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 July 31, 1999.
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 11,973,465 shares of common stock outstanding as of September
10, 1999.
<PAGE>
FRED'S, INC.
INDEX
Page No.
Part I - Financial Information
Item 1 - Financial Statements (unaudited):
Consolidated Balance Sheets as of
July 31, 1999 and January 30, 1999 3
Consolidated Statements of Operations
for the Thirteen Weeks Ended and the
Twenty-Six Weeks Ended July 31, 1999
and August 1, 1998 4
Consolidated Statements of Cash Flows
for the Twenty-Six Weeks Ended July 31, 1999
and August 1, 1998 5
Notes to Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9-14
Part II - Other Information 15-16
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Signatures 17
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FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
<TABLE>
<CAPTION>
July 31, January 30,
1999 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,155 $ 2,406
Receivables, less allowance for doubtful
accounts 7,907 8,931
Inventories 137,200 126,577
Deferred income taxes 3,919 3,783
Other current assets 1,065 1,367
-------- --------
Total current assets 151,246 143,064
Property and equipment, at depreciated cost 69,751 68,923
Equipment under capital leases, less
accumulated amortization 1,405 1,578
Deferred income taxes 2,613 2,598
Other noncurrent assets 4,205 4,594
-------- --------
Total assets $229,220 $220,757
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,605 $ 46,767
Current portion of indebtedness 29,015 11,606
Current portion of capital lease obligations 333 308
Accrued liabilities 10,100 10,776
Income taxes payable 875 826
-------- --------
Total current liabilities 74,928 70,283
Long term portion of indebtedness 11,070 10,264
Capital lease obligations 1,384 1,557
Other noncurrent liabilities 1,750 1,670
-------- --------
Total liabilities 89,132 83,774
-------- --------
Shareholders' equity:
Common stock, Class A voting, no par value,
11,973,309 shares issued and outstanding
(11,946,772 shares at January 30, 1999) 67,222 66,951
Retained earnings 73,323 70,596
Deferred compensation on restricted
stock incentive plan (457) (564)
------- -------
Total shareholders' equity 140,088 136,983
-------- --------
Total liabilities and shareholders' equity $229,220 $220,757
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
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FRED'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $156,498 $141,635 $311,432 $285,791
Cost of goods sold 112,546 103,021 223,161 209,308
-------- -------- -------- --------
Gross profit 43,952 38,614 88,271 76,483
Selling, general and administrative
expenses 41,659 36,154 81,080 70,319
-------- -------- -------- --------
Operating income 2,293 2,460 7,191 6,164
Interest expense, net 694 170 1,146 216
-------- -------- -------- --------
Income before income taxes 1,599 2,290 6,045 5,948
Provision for income taxes 562 860 2,122 2,232
-------- -------- -------- --------
Net income $ 1,037 $ 1,430 $ 3,923 $ 3,716
======== ======== ======== ========
Net income per share
Basic $ .09 $ .12 $ .33 $ .32
======== ======== ======== ========
Diluted $ .09 $ .12 $ .33 $ .31
======== ======== ======== ========
Weighted average shares outstanding
Basic 11,826 11,799 11,819 11,784
======== ======== ======== ========
Diluted 12,079 12,109 12,057 12,097
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
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FRED'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
July 31, August 1,
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,923 $ 3,716
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation and amortization 5,734 4,096
Deferred income taxes (151) 1,172
Amortization of deferred compensation on
restricted stock incentive plan 142 148
(Increase) decrease in assets:
Receivables 1,024 1,319
Inventories (10,623) 48
Other assets 302 (831)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (12,838) (9,582)
Income taxes payable 49 (1,510)
Other noncurrent liabilities 80 96
Net cash used in operating activities (12,358) (1,328)
Cash flows from investing activities:
Capital expenditures (6,000) (13,687)
Net cash used in investing activities (6,000) (13,687)
Cash flows from financing activities:
Reduction of indebtedness and capital lease
obligations (983) (106)
Proceeds from revolving line of credit,
net of payments 16,800 11,025
Proceeds from term loan 2,250 --
Proceeds from exercise of options 236 320
Cash dividends paid (1,196) (1,188)
Net cash provided by
financing activities 17,107 10,051
Decrease in cash and cash equivalents (1,251) (4,964)
Beginning of period cash and cash equivalents 2,406 5,303
-------- --------
End of period cash and cash equivalents $ 1,155 $ 339
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 1,097 $ 203
======== ========
Income taxes paid $ 2,200 $ 2,933
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
FRED'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
Fred's operates 320 discount general merchandise stores, including 27 franchised
Fred's stores, in ten states in the southeastern United States. One hundred and
eighty-four of the stores have full service pharmacies.
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 and pharmacy business. 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.
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.
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
30, 1999 incorporated into the Company's Annual Report on Form 10-K.
The results of operations for the thirteen week and twenty-six week period ended
July 31, 1999 are not necessarily indicative of the results to be expected for
the full fiscal year.
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The results of operations for the thirteen week and twenty-six week period ended
August 1, 1998 have been restated to reflect the Company's adoption of the
last-in, first-out ("LIFO") method of accounting for its pharmacy inventories
during the fourth quarter of 1998.
NOTE 2: NET INCOME PER SHARE
Basic income per share is based on the weighted average number of common shares
outstanding, and diluted net income per share is based on the weighted average
number of common shares and common equivalent shares outstanding.
COMPUTATION OF NET INCOME PER SHARE
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Basic net income per share
Net income $ 1,037 $ 1,430 $ 3,923 $ 3,716
======= ======= ======= =======
Weighted average number of common shares
outstanding during the period 11,826 11,799 11,819 11,784
======= ======= ======= =======
Net income per share $ .09 $ .12 $ .33 $ .32
======= ======= ======= =======
Diluted net income per share
Net income $ 1,037 $ 1,430 $ 3,923 $ 3,716
======= ======= ======= =======
Weighted average number of common shares
outstanding during the period 11,826 11,799 11,819 11,784
Additional shares attributable to common
stock equivalents 253 310 238 313
------- ------- ------- -------
12,079 12,109 12,057 12,097
======= ======= ======= =======
Net income per share $ .09 $ .12 $ .33 $ .31
======= ======= ======= =======
</TABLE>
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<PAGE>
NOTE 3: INVENTORIES
Wholesale inventories are stated at the lower of cost or market using the FIFO
(first-in, first-out) method. Retail inventories are stated at the lower of cost
or market as determined by the retail inventory method. For pharmacy
inventories, which comprise approximately 19% of the retail inventories at July
31, 1999, cost was determined using the LIFO (last-in, first-out) method. For
the remainder of the retail inventories, the FIFO method was applied. The
current cost of inventories exceeded the LIFO cost by approximately $3,359,000
and $3,108,000 at July 31, 1999 and January 30, 1999, respectively.
LIFO inventory costs can only be determined annually when inflation rates and
inventory levels are finalized; therefore, LIFO inventory costs for interim
financial statements are estimated.
NOTE 4: RESTRUCTURING RESERVE
During the fourth quarter of 1996, the Company recorded a $2,860,000 accrual for
the closure of certain underperforming stores and the repositioning of certain
merchandise categories. This charge consists of an accrual for closed facility
lease obligations ($1,156,000) and the write-off of fixed assets and other store
closing costs ($1,044,000). In addition, $660,000 of costs to eliminate certain
product lines were incurred. These product lines were eliminated in 1997 and the
reserves were fully utilized upon such disposition. Fixed asset write-offs were
taken against assets being disposed. The remaining lease obligation reserves at
July 31, 1999 represent future base payments required for two locations that
have been closed.
The 1999 activity in this reserve is as follows:
January 30, July 31,
(in thousands) 1999 Charges 1999
----------- ------- --------
Lease obligations $ 400 $ (109) $ 291
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<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Thirteen Weeks Ended July 31, 1999 and August 1, 1998. Net sales increased
to $156.5 million in 1999 from $141.6 million in 1998, an increase of $14.9
million or 10.5%. The increase was attributable to comparable store sales
increases of 4.6% ($5.9 million) and sales by stores not yet included as
comparable stores ($9.9 million). Sales to franchisees decreased $.9 million in
1999. The sales mix for the period was 49.7% Hardlines, 31.3% Pharmacy, 14.0%
Softlines, and 5.0% Franchise. This compares with 52.4% Hardlines, 27.2%
Pharmacy, 14.2% Softlines, and 6.2% Franchise for the same period last year.
Gross profit increased to 28.1% of sales in 1999 compared with 27.3% of
sales in the prior-year period. Gross profit margins benefitted from higher
initial purchase margins, strong quarterly sales in various higher margin
departments, such as home furnishings, girls and plus size apparel, footwear and
electronics, and a reduction in franchise sales as a percentage of total sales,
which carry substantially lower gross margins than the retail business. These
benefits were partially offset by a $1 million shortfall in distribution center
inventories related to the Company's conversion to a new distribution system
earlier this year.
Selling, general and administrative expenses increased to $41.7 million in 1999
from $36.2 million in 1998. As a percentage of sales, expenses increased to
26.6% of sales compared with 25.5% of sales last year. Selling, general and
administrative expenses were impacted by an unusually high level of insurance
costs, higher store labor and supply costs associated with store appearance
upgrades at many of the stores, and a decrease in franchise sales as a
percentage of total sales, which carries a significantly lower selling, general
and administrative ratio than retail sales.
Interest expense increased to $.7 million in 1999 from $.2 million in 1998. The
increased interest expense reflects higher average revolver borrowings for
inventory purchases, as well as interest costs on term loan borrowings to
finance the distribution center project and acquisition of a new mainframe
computer system. The company's average borrowing cost for the second quarter of
1999 was approximately 6.3%.
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<PAGE>
Twenty-Six Weeks Ended July 31, 1999 and August 1, 1998. Net sales
increased to $311.4 million in 1999 from $285.8 million in 1998, an increase of
$25.6 million or 9.0%. The increase was attributable to comparable store sales
increases of 2.7% ($7 million) and sales by stores not yet included as
comparable stores ($20.6 million). Sales to franchisees decreased $2 million in
1999. The sales mix for the period was 48.9% Hardlines, 32.0% Pharmacy, 13.8%
Softlines, and 5.3% Franchise. This compares with 52.6% Hardlines, 26.6%
Pharmacy, 14.3% Softlines, and 6.5% Franchise for the same period last year.
Gross profit increased to 28.3% of sales in 1999 compared with 26.8% of sales in
the prior-year period. Gross profit margins improved as a result of higher
initial purchase margins, strong quarterly sales in pharmacy, seasonal and
various softline categories, all of which carry higher margins than the basic
hardlines categories, and a reduction in franchise sales as a percentage of
total sales, which carry substantially lower gross margins than the retail
business. Gross profit margins were also impacted by a reduction in the LIFO
inventory provision, as a percentage of sales, in comparison to 1998, and a $1
million shortfall in distribution center inventories related to the Company's
conversion to a new distribution system earlier this year.
Selling, general and administrative expenses increased to $81.1 million in 1999
from $70.3 million in 1998. As a percentage of sales, expenses increased to
26.0% of sales compared with 24.6% of sales last year. Selling, general and
administrative expenses were impacted by a reduction in franchise sales as a
percentage of total sales, which carry a significantly lower expense ratio than
retail sales, higher transportation and labor costs associated with completion
of the Company's distribution center project and the rebuilding of store
in-stock inventory levels in the first quarter, and store labor and supply costs
associated with store appearance upgrades at many of the stores during the
second quarter.
Interest expense increased to $1.1 million in 1999 from $.2 million in 1998,
reflecting higher average revolver borrowings than last year, as well as
interest costs on term loan borrowings to finance modernization and automation
of the Company's distribution center and acquisition of a new mainframe computer
system.
Income tax provision decreased to 35.1% in 1999 from 37.5% in 1998. The Company
completed a realignment of its corporate organizational structure during the
fourth quarter of 1998, which resulted in a reduction in the Company's liability
for taxes.
LIQUIDITY AND CAPITAL RESOURCES
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.
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<PAGE>
Cash flow used in operating activities totaled ($12.4) million during the
twenty-six week period ended July 31, 1999. Cash was primarily used to increase
inventories and reduce accounts payable. Total inventories increased
approximately $10.6 million in the first half of 1999. This increase was
primarily attributable to new stores and pharmacies added in the first half of
1999, accelerated seasonal import receipts due to delays experienced in the
prior year, and improved store in-stock positions in comparison to the beginning
of the year. Accounts payable decreased approximately $12.8 million in the first
half of 1999, primarily due to an increase in import items (which have shorter
payment terms) and the lack of certain vendor dating programs that are only
available in the fourth quarter of the year.
Cash flows used in investing activities totaled ($6.0) million, and consisted
primarily of $2.3 million of payments for the replacement of the Company's
mainframe computer system and capital expenditures associated with the Company's
store and pharmacy expansion program. During the first half, the Company opened
15 stores and closed 5 stores. The Company expects to open 5 to 7 stores over
the balance of the year, and plans on converting approximately 4 Xpress stores
to Fred's full format stores during the balance of the year.
Cash flows provided by financing activities totaled $17.1 million and included
$2.3 million of borrowings under a term loan agreement for the replacement of
the Company's mainframe computer system, and $16.8 million of borrowings under
the Company's primary and seasonal revolvers for inventory and accounts payable
needs.
The Company has available up to $35 million of unsecured credit commitments
under a revolving Loan and Credit Agreement and Seasonal Overline Revolving
Credit Agreement. The Agreements bear interest at the lesser of 1.5% below
prime rate or a LIBOR-based rate and mature at December 31, 1999 ($20 million),
and June 1, 2003 ($15 million). Borrowings outstanding under these Agreements
totaled $27 million at July 31, 1999 compared to $3.5 million at August 1, 1998.
On May 5, 1998, the Company and a bank entered into a Loan Agreement (the "Loan
Agreement"). The Loan Agreement provided the Company with an unsecured term loan
of $12 million to finance the modernization and automation of the Company's
distribution center and corporate facilities. The Loan Agreement bears interest
of 6.82% per annum and matures on November 1, 2005. Borrowings outstanding under
this Loan Agreement totaled $11 million at July 31, 1999. Borrowings under this
Loan Agreement totaled $7.5 million at August 1, 1998.
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<PAGE>
On April 23, 1999, the Company and a bank entered into a Loan Agreement (the
"Loan Agreement"). The Loan Agreement provided the Company with a four-year
unsecured term loan of $2.3 million to finance the replacement of the Company's
mainframe computer system. The Loan Agreement bears interest of 6.15% per annum
and matures on April 15, 2003. The Loan Balance at July 31, 1999 was $2.1
million.
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.
YEAR 2000
The "Year 2000 Issue" relates to the inability of certain computer hardware and
software to properly recognize and process date sensitive information for the
Year 2000 and beyond. Without corrective measures, the Company's computer
applications could fail and/or produce erroneous results. To address this
concern, the Company has a Year 2000 compliance project in place to identify the
potential issues that could affect its business. The following discussion is an
update on where the Company stands on this important matter.
The Year 2000 Compliance Project is monitored by a Year 2000 oversight
committee, consisting of senior level management, that meets and reviews
progress towards the Company's targeted completion dates on a regular basis. The
Year 2000 compliance project at Fred's includes:
Upgrading store point of sale and pharmacy hardware and software
systems to be Year 2000 compliant. The Company has evaluated and
determined its hardware and software needs and is in the process of
procuring the necessary products to become Year 2000 compliant. This
process is approximately 80% complete and all remaining equipment will
be upgraded, tested and implemented in the stores by a targeted
completion date of October 1999.
Verifying Year 2000 compliance of computer hardware and software
providers and obtaining Year 2000 product warranties as necessary.
This verification process is approximately 90% complete and the
targeted completion date for the remaining verification certificates
is October 1999.
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<PAGE>
Having key suppliers and service providers demonstrate or certify
their Year 2000 compliance, ensuring their ability to continue to
supply and provide service to the Company up to and beyond January 1,
2000. The Company is also evaluating, correcting and testing
electronic data interchange systems between Fred's, and its key
suppliers. This process is approximately 70% complete and the targeted
completion date for the remainder is October 1999. Although there can
be no assurance that the Company will not be adversely affected by the
Year 2000 issues of its key suppliers and service providers,
management believes that ongoing communications will continue to
minimize its risk.
Evaluate, test and correct the Company's personal computer hardware
and software, voice and data communication systems, and other date
sensitive operating devices, to ensure Year 2000 compliance. The
evaluation and testing phase of this process has been completed and
all required replacement systems will be installed during October and
November 1999.
The Company's distribution center hardware and software were replaced
during 1997 and 1998, and are completely Year 2000 compatible. The
Company operates its merchandising and inventory
replenishment/distribution systems with software that is being
modified for Year 2000 compatibility. All mission critical systems
have been rewritten and implemented, and the remaining non-critical
systems will be rewritten and corrected with a targeted completion
date by the end of September 1999.
The Company's financial information systems are heavily dependent on
date fields and are in the process of being rewritten. All mission
critical systems will be corrected and implemented by the end of
September 1999, and the remaining noncritical systems will be
rewritten and corrected by a targeted completion date of October 1999.
The Company's payroll and human resource systems are moderately
dependent on date fields. The Company will be replacing these systems
with newly acquired software during the fourth quarter of 1999.
The potential risks associated with failing to remediate Year 2000 issues
include: temporary disruptions in store operations; temporary disruptions in the
ordering, receiving and shipping of merchandise and in the ordering and
receiving of other goods and services; temporary disruptions in the billing and
collecting of accounts receivable; temporary disruptions in services provided by
banks and other financial institutions; temporary disruptions in communication
services; and temporary disruptions in utility services.
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<PAGE>
The Company currently estimates that the incremental cost associated with
completing its Year 2000 compliance project will be approximately $.5 million,
most of which has already been incurred. This estimate could change as
additional information becomes available. The cost to resolve the Year 2000
issues are being funded through operating cash flows. These costs are in
addition to the costs incurred to replace the Company's distribution center
hardware and software, and the Company's payroll and human resource systems,
since these systems were to be replaced irrespective of Year 2000 issues.
The Company is currently in the process of completing a contingency plan for
each area in the organization that could be affected by the Year 2000 issue, in
the event that any of the above remediation activities prove unsuccessful.
Although the Company currently anticipates minimal business disruption, the
failure of either the Company or one or more of its major business partners to
remediate critical Year 2000 issues could have a materially adverse impact on
the Company's business, operations and financial condition. Please read the
"Cautionary Statement Regarding Forward Looking Statements" section below.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Statements, other than those based on historical facts, including the discussion
of management's expectations for Year 2000 compliance, which address activities,
events, or developments that the Company expects or anticipates may occur in the
future are forward-looking statements which are based upon a number of
assumptions concerning future conditions that may ultimately prove to be
inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve such
results is subject to certain risks and uncertainties, including, but not
limited to, economic and weather conditions which affect buying patterns of the
Company's customers, changes in consumer spending and the Company's ability to
anticipate buying patterns and implement appropriate inventory strategies,
continued availability of capital and financing, competitive factors, and other
factors affecting business beyond the Company's control. Consequently, all of
the forward-looking statements are qualified by these cautionary statements and
there can be no assurance that the results or developments anticipated by the
Company will be realized or that they will have the expected effects on the
Company or its business or operations.
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<PAGE>
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
The Annual Meeting of the Shareholders of Fred's, Inc.
was held on June 16, 1999. Michael J. Hayes, David A.
Gardner, John R. Eisenman and Roger T. Knox were
elected to continue as directors of the Company. The
shareholders also ratified the appointment of Price
WaterhouseCoopers LLP as independent public accountants
for the fiscal year ending January 29, 2000.
The results of the voting were as follows:
Abstain/
For Against Withheld Broker Non-Vote
Election of Directors:
Michael J. Hayes 7,851,340 226,874 3,881,189
David A. Gardner 7,854,101 224,113 3,881,189
John R. Eisenman 7,854,069 224,145 3,881,189
Roger T. Knox 7,854,069 224,145 3,881,189
Appointment of Price
Waterhouse
Coopers LLP 8,185,409 1,652 1,085 3,771,257
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits:
Exhibit 10.19 - Seasonal Overline Agreement between Fred's,
Inc. and Union Planters National Bank dated as of February,
3, 1999.
Exhibit 10.20 - Seasonal Overline Agreement between Fred's,
Inc. and Union Planters National Bank dated as of May 12,
1999.
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<PAGE>
Exhibit 10.21 - Term Loan Agreement between Fred's Inc. and
Union Planters National Bank dated as of April 23, 1999.
Exhibit 10.22 - Seasonal Overline Agreement between Fred's,
Inc. and Union Planters National Bank dated as of August 3,
1999.
Exhibit 27 - Financial Data Schedule (Edgar Filing only)
2. Reports on Form 8-K:
Not Applicable.
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<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'S, INC.
/s/Michael J. Hayes
--------------------
Michael J. Hayes
Date: September 14, 1999 Chief Executive Officer
- -------------------------
/s/ Richard B. Witaszak
-----------------------
Richard B. Witaszak
Date: September 14, 1999 Chief Financial Officer
- -------------------------
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EXHIBIT INDEX
Exhibit 10.19 - Seasonal Overline Agreement between Fred's,
Inc. and Union Planters National Bank dated as of February,
3, 1999.*
Exhibit 10.20 - Seasonal Overline Agreement between Fred's,
Inc. and Union Planters National Bank dated as of May 12,
1999.*
Exhibit 10.21 - Term Loan Agreement between Fred's Inc. and
Union Planters National Bank dated as of April 23, 1999.*
Exhibit 10.22 - Seasonal Overline Agreement between Fred's,
Inc. and Union Planters National Bank dated as of August 3,
1999.
Exhibit 27 - Financial Data Schedule (Edgar Filing only)
* Incorporated by reference from Report on Form 10-Q for period ending May 1,
1999, filed with the Securities and Exchange Commission on June 15, 1999.
<PAGE>
EXHIBIT 10.22
Seasonal Overline Revolving Credit Note
$5,000,000.00 Memphis, Tennessee
August 3, 1999
FOR VALUE RECEIVED, FRED'S, INC. (hereinafter, the "Borrower") promises to
pay to the order of Union Planters Bank, N.A., (formerly Union Planters National
Bank) with its principal office at 6200 Poplar Avenue, Memphis, Tennessee
(hereinafter, with any subsequent holder, the "Bank") at the Bank's principal
office on demand or, if no demand, on December 31, 1999 the sum of Five Million
Dollars ($5,000,000.00) or such lesser sum as shall be equal to the aggregate
unpaid principal amount of all advances made from time to time hereunder by the
Bank to the Borrower. Advances made hereunder are made in addition to credit
facilities made available pursuant to that Revolving Loan and Credit Agreement
dated May 15, 1992 as subsequently amended by a Modification Agreement dated May
31, 1995, a Second Modification Agreement dated July 31, 1995, a Third
Modification Agreement dated February 28, 1997 and a Fourth Modification
Agreement dated September 1, 1998 (said Revolving Loan and Credit Agreement and
Modification Agreements being collectively referred to hereinafter as the
"Agreement"). Advances made hereunder are made pursuant to the terms and
conditions (not inconsistent herewith) of the Agreement.
The Borrower agrees to pay interest at the Base Rate Option (as defined in
the Agreement) on any and all amounts of principal advanced and unpaid under
this Note from time to time, and on all other fees, expenses, charges and other
amounts accrued and outstanding hereunder from time to time in the full amount
thereof, monthly in arrears on the first day of each month, commencing on the
first day of the month next following the month first above written.
Any payments received by the Bank on account of this Note prior to
acceleration shall be applied first to any costs, expenses, or charges then owed
the Bank by the Borrower, second to accrued and unpaid interest, and third to
the unpaid principal balance hereof. The Borrower hereby authorizes the Bank to
charge any deposit account which the Borrower may maintain with the Bank for any
payment required hereunder.
The Bank, at its option, may declare the entire unpaid principal balance of
this Note and accrued and unpaid interest thereon to be immediately due and
payable without demand, notice or protest (which are hereby waived) upon the
occurrence of an Event of Default (as defined in the Agreement).
No delay or omission by the Bank in exercising or enforcing any of the
Bank's powers, rights, privileges, remedies, or discretion hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion. No
waiver of any default hereunder shall operate as a waiver of any other default
hereunder, nor as a continuing waiver.
The Borrower will pay on demand all reasonable attorneys' fees and
out-of-pocket expenses incurred by the Bank in the collection of this Note and
the collection and administration of all liabilities and obligations of the
Borrower to the Bank upon default, as provided in the Agreement.
<PAGE>
The Borrower, and each endorser and guarantor of this Note, respectively,
waive presentment, demand, notice, and protest, and also waive any delay on the
part of the holder hereof, and each of the foregoing assents to any extension or
other indulgence (including, without limitation, the release of substitution of
collateral) permitted the Borrower or any such endorser or guarantor by the Bank
with respect to this Note and/or any collateral given to secure this Note and/or
any other liability of the Borrower or such endorser or guarantor to the Bank.
This Note shall be binding upon the Borrower and any endorser and guarantor
hereof and upon their respective heirs, successors and representatives, and
shall inure to the benefit of the Bank and its successors, endorsees, and
assigns.
This Note is delivered to the Bank at its principal office in Memphis,
Tennessee, shall be governed by the laws of the State of Tennessee, except with
respect to the rate of interest which shall be governed by applicable provisions
of federal law. The Borrower, and each endorser and guarantor of this Note,
submit to the jurisdiction of the courts of the State of Tennessee for all
purposes with respect to this Note, any collateral given to secure their
respective liabilities to the Bank, and their respective relationships with the
Bank.
The Borrower has read all of the terms and conditions of this Note and
acknowledges receipt of an exact copy of it.
Borrower:
FRED'S, INC.
By: /s/ Richard Witaszak
--------------------
Its: Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000724571
<NAME> FRED'S, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> MAY-02-1999
<PERIOD-END> JUL-31-1999
<CASH> 1,155
<SECURITIES> 0
<RECEIVABLES> 8,622
<ALLOWANCES> (715)
<INVENTORY> 137,200
<CURRENT-ASSETS> 151,246
<PP&E> 145,359
<DEPRECIATION> (74,203)
<TOTAL-ASSETS> 229,220
<CURRENT-LIABILITIES> 74,928
<BONDS> 14,204
0
0
<COMMON> 67,222
<OTHER-SE> 72,866
<TOTAL-LIABILITY-AND-EQUITY> 229,220
<SALES> 156,498
<TOTAL-REVENUES> 156,498
<CGS> 112,546
<TOTAL-COSTS> 112,546
<OTHER-EXPENSES> 41,594
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> 1,599
<INCOME-TAX> 562
<INCOME-CONTINUING> 1,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,037
<EPS-BASIC> $0.09
<EPS-DILUTED> $0.09
</TABLE>
