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 25, 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 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 25, 1996: 26,704,855
<PAGE>
Part I - Financial Information
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 25, February 3,
1996 1996
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................... $ 38,800 $ 41,849
Receivables-net................................. 23,024 24,683
Inventories..................................... 559,009 520,555
Prepaid expenses and other...................... 21,558 23,680
Current portion of deferred taxes............... 22,046 22,046
---------- ----------
Total current assets......................... 664,437 632,813
---------- ----------
PROPERTY AND EQUIPMENT-NET......................... 1,009,116 1,014,148
---------- ----------
OTHER ASSETS....................................... 31,006 24,631
---------- ----------
TOTAL.................................... $1,704,559 $1,671,592
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and outstanding checks......... $ 319,734 $ 257,073
Current portion of long-term debt
and lease obligations........................ 1,468 1,468
Income taxes payable............................ 4,588 4,857
Accrued expenses and other...................... 88,220 86,333
---------- ----------
Total current liabilities.................... 414,010 349,731
---------- ----------
LONG-TERM DEBT AND MORTGAGES....................... 616,655 656,260
---------- ----------
CAPITAL LEASE OBLIGATIONS.......................... 13,271 13,298
---------- ----------
DEFERRED LEASE TRANSACTIONS........................ 41,411 42,271
---------- ----------
DEFERRED INCOME TAXES.............................. 30,814 30,814
---------- ----------
OTHER LONG-TERM LIABILITIES........................ 7,554 7,984
---------- ----------
STOCKHOLDERS' EQUITY
Common stock.................................... 270 270
Additional paid-in capital...................... 199,514 199,363
Retained earnings............................... 385,021 375,577
Treasury stock and other........................ (3,961) (3,976)
---------- ----------
Total stockholders' equity................... 580,844 571,234
---------- ----------
TOTAL..................................... $1,704,559 $1,671,592
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
16 Weeks Ended
--------------
May 25, May 20,
1996 1995
---- ----
<S> <C> <C>
NET SALES.......................................... $1,040,028 $935,351
---------- --------
COST OF MERCHANDISE SOLD:
General......................................... 736,243 668,926
Related party lease............................. 1,713 1,713
---------- --------
Total cost of merchandise sold.................. 737,956 670,639
---------- --------
GROSS MARGIN....................................... 302,072 264,712
---------- --------
OPERATING AND ADMINISTRATIVE EXPENSES:
General......................................... 257,089 231,173
Related party leases............................ 16,647 17,414
---------- --------
Total operating and administrative expenses..... 273,736 248,587
---------- --------
INCOME FROM OPERATIONS............................. 28,336 16,125
INTEREST EXPENSE-NET............................... 13,104 11,152
---------- --------
INCOME BEFORE INCOME TAXES......................... 15,232 4,973
PROVISION FOR INCOME TAXES......................... 5,788 1,890
---------- --------
NET INCOME......................................... $ 9,444 $ 3,083
========== ========
EARNINGS PER COMMON SHARE.......................... $.33 $.11
==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING....................... 28,539 28,465
====== ======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
16 Weeks Ended
--------------
May 25, May 20,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 9,444 $ 3,083
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment.................... 35,322 31,328
Amortization of goodwill..................... 95 95
Deferred lease transactions.................. (860) (1,449)
Other liabilities............................ (430) (839)
Income taxes................................. (269) 8,147
Inventories.................................. (38,454) (543)
Other current assets......................... 3,781 5,878
Accounts payable and accrued expenses........ 65,719 6,653
Other........................................ (6,203) 314
------- -------
Net cash provided by operating activities....... 68,145 52,667
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock-net.................... 151 2,121
Decrease in outstanding checks.................. (1,136) (27,993)
Increase in notes receivable.................... (273) (44)
Long-term financing:
Borrowings................................... --- 58,986
Repayments................................... (39,632) (32)
------- -------
Net cash (used for) provided by
financing activities......................... (40,890) 33,038
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. (36,131) (83,187)
Net proceeds from sale of real property......... 5,827 2,019
------- -------
Net cash used for investing activities.......... (30,304) (81,168)
------- -------
CASH AND CASH EQUIVALENTS:
Net (decrease) increase for the period.......... (3,049) 4,537
Beginning of period............................. 41,849 34,868
------- -------
End of period................................... $38,800 $39,405
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest..................................... $12,510 $5,196
Income taxes................................. 6,038 (6,388)
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
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 25,
1996 were:
(In thousands)
--------------
Stockholders' equity, February 3, 1996 $571,234
Issuance of common stock - net 151
Amortization of unearned compensation 15
Net income 9,444
--------
Stockholders' equity, May 25, 1996 $580,844
========
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 25, 1996 and May 20, 1995.
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.
5
<PAGE>
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 1995 through internally generated cash flow, supplemented by
borrowings under committed and uncommitted bank lines of credit and unrated
commercial paper.
On April 25, 1995, the Company issued $50,000,000 of unsecured seven-year
senior 7.77 percent notes to a major insurance company. On May 17, 1995,
the Company borrowed $20,000,000 from a major international bank, with a
maturity of May 17, 2000 and bearing interest at 6.775 percent. In May 1995
and December 1995 the Company also put into place two lease lines of credit
for land and buildings for up to $100,000,000 and $60,000,000,
respectively.
The Company entered into a new credit facility in 1995 with several
domestic and foreign banks for a committed line of credit which provides
for borrowings of up to $500,000,000. This agreement continues through June
30, 2000, at which time the agreement terminates; and any outstanding
amounts must be paid in full. In addition to this committed credit
facility, the Company has $100,000,000 of uncommitted money market lines of
credit with several foreign banks and $120,000,000 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 25, 1996, the Company had unrated commercial paper
outstanding in the amount of approximately $313,065,000, borrowings under
money market lines with committed line banks of $43,500,000, borrowings
under uncommitted borrowing facilities of $10,000,000, and a total of
approximately $133,435,000 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 25, 1996, 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 counterparties to the interest rate swap agreements. However,
the Company does not anticipate nonperformance by the counterparties.
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 1996, currently budgeted to be
approximately $121,000,000, 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 and leaseback transactions, or by issuing additional
debt or equity.
RESULTS OF OPERATIONS
COMPARISON OF THE 16 WEEKS ENDED MAY 25, 1996 WITH THE 16 WEEKS ENDED MAY
20, 1995.
Net sales for the first quarter of 1996 increased $104,677,000 or 11.2
percent over the corresponding quarter in 1995. This increase reflects
sales growth at existing stores, openings of new stores, and, to a lesser
extent, inflation. Sales increases were highlighted by strong sales in food
and pharmacy and
6
<PAGE>
improved sales in garden and apparel. Comparable store sales increased 5.1
percent for the first quarter of 1996. Comparable food store sales
increased 6.4 percent, and comparable nonfood store sales increased 4.2
percent. The Company's food operations accounted for 42.8 percent of the
overall sales in 1996 and 42.0 percent in 1995.
Gross margin as a percent of net sales was 29.0 percent for the first
quarter of 1996, compared with 28.3 percent in 1995's first quarter. Gross
margins increased due primarily to the improved mix of nonfood sales,
stronger food margins, and lower distribution and delivery costs as a
percent of sales.
Operating and administrative expenses as a percent of net sales were 26.3
percent for the first quarter of 1996, compared with 26.6 percent in 1995's
first quarter. Expenses as a percent of sales decreased in 1996's first
quarter, generally reflecting the impact of lower store labor costs,
corporate overhead expenses, and advertising costs as a percent of sales.
Net interest expense in the first quarter of 1996 was $13,104,000, an
increase of 17.5 percent from the $11,152,000 reported for 1995. The
increase primarily reflects higher rates, and higher borrowings due to new
store construction and remodels and last year's completion of distribution
center projects.
The effective tax rate for the first quarters of 1996 and 1995 was 38.0
percent.
Net income increased 206.3 percent to $9,444,000 in the first quarter of
1996 from $3,083,000 in 1995. Earnings per share were $.33 for the first
quarter of 1996 based on 28,539,000 shares outstanding, compared with $.11
for the prior year's period based on 28,465,000 shares outstanding.
In the first quarter of 1996, the Company acquired 22 mall jewelry stores,
located primarily in California, which operated under various names, but
are now operating under the Fred Meyer Jewelers name. The Company
anticipates that in 1996 it will acquire 49 mall Merksamer Jewelers
operating in 11 states, which will continue to operate under the Merksamer
name. These two acquisitions will result in Fred Meyer operating
approximately 200 jewelry stores at the end of 1996, including those inside
its multidepartment stores.
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.
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.
7
<PAGE>
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 26, 1996 KENNETH THRASHER
------------- ----------------------------------
Kenneth Thrasher
Senior Vice President - Finance
Chief Financial Officer
8
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Document Description Page Number
- ------ -------------------- -----------
11 Computation of Earnings per Common Share
27 Financial Data Schedule
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 25, May 20,
1996 1995
------- -------
<S> <C> <C>
Weighted average number of shares
outstanding..................................... 26,706 26,633
Weighted average number of shares
under option.................................... 3,722 2,988
Shares assumed to have been purchased
under the treasury stock method................. (1,889) (1,156)
------- ------
Weighted average number of common and
common equivalent shares outstanding............ 28,539 28,465
====== ======
Net income......................................... $9,444 $3,083
====== ======
Earnings per common share.......................... $.33 $.11
==== ====
</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-1-1997
<PERIOD-END> MAY-25-1996
<CASH> 38,800
<SECURITIES> 0
<RECEIVABLES> 23,024
<ALLOWANCES> 0
<INVENTORY> 559,009
<CURRENT-ASSETS> 664,437
<PP&E> 1,578,088
<DEPRECIATION> (568,972)
<TOTAL-ASSETS> 1,704,559
<CURRENT-LIABILITIES> 414,010
<BONDS> 616,655<F1>
0
0
<COMMON> 270
<OTHER-SE> 580,574
<TOTAL-LIABILITY-AND-EQUITY> 1,704,559
<SALES> 1,040,028
<TOTAL-REVENUES> 1,040,028
<CGS> 737,956
<TOTAL-COSTS> 273,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,104
<INCOME-PRETAX> 15,232
<INCOME-TAX> 5,788
<INCOME-CONTINUING> 9,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,444
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<FN>
<F1> Long term debt and mortgages
</FN>
</TABLE>
