FORM 10-Q/A
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 August 4, 2001.
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 15,265,419 shares of Class A voting, no par value common
stock outstanding as of September 17, 2001.
FRED'S, INC.
INDEX
Page No.
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Part I - Financial Information
Item 1 - Financial Statements (unaudited):
Consolidated Balance Sheets as of
August 4, 2001 and February 3, 2001 3
Consolidated Statements of Income
for the Thirteen Weeks Ended August 4, 2001
and July 29, 2000 and the Twenty-Six Weeks
Ended August 4, 2001 and July 29, 2000 4
Consolidated Statements of Cash Flows
for the Twenty-six Weeks Ended August 4, 2001
and July 29, 2000 5
Notes to Consolidated Financial Statements 6 - 9
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10 - 14
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 14
Part II - Other Information 15
---------------------------
Signatures 16
----------
Item 1 - Financial Statements (unaudited)
FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
August 4, February 3,
2001 2001
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $1,928 $2,569
Receivables, less allowance for doubtful
accounts of $375 ($516 at February 3, 2001) 11,903 15,430
Inventories 160,357 149,602
Deferred income taxes 982 2,022
Other current assets 2,053 2,306
-------- --------
Total current assets 177,223 171,929
Property and equipment, at depreciated cost 78,222 76,360
Equipment under capital leases, less accumulated
amortization of $1,567 ($1,305 at February 3,2001) 1,815 1,387
Deferred income taxes 655 98
Other noncurrent assets 4,960 5,021
-------- --------
Total assets $262,875 $254,795
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $41,497 $40,432
Current portion of indebtedness 2,228 2,175
Current portion of capital lease obligations 627 503
Accrued liabilities 12,197 14,012
Income taxes payable 1,118 4,278
-------- --------
Total current liabilities 57,667 61,400
-------- --------
Long term portion of indebtedness 34,627 30,475
Capital lease obligations 1,531 1,230
Other noncurrent liabilities 2,031 2,003
-------- --------
Total liabilities 95,856 95,108
-------- --------
Shareholders' equity:
Common stock, Class A voting, no par value,
15,229,044 shares issued and outstanding
(15,085,648 shares at February 3, 2001) 70,767 68,557
Retained earnings 96,395 91,342
Deferred compensation on restricted
stock incentive plan (143) (212)
-------- --------
Total shareholders' equity 167,019 159,687
-------- --------
Total liabilities and shareholders' equity $262,875 $254,795
======== ========
See accompanying notes to consolidated financial statements
FRED'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ----------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
---------------------- ----------------------
Net sales $210,278 $180,353 $417,637 $356,485
Cost of goods sold 153,497 131,293 303,098 258,435
------- --------- -------- --------
Gross profit 56,781 49,060 114,539 98,050
Selling, general and
administrative expenses 52,817 46,036 103,538 89,198
------ --------- -------- --------
Operating income 3,964 3,024 11,001 8,852
Interest expense, net 706 763 1,336 1,436
------ --------- -------- --------
Income before income taxes 3,258 2,261 9,665 7,416
Provision for income taxes 1,144 607 3,392 2,417
-------- --------- -------- --------
Net income $ 2,114 $ 1,654 $ 6,273 $ 4,999
======== ========= ======== ========
Net income per share
Basic .14 $ .11 $ .42 $ .34
======= ======== ======== ========
Diluted .14 $ .11 $ .41 $ .33
======= ======== ======== ========
Weighted average shares outstanding
Basic 15,106 14,910 15,056 14,860
======= ======== ======== ========
Diluted 15,268 15,218 15,485 15,194
======= ======== ======== ========
See accompanying notes to consolidated financial statements
FRED'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Twenty-six Weeks Ended
August 4, July 29,
2001 2000
----- ----
Cash flows from operating activities:
Net income $6,273 $4,999
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 8,518 6,883
Lifo reserve 400 400
Deferred income taxes 483 383
Tax benefit on exercise of stock options 397 185
Amortization of deferred compensation on
restricted stock incentive plan 69 76
Cancellation of restricted stock (21) (203)
(Increase)decrease in assets:
Receivables 3,527 459
Inventories (10,559) (12,948)
Other assets 253 (780)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (758) 4,064
Income taxes payable (3,160) 2,010
Other noncurrent liabilities 28 87
------- -------
Net cash provided by operating activities 5,450 5,615
------- -------
Cash flows from investing activities:
Capital expenditures (9,673) (6,993)
Intangible assets, net of cash acquired (383) (1,240)
----- -------
Net cash used in investing activities (10,056) (8,233)
-------- -------
Cash flows from financing activities:
Reduction of indebtedness and capital lease
obligations (1,343) (998)
Proceeds from revolving line of credit,
net of payments 5,281 2,214
Proceeds from exercise of options 1,238 725
Cash dividends paid (1,211) (1,201)
--------- -------
Net cash provided by financing activities 3,965 740
--------- -------
Decrease in cash and cash equivalents (641) (1,878)
Cash and cash equivalents:
Beginning of period 2,569 3,036
------- --------
End of period $1,928 $1,158
======= ========
Supplemental disclosures of cash flow information:
Interest paid $1,223 $1,537
====== ======
Income taxes paid $5,700 ----
====== =====
Non cash investing and financing activities:
Assets acquired through capital lease obligations $691 ----
===== ====
Common stock issued for acquisition $596 ----
===== ====
See accompanying notes to consolidated financial statements
FRED'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1: BASIS OF PRESENTATION
----------------------------------------------------------------------
Fred's, Inc. ("Fred's" or the "Company") operates 373 discount
general merchandise stores, including 27 franchised Fred's stores, in
eleven states primarily in the southeastern United States. Two hundred
and two of the stores have full service pharmacies.
The accompanying unaudited consolidated financial statements of
Fred's 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 accounting principles generally
accepted in the United States of America. 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 accounting principles
generally accepted in the United States of America. The statements
should be read in conjunction with the Notes to the Consolidated
Financial Statements for the fiscal year ended February 3, 2001
incorporated into the Company's Annual Report on Form 10-K.
The results of operations for the twenty-six week period ended
August 4, 2001 are not necessarily indicative of the results to be
expected for the full fiscal year.
Certain prior quarter amounts have been reclassified to conform
to the 2001 presentation.
----------------------------------------------------------------------
NOTE 2: 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 August 4, 2001, cost
was determined using the LIFO (last-in, first-out) method. The current
cost of inventories exceeded the LIFO cost by approximately $4,361,000
and $3,608,000 at August 4, 2001 and July 29, 2000, 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 3: NET INCOME PER SHARE
----------------------------------------------------------------------
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Restricted stock is
considered contingently issuable and is excluded from the computation
of basic earnings per share.
COMPUTATION OF NET INCOME PER SHARE
-----------------------------------
(unaudited)
(in thousands, except per share amounts)
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------------- ----------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
----------------------------- -----------------------
Basic net income per share
Net income $ 2,114 $ 1,654 $ 6,273 $4,999
======= ======= ======= ======
Weighted average number of common shares
outstanding during the period
15,106 14,910 15,056 14,860
======= ======= ======= ======
Net income per share $ .14 $ .11 $ .42 $ .34
======= ======= ======= ======
Diluted net income per share
Net income $ 2,114 $ 1,654 $ 6,273 $4,999
======= ======= ======= ======
Weighted average number of common shares
outstanding during the period
15,106 14,910 15,056 14,860
Additional shares attributable to common
stock equivalents 162 308 429 334
------- ------- ------- ------
15,268 15,218 15,485 15,194
======= ======= ======= ======
Net income per share $ .14 $ .11 $ .41 $ .33
======= ======= ======== ======
----------------------------------------------------------------------
NOTE 4: LAYAWAY SALES
----------------------------------------------------------------------
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" (SAB 101). SAB 101 identifies various revenue recognition
issues, several of which are common within the retail industry
including treatment of revenue recognition on layaway sales. In the
fourth quarter of 2000, the Company revised its revenue recognition
for layaway sales to defer revenue recognition until all terms of the
sale have been satisfied and the customer takes delivery of the
merchandise. Under the prior method of accounting, net sales were
recognized at the time the customer put the merchandise into layaway.
The effects of this restated change on the previously reported second
quarter ended July 29, 2000 are as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
(as reported) (as adjusted) (as reported) (as adjusted)
July 29, July29, July 29, July 29,
2000 2000 2000 2000
---- ---- ---- ----
Net Sales $180,806 $180,353 $357,466 $356,485
Gross profit 49,171 49,060 98,293 98,050
Net income 1,727 1,654 5,159 4,999
Net income per share
Basic * 0.12 0.11 0.35 0.34
Diluted * 0.11 0.11 0.34 0.33
*All per share amounts have been adjusted to reflect the five-for-four
stock split effective on June 18, 2001.
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NOTE 5: STOCK SPLIT
----------------------------------------------------------------------
On May 24, 2001, the Company announced a five-for-four stock split of
its common stock, Class A voting, no par value. The new shares, one
additional share for each four shares held by stockholders, were
distributed on June 18, 2001 to stockholders of record on June 4,
2001. All share and per share amounts included in the accompanying
financial statements have been adjusted to reflect this stock split.
----------------------------------------------------------------------
NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS
----------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. In June
2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133, SFAS No. 133, as amended by SFAS No. 138, requires
all derivatives to be measured at fair value and recognized as either
assets or liabilities on the balance sheet. Changes in such fair value
are required to be recognized immediately in net income to the extent
the derivatives are not effective as hedges. In September 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the effective Date of FASB Statement
No. 133, an amendment to delay the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company does not hold
derivative instruments or engage in hedging activities.
In June 2001, the FASB issued SFAS No. 141, Business Combinations.
SFAS No. 141 supercedes Accounting Principles Board Opinion ("APB")
No. 16, Business Combinations, and SFAS No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. SFAS No. 141
requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and for all
business combinations accounted for by the purchase method for which
the date of acquisition is after June 30, 2001. The Company does not
expect the adoption of SFAS No. 141 to have a material impact on its
financial statements.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 supercedes APB No. 17, Intangible
Assets, and its provisions are effective for fiscal years beginning
after December 15, 2001. SFAS No. 142 requires that: 1) goodwill and
indefinite lived intangible assets will no longer be amortized; 2)
goodwill will be tested for impairment at least annually at the
reporting unit level (reporting unit levels to be determined upon
adoption); 3) intangible assets deemed to have an indefinite life will
be tested for impairment at least annually; and 4) the amortization
period of intangible assets with finite lives will no longer be
limited to forty years. As of August 4, 2001, the Company has
intangible assets, net of accumulated amortization, of $4.9 million
and has recognized amortization expense of approximately $.8 million
during the six months ended August 4, 2001. The Company has not
completed the process of evaluating the impact that will result from
adopting SFAS No. 142.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
------------------------------------------------------------------------
GENERAL
------------------------------------------------------------------------
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.
-----------------------------------------------------------------------
RESULTS OF OPERATIONS
-----------------------------------------------------------------------
Thirteen Weeks Ended August 4, 2001 and July 29, 2000
-----------------------------------------------------
Net sales increased to $210.3 in 2001 from $180.4 million in 2000, an
increase of $29.9 million or 16.6%. The increase was attributable to
comparable store sales increases of 8.0% ($13.7 million) and sales by
stores not yet included as comparable stores ($16.3 million). Sales to
franchisees decreased $.1 million in 2001. The sales mix for the
period was 50.1% Hardlines, 34.7% Pharmacy, 11.6% Softlines, and 3.6%
Franchise. This compares with 50.9% Hardlines, 32.8% Pharmacy, 12.0%
Softlines, and 4.3% Franchise for the same period last year.
Gross profit decreased to 27.0% of sales in 2001 compared with 27.2%
of sales in the prior-year period. Gross profit margins decreased as a
result of greater pricing pressure on the pharmacy department sales.
Selling, general and administrative expenses increased to $52.8
million in 2001 from $46.0 million in 2000. As a percentage of sales,
expenses decreased to 25.1% of sales compared to 25.5% of sales last
year. Selling, general and administrative expenses were improved
primarily by leveraging the higher sales to improved productivity and
control of labor costs throughout the Company. In the second quarter,
labor as a percent of sales was 1.0% better than last year.
Additionally, pharmacy and corporate expenses have been controlled to
leverage the higher sales.
Interest expense decreased to $.7 million in 2001 from $.8 million in
2000, reflecting lower average revolver borrowings than last year as
well as lower interest rates.
Twenty-six Weeks Ended August 4, 2001 and July 29, 2000
-------------------------------------------------------
Net sales increased to $417.6 million in 2001 from $356.5 million in
2000, an increase of $61.1 million or 17.2%. The increase was
attributable to comparable store sales increases of 8.6% ($29.2
million) and sales by stores not yet included as comparable stores
($32.3 million). Sales to franchisees decreased $.4 million in 2001.
The sales mix for the period was 49.2% Hardlines, 35.5% Pharmacy,
11.7% Softlines, and 3.6% Franchise. This compares with 50.0%
Hardlines, 33.0% Pharmacy, 12.4% Softlines, and 4.6% Franchise for the
same period last year.
Gross profit decreased to 27.4% of sales in 2001 compared with 27.5%
of sales in the prior-year period. Gross profit margins decreased as a
result of greater pricing pressure on pharmacy department sales.
Front-end store store gross margins have improved by approximately
1.0% over last year-to-date.
Selling, general and administrative expenses increased to $103.5
million in 2001 from $89.2 million in 2000. As a percentage of sales,
expenses decreased to 24.8% of sales compared to 25.0% of sales last
year. Selling, general and administrative expenses were improved
primarily due to improved productivity and controlled labor cost
throughout the Company.
Interest expense decreased to $1.3 million in 2001 from $1.4 million
in 2000, reflecting lower average revolver borrowings than last year
as well as lower interest rates.
----------------------------------------------------------------------
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.
Net cash flow provided by operating activities totaled $5.5 million
during the twenty-six week period ended August 4, 2001. Cash was
primarily used to increase inventories by approximately $10.6 million
in the first half of 2001. This increase was primarily attributable to
25 new stores and 6 new pharmacies in the first half of 2001. Accounts
receivable decreased approximately $3.5 million do to improved
collections. Income taxes payable decreased by approximately $3.2
million as a result of estimated tax payments.
Net cash flows used by investing activities totaled $10.1 million, and
was used primarily for capital expenditures associated with the
Company's store and pharmacy expansion program. During the first half
of 2001, the Company opened 25 stores and upgraded 5 stores. The
Company expects to open approximately 35 to 40 stores for the year.
The Company's capital expenditure plan for the year 2001 is
approximately $14 million dollars.
Net cash flows provided by financing activities totaled $4.0 million
and included $5.3 million of borrowings under the Company's revolver
for inventory needs.
On April 3, 2000, the Company and a bank entered into a new Revolving
Loan and Credit Agreement (the "Agreement") to replace the May 15,
1992 Revolving Loan and Credit Agreement, as amended. The Agreement
provides the Company with an unsecured revolving line of credit
commitment of up to $40 million and bears interest at the lesser of
1.5% below prime rate or a LIBOR-based rate. Under the most
restrictive covenants of the Agreement, the Company is required to
maintain specified shareholder's equity and net income levels. The
Company is required to pay a commitment fee to the bank at a rate per
annum equal to .18% on the unutilized portion of the revolving line
commitment over the term of the agreement. The term of the Agreement
extends to April 3, 2003. The borrowings outstanding under this
agreement totaled $27.9 million at August 4, 2001 and $30.4 million at
July 29, 2000.
On April 23, 1999, the Company and a bank entered into a Loan
Agreement (the "1999 Loan Agreement"). The 1999 Loan Agreement
provided the Company with a four-year unsecured term loan of
$2,250,000 to finance the replacement of the Company's mainframe
computer system. The 1999 Loan Agreement bears interest of 6.15% per
annum and matures on April 15, 2003. Borrowings outstanding under this
1999 Loan Agreement totaled $1.0 million at August 4, 2001 and $1.6
million at July 29, 2000.
On May 5, 1998, the Company and a bank entered into a Loan Agreement
(the "1998 Loan Agreement"). The 1998 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 1998 Loan Agreement bears interest of 6.82%
per annum and matures on November 1, 2005. Borrowings outstanding
under this 1998 Loan Agreement totaled $8.0 million at August 4, 2001
and $9.7 million at July 29, 2000.
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.
----------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
----------------------------------------------------------------------
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" (SAB 101). SAB 101 identifies various revenue recognition
issues, several of which are common within the retail industry
including treatment of revenue recognition on layaway sales. In the
fourth quarter of 2000, the Company revised its revenue recognition
for layaway sales to defer revenue recognition until all terms of the
sale have been satisfied and the customer takes delivery of the
merchandise. Under the prior method of accounting, net sales were
recognized at the time the customer put the merchandise into layaway.
The effects of this restated change on previously reported net sales,
gross profit, net income and net income per share (basic & diluted)
was a decrease of $528,000, $132,000, $87,000 and $.01, respectively,
for the first quarter ended April 29, 2000; a decrease of $453,000,
$111,000, $73,000 and $.00, respectively, for the second quarter ended
July 29, 2000. Annual financial results were not affected.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the effective date of
FASB Statement No. 133, which deferred the effective date provisions
of SFAS No. 133 for the company to the first quarter of 2001. The
Company does not believe this new standard will have an impact on its
financial statements since it currently has no derivative instruments.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. In June
2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133, SFAS No. 133, as amended by SFAS No. 138, requires
all derivatives to be measured at fair value and recognized as either
assets or liabilities on the balance sheet. Changes in such fair value
are required to be recognized immediately in net income to the extent
the derivatives are not effective as hedges. In September 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the effective Date of FASB Statement
No. 133, an amendment to delay the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company does not hold
derivative instruments or engage in hedging activities.
In June 2001, the FASB issued SFAS No. 141, Business Combinations.
SFAS No. 141 supercedes Accounting Principles Board Opinion ("APB")
No. 16, Business Combinations, and SFAS No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. SFAS No. 141
requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and for all
business combinations accounted for by the purchase method for which
the date of acquisition is after June 30, 2001. The Company does not
expect the adoption of SFAS No. 141 to have a material impact on its
financial statements.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 supercedes APB No. 17, Intangible
Assets, and its provisions are effective for fiscal years beginning
after December 15, 2001. SFAS No. 142 requires that: 1) goodwill and
indefinite lived intangible assets will no longer be amortized; 2)
goodwill will be tested for impairment at least annually at the
reporting unit level (reporting unit levels to be determined upon
adoption); 3) intangible assets deemed to have an indefinite life will
be tested for impairment at least annually; and 4) the amortization
period of intangible assets with finite lives will no longer be
limited to forty years. As of August 4, 2001, the Company has
intangible assets, net of accumulated amortization, of $4.9 million
and has recognized amortization expense of approximately $.8 million
during the six months ended August 4, 2001. The Company has not
completed the process of evaluating the impact that will result from
adopting SFAS No. 142.
----------------------------------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
----------------------------------------------------------------------
Statements, other than those based on historical facts, 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,
changes in reimbursement practices for pharmaceuticals, government
regulations, increases in fuel and utility rates 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.
----------------------------------------------------------------------
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
----------------------------------------------------------------------
The Company has no holdings of derivative financial or commodity
instruments as of August 4, 2001. The Company is exposed to financial
market risks, including changes in interest rates. All borrowings
under the Company's Revolving Credit Agreement bear interest at 1.5%
below prime rate or a LIBOR based rate. An increase in interest rates
of 100 basis points would not significantly affect the Company's
income. All of the Company's business is transacted in U.S. dollars
and, accordingly, foreign exchange rate fluctuations have not had a
significant impact on the Company, and they are not expected to in the
foreseeable future
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 6, 2001. Michael J. Hayes, David A. Gardner, John R.
Eisenman, and Roger T. Knox were elected to continue as directors
of the Company. John D. Reier and Thomas H. Tashjian were also
elected as directors of the Company. The shareholders also
ratified the appointment of PricewaterhouseCoopers LLP as
independent public accountants for the fiscal year ending
February 2, 2002.
The results of the voting were as follows:
Abstain/
For Against Withheld Broker Non-Vote
--- ------- -------- ---------------
Election of Directors:
Michael J. Hayes 10,191,948 956,635 938,746
David A. Gardner 9,827,704 1,320,879 938,746
John R. Eisenman 11,139,577 9,006 938,746
Roger T. Knox 11,139,707 8,876 938,746
John D. Reier 10,190,948 957,635 938,746
Thomas H. Tashjian 11,139,797 8,786 938,746
Appointment of
PricewaterhouseCoopers LLP:
10,949,762 197,144 1,677 938,746
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Reports on Form 8-K:
Not Applicable.
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 18, 2001 Chief Executive Officer
------------------------
/s/Jerry A. Shore
------------------------------
Jerry A. Shore
Date: September 18, 2001 Chief Financial Officer
-------------------------