-----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, Pa4XET5vLxfLPbKi1Acr82gswZ7UvhN2wcqbtRerka3SNHh1gP377ARoCZgPDZ6C s0O2XoU8ynMmbW8ZwdCfnw== 0000928585-96-000023.txt : 19961217 0000928585-96-000023.hdr.sgml : 19961217 ACCESSION NUMBER: 0000928585-96-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961102 FILED AS OF DATE: 19961216 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: 96680951 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 November 2, 1996. 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 9,328,822 shares of common stock outstanding as of December 1, 1996. FRED'S, INC. INDEX Page No. Part I - Financial Information Item 1 - Financial Statements (unaudited): Consolidated Balance Sheets as of November 2, 1996 and February 3, 1996 3 Consolidated Statements of Operations for the Thirteen Weeks Ended and the Thirty-Nine Weeks Ended November 2, 1996 and October 28, 1995 4 Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended November 2, 1996 and October 28, 1995 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)
November 2, February 3, 1996 1996 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 1,401 $ 5,496 Receivables, less allowance for doubtful accounts 5,497 5,115 Inventories 101,628 85,211 Deferred income taxes 1,200 2,125 Other current assets 1,316 956 ------- ------- Total current assets 111,042 98,903 Property and equipment, at depreciated cost 50,481 51,681 Equipment under capital leases, less accumulated amortization 380 560 Deferred income taxes 5,255 4,986 Other noncurrent assets 1,940 1,893 ------- ------- $169,098 $158,023 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,208 $ 29,793 Current portion of indebtedness 4,594 1,660 Current portion of capital lease obligations 346 301 Accrued liabilities 8,531 6,987 Income taxes payable 1,791 813 ------- ------- Total current liabilities 49,470 39,554 Indebtedness 173 1,278 Capital lease obligations 236 501 Other noncurrent liabilities 1,286 1,120 ------- ------- Total liabilities 51,165 42,453 ------- ------- Commitments and contingencies Shareholders' equity: Common stock, Class A voting, no par value, 9,329,072 shares issued and outstanding (9,335,239 shares at February 3, 1996) 63,370 63,458 Retained earnings 54,750 52,424 Deferred compensation on restricted stock incentive plan (187) (169) Loan to ESOP - (143) ------- ------- Total shareholders' equity 117,933 115,570 ------- ------- $169,098 $158,023 ======= =======
See accompanying notes to consolidated financial statements FRED'S, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)
Thirteen Weeks Ended Thirty-Nine Weeks Ended ------------------------ ------------------------ November 2, October 28, November 2, October 28, 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Net sales $99,283 $95,598 $300,069 $285,943 Cost of goods sold 71,100 70,687 217,659 212,552 ------ ------ ------- ------- Gross profit 28,183 24,911 82,410 73,391 Selling, general and administrative expenses 25,648 24,582 75,751 69,954 ------ ------ ------- ------- Operating income 2,535 329 6,659 3,437 Interest expense, net 104 137 315 353 Other expenses 429 - 429 - ------ ------ ------- ------- Income before taxes 2,002 192 5,915 3,084 Provision for income taxes 741 71 2,188 1,135 ------ ------ ------- ------- Net income $ 1,261 $ 121 $ 3,727 $ 1,949 ====== ====== ======= ======= Net income per share $ .14 $ .01 $ .40 $ .21 ====== ====== ======= ======= Weighted average number of common shares and common equivalent shares outstanding 9,322 9,335 9,331 9,332 ====== ====== ======= =======
See accompanying notes to consolidated financial statements FRED'S, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Thirty-Nine Weeks Ended ------------------------ November 2, October 28, 1996 1995 ----------- ----------- Cash flows from operating activities: Net income $ 3,727 $ 1,949 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 4,396 3,994 Contribution to ESOP to reduce ESOP loan balance 143 143 Amortization of deferred compensation on restricted stock incentive plan (106) - Deferred income taxes 656 227 (Increase) decrease in assets: Receivables (382) (2,614) Inventories (16,417) (19,096) Other current assets (360) (690) Other noncurrent assets - (560) Increase (decrease) in liabilities: Accounts payable 4,415 14,091 Accrued liabilities 1,544 (438) Income taxes payable 978 (742) Other noncurrent liabilities 165 126 ------- ------- Net cash (used in) provided by operating activities (1,241) (3,610) ------- ------- Cash flows from investing activities: Additions to property, equipment and equipment under capital leases (2,634) (5,103) Additions to intangible assets (429) - ------- ------- Net cash (used in) provided by investing activities (3,063) (5,103) ------- ------- Cash flows from financing activities: Net borrowings under revolving credit agreements 3,100 7,200 Reduction of indebtedness and capital lease obligations (1,491) (1,615) Cash dividends paid (1,400) (1,399) ------- ------- Net cash (used in) provided by financing activities 209 4,186 ------- ------- Increase (decrease) in cash and cash equivalents (4,095) (4,527) Cash and cash equivalents: Beginning of period 5,496 5,944 ------- ------- End of period $ 1,401 $ 1,417 ======= ======= Supplemental disclosures of cash flow information: Interest paid $ 240 $ 288 Income taxes paid $ 555 $ 1,650
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 complete 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 February 3, 1996 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 November 2, 1996 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 209 discount general merchandise stores in ten states in the southeastern United States. Eighty-seven of the stores have full service pharmacies, and twelve of Fred's stores are stand-alone Fred's Xpress 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 $16,417,000 during the thirty-nine week period ended November 2, 1996. In addition, cash was used to fund capital expenditures ($2,634,000),reduce indebtedness ($1,491,000) and pay cash dividends ($1,400,000). The increased inventory levels and other cash outlays were financed primarily from net income ($3,727,000), revolving bank borrowings ($3,100,000), trade vendors ($4,415,000), accrued liabilities ($1,544,000) 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 available from a bank. In addition, a seasonal revolving credit commitment of $9,000,000 is available through December 1996. At November 2, 1996, $3,100,000 was outstanding under the revolving credit agreement, and no borrowings have been made under the seasonal facility. - ---------------------------------------------------------------- RESULTS OF OPERATIONS - ---------------------------------------------------------------- Thirteen Weeks Ended November 2, 1996 and October 28, 1995 Net sales increased from $95.6 million in 1995 to $99.3 million in 1996, an increase of $3.7 million or 3.9%. The increase was attributable to comparable store sales increases of 0.1% ($0.6 million) and sales by stores not yet included as comparable stores ($3.5 million). Wholesale sales to franchisees and independents decreased $0.4 million or 4.2% in 1996. Gross profit increased from 26.1% of sales in 1995 to 28.4% in 1996 primarily due to a reduction in the Company's reliance on sale events to drive sales growth. With fewer promotional incentives, Fred's sales growth has moderated somewhat, but sales are now more profitable. Gross profit was also favorably impacted by improved import merchandising strategies implemented earlier this year, and by continued favorable inventory shrinkage compared to 1995. Selling, general and administrative expenses increased from $24.6 million in 1995 to $25.6 million in 1996. As a percentage of sales, expenses increased from 25.7% to 25.8%. Competitive increases in the Company's compensation program for its distribution center, implemented last summer, coupled with the most recent minimum wage increase implemented in October 1996 caused the increase in the expense percentage. During the third quarter of 1996, the Company terminated discussions relating to a previously announced merger agreement with Rose's Stores, Inc. Other expenses includes $0.4 million in non-recurring expenses related to this transaction. Net income increased from $0.1 million in 1995 to $1.3 million in 1996 primarily resulting from the gross profit improvement described. Thirty-Nine Weeks Ended November 2, 1996 and October 28, 1995 Net sales increased from $285.9 million in 1995 to $300.1 million in 1996, an increase of $14.2 million or 4.9%. The increase was attributable to comparable store sales increases of 1.5% ($3.8 million) and sales by stores not yet included as comparable stores ($12.8 million). Wholesale sales to franchisees and independents decreased $2.4 million or 7.9% in 1996. Gross profit increased from 25.7% of sales in 1995 to 27.5% in 1996 for the aforementioned reason. Selling, general and administrative expenses increased from $70.0 million in 1995 to $75.8 million in 1996. As a percentage of sales, these expenses increased from 24.5% to 25.3%. The 0.8% increase in the expense percentage was due to a greater proportion of retail sales, which carry higher expense ratios than wholesale sales (0.2%), competitive increases in the Company's compensation program for its distribution center (0.2%), the costs of phasing in a new pharmacy management system, and other normal inflationary factors throughout the Company that exceeded the 1.5% comparable store sales increase. Other expenses of $0.4 million represents non-recurring expenses as mentioned above. Net income increased from $1.9 million in 1995 to $3.7 million in 1996 primarily due to the gross profit improvements described earlier. - ---------------------------------------------------------------- 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. - ---------------------------------------------------------------- FORWARD-LOOKING STATEMENTS - ---------------------------------------------------------------- Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statement. These risks and uncertainties include, but are not limited to, changes in customer demand, changes in the competitive pricing for products, the impact of competitor store openings and closings, the availability of acceptable store locations, the availability of merchandise, general economic conditions and other risk factors discussed in documents filed by the Company with the Securities and Exchange Commission. 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 (Loss) 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 ---------------------------------- Date: December 9, 1996 Michael J. Hayes - ----------------------- Chief Executive Officer /s/ Richard B. Witaszak ---------------------------------- Date: December 9, 1996 Richard B. Witaszak - ----------------------- 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 -------------------- ----------------------- Nov. 2, Oct. 28, Nov. 2, Oct. 28, 1996 1995 1996 1995 ------- -------- ------- -------- PRIMARY NET INCOME PER SHARE Net income $1,261 $ 121 $3,727 $1,949 ===== ===== ===== ===== Weighted average number of common shares outstanding during the period 9,322 9,335 9,331 9,332 Additional shares attributable to common stock equivalents - - - - ----- ----- ----- ----- 9,322 9,335 9,331 9,332 ===== ===== ===== ===== Net income per share $ .14 $ .01 $ .40 $ .21 ===== ===== ===== ===== FULLY DILUTED NET INCOME PER SHARE Net income $1,261 $ 121 $3,727 $1,949 ===== ===== ===== ===== Weighted average number of common shares outstanding during the period 9,322 9,335 9,331 9,332 Additional shares attributable to common stock equivalents - - - - ----- ----- ----- ----- 9,322 9,335 9,331 9,332 ===== ===== ===== ===== Net income per share $ .14 $ .01 $ .40 $ .21 ===== ===== ===== =====
EX-27 3
5 0000724571 FRED'S, INC. 9-MOS FEB-01-1997 NOV-02-1996 1,401,000 0 6,583,000 (1,086,000) 101,628,000 111,042 109,003,000 (58,142,000) 169,098,000 49,470,000 490,000 0 0 63,370,000 54,563,000 169,098,000 300,069,000 300,069,000 217,659,000 217,659,000 75,522,000 229,000 315,000 6,344,000 2,188,000 4,156,000 0 429,000 0 3,727,000 $0.40 $0.40
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