-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sa9fg1Rzl5rGSrlu1IQ840hP7MyVU4BQTTgbqNPGv5YKAwMiT6ZK1/zZRydNEKuE kHT+zqiUVjpXtpgfq2dBeA== 0000701169-94-000011.txt : 19941214 0000701169-94-000011.hdr.sgml : 19941214 ACCESSION NUMBER: 0000701169-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941105 FILED AS OF DATE: 19941205 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEYER FRED INC CENTRAL INDEX KEY: 0000701169 STANDARD INDUSTRIAL CLASSIFICATION: 5331 IRS NUMBER: 930798201 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15023 FILM NUMBER: 94563462 BUSINESS ADDRESS: STREET 1: 3800 SE 22ND AVE CITY: PORTLAND STATE: OR ZIP: 97202 BUSINESS PHONE: 5032328844 MAIL ADDRESS: STREET 1: P.O. BOX 42121 CITY: PORTLAND STATE: OR ZIP: 97242 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 5, 1994 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 No. 0-15023 FRED MEYER, INC. (Exact name of registrant as specified in its charter) Delaware 93-0798201 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3800 S.E. 22nd Avenue Portland, Oregon 97202 (Address of principal executive offices) (Zip Code) (503) 232-8844 (Registrant's telephone number, including area code) Not applicable. (Former name, former address and former fiscal year, if changed since last report.) 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 such 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. Yes XX No ------ ------ Shares of Common Stock Outstanding at November 5, 1994: 26,550,326 2 Part I - Financial Information FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
November 5, January 29, 1994 1994 ---------- ---------- ASSETS CURRENT ASSETS: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,703 $ 34,054 Receivables-net. . . . . . . . . . . . . . . . . . . . . . . . . . . 22,714 19,406 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590,726 477,568 Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 55,769 55,037 Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . 23,736 --- Current deferred taxes . . . . . . . . . . . . . . . . . . . . . . . 7,828 7,828 ---------- ---------- Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 738,476 593,893 ---------- ---------- PROPERTY AND EQUIPMENT (NET). . . . . . . . . . . . . . . . . . . . . . 854,354 719,338 ---------- ---------- OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,611 11,200 ---------- ---------- TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,604,441 $1,324,431 ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and outstanding checks. . . . . . . . . . . . . . . $ 355,167 $ 294,568 Current portion of long-term debt and lease obligations . . . . . . . . . . . . . . . . . . . . . . 1,749 1,749 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 18,660 Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . 73,573 73,665 ---------- ---------- Total current liabilities . . . . . . . . . . . . . . . . . . . . 430,489 388,642 ---------- ---------- LONG-TERM DEBT AND MORTGAGES. . . . . . . . . . . . . . . . . . . . . . 555,860 321,398 ---------- ---------- CAPITAL LEASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 14,819 14,895 ---------- ---------- DEFERRED LEASE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 46,255 48,254 ---------- ---------- DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 18,496 18,496 ---------- ---------- OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 8,846 5,060 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 267 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 196,722 193,719 Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . (141) (527) Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,896) (3,896) Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 336,723 338,123 ---------- ---------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 529,676 527,686 ---------- ---------- TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,604,441 $1,324,431 ========== ========== See notes to consolidated financial statements. /TABLE 3
FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
12 Weeks Ended ------------------------------ November 5, November 6, 1994 1993 ---------- ---------- NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $626,804 $644,527 -------- -------- COST OF MERCHANDISE SOLD: General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472,873 453,327 Related party lease . . . . . . . . . . . . . . . . . . . . . . . . . 1,287 1,287 Interest related to occupancy . . . . . . . . . . . . . . . . . . . . 286 16 -------- -------- Total cost of merchandise sold. . . . . . . . . . . . . . . . . . . . 474,446 454,630 -------- -------- GROSS MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,358 189,897 -------- -------- OPERATING AND ADMINISTRATIVE EXPENSES: General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,298 156,288 Related party leases. . . . . . . . . . . . . . . . . . . . . . . . . 13,138 13,414 Interest related to occupancy . . . . . . . . . . . . . . . . . . . . 2,743 2,295 -------- -------- Total operating and administrative expenses . . . . . . . . . . . . . 191,179 171,997 -------- -------- RESTRUCTURING CHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,978 --- -------- -------- (LOSS) INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . (54,799) 17,900 INTEREST EXPENSE-NET. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200 1,937 -------- -------- (LOSS) INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . (58,999) 15,963 (BENEFIT) PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . . . . . . (22,420) 6,066 -------- -------- NET (LOSS) INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(36,579) $ 9,897 ======== ======== (LOSS) EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . . . . . . . . $(1.28) $.35 ====== ==== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . 28,556 28,495 ====== ====== See notes to consolidated financial statements. /TABLE 4 FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
40 Weeks Ended --------------------------------- November 5, November 6, 1994 1993 ---------- ---------- NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,296,435 $2,171,305 ---------- ---------- COST OF MERCHANDISE SOLD: General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,645,816 1,524,007 Related party lease . . . . . . . . . . . . . . . . . . . . . . . . 4,292 4,292 Interest related to occupancy . . . . . . . . . . . . . . . . . . . 801 123 ---------- ---------- Total cost of merchandise sold. . . . . . . . . . . . . . . . . . . 1,650,909 1,528,422 ---------- ---------- GROSS MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645,526 642,883 ---------- ---------- OPERATING AND ADMINISTRATIVE EXPENSES: General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568,545 511,447 Related party leases. . . . . . . . . . . . . . . . . . . . . . . . 44,000 44,900 Interest related to occupancy . . . . . . . . . . . . . . . . . . . 9,200 8,563 ---------- ---------- Total operating and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,745 564,910 ---------- ---------- RESTRUCTURING CHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . 15,978 --- ---------- ---------- INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 7,803 77,973 INTEREST EXPENSE-NET. . . . . . . . . . . . . . . . . . . . . . . . . . 10,061 5,913 ---------- ---------- (LOSS) INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . (2,258) 72,060 (BENEFIT) PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . . . . . (858) 31,190 ---------- ---------- NET (LOSS) INCOME BEFORE THE EFFECT OF AN ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . . . . . . (1,400) 40,870 EFFECT OF AN ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . . . . --- (2,588) ---------- ---------- NET (LOSS) INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,400) $ 38,282 ========== ========== (LOSS) EARNINGS PER COMMON SHARE: Net (loss) income before the effect of an accounting change. . . . . . . . . . . . . . . . . . . . . $(.05) $1.44 Effect of an accounting change. . . . . . . . . . . . . . . . . . . --- (.09) ----- ----- Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . $(.05) $1.35 ===== ===== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . 28,660 28,316 ====== ====== See notes to consolidated financial statements. /TABLE 5 FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
40 Weeks Ended ---------------------------- November 5, November 6, 1994 1993 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,400) $38,282 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization of property and equipment . . . . . . . . . . . . . . . . . . . . . . . 67,528 52,199 Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,396) (14,484) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113,608) (113,950) Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . (4,077) (7,982) Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,801 106,435 Restructuring charge. . . . . . . . . . . . . . . . . . . . . . . . . . 15,978 --- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (440) (9,471) Effect of an accounting change. . . . . . . . . . . . . . . . . . . . . --- 2,588 -------- -------- Net cash provided by operating activities. . . . . . . . . . . . . . . . . 6,386 53,617 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock-net. . . . . . . . . . . . . . . . . . . . . . . 3,004 4,607 Outstanding checks. . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,202) (23,695) Decrease (increase) in notes receivable . . . . . . . . . . . . . . . . . 86 (1,186) Long-term financing: Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,462 142,902 Repayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76) --- -------- -------- Net cash provided by financing activities. . . . . . . . . . . . . . . . . 213,274 122,628 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . (219,440) (176,239) Net proceeds from sale of real property. . . . . . . . . . . . . . . . . . 3,429 2,835 -------- -------- Net cash used for investing activities . . . . . . . . . . . . . . . . . . (216,011) (173,404) -------- -------- NET INCREASE IN CASH FOR THE PERIOD . . . . . . . . . . . . . . . . . . . . . 3,649 2,841 CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . 34,054 31,884 -------- -------- CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,703 $34,725 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,274 $13,408 Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,759 45,536 See notes to consolidated financial statements. /TABLE 6 FRED MEYER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Interim Reporting Periods ------------------------- The Company's interim reporting periods for reports to stockholders are the 16th, 28th, and 40th weeks of its fiscal year. 2. Reclassifications ----------------- Certain prior year balances have been reclassified to conform to current year presentation. 3. Inventories ----------- Inventories consist mainly of merchandise held for sale. Substantially all the inventories are valued at the lower of last-in, first-out (LIFO) cost or market. Estimated gross margins have been used for determining the cost of merchandise sold for those operating departments not taking physical inventories at the end of the interim periods. In the second quarter of 1993, to conform with IRS guidelines for LIFO computations, the Company made a one-time adjustment which increased inventories and decreased cost of merchandise sold by $6,178,000. 4. Income Taxes ------------ Income taxes have been provided for based upon the current estimate of the Company's annual effective tax rate. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," effective January 31, 1993. This resulted in a one-time reduction in net income of $2,588,000 in the first quarter of 1993. 5. Stockholders' Equity -------------------- Changes in stockholders' equity for the 40 weeks ended November 5, 1994 were:
(In thousands) -------------- Stockholders' equity, January 29, 1994 $527,686 Stock options exercised 3,004 Amortization of unearned compensation 386 Net loss (1,400) -------- Stockholders' equity, November 5, 1994 $529,676 ========
6. Restructuring Charge -------------------- The Company took a pretax write-off of approximately $16 million ($.35 per share) as a result of its decision to exit the Northern California market in the third quarter of 1994. The charge to income covers the adjustment of the Company's book value on its Northern California properties to an estimated net realizable value. The properties included one store in Chico, California and three land parcels in Redding and Sacramento, California. 7. Earnings Per Common Share ------------------------- Fully diluted earnings per common share are computed by dividing net income by the weighted average number of common and common equivalent shares outstanding. Weighted average shares reflect the dilutive effect of outstanding stock options (ranging in exercise price from $3.24 to $32.75 per share) which was determined by using the "treasury stock" method. 8. Commitments and Contingencies ----------------------------- The Company and its subsidiaries are parties to various legal claims, actions, and complaints, certain of which involve material amounts. Although the Company is unable to predict with certainty whether or not it will ultimately be successful in these legal proceedings or, if not, what the impact might be, management presently believes that disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or consolidated results of operations. _______________ 7 The financial information furnished in this Form 10-Q includes the adjustments described in footnotes 3 and 4 and all other adjustments, consisting only of adjustments of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of the results for the 12 and 40 weeks ended November 5, 1994 and November 6, 1993. The consolidated results of operations presented herein are not necessarily indicative of the results to be expected for the year due to the seasonality of the Company's business. These consolidated financial statements should be read in conjunction with the financial statements and related notes incorporated by reference in the Company's latest annual report filed on Form 10-K. FRED MEYER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Company funded its working capital and capital expenditure needs in 1994 and 1993 through internally generated cash flow, supplemented by borrowings under committed and uncommitted bank lines of credit and unrated commercial paper. In June 1994 the Company completed a new credit facility with several domestic and foreign banks for committed lines of credit which provide for borrowings of up to $400,000,000. This agreement matures on June 30, 1999 and replaces a previous agreement which provided for borrowings of up to $300,000,000. Uncommitted lines of credit have been made available to the Company by several banks within the committed bank group for a total of $140,000,000 and three outside banks for a total of $30,000,000. The bank lines of credit and unrated commercial paper are used primarily for seasonal inventory requirements (the current quarter being the Company's peak seasonal period for inventory), new store construction and financing, existing store remodeling, acquisition of land, and major projects such as MIS development. At November 5, 1994 the Company had unrated commercial paper outstanding in the amount of approximately $314,000,000, uncommitted line borrowings of $61,500,000, and no direct borrowings on its committed line of credit. Of the outstanding uncommitted line borrowings, $46,500,000 are from banks that participate in the committed bank group. A total of approximately $40,000,000 is available for borrowing under its committed credit facilities in excess of outstanding commercial paper and bank group uncommitted borrowings. The average interest rate for commercial paper outstanding at November 5, 1994 was approximately 5.2 percent. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its commercial paper and other floating rate debt. At November 5, 1994 the Company had outstanding three interest rate contracts with commercial banks which effectively fix the Company's interest rate exposure on an aggregate $50,000,000 principal amount of commercial paper and bank line borrowings at rates of between 4.63 percent and 7.60 percent and mature between November 1996 and November 1998. The Company also has in place three interest rate contracts ("CAPs") which limit the maximum interest rate the Company can pay from between 5.00 percent and 9.00 percent on a notional amount of $50,000,000 of its short-term floating rate debt, and which expire in November of 1996, 1998, and 1999. In the event of nonperformance by the other parties to the interest rate swap agreements (which is not anticipated), the Company could be exposed to prospective increases in interest rates. In July 1994, the Company borrowed $57,500,000 from major insurance companies for privately placed notes with maturities of between five and 13 years, and an average maturity of 9.35 years. Interest will be paid at fixed rates of between 7.25 percent and 7.98 percent payable on a semi-annual basis. 8 On October 4, 1993 the Company completed a secondary offering of its stock whereby an affiliate of Kohlberg, Kravis, Roberts & Co., L.P. ("The Selling Shareholder"), sold 3,450,000 of its shares. The Company received proceeds of $1,638,000 resulting from the exercise of 505,067 option shares by The Selling Shareholder. Following the offering, The Selling Shareholder owned approximately 38 percent of the Company's stock. On June 29, 1993 and August 2, 1993, the Company issued an aggregate of $70,000,000 of five-year floating rate notes to a group of five banks. At the Company's option, the notes will bear interest at a spread above LIBOR or certificate of deposit rates. Proceeds from the floating rate notes were used to reduce commercial paper borrowings. The Company believes that a combination of cash flow from operations, the above-mentioned note issuances, and borrowings under its expanded credit facilities will permit it to finance its capital expenditure requirements for 1994, budgeted to be $265,000,000. The Company's more recent strategy has been for it to own its newly constructed facilities. In the future the Company may fund its capital expenditure requirements by mortgaging facilities, entering into sale and leaseback transactions and/or other third-party leases, or by issuing additional debt or equity. RESULTS OF OPERATIONS COMPARISON OF THE 12 WEEKS ENDED NOVEMBER 5, 1994 WITH THE 12 WEEKS ENDED NOVEMBER 6, 1993. Net sales for the third quarter of 1994 decreased $17,723,000 or 2.7 percent over the corresponding quarter in 1993. The 1994 decrease in sales was primarily due to an 88-day strike which affected 26 of the Company's stores. Comparable store sales decreased 12.5 percent for the third quarter of 1994. Food comparable store sales decreased 15.5 percent, and nonfood comparable store sales decreased 10.4 percent. Excluding the stores affected by the strike, total comparable store sales increased 0.6 percent with food comparable store sales increasing 1.7 percent and nonfood comparable store sales decreasing 0.1 percent. The Company's food operations accounted for 38.2 percent of the overall sales in 1994 and 39.3 percent in 1993. Gross margin as a percent of net sales was 24.3 percent for the third quarter of 1994, compared with 29.5 percent for 1993's third quarter. The decrease in gross margin was the result of the 88-day strike at 26 of the Company's stores, and strikes at its distribution center, trucking operations, bakery, and dairy. These strikes resulted in additional costs incurred to hire replacement workers at the Company's distribution center and trucking operations, and to take markdowns for items that were not sold due to lower sales volumes in the stores affected by the strike. Operating and administrative expenses as a percent of net sales were 30.5 percent for the third quarter of 1994, compared with 26.7 percent for 1993's third quarter. Expenses in the third quarter of 1994 increased primarily because of high fixed costs and labor costs as a percent of net sales due to the lower sales volumes in the stores affected by the strike. The Company took a pretax write-off of $15,978,000 in 1994's third quarter as a result of its decision to exit the Northern California market. The charge to income covers the adjustment of the Company's book value on its Northern California properties to an estimated net realizable value. The properties included one store in Chico, California and three land parcels in Redding and Sacramento, California. The properties are currently being marketed with the intent on closing potential sales as soon as practicable. 9 Net interest expense in the third quarter of 1994 increased to $4,200,000, from $1,937,000 reported in the third quarter of 1993. The increase primarily reflects higher borrowings due to the acceleration in new store construction and remodels, as well as the impact of the strikes; and to a lesser extent, higher interest rates. The effective tax rate for the third quarter of both 1994 and 1993 was 38.0 percent. The Company reported a net loss of $36,579,000 for the third quarter of 1994, compared with net income of $9,897,000 in 1993's third quarter. The loss per share was $1.28 in the third quarter of 1994 compared with earnings per share of $.35 in 1993's third quarter. The net loss was affected by the above-mentioned strikes plus the California after-tax write-off of $9,906,000, or a loss of $.35 per share. Excluding this write-off, the Company's third quarter net loss and loss per share were $26,673,000 and $.93, respectively. COMPARISON OF THE 40 WEEKS ENDED NOVEMBER 5, 1994 WITH THE 40 WEEKS ENDED NOVEMBER 6, 1993. Net sales for the first 40 weeks of 1994 increased $125,130,000 or 5.8 percent to $2,296,435,000. This increase reflects openings of new stores, offset by the impact of the 88-day strike which affected 26 of the Company's stores. Comparable store sales decreased 1.8 percent for this 40-week period. Food comparable store sales decreased 3.2 percent, and nonfood comparable store sales decreased 0.9 percent. Excluding the stores affected by the strike, total comparable sales increased 2.1 percent, with food comparable store sales increasing 1.9 percent and nonfood comparable store sales increasing 2.3 percent. The Company's food operations accounted for 39.2 percent of the overall sales for the first 40 weeks of 1994 compared with 38.9 percent for the first 40 weeks of 1993. Gross margin as a percent of net sales was 28.1 percent for the first 40 weeks of 1994 compared with 29.6 percent for 1993. The decrease in gross margin was primarily the result of an 88-day strike at 26 of the Company's stores, and strikes at its distribution center, trucking operations, bakery and dairy. These strikes resulted in additional costs incurred to hire replacement workers at the Company's distribution center and trucking operations, and to take markdowns for items that were not sold due to lower sales volumes in the stores affected by the strike. Operating and administrative expenses as a percent of net sales were 27.1 percent for the first 40 weeks of 1994 compared with 26.0 percent for the first 40 weeks of 1993. Expenses for the first 40 weeks of 1994 increased primarily because of high fixed costs and labor costs as a percent of net sales due to the lower sales volumes in the stores affected by the strike, and for costs associated with opening five new stores. The Company took a pretax write-off of $15,978,000 in 1994's third quarter as a result of its decision to exit the Northern California market. The charge to income covers the adjustment of the Company's book value on its Northern California properties to an estimated net realizable value. The properties included one store in Chico, California and three land parcels in Redding and Sacramento, California. The properties are currently being marketed with the intent on closing potential sales as soon as practicable. Net interest expense in the first 40 weeks of 1994 was $10,061,000, an increase of 70.2 percent from the $5,913,000 for 1993. The increase primarily reflects higher borrowings due to the acceleration in new store construction and remodels, as well as the impact of the strikes; and to a lesser extent, higher interest rates. 10 The effective tax rate for the first 40 weeks of 1994 was 38.0 percent compared with 43.3 percent in the comparable 40 weeks of 1993. The effective tax rate for the first 40 weeks of 1993 reflects the effect of three nonrecurring adjustments. The Company reported a net loss of $1,400,000 and loss per share of $.05 per share for the first 40 weeks of 1994 compared with net income of $38,282,000 and earnings per share of $1.35 reported in the first 40 weeks of 1993. The net loss was affected by the above-mentioned strikes plus the California after-tax write-off of $9,906,000, or a loss of $.35 per share. Excluding the California write-off, net income and earnings per share for the first 40 weeks of 1994 were $8,506,000 and $.30, respectively. Net income and earnings per share for the first 40 weeks of 1993 were affected by an accounting change and three accounting adjustments that resulted in a reduction in net income of $2,565,000 and $.09 in earnings per share. Excluding the effects of the accounting change and three adjustments, and assuming a 38 percent tax rate in 1993, net income was $40,847,000 for the first 40 weeks of 1993. Earnings per share excluding these same items were $1.44 in 1993's first 40 weeks. EFFECT OF LIFO The Company estimates annual LIFO expense based on estimates of three factors: inflation rates (calculated by reference to the Department Stores Inventory Price Index published by the Bureau of Labor Statistics for softgoods and jewelry, and to internally generated indices based on Company purchases during the year for all other departments), expected inventory levels, and expected markup levels (after reflecting permanent markdowns and cash discounts). The Company reviewed these year-to-date indices at the end of the third quarter and adjusted its LIFO reserve on a year- to-date basis to reflect the Company's overall product mix, anticipated year-end inventory levels, and the Company's expectations of the indices for the remainder of the year. 11 PART II. OTHER INFORMATION Item 5. Other Information. A strike started on August 18, 1994 affecting a multi- employer group of unionized food stores in the greater Portland area, including 26 Fred Meyer stores. At approximately the same time, a series of strikes also began at the Company's Portland area distribution center, plants, trucking operations, and main office. These strikes were settled during the period from September 23, 1994 to November 13, 1994. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit ------- 11. Computation of (Loss) Earnings Per Common Share. 27. Financial Data Schedule. (b) Reports on Form 8-K ------------------- No reports on Form 8-K have been filed during the period for which this report is filed. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FRED MEYER, INC. (Registrant) Dated: December 5, 1994 KENNETH THRASHER ---------------- ------------------------------- Kenneth Thrasher Senior Vice President - Finance Chief Financial Officer EXHIBIT INDEX Exhibit Sequential Number Document Description Page Number - - ------- -------------------- ----------- 11. Computation of (Loss) Earnings Per Common Share 27. Financial Data Schedule. EX-11 2 EXHIBIT 11 EXHIBIT 11 FRED MEYER, INC. AND SUBSIDIARIES COMPUTATION OF (LOSS) EARNINGS PER COMMON SHARE (In thousands, except per share amounts) (Unaudited)
12 Weeks Ended 40 Weeks Ended ---------------------- ------------------------- Nov. 5, Nov. 6, Nov. 5, Nov. 6, 1994 1993 1994 1993 -------- ------ ------- ------- Weighted average number of shares outstanding . . . . . . . . . . . . . 26,548 25,958 26,500 25,738 Weighted average number of shares under option. . . . . . . . . . . . . 3,521 4,144 3,609 4,113 Shares assumed to have been purchased under the treasury stock method . . . . . . . . . . . . . (1,513) (1,607) (1,449) (1,535) ------ ------ ------- ------- Weighted average number of common and common equivalent shares outstanding . . . . . . . . . . . . . . . . . . 28,556 28,495 28,660 28,316 ====== ====== ====== ====== Net (loss) income before the effect of an accounting change . . . . . . . . . . . . . . . $(36,579) $9,897 $(1,400) $40,870 Effect of an accounting change . . . . . . . . . . . . . . . --- --- --- (2,588) -------- ------ ------- ------- Net (loss) income . . . . . . . . . . . . . . . . $(36,579) $9,897 $(1,400) $38,282 ======== ====== ======= ======= (Loss) earnings per common share on: Net (loss) income before the effect of an accounting change . . . . . . . . . . . . . . $(1.28) $.35 $(.05) $1.44 Effect of an accounting change . . . . . . . . . . . . . . --- --- --- (.09) ------ ---- ----- ----- Net (loss) income . . . . . . . . . . . . . . . $(1.28) $.35 $(.05) $1.35 ====== ==== ===== =====
EX-27 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 QTR-3 JAN-28-1995 NOV-5-1994 37,703 0 22,714 0 590,726 738,476 1,283,354 429,000 1,604,441 430,489 555,860 268 0 0 529,408 1,604,441 2,296,435 2,296,435 1,650,909 637,723 0 0 10,061 (2,258) (858) (1,400) 0 0 0 (1,400) (.05) (.05)
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