment to Certain Exhibit 10.38 to
Employment Agreements Form 10-Q for
quarter ended
October 3, 1998
10.31* Form of First Amendment to Exhibit 10.39 to
Restricted Stock Award Agreement Form 10-Q for
for Fleming Companies, Inc. 1996 quarter ended
Stock Incentive Plan October 3, 1998
10.32* Settlement and Severance Exhibit 10.40 to
Agreement by and between Fleming Form 10-Q for
Companies, Inc. and Robert E. quarter ended
Stauth dated August 28, 1998 October 3, 1998
10.33* 1999 Stock Incentive Plan Exhibit 10.38 to
Form 10-K for
year ended
December 26,
1998
10.34* Form of Non-Qualified Stock Exhibit 10.39 to
Option Agreement for 1999 Stock Form 10-K for
Incentive Plan year ended
December 26,
1998
10.35* Corporate Officer Incentive Plan Exhibit 10.40 to
Form 10-K for
year ended
December 26,
1998
10.36* Employment Agreement for Mark Exhibit 10.41 to
Hansen dated as of November 30, Form 10-K for
1998 year ended
December 26,
1998
10.37* Restricted Stock Agreement under Exhibit 10.42 to
1990 Stock Incentive Plan for Form 10-K for
Mark Hansen dated as of November year ended
30, 1998 December 26,
1998
10.38* Form of Amendment to Employment Exhibit 10.43 to
Agreement between Registrant and Form 10-K for
certain executives dated as of year ended
March 2, 1999 December 26,
1998
10.39* Amendment No. One to 1990 Stock Exhibit 10.44 to
Option Plan Form 10-K for
year ended
December 26,
1998
10.40* Fleming Companies, Inc. 1990 Exhibit 10.45 to
Stock Incentive Plan (as amended) Form 10-K for
year ended
December 26,
1998
10.41* Fleming Companies, Inc. Amended Exhibit 10.46 to
and Restated Directors' Form 10-K for
Compensation and Stock Equivalent year ended
Unit Plan December 26,
1998
10.42* Severance Agreement for Thomas L. Exhibit 10.47 to
Zaricki dated January 29, 1999 Form 10-K for
year ended
December 26,
1998
10.43* Severance Agreement for Harry L. Exhibit 10.48 to
Winn, Jr. dated February 22, 1999 Form 10-K for
year ended
December 26,
1998
10.44* Amendment to Fleming Companies, Exhibit 10.49 to
Inc. 1990 Stock Incentive Plan Form 10-Q for
quarter ended
April 17, 1999
10.45* Employment Agreement for John T. Exhibit 10.50 to
Standley dated as of May 17, 1999 Form 10-Q for
quarter ended
April 17, 1999
10.46* Restricted Stock Agreement for Exhibit 10.51 to
John T. Standley dated as of May Form 10-Q for
17, 1999 quarter ended
April 17, 1999
10.47* Letter Agreement for William H. Exhibit 10.52 to
Marquard dated as of May 26, 1999 Form 10-Q for
quarter ended
April 17, 1999
10.48* Severance Agreement with William Exhibit 10.53 to
J. Dowd effective as of June 17, Form 10-Q for
1999 quarter ended
July 10, 1999
10.49* Employment Agreement for William Exhibit 10.54 to
H. Marquard dated as of June 1, Form 10-Q for
1999 quarter ended
July 10, 1999
10.50* Restricted Stock Agreement for Exhibit 10.55 to
William H. Marquard dated as of Form 10-Q for
June 1, 1999 quarter ended
July 10, 1999
10.51* Employment Agreement for Dennis Exhibit 10.56 to
C. Lucas dated as of July 28, Form 10-Q for
1999 quarter ended
July 10, 1999
10.52* Restricted Stock Agreement for Exhibit 10.57 to
Dennis C. Lucas dated as of July Form 10-Q for
28, 1999 quarter ended
July 10, 1999
10.53* Restricted Stock Agreement for E. Exhibit 10.58 to
Stephen Davis dated as of July Form 10-Q for
20, 1999 quarter ended
July 10, 1999
10.54* Form of Loan Agreement Pursuant Exhibit 10.59 to
to Executive Stock Ownership Form 10-Q for
Program quarter ended
July 10, 1999
10.55* Restricted Stock Award Agreement Exhibit 10.55 to
for William H. Marquard dated as Form 10-K for
of December 21, 1999 year ended
December 25,
1999
10.56* Restricted Stock Award Agreement Exhibit 10.56 to
for John M. Thompson dated as of Form 10-K for
December 21, 1999, as amended year ended
December 25,
1999
10.57* Form of Non-qualified Stock Exhibit 10.57 to
Option Agreement for 1999 Stock Form 10-K for
Option Plan - Corporate year ended
December 25,
1999
10.58* Form of Non-qualified Stock Exhibit 10.58 to
Option Agreement for 1999 Stock Form 10-K for
Option Plan - Distribution year ended
December 25,
1999
10.59* Form of Non-qualified Stock Exhibit 10.59 to
Option Agreement for 1999 Stock Form 10-K for
Option Plan - Retail year ended
December 25,
1999
10.60* Amended and Restated Employment Exhibit 10.60 to
Agreement for Scott M. Northcutt Form 10-K for
effective as of January 26, 1999 year ended
December 25,
1999
10.61* Employment Agreement for Lenore T. Exhibit 10.61 to
Graham dated as of January 18, Form 10-Q for
2000 quarter ended
April 15, 2000
10.62* Employment Agreement for Neal J. Exhibit 10.62 to
Rider dated as of January 18, 2000 Form 10-Q for
quarter ended
April 15, 2000
10.63* Restricted Stock Award Agreement Exhibit 10.63 to
for Lenore T. Graham dated as of Form 10-Q for
Lenore T. Graham dated as of quarter ended
January 18, 2000 April 15, 2000
10.64* Restricted Stock Award Agreement for Exhibit 10.64 to
Neal J. Rider dated as of January 18, Form 10-Q for
2000 quarter ended
April 15, 2000
10.65* Restricted Stock Award Agreement for Exhibit 10.65 to
Mark S. Hansen dated as of Form 10-Q for
February 29, 2000 quarter ended April
15, 2000
10.66* Restricted Stock Award Agreement for Exhibit 10.66 to
David R. Almond dated as of Form 10-Q for
February 29, 2000 quarter ended
April 15, 2000
10.67* Amendment to the Amended and Restated Exhibit 10.67 to
Restricted Award Agreement for David Form 10-Q for
R. Almond dated as of February 29, 2000 quarter ended
April 15, 2000
10.68* Amendment to Nonqualified Stock Option Exhibit 10.68 to
Agreement for David R. Almond Form 10-Q for
dated as of February 29, 2000 quarter ended
April 15, 2000
10.69* Amendment to Restricted Stock Award Exhibit 10.69 to
Agreement for E. Stephen Davis dated Form 10-Q for
as of February 29, 2000 quarter ended
April 15, 2000
10.70* 2000 Stock Incentive Plan for Fleming Exhibit 10.70 to
Companies, Inc. is incorporated Form 10-Q for
herein by reference to Exhibit A to quarter ended
the company's Proxy Statement dated April 15, 2000
March 27, 2000
10.71* Form of Nonqualified Stock Option Exhibit 10.71 to
Agreement between eMAR.net, Inc. and Form 10-Q for
each director of the registrant (4,000 quarter ended
shares each) except for Mark S. Hansen April 15, 2000
dated as of January 18, 2000
10.72* Form of Stock Option Agreement Exhibit 10.72 to
between eMAR.net, Inc. and Form 10-Q for
Mark S. Hansen (150,000 shares), quarter ended
William H. Marquard (100,000 shares), April 15, 2000
John M. Thompson (75,000 shares) and
the other executive officers of the
registrant (25,000 shares each) dated
as of January 18, 2000
10.73* Amendment to the Associate Stock Exhibit 10.73 to
Purchase Plan Form 10-Q for
quarter ended
July 8, 2000
10.74* Form of Indemnification Agreement Exhibit 10.74 to
for Directors Form 10-Q for
quarter ended
September 30,
2000
10.75* Form of Indemnification Agreement Exhibit 10.75 to
for Executive Officers Form 10-Q for
quarter ended
September 30,
2000
12 Computation of ratio of earnings **
to fixed charges
21 Subsidiaries of the Registrant **
23 Consent of Deloitte & Touche LLP **
24 Power of Attorney **
* Management contract, compensatory plan or arrangement.
** Filed here within.
(b) Reports on Form 8-K:
On October 18, 2000, pursuant to Item 5, we announced our net earnings for the
third quarter 2000, which included a strategic plan pre-tax charge of $101
million, primarily related to the completion of the strategic evaluation of the
conventional retail stores.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Fleming has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 23rd day of March, 2001.
FLEMING COMPANIES, INC.
MARK S. HANSEN
By: Mark S. Hansen
Chairman and Chief
Executive Officer
(Principal executive
officer)
NEAL RIDER
By: Neal Rider
Executive Vice President
and Chief Financial Officer
(Principal financial and
accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 23rd day of March, 2001.
MARK S. HANSEN NEAL RIDER HERBERT M. BAUM *
Mark S. Hansen Neal Rider Herbert M. Baum
(Chairman of the (Chief Financial (Director)
Board) Officer)
ARCHIE R. DYKES * CAROL B. HALLETT * ROBERT HAMADA *
Archie R. Dykes Carol B. Hallett Robert Hamada
(Director) (Director) (Director)
EDWARD C. JOULLIAN III * GUY A. OSBORN * ALICE M. PETERSON *
Edward C. Joullian III Guy A. Osborn Alice M. Peterson
(Director) (Director) (Director)
*A Power of Attorney authorizing Neal Rider to sign the Annual Report on Form
10-K on behalf of each of the indicated directors of Fleming Companies, Inc. has
been filed herein as Exhibit 24.
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
------- ----------- ----------------
3.1 Certificate of Incorporation Incorporated herein by
reference
3.2 By-Laws Incorporated herein by
reference
4.0 Credit Agreement, dated as of Incorporated herein by
July 25, 1997, among Fleming reference
Companies, Inc., the Lenders
party thereto, BancAmerica
Securities, Inc., as syndication
agent, Societe Generale, as
documentation agent and The Chase
Manhattan Bank, as administrative
agent
4.1 Security Agreement dated as of Incorporated herein by
July 25, 1997, between Fleming reference
Companies, Inc., the company
subsidiaries party thereto and
The Chase Manhattan Bank, as
collateral agent
4.2 Pledge Agreement, dated as of Incorporated herein by
July 25, 1997, among Fleming reference
Companies, Inc., the company
subsidiaries party thereto and
The Chase Manhattan Bank, as
collateral agent
4.3 Guarantee Agreement among the Incorporated herein by
company subsidiaries party reference
thereto and The Chase Manhattan
Bank, as collateral agent
4.4 Indenture dated as of Incorporated herein by
December 15, 1994, among Fleming, reference
the Subsidiary Guarantors named
therein and Texas Commerce Bank
National Association, as Trustee,
regarding $300 million of 10-5/8%
Senior Notes
4.5 Indenture, dated as of July 25, Incorporated herein by
1997, among Fleming Companies, reference
Inc., the Subsidiary Guarantors
named therein and Manufacturers
and Traders Trust Company, as
Trustee, regarding 10-5/8% Senior
Subordinated Notes due 2007
4.6 Indenture, dated as of July 25, Incorporated herein by
1997, among Fleming Companies, reference
Inc., the Subsidiary Guarantors
named therein and Manufacturers
and Traders Trust Company
regarding 10-1/2% Senior
Subordinated Notes due 2004
4.7 First Amendment, dated as of Incorporated herein by
October 5, 1998, to Credit reference
Agreement dated July 25, 1997
4.8 Second Amendment dated as of Incorporated herein by
December 21, 1999 to Credit reference
Agreement dated
July 25, 1997
4.9 Agreement to furnish copies of Filed herewith
other long-term debt instruments electronically
10.0 Dividend Reinvestment and Stock Incorporated herein by
Purchase Plan, as amended reference
10.1* 1990 Stock Option Plan Incorporated herein by
reference
10.2* Form of Option Agreement for 1990 Incorporated herein by
Stock Option Plan reference
10.3* Form of Restricted Stock Award Incorporated herein by
Agreement for 1990 Stock Option reference
Plan (1997)
10.4* Fleming Management Incentive Incorporated herein by
Compensation Plan reference
10.5* Form of Amended and Restated Incorporated herein by
Severance Agreement between the reference
Registrant and certain of its
officers
10.6* Fleming Companies, Inc. 1996 Incorporated herein by
Stock Incentive Plan dated reference
February 27, 1996
10.7* Form of Restricted Award Incorporated herein by
Agreement for 1996 Stock reference
Incentive Plan (1997)
10.8* Phase III of Fleming Companies, Incorporated herein by
Inc. Stock Incentive Plan reference
10.9* Amendment No. 1 to the Fleming Incorporated herein by
Companies, Inc. 1996 Stock reference
Incentive Plan
10.10* Supplemental Income Trust Incorporated herein by
reference
10.11* First Amendment to Fleming Incorporated herein by
Companies, Inc. Supplemental reference
Income Trust
10.12* Form of Change of Control Incorporated herein by
Employment Agreement between reference
Registrant and certain of the
employees
10.13* Economic Value Added Incentive Incorporated herein by
Bonus Plan reference
10.14* Agreement between the Registrant Incorporated herein by
and William J. Dowd reference
10.15* Amended and Restated Supplemental Incorporated herein by
Retirement Income Agreement for reference
Robert E. Stauth
10.16* Executive Past Service Benefit Incorporated herein by
Plan (November 1997) reference
10.17* Form of Agreement for Executive Incorporated herein by
Past Service Benefit Plan reference
(November 1997)
10.18* Executive Deferred Compensation Incorporated herein by
Plan (November 1997) reference
10.19* Executive Deferred Compensation Incorporated herein by
Trust (November 1997) reference
10.20* Form of Agreement for Executive Incorporated herein by
Deferred Compensation Plan reference
(November 1997)
10.21* Fleming Companies, Inc. Associate Incorporated herein by
Stock Purchase Plan reference
10.22* Settlement Agreement between Incorporated herein by
Fleming Companies, Inc. and reference
Furr's Supermarkets, Inc. dated
October 23, 1997
10.23* Form of Amended and Restated Incorporated herein by
Agreement for Fleming Companies, reference
Inc. Executive Past Service
Benefit Plan
10.24* Form of Amended and Restated Incorporated herein by
Agreement for Fleming Companies, reference
Inc. Executive Deferred
Compensation Plan
10.25* Amended and Restated Supplemental Incorporated herein by
Retirement Income Agreement reference
between William J. Dowd and
Fleming Companies, Inc. dated
August 18, 1998
10.26* Form of Amended and Restated Incorporated herein by
Restricted Stock Award Agreement reference
under Fleming Companies, Inc.
1996 Stock Incentive Plan
10.27* Form of Amended and Restated Non- Incorporated herein by
Qualified Stock Option Agreement reference
under the Fleming Companies, Inc.
1996 Stock Incentive Plan
10.28* First Amendment to Economic Value Incorporated herein by
Added Incentive Bonus Plan for reference
Fleming Companies, Inc.
10.29* Amendment No. 2 to Economic Value Incorporated herein by
Added Incentive Bonus Plan for reference
Fleming Companies, Inc.
10.30* Form of Amendment to Certain Incorporated herein by
Employment Agreements reference
10.31* Form of First Amendment to Incorporated herein by
Restricted Stock Award Agreement reference
for Fleming Companies, Inc. 1996
Stock Incentive Plan
10.32* Settlement and Severance Incorporated herein by
Agreement by and between Fleming reference
Companies, Inc. and Robert E.
Stauth dated August 28, 1998
10.33* 1999 Stock Incentive Plan Incorporated herein by
reference
10.34* Form of Non-Qualified Stock Incorporated herein by
Option Agreement for 1999 Stock reference
Incentive Plan
10.35* Corporate Officer Incentive Plan Incorporated herein by
reference
10.36* Employment Agreement for Mark Incorporated herein by
Hansen dated as of November 30, reference
1998
10.37* Restricted Stock Agreement under Incorporated herein by
1990 Stock Incentive Plan for reference
Mark Hansen dated as of November
30, 1998
10.38* Form of Amendment to Employment Incorporated herein by
Agreement between Registrant and reference
certain executives dated as of
March 2, 1999
10.39* Amendment No. One to 1990 Stock Incorporated herein by
Option Plan reference
10.40* Fleming Companies, Inc. 1990
Stock Incentive Plan (as amended) Incorporated herein by
reference
10.41* Fleming Companies, Inc. Amended Incorporated herein by
and Restated Directors' reference
Compensation and Stock Equivalent
Unit Plan
10.42* Severance Agreement for Thomas L. Incorporated herein by
Zaricki dated January 29, 1999 reference
10.43* Severance Agreement for Harry L. Incorporated herein by
Winn, Jr. dated February 22, 1999 reference
10.44* Amendment to Fleming Companies, Incorporated herein by
Inc. 1990 Stock Incentive Plan reference
10.45* Employment Agreement for John T. Incorporated herein by
Standley dated as of May 17, 1999 reference
10.46* Restricted Stock Agreement for Incorporated herein by
John T. Standley dated as of May reference
17, 1999
10.47* Letter Agreement for William H. Incorporated herein by
Marquard dated as of May 26, 1999 reference
10.48* Severance Agreement with William Incorporated herein by
J. Dowd effective as of June 17, reference
1999
10.49* Employment Agreement for William Incorporated herein by
H. Marquard dated as of June 1, reference
1999
10.50* Restricted Stock Agreement for Incorporated herein by
William H. Marquard dated as of reference
June 1, 1999
10.51* Employment Agreement for Dennis Incorporated herein by
C. Lucas dated as of July 28, reference
1999
10.52* Restricted Stock Agreement for Incorporated herein by
Dennis C. Lucas dated as of July reference
28, 1999
10.53* Restricted Stock Agreement for E. Incorporated herein by
Stephen Davis dated as of July reference
20, 1999
10.54* Form of Loan Agreement Pursuant Incorporated herein by
to Executive Stock Ownership reference
Program
10.55* Restricted Stock Award Agreement Incorporated herein by
for William H. Marquard dated as reference
of December 21, 1999
10.56* Restricted Stock Award Agreement Incorporated herein by
for John M. Thompson dated as of reference
December 21, 1999, as amended
10.57* Form of Non-qualified Stock Incorporated herein by
Option Agreement for 1999 Stock reference
Option Plan - Corporate
10.58* Form of Non-qualified Stock Incorporated herein by
Option Agreement for 1999 Stock reference
Option Plan - Distribution
10.59* Form of Non-qualified Stock Incorporated herein by
Option Agreement for 1999 Stock reference
Option Plan - Retail
10.60* Amended and Restated Employment Incorporated herein by
Agreement for Scott M. Northcutt reference
effective as of January 26, 1999
10.61* Employment Agreement for Lenore T.Incorporated herein by
Graham dated as of January 18, reference
2000
10.62* Employment Agreement for Neal J. Incorporated herein by
Rider dated as of January 18, 2000 reference
10.63* Restricted Stock Award Agreement Incorporated herein by
for Lenore T. Graham dated as of reference
Lenore T. Graham dated as of
January 18, 2000
10.64* Restricted Stock Award Agreement for Incorporated herein by
Neal J. Rider dated as of January 18, reference
2000
10.65* Restricted Stock Award Agreement for Incorporated herein by
Mark S. Hansen dated as of reference
February 29, 2000
10.66* Restricted Stock Award Agreement for Incorporated herein by
David R. Almond dated as of reference
February 29, 2000
10.67* Amendment to the Amended and Restated Incorporated herein by
Restricted Award Agreement for David reference
R. Almond dated as of February 29,
2000
10.68* Amendment to Nonqualified Stock Option Incorporated herein by
Agreement for David R. Almond reference
dated as of February 29, 2000
10.69* Amendment to Restricted Stock Award Incorporated herein by
Agreement for E. Stephen Davis dated reference
as of February 29, 2000
10.70* 2000 Stock Incentive Plan for Fleming Incorporated herein by
Companies, Inc. is incorporated reference
herein by reference to Exhibit A to
the company's Proxy Statement dated
March 27, 2000
10.71* Form of Nonqualified Stock Option Incorporated herein by
Agreement between eMAR.net, Inc. and reference
each director of the registrant (4,000
shares each) except for Mark S. Hansen
dated as of January 18, 2000
10.72* Form of Stock Option Agreement Incorporated herein by
between eMAR.net, Inc. and reference
Mark S. Hansen (150,000 shares),
William H. Marquard (100,000 shares),
John M. Thompson (75,000 shares) and
the other executive officers of the
registrant (25,000 shares each) dated
as of January 18, 2000
10.73* Amendment to the Associate Stock Incorporated herein by
Purchase Plan reference
10.74* Form of Indemnification Agreement Incorporated herein by
for Directors reference
10.75* Form of Indemnification Agreement Incorporated herein by
for Executive Officers reference
12 Computation of ratio of earnings Filed herewith
to fixed charges electronically
21 Subsidiaries of the Registrant Filed herewith
electronicallky
23 Consent of Deloitte & Touche LLP Filed herewith
electronically
24 Power of Attorney Filed herewith
electronically
SCHEDULE II
FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 30, 2000
DECEMBER 25, 1999 AND DECEMBER 26, 1998
(in thousands)
Allowance
for
Credit Losses Current Noncurrent
BALANCE, December 27, 1997 $43,848 $19,012 $24,836
Charged to cost and expenses 23,498 9,979 13,519
Uncollectible accounts written-
off, less recoveries (20,114) (9,012) (11,102)
BALANCE, December 26, 1998 $47,232 $19,979 $27,253
Charged to cost and expenses 25,394 21,024 4,370
Uncollectible accounts written-
off, less recoveries (17,098) (8,802) (8,296)
BALANCE, December 25, 1999 $55,528 $32,201 $23,327
Charged to cost and expenses 28,872 15,454 13,418
Uncollectible accounts written-
off, less recoveries (24,682) (13,729) (10,953)
BALANCE, December 30, 2000 $59,718 $33,926 $25,792