<PAGE>1
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 May 20, 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 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 May 20, 1995: 26,703,867
<PAGE>2
Part I - Financial Information
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 20, January 28,
1995 1995
------ ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . $ 39,405 $ 34,868
Receivables-net . . . . . . . . . . . . . . 20,018 20,025
Inventories . . . . . . . . . . . . . . . . 515,016 514,473
Prepaid expenses and other. . . . . . . . . 36,221 42,092
Income taxes receivable . . . . . . . . . . 4,612 15,021
Current portion of deferred taxes . . . . . 15,586 15,116
---------- ----------
Total current assets . . . . . . . . . . 630,858 641,595
---------- ----------
PROPERTY AND EQUIPMENT-NET . . . . . . . . . . 946,237 896,439
---------- ----------
OTHER ASSETS . . . . . . . . . . . . . . . . . 23,898 24,638
----------- ----------
TOTAL . . . . . . . . . . . . . . . . $1,600,993 $1,562,672
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and outstanding checks . . $ 285,084 $ 312,044
Current portion of long-term debt
and lease obligations. . . . . . . . . . 1,623 1,623
Accrued expenses and other. . . . . . . . . 83,600 78,414
----------- ----------
Total current liabilities. . . . . . . . 370,307 392,081
----------- ----------
LONG-TERM DEBT AND MORTGAGES . . . . . . . . . 599,153 540,166
----------- ----------
CAPITAL LEASE OBLIGATIONS. . . . . . . . . . . 13,791 13,823
----------- ----------
DEFERRED LEASE TRANSACTIONS. . . . . . . . . . 44,206 45,655
----------- ----------
DEFERRED INCOME TAXES. . . . . . . . . . . . . 20,466 22,258
----------- ----------
OTHER LONG-TERM LIABILITIES. . . . . . . . . . 9,230 10,069
----------- ----------
STOCKHOLDERS' EQUITY
Common stock. . . . . . . . . . . . . . . . 268 268
Additional paid-in capital. . . . . . . . . 199,208 197,087
Unearned compensation . . . . . . . . . . . (114) (130)
Retained earnings . . . . . . . . . . . . . 348,374 345,291
Treasury stock. . . . . . . . . . . . . . . (3,896) (3,896)
---------- ----------
Total stockholders' equity . . . . . . . 543,840 538,620
---------- ----------
TOTAL . . . . . . . . . . . . . . . . $1,600,993 $1,562,672
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>3
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
16 Weeks Ended
----------------------
May 20, May 21,
1995 1994
-------- --------
<S> <C> <C>
NET SALES. . . . . . . . . . . . . . . . . . . $936,679 $932,347
-------- --------
COST OF MERCHANDISE SOLD:
General. . . . . . . . . . . . . . . . . . 668,926 658,971
Related party leases . . . . . . . . . . . 1,713 1,713
-------- --------
Total cost of merchandise sold . . . . . . 670,639 660,684
-------- --------
GROSS MARGIN . . . . . . . . . . . . . . . . . 266,040 271,663
-------- --------
OPERATING AND ADMINISTRATIVE EXPENSES:
General. . . . . . . . . . . . . . . . . . 232,501 221,795
Related party leases . . . . . . . . . . . 17,414 17,676
-------- --------
Total operating and administrative expenses 249,915 239,471
-------- --------
INCOME FROM OPERATIONS . . . . . . . . . . . . 16,125 32,192
INTEREST EXPENSE-NET . . . . . . . . . . . . . 11,152 6,408
-------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . 4,973 25,784
PROVISION FOR INCOME TAXES . . . . . . . . . . 1,890 9,798
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . . $ 3,083 $ 15,986
======== ========
EARNINGS PER COMMON SHARE. . . . . . . . . . . $.11 $.56
==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING . . . . . . . . . 28,465 28,725
====== =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>4
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE> (Unaudited)
<CAPTION>
16 Weeks Ended
---------------------
May 20, May 21,
1995 1994
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . $ 3,083 $15,986
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment. . . . . . . . 31,328 25,924
Deferred lease transactions. . . . . . . (1,449) (799)
Other liabilities. . . . . . . . . . . . (839) 69
Income taxes . . . . . . . . . . . . . . 8,147 (13,331)
Inventories. . . . . . . . . . . . . . . (543) (26,219)
Other current assets . . . . . . . . . . 5,878 5,209
Accounts payable and accrued expenses. . 6,653 31,146
Other. . . . . . . . . . . . . . . . . . 1,344 1,509
-------- -------
Net cash provided by operating activities . 53,602 39,494
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock-net . . . . . . . 2,121 1,471
Decrease in outstanding checks . . . . . . (27,993) (11,098)
(Increase) decrease in notes receivable. . (44) 117
Long-term financing:
Borrowings . . . . . . . . . . . . . . . 58,986 66,125
Repayments . . . . . . . . . . . . . . . (32) (256)
-------- -------
Net cash provided by financing activities . 33,038 56,359
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of investment securities. . . (935) (1,745)
Purchases of property and equipment . . . . (83,187) (91,612)
Net proceeds from sale of real property . . 2,019 1,476
-------- -------
Net cash used for investing activities. . . (82,103) (91,881)
-------- -------
CASH AND CASH EQUIVALENTS:
Net increase for the period . . . . . . . . 4,537 3,972
Beginning of period . . . . . . . . . . . . 34,868 34,054
-------- -------
End of period . . . . . . . . . . . . . . . $ 39,405 $38,026
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest . . . . . . . . . . . . . . . . $5,196 $ 7,212
Income taxes . . . . . . . . . . . . . . (6,388) 23,018
</TABLE>
See notes to consolidated financial statements.
<PAGE>5
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.
4. Income Taxes
------------
Income taxes have been provided for based upon the current estimate of
the Company's annual effective tax rate.
5. Stockholders' Equity
--------------------
Changes in stockholders' equity for the sixteen weeks ended May 20, 1995
were:
<TABLE>
<CAPTION>
(In thousands)
-----------
<S> <C>
Stockholders' equity, January 28, 1995 $538,620
Stock options exercised 2,122
Amortization of unearned compensation 15
Net income 3,083
--------
Stockholders' equity, May 20, 1995 $543,840
========
</TABLE>
6. 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
$41.25 per share) which was determined by using the "treasury stock"
method.
7. 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 20, 1995 and May 21, 1994.
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.
<PAGE>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
1995 and 1994 through internally generated cash flow, supplemented by
borrowings under committed and uncommitted bank lines of credit and unrated
commercial paper.
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. On June 1, 1994, the Company issued an
aggregate of $57,500,000 of senior notes to a group of life insurance
companies. The notes mature on July 15 of 1999, 2001, 2004, and 2007 and
bear interest rates of between 7.25 percent and 7.98 percent. On April 25,
1995, the Company issued $50,000,000 of seven year senior 7.77 percent
notes to a major insurance company. On May 30, 1995, the Company borrowed
$20,000,000 from a major international bank with a maturity of five years
and bearing interest at 6.775 percent. The Company also put in place a
lease line of credit for land and buildings for up to $100,000,000.
The Company entered into a new credit facility in 1994 with several
domestic and foreign banks for a committed line of credit which provides
for borrowings of up to $400,000,000. This agreement was extended for one
year in 1995 and continues through June 30, 2000, at which time the
agreement terminates and any outstanding amounts must be paid in full. On
March 6, 1995, the Company entered into a new 364-day credit facility with
several domestic and foreign banks for an additional committed line of
credit which provides for borrowings of up to $100,000,000. After 364
days, the agreement terminates, and any outstanding amounts must be paid in
full unless extended. In addition to these committed credit facilities,
the Company had $45,000,000 of uncommitted money market lines of credit
with several foreign banks and had $95,000,000 of uncommitted money market
lines of credit with banks who are in the committed credit facility. The
bank lines of credit 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
MIS development. At May 20, 1995, the Company had unrated commercial paper
outstanding in the amount of approximately $326,133,000, borrowings under
committed borrowing facilities of $23,000,000, borrowings under uncommitted
borrowing facilities of $20,000,000, and a total of approximately
$150,867,000 available for borrowings that would be supported by its
committed credit facilities.
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 20, 1995, the Company had outstanding six interest rate
contracts with commercial banks, having a total notional principal amount
of $100,000,000. Three of these agreements effectively fix the Company's
interest rate on unrated commercial paper, floating rate facilities, and
uncommitted lines of credit at rates between 4.625 percent and 7.595
percent on a notional principal amount of $50,000,000. These contracts
expire in 1996, 1997, and 1998. The remaining three agreements effectively
limit the maximum interest rate the Company will pay at rates between 5.00
percent and 9.00 percent on notional principal amounts totaling
$50,000,000. These three agreements mature in 1996, 1998, and 1999. The
Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements. However, the Company
does not anticipate nonperformance by the counter-parties.
RESULTS OF OPERATIONS
COMPARISON OF THE 16 WEEKS ENDED MAY 20, 1995 WITH THE 16 WEEKS ENDED MAY
21, 1994.
Net sales for the first quarter of 1995 increased $4,332,000 or .5 percent
over the corresponding quarter in 1994. This increase reflects openings of
new
<PAGE>7
stores, and inflation, offset by soft sales in seasonal nonfood categories
resulting from poor weather comparisons with last year's first quarter,
many competitive openings in 1994 and 1995 in the home improvement and home
electronic categories, softer consumer demand, a slowdown in the Seattle
economy reflected to some degree by layoffs in the aerospace industry, and
Portland sales still reflecting some effects of an 88-day food industry
strike in the last half of 1994. Comparable store sales decreased 4.9
percent for the first quarter of 1995. Comparable food store sales
decreased 2.0 percent, and comparable nonfood store sales decreased 6.9
percent. The Company's food operations accounted for 42.0 percent of the
overall sales in 1995 and 39.7 percent in 1994.
Gross margin as a percent of net sales was 28.4 percent for the first
quarter of 1995, compared with 29.1 percent in 1994's first quarter. Gross
margins decreased due primarily to the negative impact of lower sales in
higher margin seasonal categories, and higher markdowns.
Operating and administrative expenses as a percent of net sales were 26.7
percent for the first quarter of 1995, compared with 25.7 percent in 1994's
first quarter. Expenses as a percent of sales increased in 1995's first
quarter, generally reflecting the impact of lower sales on fixed expenses
and store labor costs.
Net interest expense in the first quarter of 1995 was $11,152,000, an
increase of 74.0 percent from the $6,408,000 reported for 1994. The
increase primarily reflects higher rates, and higher borrowings due to an
acceleration in new store construction and remodels and the impact of
1994's labor disputes. The reporting of interest expense was also modified
in the first quarter of 1995 to report all interest expense as one item,
versus the Company's prior treatment of charging a portion to cost of goods
sold and selling, general, and administrative expenses in the form of
occupancy costs. 1994's first quarter was adjusted for the same accounting
presentation.
The effective tax rate for the first quarters of 1995 and 1994 was 38.0
percent.
Net income decreased 80.7 percent to $3,083,000 in the first quarter of
1995 from $15,986,000 in 1994. Earnings per share were $.11 for the first
quarter of 1995 based on 28,465,000 shares outstanding, compared with $.56
for the prior year's period based on 28,725,000 shares outstanding.
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 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
-------
11. Computation of earnings per Common Share
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the period for
which this report is filed.
<PAGE>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: June 13, 1995 KENNETH THRASHER
------------- --------------------------------
Kenneth Thrasher
Senior Vice President - Finance
Chief Financial Officer
<PAGE>9
EXHIBIT INDEX
Exhibit Sequential
Number Document Description Page Number
------ -------------------- -----------
11 Computation of Earnings per Common Share
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
FRED MEYER, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
16 Weeks Ended
---------------------
May 20, May 21,
1995 1994
------- -------
<S> <C> <C>
Weighted average number of shares
outstanding . . . . . . . . . . . . . . . . . . 26,633 26,450
Weighted average number of shares
under option. . . . . . . . . . . . . . . . . . 2,988 3,680
Shares assumed to have been purchased
under the treasury stock method . . . . . . . . (1,156) (1,405)
------ ------
Weighted average number of common and
common equivalent shares outstanding. . . . . . 28,465 28,725
====== ======
Net income . . . . . . . . . . . . . . . . . . . . $3,083 $15,986
====== =======
Earnings per common share. . . . . . . . . . . . . $.11 $.56
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> MAY-20-1995
<CASH> 39,405
<SECURITIES> 0
<RECEIVABLES> 20,849
<ALLOWANCES> 0
<INVENTORY> 515,016
<CURRENT-ASSETS> 631,689
<PP&E> 1,419,066
<DEPRECIATION> 472,829
<TOTAL-ASSETS> 631,689
<CURRENT-LIABILITIES> 370,307
<BONDS> 599,153
<COMMON> 268
0
0
<OTHER-SE> 543,572
<TOTAL-LIABILITY-AND-EQUITY> 1,600,993
<SALES> 936,679
<TOTAL-REVENUES> 936,679
<CGS> 670,639
<TOTAL-COSTS> 249,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,152
<INCOME-PRETAX> 4,973
<INCOME-TAX> 1,890
<INCOME-CONTINUING> 3,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,083
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
