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DALLAS - Grocery distributor Fleming Companies Inc. on Tuesday announced an operational realignment and cost reduction plan that will include a 15 percent work force reduction from its staff offices and case-pick divisions.
Fleming, which has been stung by the recent loss of its largest customer, the bankrupt discount retailer Kmart Corp., and by steep competition in the grocery business, also said federal securities regulators have ratcheted up their existing probe of the company.
The company plans a workforce reduction of approximately 1,800 positions or 15 percent of the positions in its continuing operations. The affected positions are expected to come from the Fleming staff offices and case-pick divisions. Fleming expects to achieve an estimated $60 million in cost savings on an annual run-rate basis by the fourth quarter of 2003 as a result.
Fleming also said it will cease operations at two divisions currently managed by third-party operators -- the South Brunswick (New Jersey) Division and the Fort Wayne (Indiana) Division. These divisions have been dedicated to supplying Kmart and will close soon after deliveries to Kmart stores conclude on or about March 8, 2003. With the conclusion of the Kmart supply arrangement, no Fleming customer will account for more than 3 percent of Fleming's total annual revenue, according to the company.
Fleming will consolidate the business of two other case-pick divisions into other Fleming divisions. The company said it intends to maintain its market presence and local customer support in the related areas. Upon completion of these consolidations, Fleming's national supply chain will include 49 distribution centers -- 20 case-pick facilities, 24 convenience-oriented piece-pick divisions and five general merchandise piece-pick facilities.
The realignment and cost reduction plan in 2003, as well as working capital reductions, is expected to partially offset the cash costs associated with the termination of the Kmart supply arrangement. The company expects to reduce debt by more than $200 million in 2003, principally through the application of proceeds from the divestiture of its discontinued retail operations and a reduction of capital expenditures to $75 million from a previous plan of $135 million for fiscal year 2003.
Fleming said that the Audit and Compliance Committee of its Board of Directors, after discussions with the company's independent auditors, Deloitte & Touche LLP, has initiated an independent investigation to assist the Committee in the previously announced inquiry by the Securities and Exchange Commission and the Board's review of certain allegations made in previously announced shareholder litigation. The Committee has retained PriceWaterhouseCoopers to assist in this.
Fleming also said that it has been advised by the SEC that the previously announced inquiry has moved to a formal investigation.