SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 5, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-15023
FRED MEYER, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-0798201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3800 S.E. 22nd Avenue
Portland, Oregon 97202
(Address of principal executive offices) (Zip Code)
(503) 232-8844
(Registrant's telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports); and (2) has been subject to such filing requirements
for the past 90 days.
Yes XX No
------ ------
Shares of Common Stock Outstanding at November 5, 1994:
26,550,326
2
Part I - Financial Information
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
November 5, January 29,
1994 1994
---------- ----------
ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,703 $ 34,054
Receivables-net. . . . . . . . . . . . . . . . . . . . . . . . . . . 22,714 19,406
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590,726 477,568
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 55,769 55,037
Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . 23,736 ---
Current deferred taxes . . . . . . . . . . . . . . . . . . . . . . . 7,828 7,828
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 738,476 593,893
---------- ----------
PROPERTY AND EQUIPMENT (NET). . . . . . . . . . . . . . . . . . . . . . 854,354 719,338
---------- ----------
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,611 11,200
---------- ----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,604,441 $1,324,431
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and outstanding checks. . . . . . . . . . . . . . . $ 355,167 $ 294,568
Current portion of long-term debt
and lease obligations . . . . . . . . . . . . . . . . . . . . . . 1,749 1,749
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 18,660
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . 73,573 73,665
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 430,489 388,642
---------- ----------
LONG-TERM DEBT AND MORTGAGES. . . . . . . . . . . . . . . . . . . . . . 555,860 321,398
---------- ----------
CAPITAL LEASE OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 14,819 14,895
---------- ----------
DEFERRED LEASE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 46,255 48,254
---------- ----------
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 18,496 18,496
---------- ----------
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 8,846 5,060
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 267
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 196,722 193,719
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . (141) (527)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,896) (3,896)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 336,723 338,123
---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 529,676 527,686
---------- ----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,604,441 $1,324,431
========== ==========
<FN>
See notes to consolidated financial statements.
/TABLE
3
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
12 Weeks Ended
------------------------------
November 5, November 6,
1994 1993
---------- ----------
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $626,804 $644,527
-------- --------
COST OF MERCHANDISE SOLD:
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472,873 453,327
Related party lease . . . . . . . . . . . . . . . . . . . . . . . . . 1,287 1,287
Interest related to occupancy . . . . . . . . . . . . . . . . . . . . 286 16
-------- --------
Total cost of merchandise sold. . . . . . . . . . . . . . . . . . . . 474,446 454,630
-------- --------
GROSS MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,358 189,897
-------- --------
OPERATING AND ADMINISTRATIVE EXPENSES:
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,298 156,288
Related party leases. . . . . . . . . . . . . . . . . . . . . . . . . 13,138 13,414
Interest related to occupancy . . . . . . . . . . . . . . . . . . . . 2,743 2,295
-------- --------
Total operating and administrative expenses . . . . . . . . . . . . . 191,179 171,997
-------- --------
RESTRUCTURING CHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,978 ---
-------- --------
(LOSS) INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . (54,799) 17,900
INTEREST EXPENSE-NET. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200 1,937
-------- --------
(LOSS) INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . (58,999) 15,963
(BENEFIT) PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . . . . . . (22,420) 6,066
-------- --------
NET (LOSS) INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(36,579) $ 9,897
======== ========
(LOSS) EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . . . . . . . . $(1.28) $.35
====== ====
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . 28,556 28,495
====== ======
<FN>
See notes to consolidated financial statements.
/TABLE
4
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
40 Weeks Ended
---------------------------------
November 5, November 6,
1994 1993
---------- ----------
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,296,435 $2,171,305
---------- ----------
COST OF MERCHANDISE SOLD:
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,645,816 1,524,007
Related party lease . . . . . . . . . . . . . . . . . . . . . . . . 4,292 4,292
Interest related to occupancy . . . . . . . . . . . . . . . . . . . 801 123
---------- ----------
Total cost of merchandise sold. . . . . . . . . . . . . . . . . . . 1,650,909 1,528,422
---------- ----------
GROSS MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645,526 642,883
---------- ----------
OPERATING AND ADMINISTRATIVE EXPENSES:
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568,545 511,447
Related party leases. . . . . . . . . . . . . . . . . . . . . . . . 44,000 44,900
Interest related to occupancy . . . . . . . . . . . . . . . . . . . 9,200 8,563
---------- ----------
Total operating and administrative
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,745 564,910
---------- ----------
RESTRUCTURING CHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . 15,978 ---
---------- ----------
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 7,803 77,973
INTEREST EXPENSE-NET. . . . . . . . . . . . . . . . . . . . . . . . . . 10,061 5,913
---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . (2,258) 72,060
(BENEFIT) PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . . . . . (858) 31,190
---------- ----------
NET (LOSS) INCOME BEFORE THE EFFECT
OF AN ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . . . . . . (1,400) 40,870
EFFECT OF AN ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . . . . --- (2,588)
---------- ----------
NET (LOSS) INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,400) $ 38,282
========== ==========
(LOSS) EARNINGS PER COMMON SHARE:
Net (loss) income before the effect
of an accounting change. . . . . . . . . . . . . . . . . . . . . $(.05) $1.44
Effect of an accounting change. . . . . . . . . . . . . . . . . . . --- (.09)
----- -----
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . $(.05) $1.35
===== =====
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . 28,660 28,316
====== ======
<FN>
See notes to consolidated financial statements.
/TABLE
5
FRED MEYER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
40 Weeks Ended
----------------------------
November 5, November 6,
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,400) $38,282
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization of
property and equipment . . . . . . . . . . . . . . . . . . . . . . . 67,528 52,199
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,396) (14,484)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113,608) (113,950)
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . (4,077) (7,982)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,801 106,435
Restructuring charge. . . . . . . . . . . . . . . . . . . . . . . . . . 15,978 ---
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (440) (9,471)
Effect of an accounting change. . . . . . . . . . . . . . . . . . . . . --- 2,588
-------- --------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . 6,386 53,617
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock-net. . . . . . . . . . . . . . . . . . . . . . . 3,004 4,607
Outstanding checks. . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,202) (23,695)
Decrease (increase) in notes receivable . . . . . . . . . . . . . . . . . 86 (1,186)
Long-term financing:
Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,462 142,902
Repayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76) ---
-------- --------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 213,274 122,628
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . (219,440) (176,239)
Net proceeds from sale of real property. . . . . . . . . . . . . . . . . . 3,429 2,835
-------- --------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . (216,011) (173,404)
-------- --------
NET INCREASE IN CASH FOR THE PERIOD . . . . . . . . . . . . . . . . . . . . . 3,649 2,841
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . 34,054 31,884
-------- --------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,703 $34,725
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,274 $13,408
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,759 45,536
<FN>
See notes to consolidated financial statements.
/TABLE
6
FRED MEYER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Reporting Periods
-------------------------
The Company's interim reporting periods for reports to
stockholders are the 16th, 28th, and 40th weeks of its fiscal
year.
2. Reclassifications
-----------------
Certain prior year balances have been reclassified to conform
to current year presentation.
3. Inventories
-----------
Inventories consist mainly of merchandise held for sale.
Substantially all the inventories are valued at the lower of
last-in, first-out (LIFO) cost or market. Estimated gross
margins have been used for determining the cost of merchandise
sold for those operating departments not taking physical
inventories at the end of the interim periods. In the second
quarter of 1993, to conform with IRS guidelines for LIFO
computations, the Company made a one-time adjustment which
increased inventories and decreased cost of merchandise sold by
$6,178,000.
4. Income Taxes
------------
Income taxes have been provided for based upon the current
estimate of the Company's annual effective tax rate. The
Company adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," effective
January 31, 1993. This resulted in a one-time reduction in net
income of $2,588,000 in the first quarter of 1993.
5. Stockholders' Equity
--------------------
Changes in stockholders' equity for the 40 weeks ended November
5, 1994 were:
(In thousands)
--------------
Stockholders' equity, January 29, 1994 $527,686
Stock options exercised 3,004
Amortization of unearned compensation 386
Net loss (1,400)
--------
Stockholders' equity, November 5, 1994 $529,676
========
6. Restructuring Charge
--------------------
The Company took a pretax write-off of approximately $16 million
($.35 per share) as a result of its decision to exit the
Northern California market in the third quarter of 1994. The
charge to income covers the adjustment of the Company's book
value on its Northern California properties to an estimated net
realizable value. The properties included one store in Chico,
California and three land parcels in Redding and Sacramento,
California.
7. Earnings Per Common Share
-------------------------
Fully diluted earnings per common share are computed by dividing
net income by the weighted average number of common and common
equivalent shares outstanding. Weighted average shares reflect
the dilutive effect of outstanding stock options (ranging in
exercise price from $3.24 to $32.75 per share) which was
determined by using the "treasury stock" method.
8. Commitments and Contingencies
-----------------------------
The Company and its subsidiaries are parties to various legal
claims, actions, and complaints, certain of which involve
material amounts. Although the Company is unable to predict
with certainty whether or not it will ultimately be successful
in these legal proceedings or, if not, what the impact might be,
management presently believes that disposition of these matters
will not have a material adverse effect on the Company's
consolidated financial position or consolidated results of
operations.
_______________
7
The financial information furnished in this Form 10-Q includes the
adjustments described in footnotes 3 and 4 and all other
adjustments, consisting only of adjustments of a normal recurring
nature, which, in the opinion of management, are necessary for a
fair presentation of the results for the 12 and 40 weeks ended
November 5, 1994 and November 6, 1993.
The consolidated results of operations presented herein are not
necessarily indicative of the results to be expected for the year
due to the seasonality of the Company's business. These
consolidated financial statements should be read in conjunction
with the financial statements and related notes incorporated by
reference in the Company's latest annual report filed on Form 10-K.
FRED MEYER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company funded its working capital and capital expenditure
needs in 1994 and 1993 through internally generated cash flow,
supplemented by borrowings under committed and uncommitted bank
lines of credit and unrated commercial paper.
In June 1994 the Company completed a new credit facility with
several domestic and foreign banks for committed lines of credit
which provide for borrowings of up to $400,000,000. This agreement
matures on June 30, 1999 and replaces a previous agreement which
provided for borrowings of up to $300,000,000. Uncommitted lines
of credit have been made available to the Company by several banks
within the committed bank group for a total of $140,000,000 and
three outside banks for a total of $30,000,000. The bank lines of
credit and unrated commercial paper are used primarily for seasonal
inventory requirements (the current quarter being the Company's
peak seasonal period for inventory), new store construction and
financing, existing store remodeling, acquisition of land, and
major projects such as MIS development. At November 5, 1994 the
Company had unrated commercial paper outstanding in the amount of
approximately $314,000,000, uncommitted line borrowings of
$61,500,000, and no direct borrowings on its committed line of
credit. Of the outstanding uncommitted line borrowings,
$46,500,000 are from banks that participate in the committed bank
group. A total of approximately $40,000,000 is available for
borrowing under its committed credit facilities in excess of
outstanding commercial paper and bank group uncommitted borrowings.
The average interest rate for commercial paper outstanding at
November 5, 1994 was approximately 5.2 percent. The Company has
entered into interest rate swap agreements to reduce the impact of
changes in interest rates on its commercial paper and other
floating rate debt. At November 5, 1994 the Company had
outstanding three interest rate contracts with commercial banks
which effectively fix the Company's interest rate exposure on an
aggregate $50,000,000 principal amount of commercial paper and bank
line borrowings at rates of between 4.63 percent and 7.60 percent
and mature between November 1996 and November 1998. The Company
also has in place three interest rate contracts ("CAPs") which
limit the maximum interest rate the Company can pay from between
5.00 percent and 9.00 percent on a notional amount of $50,000,000
of its short-term floating rate debt, and which expire in November
of 1996, 1998, and 1999. In the event of nonperformance by the
other parties to the interest rate swap agreements (which is not
anticipated), the Company could be exposed to prospective increases
in interest rates.
In July 1994, the Company borrowed $57,500,000 from major insurance
companies for privately placed notes with maturities of between
five and 13 years, and an average maturity of 9.35 years. Interest
will be paid at fixed rates of between 7.25 percent and 7.98
percent payable on a semi-annual basis.
8
On October 4, 1993 the Company completed a secondary offering of
its stock whereby an affiliate of Kohlberg, Kravis, Roberts & Co.,
L.P. ("The Selling Shareholder"), sold 3,450,000 of its shares.
The Company received proceeds of $1,638,000 resulting from the
exercise of 505,067 option shares by The Selling Shareholder.
Following the offering, The Selling Shareholder owned approximately
38 percent of the Company's stock.
On June 29, 1993 and August 2, 1993, the Company issued an
aggregate of $70,000,000 of five-year floating rate notes to a
group of five banks. At the Company's option, the notes will bear
interest at a spread above LIBOR or certificate of deposit rates.
Proceeds from the floating rate notes were used to reduce
commercial paper borrowings.
The Company believes that a combination of cash flow from
operations, the above-mentioned note issuances, and borrowings
under its expanded credit facilities will permit it to finance its
capital expenditure requirements for 1994, budgeted to be
$265,000,000. The Company's more recent strategy has been for it
to own its newly constructed facilities. In the future the Company
may fund its capital expenditure requirements by mortgaging
facilities, entering into sale and leaseback transactions and/or
other third-party leases, or by issuing additional debt or equity.
RESULTS OF OPERATIONS
COMPARISON OF THE 12 WEEKS ENDED NOVEMBER 5, 1994 WITH THE 12 WEEKS
ENDED NOVEMBER 6, 1993.
Net sales for the third quarter of 1994 decreased $17,723,000 or
2.7 percent over the corresponding quarter in 1993. The 1994
decrease in sales was primarily due to an 88-day strike which
affected 26 of the Company's stores. Comparable store sales
decreased 12.5 percent for the third quarter of 1994. Food
comparable store sales decreased 15.5 percent, and nonfood
comparable store sales decreased 10.4 percent. Excluding the
stores affected by the strike, total comparable store sales
increased 0.6 percent with food comparable store sales increasing
1.7 percent and nonfood comparable store sales decreasing 0.1
percent. The Company's food operations accounted for 38.2 percent
of the overall sales in 1994 and 39.3 percent in 1993.
Gross margin as a percent of net sales was 24.3 percent for the
third quarter of 1994, compared with 29.5 percent for 1993's third
quarter. The decrease in gross margin was the result of the 88-day
strike at 26 of the Company's stores, and strikes at its
distribution center, trucking operations, bakery, and dairy. These
strikes resulted in additional costs incurred to hire replacement
workers at the Company's distribution center and trucking
operations, and to take markdowns for items that were not sold due
to lower sales volumes in the stores affected by the strike.
Operating and administrative expenses as a percent of net sales
were 30.5 percent for the third quarter of 1994, compared with 26.7
percent for 1993's third quarter. Expenses in the third quarter of
1994 increased primarily because of high fixed costs and labor
costs as a percent of net sales due to the lower sales volumes in
the stores affected by the strike.
The Company took a pretax write-off of $15,978,000 in 1994's third
quarter as a result of its decision to exit the Northern California
market. The charge to income covers the adjustment of the
Company's book value on its Northern California properties to an
estimated net realizable value. The properties included one store
in Chico, California and three land parcels in Redding and
Sacramento, California. The properties are currently being
marketed with the intent on closing potential sales as soon as
practicable.
9
Net interest expense in the third quarter of 1994 increased to
$4,200,000, from $1,937,000 reported in the third quarter of 1993.
The increase primarily reflects higher borrowings due to the
acceleration in new store construction and remodels, as well as the
impact of the strikes; and to a lesser extent, higher interest
rates.
The effective tax rate for the third quarter of both 1994 and 1993
was 38.0 percent.
The Company reported a net loss of $36,579,000 for the third
quarter of 1994, compared with net income of $9,897,000 in 1993's
third quarter. The loss per share was $1.28 in the third quarter
of 1994 compared with earnings per share of $.35 in 1993's third
quarter. The net loss was affected by the above-mentioned strikes
plus the California after-tax write-off of $9,906,000, or a loss of
$.35 per share. Excluding this write-off, the Company's third
quarter net loss and loss per share were $26,673,000 and $.93,
respectively.
COMPARISON OF THE 40 WEEKS ENDED NOVEMBER 5, 1994 WITH THE 40 WEEKS
ENDED NOVEMBER 6, 1993.
Net sales for the first 40 weeks of 1994 increased $125,130,000 or
5.8 percent to $2,296,435,000. This increase reflects openings of
new stores, offset by the impact of the 88-day strike which
affected 26 of the Company's stores. Comparable store sales
decreased 1.8 percent for this 40-week period. Food comparable
store sales decreased 3.2 percent, and nonfood comparable store
sales decreased 0.9 percent. Excluding the stores affected by the
strike, total comparable sales increased 2.1 percent, with food
comparable store sales increasing 1.9 percent and nonfood
comparable store sales increasing 2.3 percent. The Company's food
operations accounted for 39.2 percent of the overall sales for the
first 40 weeks of 1994 compared with 38.9 percent for the first 40
weeks of 1993.
Gross margin as a percent of net sales was 28.1 percent for the
first 40 weeks of 1994 compared with 29.6 percent for 1993. The
decrease in gross margin was primarily the result of an 88-day
strike at 26 of the Company's stores, and strikes at its
distribution center, trucking operations, bakery and dairy. These
strikes resulted in additional costs incurred to hire replacement
workers at the Company's distribution center and trucking
operations, and to take markdowns for items that were not sold due
to lower sales volumes in the stores affected by the strike.
Operating and administrative expenses as a percent of net sales
were 27.1 percent for the first 40 weeks of 1994 compared with 26.0
percent for the first 40 weeks of 1993. Expenses for the first 40
weeks of 1994 increased primarily because of high fixed costs and
labor costs as a percent of net sales due to the lower sales
volumes in the stores affected by the strike, and for costs
associated with opening five new stores.
The Company took a pretax write-off of $15,978,000 in 1994's third
quarter as a result of its decision to exit the Northern California
market. The charge to income covers the adjustment of the
Company's book value on its Northern California properties to an
estimated net realizable value. The properties included one store
in Chico, California and three land parcels in Redding and
Sacramento, California. The properties are currently being
marketed with the intent on closing potential sales as soon as
practicable.
Net interest expense in the first 40 weeks of 1994 was $10,061,000,
an increase of 70.2 percent from the $5,913,000 for 1993. The
increase primarily reflects higher borrowings due to the
acceleration in new store construction and remodels, as well as the
impact of the strikes; and to a lesser extent, higher interest
rates.
10
The effective tax rate for the first 40 weeks of 1994 was 38.0
percent compared with 43.3 percent in the comparable 40 weeks of
1993. The effective tax rate for the first 40 weeks of 1993
reflects the effect of three nonrecurring adjustments.
The Company reported a net loss of $1,400,000 and loss per share of
$.05 per share for the first 40 weeks of 1994 compared with net
income of $38,282,000 and earnings per share of $1.35 reported in
the first 40 weeks of 1993. The net loss was affected by the
above-mentioned strikes plus the California after-tax write-off of
$9,906,000, or a loss of $.35 per share. Excluding the California
write-off, net income and earnings per share for the first 40 weeks
of 1994 were $8,506,000 and $.30, respectively. Net income and
earnings per share for the first 40 weeks of 1993 were affected by
an accounting change and three accounting adjustments that resulted
in a reduction in net income of $2,565,000 and $.09 in earnings per
share. Excluding the effects of the accounting change and three
adjustments, and assuming a 38 percent tax rate in 1993, net income
was $40,847,000 for the first 40 weeks of 1993. Earnings per share
excluding these same items were $1.44 in 1993's first 40 weeks.
EFFECT OF LIFO
The Company estimates annual LIFO expense based on estimates of
three factors: inflation rates (calculated by reference to the
Department Stores Inventory Price Index published by the Bureau of
Labor Statistics for softgoods and jewelry, and to internally
generated indices based on Company purchases during the year for
all other departments), expected inventory levels, and expected
markup levels (after reflecting permanent markdowns and cash
discounts). The Company reviewed these year-to-date indices at the
end of the third quarter and adjusted its LIFO reserve on a year-
to-date basis to reflect the Company's overall product mix,
anticipated year-end inventory levels, and the Company's
expectations of the indices for the remainder of the year.
11
PART II. OTHER INFORMATION
Item 5. Other Information.
A strike started on August 18, 1994 affecting a multi-
employer group of unionized food stores in the greater
Portland area, including 26 Fred Meyer stores. At
approximately the same time, a series of strikes also began
at the Company's Portland area distribution center, plants,
trucking operations, and main office. These strikes were
settled during the period from September 23, 1994 to
November 13, 1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
-------
11. Computation of (Loss) Earnings Per Common Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the period
for which this report is filed.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FRED MEYER, INC.
(Registrant)
Dated: December 5, 1994 KENNETH THRASHER
---------------- -------------------------------
Kenneth Thrasher
Senior Vice President - Finance
Chief Financial Officer
EXHIBIT INDEX
Exhibit Sequential
Number Document Description Page Number
- - ------- -------------------- -----------
11. Computation of (Loss) Earnings Per Common Share
27. Financial Data Schedule.