<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from__________ to __________
Commission file number 0-14611
FRETTER, INC.
(Exact name of Registrant as specified in its charter)
MICHIGAN 38-1557359
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12501 Grand River
Brighton, Michigan 48116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 220-5000
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 of 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
---- ----
NOT APPLICABLE
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by
a court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares outstanding as of
Class December 14, 1994
----- ------------------------
Common Stock, $.01 par value 10,577,467
<PAGE> 2
FRETTER, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Form 10-Q Cover Page 1
Form 10-Q Index 2
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of
Shareholders' Equity 5
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-14
Part II. Other Information
Item 1-6. 15
Signatures 16
</TABLE>
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<PAGE> 3
www PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
FRETTER, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Assets October 31, January 31,
1994 1994
----------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $4,393 $16,805
Accounts receivable, net 11,360 22,983
Merchandise inventory, net 257,929 224,445
Prepaid expenses 8,568 4,019
Deferred commissions 8,219 3,960
-------- --------
Total current assets 290,469 272,212
Property and equipment, net 112,793 110,954
Goodwill, net 72,010 63,616
Other assets 3,959 4,587
Deferred commissions 5,807 5,433
-------- --------
$485,038 $456,802
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term obligations $470 $590
Accounts payable 27,020 28,864
Current portion of deferred service contract revenue 27,599 21,290
Accrued liabilities 69,761 100,995
Reserve for store closings 7,559 33,385
Income taxes payable 3,224 3,558
-------- --------
Total current liabilities 135,633 188,682
Long-term obligations 134,767 43,584
Other noncurrent liabilities 25,662 38,696
Deferred service contract revenue 41,626 29,058
Employee benefit obligations 78,757 80,788
-------- --------
Total liabilities 416,445 380,808
-------- --------
Redeemable preferred stock 45,000 45,000
-------- --------
Commitments and contingencies
Shareholders' Equity
Preferred stock-authorized, 5,000,000 shares
of $.01 par value; issued; none
Common stock-authorized, 50,000,000 shares
$.01 par value; issued, 10,577,467 shares at
October 31, 1994 and January 31, 1994, respectively 106 106
Additional contributed capital 1,641 1,641
Retained earnings 21,846 29,247
-------- --------
23,593 30,994
-------- --------
$485,038 $456,802
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
FRETTER, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED OCTOBER 31, NINE-MONTHS ENDED OCTOBER 31,
--------------------------------- ------------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $204,024 $92,738 $591,574 $259,818
Cost of goods sold 148,774 68,212 433,272 189,921
---------- --------- ---------- ---------
Gross profit 55,250 24,526 158,302 69,898
Operating expense
Selling 41,084 16,478 126,166 47,062
Warehouse and delivery 7,150 3,082 20,000 8,347
Administrative 6,541 3,350 19,710 10,013
---------- --------- ---------- ---------
54,775 22,910 165,876 65,422
Other income (expense)
Interest and other 668 340 4,977 1,162
Interest expense (2,911) (705) (6,155) (1,948)
Store closure provision (4,000) (4,000)
---------- --------- ---------- ---------
(2,243) (4,365) (1,178) (4,786)
(Loss) earnings before income taxes and
cumulative effect of change in accounting
principle (1,768) 1,612 (8,752) (310)
Income taxes (benefit) (637) 6,132 (3,151) 6,995
---------- --------- ---------- ---------
(Loss) earnings before cumulative effect of change
in accounting principle (1,131) (4,520) (5,601) (7,305)
Cumulative effect of change in accounting
for income taxes 2,756
---------- --------- ---------- ---------
Net (loss) earnings before preferred dividend (1,131) (4,520) (5,601) (4,549)
---------- --------- ---------- ---------
Preferred stock dividend requirements 600 1,800
---------- --------- ---------- ---------
Net (loss) earnings available for
common shareholders ($1,731) ($4,520) ($7,401) ($4,549)
========== ========= ========== =========
Weighted average number of common shares 10,577,497 7,410,569 10,577,497 7,411,547
========== ========= ========== =========
(Loss) earnings per common share before
cumulative effect of change in accounting
principle ($0.16) ($0.61) (0.70) ($0.99)
Cumulative effect of change in accounting
for income taxes $0.37
---------- --------- ---------- ---------
Net (loss) earnings per common share ($0.16) ($0.61) ($0.70) ($0.62)
========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
FRETTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED OCTOBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings before preferred dividends ($5,601) ($4,549)
Adjustment to reconcile net (loss) earnings to net
cash (used for) operating activities:
Depreciation and amortization 11,623 4,369
Stock compensation expense 1,484 747
Deferred income taxes 3,116
Store closure provision 4,000
Other non-cash items 3,133
Change in assets and liabilities
Merchandise inventory (33,484) (17,465)
Other current and long-term assets (8,115) (4,148)
Accounts payable (1,844) 9,042
Accrued Liabilities (38,519)
Reserve for store closings (25,826)
Deferred service contract revenue 18,877 1,061
Other current and long-term liabilities (14,531) (4,203)
--------- ---------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (92,803) (8,030)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,672) (6,905)
--------- ---------
NET CASH (USED FOR) INVESTING ACTIVITIES (10,672) (6,905)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net receipts under line of credit 91,523 14,872
Payments of long term obligations (460) (395)
Redemption of common stock (45)
--------- ---------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES 91,063 14,431
--------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (12,412) (504)
Cash and cash equivalents at beginning of period 16,805 6,315
--------- ---------
Cash and cash equivalents at end of period $4,393 $5,811
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
Fretter, Inc.
Consolidated Statements of Shareholders' Equity
For the nine months ended October 31, 1993 and 1994
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional
For the nine-months --------------------------- Contributed Retained
ended October 31, 1993 Shares $0.01 par Capital earnings Total
- -------------------------- ---------- --------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at February 1, 1993 14,540,714 $145 $33,531 $30,343 $64,019
Loss before cumulative effect
of change in accounting principle (7,305) (7,305)
Cumulative effect of change in accounting
principle for income taxes 2,756 2,756
Common stock redeemed (11,336) 0
---------- ---- ------- ------- -------
Balance at October 31, 1993 14,529,378 $145 $33,531 $25,794 $59,470
========== ==== ======= ======= =======
For the nine-months
ended October 31, 1994
Balance at February 1, 1994 10,577,467 $106 $1,641 $29,247 $30,994
Net loss for the nine-months
ended October 31, 1994 (7,401) (7,401)
---------- ---- ------- ------- -------
Balance at October 31, 1994 10,577,467 $106 $1,641 $21,846 $23,593
========== ==== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
FRETTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements, which include
Fretter, Inc. and its wholly owned subsidiaries ("Company") have been prepared
in accordance with generally accepted accounting principles and reflect, in the
opinion of management, all adjustments necessary for a fair statement of
financial position as of October 31, 1994 and the results of operations, and
cash flows for the nine months ended October 31, 1994 and 1993; all of which
adjustments are of a normal and recurring nature, except for the adoption of
Statement of Financial Accounting Standard No. 109 (SFAS 109) "Accounting for
Income Taxes" effective February 1, 1993. The consolidated financial
statements should be read in conjunction with the financial statements and
notes contained in the Company's 1994 Annual Report on Form 10-K and Annual
Report filed with the Securities and Exchange Commission on April 29, 1994.
2. SERVICE CONTRACTS
Effective with The Acquisition of Dixons U.S. Holdings, Inc. ("DUS") on
December 3, 1993, The Company recognizes revenue from the sale of service
contracts on a straight-line basis over the life of the contract. Incremental
direct costs resulting from the sale of such contracts (primarily commissions)
are also deferred and recognized on a straight-line basis over the same period.
The Company has recorded a liability for the estimated costs of servicing
contracts of DUS which existed at the acquisition date. No revenue or costs
associated with these acquired contracts will be recognized. The current and
noncurrent portions of the liability are included in accrued liabilities and
other noncurrent liabilities, respectively.
3. SEASONALITY
Due to the seasonality of the Company's business, interim results of
operations are not necessarily indicative of the results for any other interim
period or the results of operations for the full year.
4. EARNINGS PER SHARE
Earnings per share are computed by dividing earnings after income taxes by
the weighted average number of common shares outstanding, including common
stock equivalents. Common stock equivalents include stock options outstanding
which may be converted to common stock. There were no common stock equivalents
used in the calculation at October 31, 1994.
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<PAGE> 8
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NINE MONTHS ENDED OCTOBER 31, 1994 AND 1993)
OVERVIEW
The Company is a large volume specialty retailer of home entertainment
products, consumer electronics and appliances.
On December 3, 1993, the Company issued 3,164,804 shares of common stock,
3,000,000 shares of Convertible Series A Preferred Stock and 1,500,000 shares
of Series B Preferred Stock to Dixons America Holdings, Inc. ("DAH") in
exchange for the outstanding shares of equity securities of Dixons U.S.
Holdings, Inc. ("DUS"). As a result of this transaction, the Company owns and
controls the business assets and operations of DUS. DAH subsequently
transferred all of its shares in the Company to Dixons Overseas Investments
Limited ("DOI").
The ultimate parent company of DOI is Dixons Group plc ("Dixons") which
(through certain subsidiaries), is the largest consumer electronics retailer in
the United Kingdom and is a public limited company listed on London Stock
Exchange. DUS is the holding company of Silo Holdings, Inc., which together
with its subsidiaries (including Silo, Inc.) comprise the business referred to
as "Silo."
Currently the Company operates 243 retail stores, 45 of which are in
Michigan, Ohio, Massachusetts and New Hampshire under the name Fretter; 142
retail stores under the name Silo in Arizona, California, Delaware, Illinois,
Indiana, Louisiana, Nevada, New Jersey, New Mexico, New York, Oregon,
Pennsylvania, Texas, Utah and Washington, operated through DUS; 15 retail
stores under the name YES! Your Electronics Superstore in New York, Baton
Rouge, Louisiana and Marshall Fields locations, operated through DUS; 22
retail stores in Colorado, Montana and Wyoming operated through Fred Schmid
Appliance & TV Co. ("Schmid"), a wholly-owned subsidiary of the Company; and
19 automotive electronic retail stores in Michigan, Ohio and Indiana operated
through Dash Concepts, a wholly-owned subsidiary of the Company.
As a result of this acquisition, the Company has closed a number of locations
where there were overlapping and competing stores, low performing stores and
duplicate facilities. Inventory liquidation sales were held in the first
three months of the current fiscal year in the Los Angeles and Denver markets,
and beginning September, 1994 in the Louisiana market, under the Silo name; and
in the first three months of the current fiscal year in the Indianapolis and
Chicago markets, under the Fretter name. The Company has converted its
remaining Louisiana store to its YES!
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<PAGE> 9
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NINE MONTHS ENDED OCTOBER 31, 1994 AND 1993)
format. All liquidation sales are complete except for stores required to
remain open to honor continuous operation clauses in certain leases. At
December 14, 1994 there are only six stores still required to operate under
continuous operation clauses.
As of October 31, 1994, reserves recorded for future costs related to store
closures aggregate approximately $14.0 million, of which approximately $7.5
million will be incurred within the next twelve months. Such reserves include
estimated future lease costs, store operating costs, employee separation and
relocation costs and losses associated with the disposal of merchandise and
other costs. The Company is continuing to evaluate its store closure reserve
and items related to purchase accounting.
The more significant factors affecting the Company's operations in the nine
month period ended October 31, 1994 include:
- Severe weather conditions in the Eastern United States affected the
Company's Pennsylvania and New England markets.
- All Silo stores were converted to the Fretter Point of Sale System and
physical inventories were conducted on all converted stores.
- The Company consolidated Fretter and Silo headquarters into a new location
in Brighton, Michigan.
- The Company effectively and significantly reduced the combined
administrative expenses compared to the expenses previously experienced by
the separate Fretter and DUS companies.
- The Company continued to consolidate its SKU inventory items to more
effectively merchandise its stores.
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<PAGE> 10
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NINE MONTHS ENDED OCTOBER 31, 1994 AND 1993)
CHANGES IN RESULTS OF OPERATIONS
Net Sales
Net sales increased in the three month period ended October 31, 1994 as
compared to the three month period ended October 31, 1993 by $111.3 million
(120.0%). Comparable store sales decreased $10.6 million (16.7%) from the same
period last year. The increase of $111.3 million in total sales is primarily
due to the acquisition of DUS.
Net sales increased in the nine month period ended October 31, 1994 as
compared to the nine month period ended October 31, 1993 by $331.8 million
(127.7%). Comparable stores sales decreased $15.9 million (10.2%) from the
same period last year.
Comparable store sales relates each store's sales in a current fiscal period
to the same store's sales in the same period in the prior fiscal year. The
comparable store sales decrease for both the three and nine month periods ended
October 31, 1994 does not include the sales from any of the closed Fretter
locations nor does it include the sales from any of the DUS locations.
Additionally, such sales do not include any sales from the Illinois or Colorado
regions. Nine Fretter locations were closed in Illinois and the remaining
Illinois locations were converted from Fretter to Silo stores. Further, two
Schmid locations were closed in Colorado and six Silo locations in Colorado
were converted to Schmid locations. Because of this conversion and the
liquidation of inventory in the markets pursuant thereto, the results of these
markets were excluded from comparable store sales computations. Accordingly,
of the 243 currently operating stores, 42 are used in the comparable store
sales analysis; therefor the comparable store sales analysis is not necessarily
indicative of the overall comparable store sales performance of all currently
operating retail locations.
The Company primarily attributes the increase in net sales for the nine month
period ended October 31, 1994 to the acquisition of DUS. The decrease in
comparable store sales for both the three and nine month period ended October
31, 1994 is primarily due to the intense competition within the Company's key
markets. In addition, sales had been adversely affected in the preceding
quarter due to a lack of availability of air conditioner units for sale to
consumers. Finally, sales have been affected during the fiscal year as a
result of the extensive consolidation efforts required to combine the two pre-
existing companies.
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<PAGE> 11
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NINE MONTHS ENDED OCTOBER 31, 1994 AND 1993)
Cost of Goods Sold and Gross Profit
Cost of goods sold increased by $80.6 million (118.1%) and gross profit
increased $30.7 million (112.1%) in the three month period ended October 31,
1994 as compared to the three month period ended October 31, 1993. Gross
profit as a percentage of net sales increased to 27.1% in the three month
period ended October 31, 1994 from 26.5% in the three month period ended
October 31, 1993.
Cost of goods sold increased by $243.4 million (128.1%) and gross profit
increased by $88.4 million (121.8%) in the nine month period ended October 31,
1994 as compared to the nine month period ended October 31, 1993. Gross profit
as a percentage of net sales decreased to 26.8% in the nine month period ended
October 31, 1994 from 26.9% in the nine month period ended October 31, 1993.
The increase in gross profit as a percentage of sales for the three month
period ended October 31, 1994 is primarily attributable to merchandise mix and
improved purchasing cost efficiencies due to the consolidation of the
companies.
Operating Expenses
Operating expenses comprise warehouse and delivery, selling, and
administrative expenses. Operating expenses increased by $28.6 million
(139.1%) in the three month period ended October 31, 1994 compared to the three
month period ended October 31, 1993. As a percentage of net sales, operating
expenses increased to 26.9% in the three month period ended October 31, 1994
from 24.7% in the three month period ended October 31, 1993.
Operating expenses increased by $100.5 million (153.6%) in the nine month
period ended October 31, 1994 compared to the nine month period ended October
31, 1993. As a percentage of net sales, operating expenses increased to 28.0%
in the nine month period ended October 31, 1994 from 25.2% in the nine month
period ended October 31, 1993.
The increase in operating expense as a percentage of net sales for the three
and nine month period ended October 31, 1994 is primarily attributable to an
increase in store occupancy costs resulting from the acquisition of DUS. Silo
locations typically are leased as opposed to Fretter locations, a majority of
which are owned, thus leading to increased overall occupancy costs.
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<PAGE> 12
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NINE MONTHS ENDED OCTOBER 31, 1994 AND 1993)
Interest And Other Income
Interest and other income increased $328,000 (96.5%) in the three month
period ended October 31, 1994 compared to the three month period ended October
31, 1993. Interest and other income as a percentage of net sales for the three
month periods ended October 31, 1994 and 1993 was .3% and .4%, respectively.
Interest and other income increased $3.8 million (328.3%) in the nine month
period ended October 31, 1994 compared to the nine month period ended October
31, 1993. Interest and other income as a percentage of net sales for the nine
month periods ended October 31, 1994 and 1993 was .8% and .5%, respectively.
The increase for both the three and nine month periods ended October 31, 1994
is primarily due to the acquisition of DUS and subsequent increase in private
label credit card sales.
Interest Expense
Interest expense increased $2.2 million (312.9%) in the three month period
ended October 31, 1994 compared to the three month period ended October 31,
1993. Interest expense as a percentage of net sales for the three month
periods ended October 31, 1994 and 1993 was 1.4% and .8%, respectively.
Interest expense increased $4.2 million (216.0%) in the nine month period
ended October 31, 1994 compared to the nine month period ended October 31,
1993. Interest expense as a percentage of net sales for the nine month periods
ended October 31, 1994 and 1993 was 1.0% and .8%, respectively.
The increase in interest expense for both the three and nine month periods
ended October 31, 1994 as compared to the prior year is primarily due to the
increase in inventory levels and increased interest rates.
Store Closure Provision
As a result of the acquisition of DUS, during October 31, 1993 the Company
established a store closure reserve of $4.0 million. This planned store
closure provision was provided to reflect inventory write-downs, lease
disposition costs and fixed asset write-offs expected to be incurred in the
Fretter locations. For the three months ended
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<PAGE> 13
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NINE MONTHS ENDED OCTOBER 31, 1994 AND 1993)
October 31, 1994, no additional reserve is required for any cost associated
with the closure of the Fretter locations.
Income Taxes
The effective income tax rates for the three month periods ended October 31,
1994 and 1993 were 36.0% and 35.3%, respectively (prior to the establishment of
the valuation allowance for net deferred tax assets).
Prior to the establishment of the valuation allowance for net deferred tax
assets discussed below with respect to the nine month period ended October 31,
1993, the effective income tax rates for the nine month periods ended October
31, 1994 and 1993 were 36.0% and 35.0%, respectively. The effective tax rates
for the three and nine month periods ended October 31, 1994 and 1993 were
higher than the statutory rate primarily due to state income taxes.
A tax benefit was recorded in the three and nine month period ended October
31, 1993 in the amount of approximately $972,000 and $109,000, respectively.
As a result of the acquisition of DUS, a valuation allowance for net deferred
tax assets was provided for as of October 31, 1993. Tax expense for the three
and nine months ended October 31, 1993 includes $7.1 million relating to the
establishment of this reserve.
Net Earnings Before Preferred Stock Dividend
Due to the factors discussed above, net earnings before preferred stock
dividend increased $3.4 million from a net loss of $4.5 million in the three
month period ended October 31, 1993 to a net loss of $1.1 million in the three
month period ended October 31, 1994.
Due to the factors discussed above, net earnings before preferred stock
dividend increased $1.7 million from a net loss of $7.3 million in the nine
month period ended October 31, 1993 to a net loss of $5.6 million in the nine
month period ended October 31, 1994.
Changes in Cash Flows
The Company's primary needs for capital are to support its inventory,
particularly during the Christmas Holiday season and in the summer months with
the purchase of air conditioners. In addition, capital is required to fund new
store openings and to remodel or relocate existing stores. For the nine month
period
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<PAGE> 14
PART I. ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NINE MONTHS ENDED OCTOBER 31, 1994 AND 1993)
ended October 31, 1994, one new store was opened, one store was resited and one
store was remodeled.
Since February 1, 1994, cash and cash equivalents decreased $12.4 million,
primarily attributable to net cash used for acquisitions of property and
equipment in the amount of $10.7 million.
Net cash used in operating activities of $92.8 million was used to increase
merchandise inventory by $33.5 million, to decrease accrued liabilities by
$34.8 million and to decrease the reserve for store closure by $25.8 million.
During the three month period ended October 31, 1994, the Company increased
the total availability under its $140 million secured revolving credit facility
with Bankers Trust to $155 million to provide the Company increased flexibility
in purchasing merchandise for the Christmas selling season. This increased
availability extends until January 31, 1995 and then will return to $140
million.
The Company will open new stores to the extent that economically feasible
transactions can be structured. The Company anticipates fiscal 1995 capital
expenditures will approximate $16.4 million of which approximately $12.0
million is for stores.
The Company expects to fund future expansion with a combination of funds
generated from operations, mortgage and loan financing, and through existing
lines of credit. The Company expects that such sources will be sufficient to
meet its future cash requirements.
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<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time the Company is party to various legal proceedings relating
to the conduct of its business. Many of these claims are covered by insurance.
Management is of the opinion that the outcome of any of these currently pending
legal proceedings will not have a material adverse effect on the Company's
business or financial condition.
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27. Selected Financial Data Schedule per Item
601(c)(1)(ii) of Regulation S-B and S-K.
b. Reports on Form 8-K
None
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<PAGE> 16
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.
FRETTER, INC.
Registrant
Date: 12/14/94 By: s/ John Hurley
--------------------------
John Hurley
Chief Executive Officer
Date: 12/14/94 By: s/ Dale R. Campbell
---------------------------
Dale R. Campbell
Executive Vice President
(Principal Accounting Officer)
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