Fleming, a supplier of consumer package goods, says the sale will bring in $130 million in cash, including inventory, and a $35 million reduction of long-term liabilities in the form of capital leases. The company says it will use the cash to pay off its senior secured term loan balance.

As part of the deal, Save Mart, a large supermarket operator, is hooked into a five-year supply arrangement with Fleming. According to Fleming, this supply agreement is expected to represent approximately $385 million in annual sales volume the first year and $340 million for each of the remaining four years, making Save Mart Supermarkets one of Fleming's five largest customers.

"The proceeds we expect to receive for these stores are within our anticipated range," "Save Mart is a successful and growing retailer, and we expect that the Food4Less stores will prosper under Save Mart's ownership. We look forward to working with Save Mart in affecting a smooth transition and beginning a new and sizeable, long-term supply relationship."

Fleming says it plans to sell its remaining 84 retail locations by next year, using the proceeds to reduce its debt and strengthen its balance sheet. Once the company sells its retail locations, it will become "the only pure-play wholesale distribution company with a national footprint," says Mark Hansen, Fleming's chairman of the board and chief executive officer.

"Exiting retail means we will not be competing with our important retail distribution customers for shoppers' dollars," he says. "This is a unique business model that we believe will appeal, increasingly, to a broad category of retailing customers."

Meantime, the Securities and Exchange Commission has concerns about the uniqueness of Fleming's existing operations. The Fort Worth staff of the Securities and Exchange Commission has started an informal inquiry into several matters, including the company's vendor trade practices, the presentation of adjusted second quarter 2001 earnings per share data in its press releases, the company's accounting for drop-ship sales transactions with an unaffiliated vendor in its discontinued retail operations and its calculation of comparable store sales in its discontinued retail operations.

"We will, of course, cooperate fully with the informal inquiry and will provide the staff with all the information it needs in responding to its fact-finding," says Hansen." I hope, however, that this event does not detract from the very significant announcement we made earlier today regarding the first agreement to sell a number of our retail stores and the supply agreement we entered into with Save Mart Supermarkets."

Instant Insights /

Fleming Selling 28 California Food4Less Stores

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