-----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, Rx2ROQi+IYfXF+PAqRe/hZCi8sJjK1jSHKzw2frcLn79AlwiPr+sxpIiDN8SI3yW tPK8+qfGXLs0fWYxFRR7pg== 0000928585-95-000021.txt : 19951212 0000928585-95-000021.hdr.sgml : 19951212 ACCESSION NUMBER: 0000928585-95-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951028 FILED AS OF DATE: 19951211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREDS INC CENTRAL INDEX KEY: 0000724571 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 620634010 STATE OF INCORPORATION: TN FISCAL YEAR END: 0127 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19288 FILM NUMBER: 95600653 BUSINESS ADDRESS: STREET 1: 4300 NEW GETWELL RD CITY: MEMPHIS STATE: TN ZIP: 38118 BUSINESS PHONE: 9013623733 MAIL ADDRESS: STREET 1: 4300 NEW GETWELL ROAD CITY: MEMPHIS STATE: TN ZIP: 38118 FORMER COMPANY: FORMER CONFORMED NAME: BADDOUR INC DATE OF NAME CHANGE: 19910620 10-Q 1 QUARTERLY FILING FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended October 28, 1995. 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 number 000-19288 FRED'S, INC. (Exact name of registrant as specified in its charter) Tennessee 62-0634010 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4300 New Getwell Rd., Memphis, Tennessee 38118 (Address of principal executive offices) (zip code) (901) 365-8880 (Registrant's telephone number, including area code) 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 X . No . The registrant had 9,335,256 shares of common stock outstanding as of October 28, 1995. FRED'S, INC. INDEX Page No. PART I - FINANCIAL INFORMATION Item 1 - Financial Statements (unaudited): Consolidated Balance Sheets as of October 28, 1995 and January 28, 1995 3 Consolidated Statements of Income for the Thirteen Weeks Ended and the Thirty-Nine Weeks Ended October 28, 1995 and October 29, 1994 4 Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 28, 1995 and October 29, 1994 5 Notes to Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 9 PART II - OTHER INFORMATION 10 Signatures 11 FRED'S, INC. CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except for number of shares) OCTOBER 28, JANUARY 28, 1995 1995 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 1,417 $ 5,944 Receivables, less allowance for doubtful accounts 6,647 4,033 Inventories 101,259 82,163 Deferred income taxes 1,470 1,590 Other current assets 1,446 756 -------- -------- Total current assets 112,239 94,486 Property and equipment, at depreciated cost 51,252 49,550 Equipment under capital leases, less accumulated amortization 620 951 Deferred income taxes 5,063 5,170 Other noncurrent assets 1,726 1,428 -------- -------- $170,900 $151,585 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 38,415 $ 24,324 Current portion of indebtedness 8,835 1,629 Current portion of capital lease obligations 285 408 Accrued liabilities 4,592 5,030 Income taxes payable 300 1,042 -------- -------- Total current liabilities 52,427 32,433 -------- -------- Indebtedness 1,658 2,938 Capital lease obligations 584 802 Other noncurrent liabilities 1,081 955 -------- -------- Total liabilities 3,323 37,128 -------- -------- Commitments and contingencies Shareholders' equity: Common stock, Class A voting, no par value, 9,335,256 shares and outstanding (9,307,373 shares at January 28, 1995 63,458 63,185 Retained earnings 52,105 51,555 Loan to ESOP (140) (283) Deferred compensation on restricted stock incentive plan (273) - -------- -------- Total shareholders' equity 115,150 114,457 -------- -------- $170,900 $151,585 ======== ======== See accompanying notes to consolidated financial statements FRED'S, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED -------------------- ----------------------- OCTOBER OCTOBER OCTOBER OCTOBER 28, 1995 29, 1994 28, 1995 29, 1994 -------- -------- -------- -------- Net sales $ 95,598 $ 91,376 $285,943 $270,388 Cost of goods sold 70,687 66,466 212,552 197,142 -------- -------- -------- -------- Gross profit 24,911 24,910 73,391 73,246 Selling, general and administrative expenses 24,582 22,331 69,954 64,203 -------- -------- -------- -------- Operating income 329 2,579 3,437 9,043 Interest expense, net 137 154 353 216 Other expenses - 37 - 37 -------- -------- -------- -------- Income before income taxes 192 2,388 3,084 8,790 Provision for income taxes 71 865 1,135 3,176 -------- -------- -------- -------- Net income $ 121 $ 1,523 $ 1,949 $ 5,614 ======== ======== ======== ======== Net income per shares $ .01 $ .16 $ .21 $ .60 ======== ======== ======== ======== Weighted average number of common shares and common equivalent shares outstanding 9,335 9,307 9,332 9,307 ======== ======== ======== ======== See accompanying notes to consolidated financial statements FRED'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) THIRTY-NINE WEEKS ENDED ------------------------- OCTOBER 28, OCTOBER 29, 1995 1994 ---------- ---------- Cash flows from operating activities: Net income $ 1,949 $ 5,614 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 3,994 3,157 Contribution to ESOP to reduce ESOP loan balance 143 142 Deferred income taxes 227 1,354 (Increase) decrease in assets: Receivables (2,614) (1,936) Inventories (19,096) (28,292) Other current assets (690) (256) Other noncurrent assets (560) (43) Increase (decrease) in liabilities: Accounts payable 14,091 12,059 Accrued liabilities (438) (443) Income taxes payable (742) (34) Other noncurrent liabilities 126 108 -------- -------- Net cash (used in) provided by operating activities (3,610) (8,570) -------- -------- Cash flows from investing activities: Additions to property, equipment and equipment under capital leases (5,103) (7,787) -------- -------- Net cash (used in) provided by investing activities (5,103) (7,787) -------- -------- Cash flows from financing activities: Proceeds from borrowings and increase in capital lease obligations 7,200 30,800 Reduction of indebtedness and capital lease obligations (1,615) (20,447) Cash dividends paid (1,399) (1,396) -------- -------- Net cash (used in) provided by financing activities 4,186 8,957 -------- -------- Increase (decrease) in cash and cash equivalents (4,527) (7,400) Beginning of period cash and cash equivalents 5,944 8,070 -------- -------- End of period cash and cash equivalents $ 1,417 $ 670 ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 288 $ 168 Income taxes paid $ 1,650 $ 1,856 See accompanying notes to consolidated financial statements FRED'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------ NOTE 1: BASIS OF PRESENTATION - ------------------------------------------------------------------ The accompanying unaudited consolidated financial statements of Fred's, Inc. ("Fred's" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and notes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The statements do reflect all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of financial position in conformity with generally accepted accounting principles. The statements should be read in conjunction with the Notes to the Consolidated Financial Statements for the fiscal year ended January 28, 1995 included in the Company's Annual Report on Form 10-K. The results of operations for the thirteen week and thirty-nine week periods ended October 28, 1995 are not necessarily indicative of the results to be expected for the full fiscal year. - ------------------------------------------------------------------ NOTE 2: NET INCOME PER SHARE - ------------------------------------------------------------------ Net income per share is based on the weighted average number of common shares and common equivalent shares outstanding. See Exhibit 11. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------ FINANCIAL CONDITION - ------------------------------------------------------------------ Fred's operates 203 discount general merchandise stores in ten states in the southeastern United States, including 18 stores acquired from Southern Wholesale Company during the thirteen week period ended October 28, 1995. Eighty-seven of the stores have full service pharmacies, and there are four Fred's Xpress stand- alone pharmacies. Due to the seasonality of Fred's business and the continued increase in the number of stores and pharmacies, inventories are generally lower at year-end than at each quarter-end of the following year. As shown on the consolidated statement of cash flows, inventories increased $19,096,000 during the thirty-nine week period ended October 28, 1995. In addition, cash was used to fund accounts receivable ($2,614,000), capital expenditures incurred primarily in connection with opening/acquiring new stores and pharmacies and installing enhanced point-of-sale cash registers, ($5,103,000), and cash dividends ($1,399,000). The increased inventory levels and other cash outlays were financed from net income ($1,949,000), increased accounts payable ($14,091,000), seasonal bank borrowings ($7,200,000) and existing cash. The Company believes that sufficient capital resources are available in both the short-term and long-term through currently available cash and cash generated from future operations and, if necessary, the ability to obtain additional financing. The Company has a $12,000,000 revolving credit commitment and a $4,500,000 line of credit commitment available from two banks. At October 28, 1995, $7,200,000 was outstanding under the revolving credit agreement and $3,151,000 was outstanding under the line of credit agreement. - ------------------------------------------------------------------ RESULTS OF OPERATIONS - ------------------------------------------------------------------ Thirteen Weeks Ended October 28, 1995 and October 29, 1994 - ---------------------------------------------------------- Net sales increased from $91.4 million in 1994 to $95.6 million in 1995, an increase of $4.2 million or 4.6%. The increase was attributable to comparable store sales increases of 1.4% ($1.0 million) and sales by stores not yet included as comparable stores ($3.3 million). Wholesale sales to franchisees and independents decreased $.1 million or 1.1% in 1995. Gross profit decreased from 27.3% of sales in 1994 to 26.1% in 1995 primarily due to price reductions associated with the implementation of an everyday competitive pricing strategy. This strategy was implemented in December 1994 and included an initial wave of price reductions on highly recognizable items. Subsequently, additional price reductions have been taken on other items in an effort to stimulate sluggish sales. Selling, general and administrative expenses increased from $22.3 million in 1994 to $24.6 million in 1995 due primarily to expenses associated with new stores and pharmacies. As a percentage of sales, expenses increased from 24.4% to 25.7%. Expenses as a percentage of sales increased due to several factors that included changes to the Company's distribution center operations to implement a more competitive wage program and convert from a four- day to a five-day work week. In addition, higher expenses were incurred in connection with the conversion to a new pharmacy management system that provides the centralized controls necessary to maximize the performance of a large chain of pharmacies. The implementation of this new system from PDX, and the related training, will be completed by the end of February 1996. Lastly, the relative increase in expenses reflected costs associated with the third quarter acquisition of 18 stores and the initial steps taken to conform these stores to the Fred's concept. These factors, combined with the lack of expense leverage caused by weak comparable store sales growth, resulted in a higher expense ratio. Thirty-Nine Weeks Ended October 28, 1995 and October 29, 1994 - ------------------------------------------------------------- Net sales increased from $270.4 million in 1994 to $285.9 million in 1995, an increase of $15.5 million or 5.7%. The increase was attributable to comparable store sales increases of 2.3% ($5.2 million) and sales by stores not yet included as comparable stores ($9.9 million). Wholesale sales to franchisees and independents increased $.4 million or 1.3% in 1995. Gross profit decreased from 27.1% of sales in 1994 to 25.7% in 1995 primarily as a result of the everyday competitive price reductions discussed above and because of markdowns that were necessary in order to sell slow-moving inventory during the second quarter. Selling, general and administrative expenses increased from $64.2 million in 1994 to $70.0 million in 1995 due primarily to expenses associated with new stores and pharmacies. As a percentage of sales, expenses increased from 23.7% to 24.5% primarily because of the reasons outlined in the third quarter discussion above. - ------------------------------------------------------------------ EFFECT OF INFLATION - ------------------------------------------------------------------ The impact of inflation on labor and occupancy costs can significantly affect Fred's operations. Many of Fred's employees are paid hourly rates related to the federal minimum wage and, accordingly, any increase affects Fred's. In addition, payroll taxes, employee benefits and other employee-related costs continue to increase. Occupancy costs, including rent, maintenance, taxes and insurance, also continue to rise. Fred's believes that maintaining adequate operating margins through a combination of price adjustments and cost controls, careful evaluation of occupancy needs, and efficient purchasing practices is the most effective tool for coping with increasing costs and expenses. - ------------------------------------------------------------------ SEASONALITY - ------------------------------------------------------------------ Fred's business is subject to seasonal influences, but the Company has tended to experience less seasonal fluctuation than many other retailers due to the Company's mix of everyday basic merchandise. The fourth quarter is typically the most profitable quarter because it includes the Christmas selling season. The overall strength of the fourth quarter is partially mitigated, however, by the inclusion of the month of January, which is generally the least profitable month of the year. PART II. OTHER INFORMATION Item 1. Legal Proceedings Not Applicable. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Securities Holders Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K Exhibits: Exhibit 11 - Computation of Net Income Per Share Reports on Form 8-K: Not Applicable. 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'S, INC. /s/Michael J. Hayes ------------------------------ Michael J. Hayes Date: December 4, 1995 Chief Executive Officer /s/Bruce D. Smith ------------------------------ Bruce D. Smith Date: December 4, 1995 Chief Financial Officer EX-11 2 EXHIBIT 11 FRED'S, INC. COMPUTATION OF NET INCOME PER SHARE (unaudited) (in thousands, except per share amounts) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED -------------------- ----------------------- OCTOBER OCTOBER OCTOBER OCTOBER 28, 1995 29, 1994 28, 1995 29, 1994 -------- -------- ---------- -------- PRIMARY NET INCOME PER SHARE Net income $ 121 $1,523 $1,949 $5,614 ====== ====== ====== ====== Weighted average number of common shares outstanding during the period 9,335 9,307 9,332 9,307 Additional shares attributable to common stock equivalents - - - - ------ ------ ------ ------ 9,335 9,307 9,332 9,307 ====== ====== ====== ====== Net income per share $ .01 $ .16 $ .21 $ .60 ====== ====== ====== ====== FULLY DILUTED NET INCOME PER SHARE Net income $ 121 $1,523 $1,949 $5,614 ====== ====== ====== ====== Weighted average number of common shares outstanding during the period 9,335 9,307 9,332 9,307 Additional shares attributable to common stock equivalents - - - - ------ ------ ------ ------ 9,335 9,307 9,332 9,307 ====== ====== ====== ====== Net income per share $ .01 $ .16 $ .21 $ .60 ====== ====== ====== ====== EX-27 3 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. ^WPCE^ THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROMTHE CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 28, 1995 AND THECONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED OCTOBER28, 1995 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCHFINANCIAL STATEMENTS. 0000724571 FREDS INC. 1,000 9-MOS FEB-03-1996 OCT-28-1995 1,417 0 7,243 (596) 101,259 112,239 106,127 (54,255) 170,900 52,427 2,242 63,458 0 0 51,692 170,900 285,943 285,943 212,552 212,552 69,954 0 353 3,084 1,135 1,949 0 0 0 1,949 0.21 0.21
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