-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MnDBEXkb8/rL4CJz70H28QeeIryK6VsJu7EYiXzhEv7WMLzE0pWFkCWhjvfl1CNb xE8S6EYUEBs2zk+tyJnPTw== 0000893877-97-000438.txt : 19970807 0000893877-97-000438.hdr.sgml : 19970807 ACCESSION NUMBER: 0000893877-97-000438 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970524 FILED AS OF DATE: 19970806 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEYER FRED INC CENTRAL INDEX KEY: 0000701169 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 930798201 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11274 FILM NUMBER: 97652231 BUSINESS ADDRESS: STREET 1: 3800 SE 22ND AVE CITY: PORTLAND STATE: OR ZIP: 97202 BUSINESS PHONE: 5032328844 MAIL ADDRESS: STREET 1: PO BOX 42121 CITY: PORTLAND STATE: OR ZIP: 97242 10-Q/A 1 FORM 10-Q, AMENDMENT NO. 2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A Amendment No. 2 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 24, 1997 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. 1-11274 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 May 24, 1997: 26,642,779 PART I - FINANCIAL INFORMATION
FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) May 24, February 1, 1997 1997 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents.............................................. $ 64,152 $ 48,769 Receivables-net........................................................ 25,265 23,729 Inventories............................................................ 624,356 604,910 Prepaid expenses and other............................................. 32,911 43,149 Current portion of deferred taxes..................................... 17,226 17,226 ---------- ---------- Total current assets............................................... 763,910 737,783 ---------- ---------- PROPERTY AND EQUIPMENT-NET................................................ 997,995 929,765 ---------- ---------- OTHER ASSETS.............................................................. 25,989 24,472 ---------- ---------- TOTAL........................................................... $1,787,894 $1,692,020 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and outstanding checks................................ $ 430,632 $ 398,430 Current portion of long-term debt and lease obligations............................................... 1,038 1,038 Income taxes payable................................................... 7,077 5,115 Accrued expenses and other............................................. 103,461 99,998 ---------- ---------- Total current liabilities........................................... 542,208 504,581 ---------- ---------- LONG-TERM DEBT AND MORTGAGES.............................................. 558,089 521,512 ---------- ---------- CAPITAL LEASE OBLIGATIONS................................................. 13,182 13,227 ---------- ---------- DEFERRED LEASE TRANSACTIONS............................................... 41,547 46,318 ---------- ---------- DEFERRED INCOME TAXES..................................................... 35,176 35,176 ---------- ---------- OTHER LONG-TERM LIABILITIES............................................... 5,555 5,302 ---------- ---------- STOCKHOLDERS' EQUITY Common stock........................................................... 291 287 Additional paid-in capital............................................. 215,722 203,314 Retained earnings...................................................... 447,381 434,122 Treasury stock......................................................... (69,781) (69,773) Notes receivable from officers......................................... (695) (1,394) Unearned compensation.................................................. (781) (652) ---------- ---------- Total stockholders' equity.......................................... 592,137 565,904 ---------- ---------- TOTAL............................................................ $1,787,894 $1,692,020 ========== ========== See notes to consolidated financial statements.
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FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) 16 Weeks Ended ------------------------------ May 24, May 25, 1997 1996 ---------- ---------- NET SALES.................................................................. $1,193,936 $1,040,028 COST OF MERCHANDISE SOLD................................................... 838,515 737,956 ---------- ---------- GROSS MARGIN............................................................... 355,421 302,072 OPERATING AND ADMINISTRATIVE EXPENSES...................................... 320,428 273,736 ---------- ---------- INCOME FROM OPERATIONS..................................................... 34,993 28,336 INTEREST EXPENSE-NET....................................................... 13,607 13,104 ---------- ---------- INCOME BEFORE INCOME TAXES................................................. 21,386 15,232 PROVISION FOR INCOME TAXES................................................. 8,127 5,788 ---------- ---------- NET INCOME................................................................. $ 13,259 $ 9,444 ========== ========== EARNINGS PER COMMON SHARE.................................................. $.48 $.33 ==== ==== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................................... 27,817 28,539 ====== ====== See notes to consolidated financial statements.
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FRED MEYER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) 16 Weeks Ended ---------------------------- May 24, May 25, 1997 1996 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................. $ 13,259 $ 9,444 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment........................................... 38,172 35,322 Amortization of goodwill............................................ 95 95 Deferred lease transactions......................................... (4,771) (860) Other liabilities................................................... 253 (430) Income taxes........................................................ 1,961 (269) Inventories......................................................... (19,446) (38,454) Other current assets................................................ 7,669 3,781 Accounts payable and accrued expenses............................... 32,042 65,719 Other............................................................... 144 (6,203) -------- ------- Net cash provided by operating activities.............................. 69,378 68,145 -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock-net........................................... 12,227 151 Increase (decrease) in outstanding checks.............................. 3,622 (1,136) Increase in notes receivable........................................... (139) (273) Long-term financing: Borrowings.......................................................... 36,845 --- Repayments.......................................................... (313) (39,632) -------- ------- Net cash provided by (used for) financing activities................................................ 52,242 (40,890) -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.................................... (111,702) (36,131) Net proceeds from sale of real property................................ 5,465 5,827 -------- ------- Net cash used for investing activities................................. (106,237) (30,304) -------- ------- CASH AND CASH EQUIVALENTS: Net increase (decrease) for the period................................. 15,383 (3,049) Beginning of period.................................................... 48,769 41,849 -------- ------- End of period.......................................................... $ 64,152 $38,800 ======== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest............................................................ $13,117 $12,510 Income taxes........................................................ 3,013 6,038 See notes to consolidated financial statements.
4 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. Inventories ----------- Inventories consist mainly of merchandise held for sale. Substantially all of 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. 3. Income Taxes ------------ Income taxes have been provided for based upon the current estimate of the Company's annual effective tax rate. 4. Stockholders' Equity -------------------- Changes in stockholders' equity for the sixteen weeks ended May 24, 1997 were: (In thousands) -------------- Stockholders' equity, February 1, 1997 $567,298 Issuance of common stock - net 12,404 Unearned compensation (177) Amortization of unearned compensation 48 Net income 13,259 -------- Stockholders' equity, May 24, 1997 $592,832 ======== 5. 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 $12.125 to $41.25 per share) which was determined by using the "treasury stock" method. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which establishes new standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS, requires dual presentation of basic and diluted EPS on the face of the income statement, and requires additional disclosures regarding EPS. SFAS No. 128 will require changes in the computation and presentation of the Company's EPS commencing with the financial statements for the year ending January 31, 1998 and require restatement of all prior periods presented. Earlier application of this statement is not permitted. However, if the Company computed its EPS for the 16 weeks ended May 24, 1997 in a manner consistent with SFAS No. 128, the pro forma amounts would have been as follows: Basic earnings per share $.50 Diluted earnings per share $.48 Basic weighted average number of common shares outstanding to the nearest thousand 26,525 Diluted weighted average number of common and common equivalent shares outstanding to the nearest thousand 27,628 5 6. 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. --------------- The financial information furnished in this Form 10-Q reflects all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the results for the 16 weeks ended May 24, 1997 and May 25, 1996. 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. 6 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 1996 and the first quarter 1997 through internally generated cash flow and sale-leaseback proceeds, supplemented by borrowings under committed and uncommitted bank lines of credit and unrated commercial paper. The Company modified and extended its credit facility on April 23, 1997 with several domestic and foreign banks for a committed line of credit which provides for borrowings of up to $500.0 million. Modifications included more favorable pricing as well as less restrictive financial covenants. This agreement continues through June 30, 2002, at which time the agreement terminates and any outstanding amounts must be paid in full. In addition to this committed credit facility, at May 24, 1997 the Company had $105.0 million of uncommitted money market lines with several foreign banks and $120.0 million of uncommitted money market lines with banks which are also in the committed credit facility. The bank lines and unrated commercial paper are used primarily for seasonal inventory requirements, new store construction and financing, existing store remodeling, acquisition of land, and major projects such as the development of Management Information Systems. At May 24, 1997 the Company had unrated commercial paper outstanding in the amount of $314.9 million and a total of approximately $185.1 million available for borrowings that would be supported by its committed credit facility. The Company has entered into interest rate swap and cap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. At May 24, 1997, the Company had outstanding four interest rate contracts, for a total notional principal amount of $75.0 million, with commercial banks. Two swap agreements effectively fix the Company's interest rate on unrated commercial paper, floating rate facilities and uncommitted lines of credit at rates between 5.20% and 7.595% on a notional principal amount of $40.0 million. These contracts expire through 1998. Two cap agreements effectively limit the maximum interest rate the Company will pay at rates between 5.0% and 9.0% on notional principal amounts totaling $35 million. These contracts expire through 1999. The Company has entered into swap and cap agreements to reduce the impact of changes in rent expense on its two lease lines of credit. At May 24, 1997, the Company had outstanding seven rent rate contracts, for a total notional principal amount of $80.0 million, with commercial banks. Three of these agreements effectively fix the Company's rental rate on the lease lines at rates between 6.2775% and 6.5369% on notional principal amounts of $40.0 million. The remaining four agreements effectively limit the maximum rental rate the Company will pay at 7.25% on notional principal amounts totaling $40.0 million. All seven of these contracts expire in 2000. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate and rent rate swap and cap agreements. The Company requires an A or better rating of the counterparties and, accordingly, does not anticipate nonperformance by the counterparties. In a series of transactions with MetLife, the Company purchased, for approximately $49,000,000, six stores leased from MetLife, including one store that was previously closed, plus an option to purchase 25 parcels at 18 of the 29 stores it will continue to lease from MetLife. An agreement has been entered into for new 25-year leases on these 29 stores that will result in reduced rents for accounting purposes. The Company's Clackamas Distribution Center has been sold by MetLife for approximately $63,000,000 to a third party and leased to Fred Meyer at reduced rates. An agreement with another lessor covered acquisition of fixed assets and utilized funds totaling $8,585,000. The Company believes that a combination of cash flow from operations and borrowings under its credit facilities will permit it to finance its capital expenditure requirements for 1997, currently budgeted to be approximately $167.0 million, net of estimated real estate sales and stores financed on leases. If the Company determines that it is preferable, it may fund its capital expenditure requirements by mortgaging facilities, entering into sale-leaseback transactions, or by issuing additional debt or equity. 7 RESULTS OF OPERATIONS COMPARISON OF THE 16 WEEKS ENDED MAY 24, 1997 WITH THE 16 WEEKS ENDED MAY 25, 1996. Net sales for the first quarter of 1997 increased $153.9 million or 14.8% over the corresponding quarter in 1996. This increase reflects sales growth at existing stores, openings of new stores, and, to a lesser extent, inflation. Comparable store sales increased 7.0% for the first quarter of 1997. Comparable food store sales increased 6.0%, and comparable nonfood store sales increased 8.7%. The Company's food operations accounted for 59.8% of the overall sales in 1997 and 61.0% in 1996. Gross margin as a percent of net sales was 29.8% for the first quarter of 1997, compared with 29.0% in 1996's first quarter. Gross margins increased as a percent of net sales due primarily to lower markdowns, the effects of increased sales of higher-margin jewelry, mainly from 71 stores acquired in 1996, and the improved mix of sales in nonfood, particularly in apparel. Operating and administrative expenses as a percent of net sales were 26.8% for the first quarter of 1997, compared with 26.3% in 1996's first quarter. Expenses as a percent of sales increased in 1997's first quarter due to increased wages in certain remerchandised nonfood sections of the multidepartment stores, increased expenses in the fine jewelry stores, and expenses associated with the opening of five new multidepartment stores versus one opening in 1996's first quarter. Net interest expense for the first quarters of 1997 and 1996 was $13.6 million and $13.1 million, respectively. The effective tax rate was 38.0% for the first quarters of 1997 and 1996. Net income increased 40.4% to $13.3 million in the first quarter of 1997 from $9.4 million in 1996. Earnings per share were $.48 for the first quarter of 1997 based on 27.8 million shares outstanding, compared with $.33 for the prior year's first quarter based on 28.5 million shares outstanding. EFFECT OF LIFO During each year, the Company estimates the LIFO adjustment for the year 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 first 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. 8 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: August 5, 1997 DAVID R. JESSICK -------------- ------------------------------- David R. Jessick Senior Vice President - Finance Chief Financial Officer 9 -----END PRIVACY-ENHANCED MESSAGE-----