FLEMING DETAILS KMART IMPACT

MARTIN SCHNEIDER

DALLAS -- Fleming here last week said that it does not expect to realize a substantial portion of money owed to it by Kmart, Troy, Mich., which is Fleming's biggest customer. Fleming also said that Kmart's bankruptcy could negatively affect Fleming's business going forward. The statement was made in Fleming's annual 10K report filed with the Securities and Exchange Commission.

Randy Hatcher, spokes-man for Fleming, told SN the company will assert a "pre-petition claim" in the bankruptcy court asking Kmart to pay $37.8 million for product received prior to Kmart filing for bankruptcy.

Hatcher said that Fleming expects Kmart may not pay "a material portion" of the claim.

Hatcher explained that Fleming received some $76 million in payments from Fleming at the onset of the bankruptcy proceedings. "But additional shipments went out to Kmart prior to their court filing worth $37.8 million, which Kmart has still not paid for," Hatcher said. He noted that Fleming took a charge of about $18 million for its fourth quarter ended Dec. 29 because of the impact of Kmart's bankruptcy, including nonpayment of debt.

A spokesman for Kmart could not be reached for comment.

Fleming also said in the report that its future performance is still uncertain due to the Kmart bankruptcy. "If Kmart chooses to close a large number of its stores, our sales and earnings could be materially adversely affected. Further, a failure by Kmart to successfully reorganize or to continue as a going concern would have a material adverse effect on us."

Fleming also said in the report that "although no material litigation is currently outstanding, we may be involved in litigation related to the Kmart bankruptcy, including litigation with vendors from whom we ordered product."

Meredith Adler, analyst with Lehman Brothers, New York, said that even if Fleming lowers its estimates by as much as 10 cents for the year, it will still finish the year with earnings per share above last year.