SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[ 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
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
May 24, February 1,
1997 1997
---------- ----------
<S> <C> <C>
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........................................................... $1,788,589 $1,693,414
========== ==========
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.......................................... 592,832 567,298
---------- ----------
TOTAL............................................................ $1,787,894 $1,692,020
========== ==========
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
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
---------- ----------
<S> <C> <C>
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.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
16 Weeks Ended
----------------------------
May 24, May 25,
1997 1996
-------- -------
<S> <C> <C>
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.
</TABLE>
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. 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
<PAGE>
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
<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
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
<PAGE>
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
<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: August 5, 1997 DAVID R. JESSICK
-------------- -------------------------------
David R. Jessick
Senior Vice President - Finance
Chief Financial Officer
9
