Fleming to Slash Jobs Amid SEC Probe

Fleming Cos., the largest U.S. grocery distributor, said Tuesday that it would cut 1,800 jobs and take a pretax charge of $290 million to terminate its contract to supply Kmart Corp.

Fleming also said the Securities and Exchange Commission has formalized an investigation into the company’s accounting.

The news sent the Lewisville, Texas-based firm’s shares down $1.12 to a record low of $1.85 on the New York Stock Exchange.

Under Chief Executive Mark Hansen, Fleming in 2001 won the contract to exclusively supply groceries to Kmart stores. It was considered one of the keys to Hansen’s plan to revive sales.

But Kmart filed for bankruptcy protection a year ago. Now, most Kmart stores that sell groceries are being closed.

Fleming is struggling with $1.95 billion in debt. The firm said talks are continuing with its lenders to amend the conditions or replace a five-year loan.

“The situation is not good,” said Rao Aisola, fixed-income analyst with Bear Stearns & Co.

The SEC’s investigation focuses on how Fleming accounted for payments to suppliers, some of whom have alleged that the company unfairly deducted fees from customer bills to bolster profit.

“Fleming has been very aggressive,” said Burt Flickinger, managing director with consulting firm Strategic Resource Group. “The business blows up, and the accounting comes under question.”

A formal investigation requires a vote by SEC commissioners and gives the investigators subpoena power.

The SEC probe also is looking at how the company presented earnings and sales results, Fleming has said.

Deloitte & Touche, Fleming’s auditor, declined to comment on the investigation.

Kmart’s relationship with suppliers also has been the subject of a review by the SEC.

Wholesalers can receive fees when they place goods with retailers, or in advance, sometimes for promising sales of a given level. The practice becomes a problem when companies book money before actually receiving it, analysts said.