EXHIBIT 13
SELECTED FINANCIAL DATA (1995-1992) (page 1 of 3)
Fiscal Year Ended
-------------------------------------------------------------
(In thousands, except per-share data and January 28, January 29, January 30, February 1,
statistical information) 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Net sales . . . . . . . . . . . . . . . . . . . . $3,128,432 $2,979,082 $2,853,962 $2,702,721
Gross margin. . . . . . . . . . . . . . . . . . . 866,034 890,375/5 857,086 809,900
Operating and administrative expenses . . . . . . 823,742 761,627 752,004 731,892
Writedown of California assets/restructuring
charge (reversal) . . . . . . . . . . . . . . . 15,978/3 -- -- (8,289)/8
Income from operations. . . . . . . . . . . . . . 26,314/4 128,748/5 105,082 86,297/9
Interest expense, net of interest income/1. . . . 14,753 8,246 8,912 15,302
Income (loss) before income taxes . . . . . . . . 11,561/4 120,502 96,170 70,995/8,9
Provision for (benefit from) income taxes . . . . 4,393/4 49,598/6 35,583 25,768
Net income (loss) before cumulative effect of
accounting change or extraordinary item . . . . 7,168/4 70,904/5,6 60,587 45,227/8,9
Cumulative effect of accounting change. . . . . . -- (2,588)/7 -- --
Extraordinary item. . . . . . . . . . . . . . . . -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ 7,168/4 $ 68,316/5,6,7 $ 60,587 $ 45,227/8,9
========== ========== ========== ==========
Earnings (loss) per common share:
Net income (loss) before cumulative effect of
accounting change or extraordinary item . . . $.25/4 $2.50/5,6 $2.21 $1.80/8,9
Cumulative effect of accounting change. . . . . -- (.09)/7 -- --
Extraordinary item. . . . . . . . . . . . . . . -- -- -- --
---- ----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . $.25/4 $2.41/5,6,7 $2.21 $1.80/8,9
==== ===== ===== =====
BALANCE SHEET DATA
Total assets. . . . . . . . . . . . . . . . . . . $1,562,672 $1,326,076 $1,081,627 $974,780
Capitalization:
Long-term debt. . . . . . . . . . . . . . . . . $540,166 $321,398 $195,837 $240,968
Lease obligations . . . . . . . . . . . . . . . 63,229 65,955 70,313 67,387
Stockholders' equity. . . . . . . . . . . . . . 538,620 527,686 450,128 335,154
---------- ---------- ---------- --------
Total . . . . . . . . . . . . . . . . . . . . $1,142,015 $915,039 $716,278 $643,509
========== ========== ========== ========
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales . . . . . . . . . . . . . . . . . 61.7% 62.5% 63.3% 63.7%
Food sales. . . . . . . . . . . . . . . . . . . 38.3% 37.5% 36.7% 36.3%
Total stores sales growth . . . . . . . . . . . . 5.0% 4.4% 5.6% 9.2%
Comparable stores sales percentage
increase (decrease)/2 . . . . . . . . . . . . . (2.0)% 2.4% 3.0% 4.0%
Long-term debt as a percent of
total capitalization. . . . . . . . . . . . . . 52.8% 42.3% 37.2% 47.9%
Net income (loss) as a percent of net sales . . . .2%/4 2.3%/5,6,7 2.1% 1.7%
Number of multidepartment and specialty stores
opened during year. . . . . . . . . . . . . . . 8 7 6 3
Number of multidepartment and specialty stores
closed during year. . . . . . . . . . . . . . . 4 3 5 3
Number of multidepartment and specialty stores
operated at end of year . . . . . . . . . . . . 131 127 123 122
Total retail square feet at end of year . . . . . 14,194,000 13,423,000 12,646,000 12,679,000
Selling square feet at end of year. . . . . . . . 10,490,000 9,999,000 9,471,000 9,657,000
Sales per selling square foot
(weighted average). . . . . . . . . . . . . . . $304 $312 $304 $283
Common shares outstanding (weighted average). . . 28,625,000 28,375,000 27,446,000 25,182,000
- ----------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (1991-1988) (page 2 of 3)
Fiscal Year Ended
-----------------------------------------------------------
(In thousands, except per-share data and February 2, February 3, January 28, January 30,
statistical information) 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Net sales . . . . . . . . . . . . . . . . . . . . $2,476,055 $2,284,535 $2,073,544 $1,847,843
Gross margin. . . . . . . . . . . . . . . . . . . 741,720 671,044 610,415 547,157
Operating and administrative expenses . . . . . . 674,212 620,953 544,225 485,822
Writedown of California assets/restructuring
charge (reversal) . . . . . . . . . . . . . . . -- 49,277/8 -- --
Income from operations. . . . . . . . . . . . . . 67,508 814/11 66,190 61,335
Interest expense, net of interest income/1. . . . 15,974 13,947 9,291 7,449
Income (loss) before income taxes . . . . . . . . 51,534 (13,133)/11 56,899 53,886
Provision for (benefit from) income taxes . . . . 17,951 (6,285) 20,238 21,850
Net income (loss) before cumulative effect of
accounting change or extraordinary item . . . . 33,583 (6,848)/11 36,661 32,036
Cumulative effect of accounting change. . . . . . -- -- -- --
Extraordinary item. . . . . . . . . . . . . . . . -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ 33,583 $ (6,848)/11 $ 36,661 $ 32,036
========== ========== ========== ==========
Earnings (loss) per common share:
Net income (loss) before cumulative effect of
accounting change or extraordinary item . . . $1.37 $(.28)/11 $1.50 $1.31
Cumulative effect of accounting change. . . . . -- -- -- --
Extraordinary item. . . . . . . . . . . . . . . -- -- -- --
----- ----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . $1.37 $(.28)/11 $1.50 $1.31
===== ===== ===== =====
BALANCE SHEET DATA
Total assets. . . . . . . . . . . . . . . . . . . $905,756 $796,894 $686,806 $626,522
Capitalization:
Long-term debt. . . . . . . . . . . . . . . . . $232,881 $188,441 $ 92,180 $ 87,730
Lease obligations . . . . . . . . . . . . . . . 67,664 66,393 50,774 46,904
Stockholders' equity. . . . . . . . . . . . . . 285,299 251,546 258,188 221,056
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . $585,844 $506,380 $401,142 $355,690
======== ======== ======== ========
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales . . . . . . . . . . . . . . . . . 64.3% 66.8% 68.2% 67.6%
Food sales. . . . . . . . . . . . . . . . . . . 35.7% 33.2% 31.8% 32.4%
Total stores sales growth . . . . . . . . . . . . 11.6%/10 8.4%/10 12.2% 9.5%
Comparable stores sales percentage
increase (decrease)/2 . . . . . . . . . . . . . 3.6%/10 4.5%/10 7.9% 6.6%
Long-term debt as a percent of
total capitalization. . . . . . . . . . . . . . 51.3% 50.3% 35.6% 37.9%
Net income (loss) as a percent of net sales . . . 1.4% (.3)%/11 1.8% 1.7%
Number of multidepartment and specialty stores
opened during year. . . . . . . . . . . . . . . 5 15 14 8
Number of multidepartment and specialty stores
closed during year. . . . . . . . . . . . . . . 8 2 1 2
Number of multidepartment and specialty stores
operated at end of year . . . . . . . . . . . . 122 125 112 99
Total retail square feet at end of year . . . . . 12,213,000 11,743,000 10,925,000 10,494,000
Selling square feet at end of year. . . . . . . . 9,361,000 9,056,000 8,388,000 8,064,000
Sales per selling square foot
(weighted average). . . . . . . . . . . . . . . $269 $261/10 $253 $239
Common shares outstanding (weighted average). . . 24,500,000 24,801,000 24,470,000 24,403,000
- --------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (1987-1985) (page 3 of 3)
Fiscal Year Ended
-------------------------------------------
(In thousands, except per-share data and January 31, February 1, February 2,
statistical information) 1987 1986 1985
- -----------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Net sales . . . . . . . . . . . . . . . . . . . . $1,688,208 $1,583,796 $1,449,108
Gross margin. . . . . . . . . . . . . . . . . . . 487,829 447,960 395,419
Operating and administrative expenses . . . . . . 430,469 397,841 354,914
Writedown of California assets/restructuring
charge (reversal) . . . . . . . . . . . . . . . -- -- --
Income from operations. . . . . . . . . . . . . . 57,360 50,119 40,505
Interest expense, net of interest income/1. . . . 11,945 17,652 19,565
Income (loss) before income taxes . . . . . . . . 45,415 32,467 20,940
Provision for (benefit from) income taxes . . . . 21,350 13,000 8,000
Net income (loss) before cumulative effect of
accounting change or extraordinary item . . . . 24,065 19,467 12,940
Cumulative effect of accounting change. . . . . . -- -- --
Extraordinary item. . . . . . . . . . . . . . . . (1,530)/12 -- 2,649/14
---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ 22,535 $ 19,467 $ 15,589
========== ========== ==========
Earnings (loss) per common share:
Net income (loss) before cumulative effect of
accounting change or extraordinary item . . . $1.15 $1.06 $.73
Cumulative effect of accounting change. . . . . -- -- --
Extraordinary item. . . . . . . . . . . . . . . (.07)/12 -- .15/14
----- ----- ----
Net income (loss) . . . . . . . . . . . . . . . $1.08 $1.06 $.88
===== ===== ====
BALANCE SHEET DATA
Total assets. . . . . . . . . . . . . . . . . . . $533,986 $568,531 $538,847
Capitalization:
Long-term debt. . . . . . . . . . . . . . . . . $ 76,874 $130,940 $175,375
Lease obligations . . . . . . . . . . . . . . . 36,093 89,236 89,297
Stockholders' equity. . . . . . . . . . . . . . 186,692 98,395 78,584
-------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . $299,659 $318,571 $343,256
======== ======== ========
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales . . . . . . . . . . . . . . . . . 66.1% 65.6% 63.5%
Food sales. . . . . . . . . . . . . . . . . . . 33.9% 34.4% 36.5%
Total stores sales growth . . . . . . . . . . . . 6.6% 11.2%/13 17.3%/13
Comparable stores sales percentage
increase (decrease)/2 . . . . . . . . . . . . . 4.3% 4.1%/13 4.4%/13
Long-term debt as a percent of
total capitalization. . . . . . . . . . . . . . 37.7% 69.1% 77.1%
Net income (loss) as a percent of net sales . . . 1.3% 1.2% 1.1%
Number of multidepartment and specialty stores
opened during year. . . . . . . . . . . . . . . 1 4 23/15
Number of multidepartment and specialty stores
closed during year. . . . . . . . . . . . . . . 1 1 1
Number of multidepartment and specialty stores
operated at end of year . . . . . . . . . . . . 93 93 90
Total retail square feet at end of year . . . . . 9,738,000 9,536,000 8,919,000
Selling square feet at end of year. . . . . . . . 7,497,000 7,309,000 6,772,000
Sales per selling square foot
(weighted average). . . . . . . . . . . . . . . $228 $228 $226/13
Common shares outstanding (weighted average). . . 20,870,000 18,355,000 17,790,000
- ----------------------------------------------------------------------------------------------------
<FN>
/1 Interest income was $885, $707, $544, $517, $467, $482, $336, $350, $1,679, $2,983, and $3,090.
Excludes interest expense related to occupancy.
/2 Includes only sales of stores operating throughout each of the periods compared.
/3 In 1994, the Company recorded a pretax charge of $15,978 to writedown to their estimated net
realizable value one multidepartment store and three land parcels in California.
/4 Excluding the writedown of California assets of $15,978, income from operations, income before
income taxes, provision for income taxes, net income and earnings per common share would be
$42,292; $27,539; $10,465; $17,074; and $.60, respectively; and net income as a percent of
sales would be .6%.
/5 Includes a nonrecurring LIFO credit of $6,178.
/6 Includes $3,588 from the resolution of an IRS audit, ($2,286) related to the LIFO credit, and
a 38% tax rate.
/7 Effect of adopting Statement of Financial Accounting Standards No. 109 relating to income taxes.
/8 In 1989, the Company took a pretax charge of $49,277 related to closing some of its stores and
for conversion of its management information systems from Honeywell to IBM. In 1991, the Company
reversed $8,289 of this charge based on a decision not to close as many stores as previously
provided for.
/9 Excluding the benefit from the restructuring charge reversal of $8,289 and a charge against
expenses for previously capitalized software development costs of $8,748, income from operations,
net income, and earnings per common share would be $86,756; $45,516; and $1.81, respectively.
/10 Excludes 53rd week in the fiscal year ended February 3, 1990.
/11 Excluding the restructuring charge of $49,277, income from operations, net income, earnings per
common share, and net income as a percent of net sales would be $50,091; $24,197; $.98; and 1.1%,
respectively.
/12 Prepayment costs of $1,530 ($.07 per share) from early extinguishment of 17% Senior and
Subordinated Notes, net of taxes.
/13 Excludes 53rd week in the fiscal year ended February 2, 1985.
/14 Extraordinary gain of $2,649 ($.15 per share) arising from the disposition of a limited
partnership interest in Properties.
/15 Includes 21 nonfood stores acquired from Grand Central, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion summarizes Fred Meyer, Inc.'s (the "Company")
operating results for the fiscal year ended January 28, 1995 ("1994")
compared with the fiscal year ended January 29, 1994 ("1993") and for
1993 compared with the fiscal year ended January 30, 1993 ("1992").
Also included are discussions of the Company's liquidity, capital
resources, effect of LIFO, effect of inflation, recent accounting
changes, stock data, and dividend policy. This discussion and analysis
should be read in conjunction with the Company's consolidated financial
statements.
RESULTS OF OPERATIONS--1994 COMPARED WITH 1993
Net sales for 1994 increased $149,350,000 or 5.0% over 1993. This increase
reflects openings of five full-size multidepartment stores, three jewelry
stores in malls, and the addition of food to four nonfood stores, offset by
the closure of two multidepartment stores and two specialty stores.
Comparable store sales decreased 2.0% for 1994, with food comparable store
sales down 3.0% and nonfood comparable store sales decreasing 1.4%. This
decrease reflects the effect of an 88-day food industry strike in the
greater Portland, Oregon and Vancouver, Washington area, in which the
Company's stores were the only stores picketed, plus strikes at the
Company's Portland area distribution center, trucking operations, dairy and
main office. These labor disputes were all settled early in the fourth
quarter. Excluding the stores affected by the strikes, total comparable
store sales increased 1.5%, with food comparable store sales up 1.7% and
nonfood comparable store sales up 1.3%. Food sales as a percent of net sales
were 38.3% and 37.5%, respectively, for 1994 and 1993. The increase in food
sales as a percent of net sales was primarily due to an increase in the
number of the Company's stores that sell food.
Gross margin as a percent of net sales was 27.7% in 1994 compared with 29.9%
in 1993. This decrease is primarily due to the impact of the strikes and
high markdowns that were taken during the promotional Christmas period.
1993's gross margin was favorably affected by a one-time LIFO credit of
$6,178,000.
Operating and administrative expenses increased 8.2% to $823,742,000 in 1994
from $761,627,000 in 1993, and as a percent of net sales were 26.3% in 1994
compared with 25.6% in 1993. Expenses as a percent of sales increased in the
areas of labor and fixed costs due to lower sales volumes in the stores
affected by the strikes.
The Company recognized a $15,978,000 charge to its 1994 operating results
reflecting its decision to exit the California market except for its two
jewelry locations. The charge represents a writedown of assets to their
estimated realizable value for the assumed sale of the Company's one
multidepartment store and three land parcels in California.
Net interest expense was $14,753,000 for 1994 and $8,246,000 for 1993, an
increase of 78.9%. This increase reflects higher interest rates, and
increased debt due to an increased capital spending plan for accelerated
growth, and the strikes.
The effective tax rate was 38.0% for 1994 and 41.2% for 1993. The
effective tax rate for 1993 was 38.0% when excluding the impact of a tax
settlement.
Net income was $7,168,000 for 1994 and $68,316,000 for 1993. This decrease
is primarily the result of the above-mentioned strikes. Excluding the effect
of the writedown of California assets, 1994 net income was $17,074,000.
RESULTS OF OPERATIONS--1993 COMPARED WITH 1992
Net sales for 1993 increased $125,120,000 or 4.4% over 1992. This increase
reflects sales growth at existing stores, inflation, openings of five
full-size multidepartment stores and two specialty stores in malls, and
adding food to two nonfood stores. This increase was offset by the closure
of two multidepartment stores without food departments and one specialty
store. Comparable store sales increased 2.4% for 1993. Food sales as a
percent of net sales were 37.5% and 36.7%, respectively, for 1993 and 1992.
The increase in food sales as a percent of net sales was primarily due to an
increase in the number of the Company's stores that sell food. Food
comparable store sales increased 3.4% and nonfood comparable store sales
increased 1.9%.
Gross margin as a percent of net sales was 29.9% in 1993 compared with 30.0%
in 1992. The LIFO charge decreased from $4,167,000 in 1992 to $2,890,000 in
1993, primarily as a result of lower inflation rates. Additionally, 1993's
gross margin was favorably affected by a one-time LIFO credit of $6,178,000.
Excluding the effect of this one-time LIFO credit, 1993 gross margin as a
percent of net sales was 29.7%. Gross margins decreased primarily due to
lower nonfood pricing as a result of the Company's expense control efforts,
start-up costs associated with expansion of its soft goods and hardlines
distribution capabilities, and soft apparel sales.
[Graphic Bar Chart
Graph Title: SG&A Expenses as a Percent of Sales
X-Axis Information: 1990-1994
Y-Axis Information: 20-28%
Specific Data Points: 1990 1991 1992 1993 1994
----- ------ ----- ----- ------
27.23 26.76* 26.35 25.57 26.33*
* Excludes nonrecurring items.]
[Graphic Bar Chart
Graph Title: Income from Operations
X-Axis Information: 1990-1994
Y-Axis Information: $0-$125 (dollars in millions)
Specific Data Points: 1990 1991 1992 1993 1994
----- ----- ----- ----- -----
67.5 86.8* 105.1 122.6* 42.3*
* Excludes nonrecurring items.]
[Graphic Bar Chart
Graph Title: Net Income as a Percent of Net Sales
X-Axis Information: 1990-1994
Y-Axis Information: 0.0-2.5%
Specific Data Points: 1990 1991 1992 1993 1994
---- ---- ---- ---- ----
1.4 1.7* 2.1 2.4* 0.6*
* Excludes nonrecurring items.]
Operating and administrative expenses as a percent of net sales decreased to
25.6% in 1993 compared with 26.3% in 1992. This expense ratio decrease was
primarily related to lower store occupancy costs, corporate overhead
expenses, and advertising costs as a percent of net sales. Total operating
and administrative expenses increased 1.3% to $761,627,000 in 1993 from
$752,004,000 in 1992.
Net interest expense was $8,246,000 for 1993 and $8,912,000 for 1992, a 7.5%
decrease. The decrease primarily reflects lower interest rates.
The effective tax rate was 41.2% for 1993 and 37.0% for 1992. This increase
is the result of an accrual of $3,588,000 for amounts related to paid and
anticipated taxes which may be required as a result of the resolution of an
IRS audit, taxes on the one-time LIFO credit, and the higher federal
statutory tax rates applied retroactively from January 30, 1993. Excluding
the impact of the tax audit settlement, the effective tax rate for 1993 was
38.0%.
Before reflecting three nonrecurring accounting adjustments and an
accounting change in 1993, net income increased 17.0% to $70,881,000; and
earnings per share were $2.50 for 1993, assuming a 38% tax rate for 1993
versus 37% in 1992. On a reported basis, net income for 1993 increased 12.8%
to $68,316,000 from $60,587,000 in 1992, after reflecting the accounting
change and three accounting adjustments that resulted in a reduction in net
income of $2,565,000 and $.09 in earnings per share in 1993. Reported
earnings per share were $2.41 for 1993 based on 28,375,000 shares
outstanding, compared with $2.21 for the prior year's period based on
27,446,000 shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company funded its working capital and capital expenditure needs in 1994
through internally generated cash flow, supplemented by borrowings under
committed and uncommitted bank lines of credit and unrated commercial paper.
During 1992, the Company sold 2,000,000 shares of common stock in a public
offering, resulting in net proceeds to the Company of $46,558,000. 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 public offering and
floating rate notes were used to reduce commercial paper borrowings. On
June 1, 1994, the Company issued an aggregate of $57,500,000 of senior notes
to a group of life insurance companies. The notes mature on July 15 of 1999,
2001, 2004, and 2007 and bear interest rates of between 7.25% and 7.98%.
The Company entered into a new credit facility in 1994 with several domestic
and foreign banks for a committed line of credit which provides for
borrowings of up to $400,000,000. This agreement continues through June 30,
1999, at which time the agreement terminates and any outstanding amounts
must be paid in full. In addition to this committed credit facility, the
Company had $45,000,000 of uncommitted money market lines of credit with
several foreign banks and had $130,000,000 of uncommitted money market lines
of credit with banks who are in the committed credit facility. The bank
lines of credit and unrated commercial paper are used primarily for seasonal
inventory requirements, new store construction and financing, existing store
remodeling, acquisition of land, and major projects such as MIS development.
At January 28, 1995 the Company had unrated commercial paper outstanding in
the amount of approximately $324,921,000, borrowings under uncommitted
borrowing facilities of $35,000,000, and a total of approximately
$40,079,000 available for borrowings that would be supported by its
committed credit facilities. On March 6, 1995, the Company entered into a
new 364-day credit facility with several domestic and foreign banks for an
additional committed line of credit which provides for borrowings of up to
$100,000,000. After 364 days, the agreement terminates and any outstanding
amounts must be paid in full unless extended.
The Company has entered into interest rate swap and cap agreements to reduce
the impact of changes in interest rates on its floating rate long-term debt.
At January 28, 1995, the Company had outstanding six interest rate contracts
with commercial banks, having a total notional principal amount of
$100,000,000. Three of these agreements effectively fix the Company's
interest rate on unrated commercial paper, floating rate facilities, and
uncommitted lines of credit at rates between 4.625% and 7.595% on a notional
principal amount of $50,000,000. These contracts expire in 1996, 1997, and
1998. The remaining three agreements effectively limit the maximum interest
rate the Company will pay at rates between 5.0% and 9.0% on notional
principal amounts totaling $50,000,000. These three agreements mature in
1996, 1998 and 1999. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the
counterparties.
[Graphic Bar Chart
Graph Title: Net Earnings Per Common Share
X-Axis Information: 1990-1994
Y-Axis Information: $0.00-$2.50 (in dollars)
Specific Data Points: 1990 1991 1992 1993 1994
---- ----- ---- ----- ----
1.37 1.81* 2.21 2.50* .60*
* Excludes nonrecurring items.]
[Graphic Bar Chart
Graph Title: Stockholders' Equity
X-Axis Information: 1990-1994
Y-Axis Information: $0-$600 (dollars in millions)
Specific Data Points: 1990 1991 1992 1993 1994
----- ----- ----- ----- -----
285.3 335.2 450.1 527.7 538.6]
[Graphic Bar Chart
Graph Title: Store Square Footage at Year-End
X-Axis Information: 1990-1994
Y-Axis Information: 0-15 (square feet in millions)
Specific Data Points: 1990 1991 1992 1993 1994
---- ---- ---- ---- ----
12.2 12.7 12.6 13.4 14.2]
During 1994, the Company opened five new multidepartment stores and closed
two multidepartment stores. Seven stores underwent major remodels, four of
which included the addition of new food departments to previously nonfood
stores. Also in 1994, the Company completed construction of an addition to
its corporate offices and a flow-through retail service center in Chehalis,
Washington to distribute apparel, general merchandise, and music products.
Other capital projects in 1994 included improvements to the main
distribution center, central bakery, and dairy plants and continuation
of the Company's MIS improvement program. The Company began construction of
six additional multidepartment stores, and a new food distribution center
near Seattle, Washington which are scheduled to open in 1995. At least seven
major remodels are planned for completion in 1995, three of which will
include the addition of food departments. The Company believes that a
combination of cash flow from operations and borrowings under its expanded
credit facilities will permit it to finance its capital expenditure
requirements for 1995, budgeted at $257,000,000. If the Company determines
that it is preferable, it may fund its capital expenditure requirements by
mortgaging facilities, entering into sale and leaseback transactions, or by
issuing additional debt or equity.
EFFECT OF LIFO
During each year, the Company estimates annual LIFO expense for the year
based on estimates of three factors: inflation rates (calculated by
reference to the Department Stores Inventory Price Index published by the
Bureau of Labor Statistics for soft goods 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). At year-end, the Company
makes the final adjustment reflecting the difference between the Company's
prior quarterly estimates and actual LIFO expense for the year.
EFFECT OF INFLATION
While management believes that some portion of the increase in sales is due
to inflation, it is difficult to segregate and to measure the effects of
inflation because of changes in the types of merchandise sold year-to-year
and other pricing and competitive influences. By attempting to control costs
and efficiently utilize resources, the Company strives to minimize the
effects of inflation on its operations.
RECENT ACCOUNTING CHANGES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. This Statement requires companies to adjust deferred tax liabilities
and assets for changes in tax rates and other tax law provisions in the
period the new tax law is enacted and to recognize certain deferred tax
liabilities. The Company adopted this accounting standard for its fiscal
year beginning January 31, 1993. As a result of the adoption of this
accounting standard, the Company recorded a charge to earnings of $2,588,000
to provide for book and tax basis differences of certain capital assets,
inventory, and depreciation arising in connection with the Company being
taken private in 1981 and the Company's acquisition of Grand Central, Inc.
in 1984.
COMMON STOCK INFORMATION
The Company's common stock began trading on the New York Stock Exchange
(NYSE) under the symbol "FMY" on September 9, 1992. Prior to that it was
quoted in the NASDAQ National Market System under the symbol "MEYR." At
January 28, 1995, the Company had 1,300 shareholders of record. After
becoming privately held in 1981, the Company began trading publicly after
its initial public offering on October 23, 1986. On April 14, 1992 the
Company increased the number of shares outstanding with the sale of an
additional 2,000,000 shares of its common stock in a public offering, in
addition to 2,000,000 shares sold by a major stockholder. In 1993 a major
stockholder sold 3,450,000 shares in a public offering, including
approximately 505,000 shares resulting from the exercise of a stock option.
The Company has not paid dividends since its incorporation in 1981, and it
is the current policy of the Board of Directors that all available cash flow
be used for reinvestment in the business of the Company and for the
reduction of debt.
Price Ranges of Common Stock
---------------------------------------------------
1994 1993 1992
--------------- ---------------- ---------------
Fiscal Quarter High Low High Low High Low
- ----------------------------------------------------------------------
First $421/2 $355/8 $337/8 $277/8 $291/4 $231/2
Second 383/4 35 355/8 291/4 271/2 223/4
Third 373/8 311/4 37 31 291/2 243/4
Fourth 353/4 291/4 381/2 341/2 337/8 29
- ----------------------------------------------------------------------
[Graphic Bar Chart
Graph Title: Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) as a Percent of Sales
X-Axis Information: 1990-1994
Y-Axis Information: 0.00-7.00%
Specific Data Points: 1990 1991 1992 1993 1994
----- ----- ----- ----- -----
4.40 5.29* 6.44 6.88* 4.70*
* Excludes nonrecurring items.]
[Graphic Bar Chart
Graph Title: Fixed Charge Coverage Ratio
X-Axis Information: 1990-1994
Y-Axis Information: 0.0-2.5
Specific Data Points: 1990 1991 1992 1993 1994
---- ----- ---- ----- -----
1.76 1.84* 2.23 2.44* 1.91*
* Excludes nonrecurring items.]
[Graphic Bar Chart
Graph Title: Long-Term Debt as Percent of Total Capitalization
X-Axis Information: 1990-1994
Y-Axis Information: 0.0-60.0%
Specific Data Points: 1990 1991 1992 1993 1994
---- ---- ---- ---- ----
51.3 47.9 37.2 42.3 52.8
* Excludes nonrecurring items.]
STATEMENTS OF CONSOLIDATED OPERATIONS
Fiscal Year Ended
---------------------------------------
January 28, January 29, January 30,
(In thousands, except per-share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------
Net Sales. . . . . . . . . . . . . . . . . . . . $3,128,432 $2,979,082 $2,853,962
--------------------------------------
Cost of Goods Sold:
General. . . . . . . . . . . . . . . . . . . . . 2,255,732 2,082,989 1,991,187
Related party lease (Note 3) . . . . . . . . . . 5,579 5,579 5,579
Interest related to occupancy (Note 5) . . . . . 1,087 139 110
--------------------------------------
Total cost of goods sold . . . . . . . . . . . . 2,262,398 2,088,707 1,996,876
--------------------------------------
Gross Margin . . . . . . . . . . . . . . . . . . 866,034 890,375 857,086
Operating and Administrative Expenses:
General. . . . . . . . . . . . . . . . . . . . . 754,875 692,354 680,885
Related party leases (Notes 3 and 8) . . . . . . 57,036 57,942 59,876
Interest related to occupancy (Note 5) . . . . . 11,831 11,331 11,243
--------------------------------------
Total operating and administrative expenses. . . 823,742 761,627 752,004
--------------------------------------
Writedown of California Assets (Note 4). . . . . 15,978 -- --
--------------------------------------
Income From Operations . . . . . . . . . . . . . 26,314 128,748 105,082
Interest Expense, Net of interest income of
$885, $707, and $544 . . . . . . . . . . . . . 14,753 8,246 8,912
--------------------------------------
Income Before Income Taxes . . . . . . . . . . . 11,561 120,502 96,170
Provision For Income Taxes (Note 6). . . . . . . 4,393 49,598 35,583
--------------------------------------
Net Income Before Cumulative Effect of
Accounting Change 7,168 70,904 60,587
Cumulative Effect of Accounting Change
(Notes 2 and 6). . . . . . . . . . . . . . . . -- (2,588) --
--------------------------------------
Net Income . . . . . . . . . . . . . . . . . . . $ 7,168 $ 68,316 $ 60,587
========== ========== ==========
Earnings Per Common Share:
Net income before cumulative effect of
accounting change. . . . . . . . . . . . . . . $.25 $2.50 $2.21
Cumulative effect of accounting change . . . . . -- (.09) --
--------------------------------
Net Income . . . . . . . . . . . . . . . . . . . $.25 $2.41 $2.21
==== ===== =====
Weighted Average Number of Common
Shares Outstanding 28,625 28,375 27,446
====== ====== ======
- ----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
ASSETS January 28, January 29,
(In thousands) 1995 1994
- ---------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents. . . . . . . . . . $ 34,868 $ 34,054
Receivables (Note 2) . . . . . . . . . . . . 20,025 19,406
Inventories (Note 2) . . . . . . . . . . . . 514,473 477,568
Prepaid expenses and other . . . . . . . . . 42,092 44,168
Income taxes receivable. . . . . . . . . . . 15,021 --
Current portion of deferred taxes (Note 6) . 15,116 7,828
-----------------------------
Total current assets . . . . . . . . . . . . 641,595 583,024
-----------------------------
Property and Equipment:
Buildings, fixtures and equipment. . . . . . 1,164,953 950,952
Property held under capital leases (Note 8). 18,209 19,818
Land . . . . . . . . . . . . . . . . . . . . 159,393 120,913
-----------------------------
Total property and equipment . . . . . . . . 1,342,555 1,091,683
Less accumulated depreciation
and amortization . . . . . . . . . . . . . 446,116 372,345
-----------------------------
Property and equipment--net. . . . . . . . . 896,439 719,338
-----------------------------
Other Assets:
Goodwill--net (Note 2) . . . . . . . . . . . 5,215 5,523
Other. . . . . . . . . . . . . . . . . . . . 19,423 18,191
-----------------------------
Total other assets . . . . . . . . . . . . . 24,638 23,714
-----------------------------
Total assets . . . . . . . . . . . . . . . . $1,562,672 $1,326,076
========== ==========
- ---------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY January 28, January 29,
(In thousands) 1995 1994
- ---------------------------------------------------------------------------
Current Liabilities:
Outstanding checks (Note 2). . . . . . . . . $ 81,341 $ 72,373
Accounts payable . . . . . . . . . . . . . . 230,703 223,841
Current portion of long-term debt and
lease obligations (Notes 5 and 8). . . . . 1,623 1,749
Income taxes payable . . . . . . . . . . . . -- 18,660
Accrued expenses:
Compensation . . . . . . . . . . . . . . . . 43,119 41,100
Insurance and other. . . . . . . . . . . . . 35,295 32,564
-----------------------------
Total current liabilities. . . . . . . . . . 392,081 390,287
-----------------------------
Long-term Debt (Note 5). . . . . . . . . . . 540,166 321,398
-----------------------------
Capital Lease Obligations (Note 8) . . . . . 13,823 14,895
-----------------------------
Deferred Lease Transactions (Note 8) . . . . 45,655 48,254
-----------------------------
Deferred Income Taxes (Note 6) . . . . . . . 22,258 18,496
-----------------------------
Other Long-term Liabilities
(Notes 8 and 10) . . . . . . . . . . . . . 10,069 5,060
-----------------------------
Commitments and Contingencies (Notes 2,
8, and 12) . . . . . . . . . . . . . . . .
-----------------------------
Stockholders' Equity (Note 7):
Preferred stock, $.01 par value (authorized,
5,000 shares; outstanding, none) . . . . . -- --
Common stock, $.01 par value (authorized,
100,000 shares; issued, 1994--26,858
shares, and 1993--26,705 shares;
outstanding, 1994--26,568 shares, and
1993--26,415 shares) . . . . . . . . . . . 268 267
Additional paid-in capital . . . . . . . . . 197,087 193,719
Unearned compensation. . . . . . . . . . . . (130) (527)
Treasury stock--290 shares . . . . . . . . . (3,896) (3,896)
Retained earnings. . . . . . . . . . . . . . 345,291 338,123
-----------------------------
Total stockholders' equity . . . . . . . . . 538,620 527,686
-----------------------------
Total liabilities and stockholders' equity . $1,562,672 $1,326,076
========== ==========
- ---------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Fiscal Year Ended
---------------------------------------
January 28, January 29, January 30,
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . $ 7,168 $ 68,316 $ 60,587
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment . . . . . . . . . . . . . . . 89,474 70,547 66,958
Writedown of California assets. . . . . . . . 15,978 -- --
Deferred lease transactions . . . . . . . . . (2,599) 3,469 4,768
Deferred income taxes . . . . . . . . . . . . (3,526) (5,708) (189)
Other liabilities . . . . . . . . . . . . . . (347) 721 1,533
Inventories . . . . . . . . . . . . . . . . . (37,358) (51,490) (22,803)
Other current assets. . . . . . . . . . . . . 1,552 71 (16,281)
Accounts payable and accrued expenses . . . . 11,613 37,124 32,854
Income taxes. . . . . . . . . . . . . . . . . (33,681) 3,242 13,687
Other . . . . . . . . . . . . . . . . . . . . 1,766 (8,164) 45
--------------------------------------
Net cash provided by operating activities . . . 50,040 118,128 141,159
--------------------------------------
Cash Flows from Financing Activities:
Proceeds from stock offering. . . . . . . . . . -- -- 45,608
Issuance of other common stock--net . . . . . . 3,369 8,647 8,779
Collection of notes receivable. . . . . . . . . 364 264 1,092
Increase in notes receivable. . . . . . . . . . (213) (1,402) (114)
Increase (decrease) in outstanding checks . . . 8,968 1,962 (11,960)
Long-term financing:
Borrowings. . . . . . . . . . . . . . . . . . 258,871 126,310 2,941
Repayments. . . . . . . . . . . . . . . . . . (40,093) (1,015) (51,761)
--------------------------------------
Net cash provided by (used in)
financing activities. . . . . . . . . . . . . 231,266 134,766 (5,415)
--------------------------------------
Cash Flows from Investing Activities:
Net purchases of investment securities. . . . . (935) (1,745) (3,705)
Purchases of property and equipment . . . . . . (284,193) (253,920) (144,628)
Proceeds from sale of property and equipment. . 4,636 4,941 14,485
--------------------------------------
Net cash used for investing activities. . . . . (280,492) (250,724) (133,848)
--------------------------------------
Net Increase in Cash and Cash Equivalents
for the Year. . . . . . . . . . . . . . . . . 814 2,170 1,896
Cash and Cash Equivalents, Beginning of Year. . 34,054 31,884 29,988
--------------------------------------
Cash and Cash Equivalents, End of Year. . . . . $ 34,868 $ 34,054 $ 31,884
========= ========= ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (including interest capitalized of
$2,520, $1,689, and $406) . . . . . . . . . $31,022 $17,984 $18,193
Income taxes. . . . . . . . . . . . . . . . . 40,757 53,197 21,514
- ----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
Common Stock
------------------- Additional
Number of Paid-in Unearned Treasury Retained
(In thousands) Shares Amount Capital Compensation Stock Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1992. . . . . . . . . . . . 22,918 $232 $130,912 $(1,439) $(3,771) $209,220 $335,154
Issuance/purchase of common stock:
Stock issuance . . . . . . . . . . . . . . . . . 2,000 20 45,588 -- -- -- 45,608
Stock options exercised. . . . . . . . . . . . . 649 6 6,773 -- -- -- 6,779
Stock awards . . . . . . . . . . . . . . . . . . -- -- 2 -- -- -- 2
Stock bonuses/sale . . . . . . . . . . . . . . . 9 1 247 (248) -- -- --
Treasury stock . . . . . . . . . . . . . . . . . (4) -- -- -- (125) -- (125)
Tax benefit from stock options . . . . . . . . . -- -- 1,558 -- -- -- 1,558
Amortization of unearned compensation. . . . . . -- -- -- 565 -- -- 565
Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 60,587 60,587
--------------------------------------------------------------------------------
Balance, January 30, 1993. . . . . . . . . . . . 25,572 259 185,080 (1,122) (3,896) 269,807 450,128
Issuance of common stock:
Stock options exercised. . . . . . . . . . . . . 843 8 7,185 -- -- -- 7,193
Tax benefits from stock options. . . . . . . . . -- -- 1,454 -- -- -- 1,454
Amortization of unearned compensation. . . . . . -- -- -- 595 -- -- 595
Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 68,316 68,316
-------------------------------------------------------------------------------
Balance, January 29, 1994. . . . . . . . . . . . 26,415 267 193,719 (527) (3,896) 338,123 527,686
Issuance of common stock:
Stock options exercised. . . . . . . . . . . . . 153 1 2,611 -- -- -- 2,612
Tax benefits from stock options. . . . . . . . . -- -- 757 -- -- -- 757
Amortization of unearned compensation. . . . . . -- -- -- 397 -- -- 397
Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 7,168 7,168
-------------------------------------------------------------------------------
Balance, January 28, 1995. . . . . . . . . . . . 26,568 $268 $197,087 $(130) $(3,896) $345,291 $538,620
====== ==== ======== ====== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Fred Meyer, Inc., a Delaware corporation, and its subsidiaries (the
"Company") operate a chain of 131 retail stores offering a wide range of
food, products for the home, apparel, fine jewelry, and home improvement
items, with emphasis on necessities and items of everyday use. The stores
are located in Oregon, Washington, Utah, Alaska, Idaho, northern California,
and Montana and include 100 free-standing, multidepartment stores and 31
specialty stores.
On December 11, 1981, the Company and a related newly formed Oregon limited
partnership, Fred Meyer Real Estate Properties, Ltd. whose name was changed
in 1991 to Real Estate Properties Limited Partnership ("Properties")
purchased substantially all of the assets and the business of Fred Meyer,
Inc., an Oregon corporation, and its wholly owned subsidiaries (the
"Predecessor Company"). The Company acquired the operating business and
certain assets and assumed certain liabilities of the Predecessor Company,
and Properties acquired all of the Predecessor Company's interests in real
property and assumed the indebtedness thereon. The Predecessor Company
ceased operations immediately after the sale and the Company began
operations on December 12, 1981.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The accompanying financial statements include
the consolidated accounts of the Company and its subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Fiscal Year--The Company's fiscal year is generally 52 weeks, but
periodically consists of 53 weeks, because the fiscal year ends on the
Saturday closest to January 31. Fiscal years 1994, 1993, and 1992 ended on
January 28, 1995, January 29, 1994, and January 30, 1993, respectively.
Unless otherwise stated, references to years in this report relate to fiscal
years rather than to calendar years.
Segment Reporting--The Company's operations consist of one segment, retail
sales.
Cash and Cash Equivalents--The Company considers all highly liquid debt and
equity instruments purchased with an original maturity of three months or
less to be cash equivalents.
Receivables--Receivables are reported net of allowances for potential
uncollected accounts of $1,255,000 and $632,000 at January 28, 1995 and
January 29, 1994, respectively.
Inventories--Inventories consist principally of items held for sale in its
retail operations and substantially all inventories are stated at the lower
of last-in, first-out (LIFO) cost or market. If the first-in, first-out
method, which approximates replacement cost, had been used in determining
inventory values, they would have been $54,876,000, and $51,675,000 higher
at January 28, 1995 and January 29, 1994, respectively.
Property and Equipment--Property and equipment is stated at cost.
Depreciation on buildings and equipment is provided using the straight-line
method over the estimated useful lives of the related assets of three to 31
years. Amortization of property under capital leases is provided using the
straight-line method over the related lease terms of 24 to 52 years.
Goodwill--Goodwill is being amortized on a straight-line basis over 30
years. Management periodically evaluates the recoverability of goodwill
based upon current and anticipated net income and undiscounted future cash
flows. Accumulated amortization was $4,044,000 and $3,736,000 at January 28,
1995 and January 29, 1994, respectively.
Investment Securities--As of January 28, 1995, the Company adopted SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. SFAS
No. 115 requires the classification of securities at acquisition into one of
three categories: held to maturity, available for sale, or trading. At
January 28, 1995, the carrying value of all debt and equity securities
approximated their aggregate fair value. Debt securities are classified as
held to maturity and are included in Other Assets. Equity securities are
classified as trading securities and are included in Cash and Cash Equivalents.
Outstanding Checks--Checks that have not yet cleared the bank and that are
issued against bank accounts with a zero bank balance are included in
current liabilities.
Pre-opening Costs--All noncapital expenditures incurred in connection with
the opening of new or acquired stores and other facilities or remodeling of
existing stores are expensed as incurred.
Income Taxes--Deferred income taxes are provided for those items included in
the determination of income or loss in different periods for financial
reporting and income tax purposes. Targeted jobs and other tax credits are
recognized in the year realized.
Effective January 31, 1993, the Company adopted SFAS No. 109, Accounting for
Income Taxes. Accordingly, the Company has changed its method of accounting
for income taxes from the deferred method used in prior years to the method
prescribed by SFAS No. 109. Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities. Prior
years' financial statements have not been restated for the accounting change
(see Note 6).
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 the outstanding stock options (ranging in exercise price
from $3.24 to $41.25 per share), which was determined using the treasury
stock method.
Reclassifications--Certain prior year amounts have been reclassified to
conform to current year presentation. The reclassifications have no effect
on reported net income.
3. RELATED-PARTY TRANSACTIONS
At January 28, 1995, the Company leased or subleased, under operating
leases, 24 store locations, and other miscellaneous property from Properties
and its wholly owned subsidiaries, which have certain common ownership with the
Company. Payments under these leases and those terminated during the
year were $19,734,000, $21,290,000, and $23,368,000 in 1994, 1993, and 1992,
respectively. The Company also leases 35 store locations and a distribution
center from an institutional investor, who is a major beneficial shareholder
of the Company's stock. Rents paid to this shareholder on these properties
were $46,070,000, $39,573,000, and $38,476,000 in 1994, 1993, and 1992,
respectively.
Total rents included in operating and administrative expenses for locations
leased or subleased from related parties were based on the average rental
paid during the primary term of the leases. This does not include the
Company's main distribution center, which is included in cost of goods sold.
On October 30, 1992, the Company purchased property totaling $3,000,000 from
Properties and its wholly owned subsidiaries which have certain common
ownership with the Company. Prior to this purchase, the Company paid rent on
this property of $393,000 in 1992.
4. WRITEDOWN OF CALIFORNIA ASSETS
During 1994, the Company incurred a charge of $15,978,000 ($9,906,000 after
a deferred tax benefit of $6,072,000) related to the writedown of certain
assets and other costs associated with the Company's decision to exit the
northern California market except for two mall jewelry locations.
5. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
1994 1993
- -----------------------------------------------------------------------------------------
Commercial paper with maturities through July 1995,
classified as long-term, interest rates of 5.35% to 6.75%
at January 28, 1995. . . . . . . . . . . . . . . . . . . . . . . . $324,921 $160,911
Uncommitted bank borrowings, due January 30, 1995,
interest rates of 5.80% to 5.83% at January 28, 1995 . . . . . . . 35,000 --
Long-term notes secured by trust deeds, due through
2012, fixed interest rates from 9.00% to 9.52% . . . . . . . . . . 43,298 43,943
Long-term notes, unsecured:
Due 1997 through 1998, interest rate is periodically reset,
7.00% at January 28, 1995. . . . . . . . . . . . . . . . . . . . 70,000 70,000
Due 1996, fixed interest rate of 7.74% . . . . . . . . . . . . . . 10,000 10,000
Senior notes, due 1999 through 2007, fixed interest rates
from 7.25% to 7.98%. . . . . . . . . . . . . . . . . . . . . . . . 57,500 --
Zero coupon notes, fixed interest rate of 9.30%. . . . . . . . . . . -- 37,024
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 269
-------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,916 322,147
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . (750) (749)
-------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $540,166 $321,398
======== ========
- -----------------------------------------------------------------------------------------
The Company has the ability to support commercial paper, uncommitted bank
borrowings, and other debt on a long-term basis through its Credit Agreement
and therefore, based upon management's intent, has classified $359,921,000
of these borrowings as long-term debt.
On June 30, 1994, the Company entered into a new expanded Credit Agreement
with Bank of America as agent, which now provides for, among other things:
(1) a revolving credit commitment of $400,000,000 with payment of the unpaid
balance at June 30, 1999; (2) interest at a spread over LIBOR on such
borrowings or various other pricing options; and (3) a facility fee of .15%
of the amount of the commitment. The Agreement requires the maintenance of
specified ratios and restricts the amounts of cash dividends paid. At
January 28, 1995, $2,867,000 of retained earnings was available for payment
of dividends or repurchase of Company stock in the following year, based on
40% of net income for the year ended January 28, 1995.
After year end, the Company entered into a separate, additional bank Credit
Agreement with The Bank of Nova Scotia as agent. The facility provides for
$100,000,000 of additional committed borrowing capacity with an ultimate
maturity in March 1996. This facility may be extended upon request of the
Company and acceptance by the participating banks. The terms and covenants
contained in the facility are substantially similar to those contained in
the $400,000,000 Credit Agreement, but with a facility fee of .12%.
The Company has established uncommitted lines of credit with international
banks for $45,000,000 and has uncommitted bid lines of credit with certain
banks within its committed bank group for $130,000,000. These lines, which
generally have terms of one year, allow the Company to borrow from the banks
at mutually agreed upon rates, usually below the rates offered under the
1994 Credit Agreement. The Company has unrated commercial paper programs
with maturities ranging from one to 270 days in amounts up to a maximum of
$400,000,000. The Company also has available letters of credit lines for
$32,500,000, of which $13,908,000 had been issued at January 28, 1995.
In 1990 and 1991, the Company financed the land and building portions of
three new stores with an insurance company. The notes require regular
payments based on a 25-year amortization and can be called by the insurance
company or repaid by the Company, without premium, after 10 years.
During 1993, the Company placed $70,000,000 of unsecured, five-year notes
with five domestic and international banks. The floating rate notes bear
interest at a spread over LIBOR or other pricing indices at the Company's
option for durations of one month to six months. Interest on the notes is
paid quarterly.
During 1994, the Company placed $57,500,000 of senior notes with several
life insurance companies. The notes become due at various times between 1999
and 2007. Interest is paid semiannually.
The Company has entered into interest rate swap and cap agreements to reduce
the impact of changes in interest rates on its floating rate long-term debt.
At January 28, 1995, the Company had outstanding six interest rate contracts
with commercial banks, having a total notional principal amount of
$100,000,000. Three of these agreements effectively fix the Company's
interest rate on unrated commercial paper, floating rate facilities, and
uncommitted lines of credit at rates between 4.625% and 7.595% on a notional
principal amount of $50,000,000. These contracts expire in 1996, 1997, and
1998. The remaining three agreements effectively limit the maximum interest
rate the Company will pay at rates between 5.0% and 9.0% on notional
principal amounts totaling $50,000,000. These three agreements mature in
1996, 1998, and 1999. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the counterparties.
After 1990, the Company changed its primary method of financing land and
buildings from leasing to ownership. In order to consistently reflect the
financial cost of the investment in real estate under different financial
arrangements, the Company reclassifies interest associated with stores and
distribution centers into the operating and administrative expenses and cost
of goods sold in its financial statements.
Annual estimated long-term debt maturities for the five fiscal years
subsequent to January 28, 1995 are: 1995, $750,000; 1996, $10,793,000; 1997,
$11,366,000; 1998, $60,447,000; 1999, $368,455,000; and thereafter,
$89,105,000.
6. INCOME TAXES
The provision for income taxes includes the following (in thousands):
1994 1993 1992
- -------------------------------------------------------------------------
Current . . . . . . . . . . . . . . . . . . . $7,919 $57,894 $35,772
Deferred. . . . . . . . . . . . . . . . . . . (3,526) (8,296) (189)
--------------------------
Total . . . . . . . . . . . . . . . . . . . . $4,393 $49,598 $35,583
====== ======= =======
- -------------------------------------------------------------------------
A reconciliation between the statutory federal income tax rate to the
provision for income taxes is as follows (in thousands):
1994 1993 1992
- -------------------------------------------------------------------------
Federal income taxes at the statutory rate. . $4,046 $42,176 $32,698
Settlement of certain IRS audits. . . . . . . -- 3,588 --
Deferred income taxes increase in
statutory rate. . . . . . . . . . . . . . . -- 219 --
State income taxes. . . . . . . . . . . . . . 347 3,615 2,885
Targeted jobs and other tax credits . . . . . (1,194) (926) (1,180)
Other, net. . . . . . . . . . . . . . . . . . 1,194 926 1,180
--------------------------
Provision for income taxes. . . . . . . . . . $4,393 $49,598 $35,583
====== ======= =======
- -------------------------------------------------------------------------
As a result of the adoption of SFAS 109, 1993 consolidated net income was
decreased by $2,588,000 (see Note 2).
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 28, 1995 and January 29, 1994 are as follows (in thousands):
1994 1993
- ---------------------------------------------------------------------------
Deferred tax assets:
Capitalized inventory costs . . . . . . . . . . . . $ 6,851 $ 6,332
Accrued expenses. . . . . . . . . . . . . . . . . . 19,328 17,710
Restructuring related charges . . . . . . . . . . . 9,481 4,154
Deferred lease transactions . . . . . . . . . . . . 17,349 18,337
AMT credit. . . . . . . . . . . . . . . . . . . . . 5,110 --
Other . . . . . . . . . . . . . . . . . . . . . . . 7,864 6,860
--------------------
Total deferred tax assets . . . . . . . . . . . . 65,983 53,393
--------------------
Deferred tax liabilities:
Accumulated depreciation. . . . . . . . . . . . . . 50,502 41,712
Prepaid expenses. . . . . . . . . . . . . . . . . . 12,212 12,785
LIFO inventory. . . . . . . . . . . . . . . . . . . 10,411 9,564
--------------------
Total deferred tax liabilities. . . . . . . . . . 73,125 64,061
--------------------
Net deferred income taxes . . . . . . . . . . . . . . $ 7,142 $ 10,668
--------------------
Current deferred income taxes--asset. . . . . . . . . $(15,116) $( 7,828)
Noncurrent deferred income taxes--liability . . . . . 22,258 18,496
--------------------
Net deferred income taxes . . . . . . . . . . . . . . $ 7,142 $ 10,668
======== ========
- ---------------------------------------------------------------------------
In 1992, under the prior method of accounting, the deferred income tax
provision included the following (in thousands):
1992
- ---------------------------------------------------------------
Depreciation. . . . . . . . . . . . . . . . . . . . . $ 3,122
Restructuring charge. . . . . . . . . . . . . . . . . 4,073
Rental expense. . . . . . . . . . . . . . . . . . . . (1,827)
Purchase discounts received in advance. . . . . . . . (1,177)
Computer system development costs capitalized . . . . (6,516)
Other . . . . . . . . . . . . . . . . . . . . . . . . 2,136
-------
Total deferred income tax benefit . . . . . . . . . . $ (189)
=======
- ---------------------------------------------------------------
7. STOCKHOLDERS' EQUITY
Stock Incentive Plans--At January 28, 1995, 2,373,015 shares of common stock
were reserved for issuance to employees, including officers and directors,
and nonemployee agents, consultants, and advisors, under stock incentive
plans. These plans provide for the granting of incentive stock options,
nonqualified stock options, stock bonuses, stock appreciation rights, cash
bonus rights, and performance units.
Under the terms of the plans, the option price is determined by the Board of
Directors at the time the option is granted. The option price for incentive
stock options cannot be less than the fair value of the Company's stock on
the day prior to the date of grant. Nonqualified stock options may not be
granted at less than 50% of the fair value on the day prior to the date of
grant.
Stock Options--Activity under the plans was as follows (in thousands, except
per share data):
Option Price
(Market Price at Date of Grant)
----------------------------------
Shares Per Share Total
- -----------------------------------------------------------------------------------
Shares under option:
Balance, January 30, 1993. . . . . . . . . . . 1,825 $12.125-30.875 $34,331
Options granted. . . . . . . . . . . . . . . 706 30.625-36.750 23,265
Options exercised. . . . . . . . . . . . . . (339) 12.125-27.250 (5,856)
Options cancelled. . . . . . . . . . . . . . (39) 12.125-32.750 (1,089)
----- -------
Balance, January 29, 1994. . . . . . . . . . . 2,153 12.125-36.750 50,651
Options granted. . . . . . . . . . . . . . . 404 29.625-41.250 14,629
Options exercised. . . . . . . . . . . . . . (152) 12.125-32.750 (2,612)
Options cancelled. . . . . . . . . . . . . . (47) 14.250-41.250 (1,611)
----- -------
Balance, January 28, 1995. . . . . . . . . . . 2,358 12.125-41.250 $61,057
===== =======
Shares exercisable, January 28, 1995 . . . . 1,315 12.125-36.750
Shares available for option:
January 29, 1994 . . . . . . . . . . . . . . . 372
January 28, 1995 . . . . . . . . . . . . . . . 15
- ------------------------------------------------------------------------------------
Other Option--The Company's principal stockholder, FMI Associates, holds an
option, which expires in 1996, that initially allowed for a purchase of up
to 2,364,300 shares of the Company's common stock at $3.24 per share for an
aggregate of $7,668,000. In 1992, 292,792 shares were exercised, resulting
in a balance of 2,071,508 shares for an aggregate of $6,718,404. In 1993,
505,067 shares were exercised, resulting in a balance of 1,566,441 shares
for an aggregate of $5,080,349. No shares under the option were exercised
in 1994.
Management Bonus--In 1992, the Company awarded a stock bonus to a corporate
officer for 5,000 shares totaling $124,000. Shares issued vest annually over
five years.
Nonemployee Directors Stock Compensation Plan--In 1992, the Company
purchased 4,016 shares of its common stock at market prices for the benefit
of two of its nonemployee directors in lieu of a portion of current and
future board of director fee payments. The shares total $125,000 and vest
annually over five years.
8. LEASES
The Company leases or subleases a substantial portion of the real property
used in its operations.
At October 22, 1986, the leases and subleases for a distribution center, 71
store locations, and certain other properties were amended and restated to
provide, among other things, an initial lease term of 20 years for 36
locations (with cash rents of $38,476,000 for the first seven years and
$46,070,000 for the remaining 13 years). The average rent over the primary
lease term is charged to rent expense.
As a result of the above transaction: (1) five previously capitalized leases
qualified as operating leases, resulting in a decrease in property held
under capital leases and capital lease obligations of $53,678,000 and
$72,160,000 respectively, with the resulting $18,482,000 gain deferred and
amortized over the 20-year lease period; and (2) the difference between the
amount of the cash rent paid and the expense charged to operations on the 36
locations described above is included in deferred lease transactions.
In 1992, the Company amended leases for nine store locations, with cash rent
escalating over the term of the leases. The difference between cash rent
paid and the expense charged to operations is included in deferred lease
transactions. The average rent over the primary lease term, which is lower
than the prior rents paid, is charged to rent expense.
At January 28, 1995, deferred lease transactions consisted of $10,856,000
unamortized gain on capital leases, $33,971,000 of excess of rent expense
over cash rents for the aforementioned leases, and unamortized deferred gain
on a sale-leaseback transaction of $828,000.
The lease terms of certain operating leases require the payment of executory
costs such as property taxes, utilities, insurance, and maintenance. Certain
leases provide for percentage rents. Portions of the properties are
subleased to others for periods of from one to 20 years.
At January 28, 1995, minimum rentals under noncancelable leases for future
fiscal years were (in thousands):
Operating Capitalized Less Net
Fiscal Year Leases Leases Subleases Rentals
- -------------------------------------------------------------------------------------------
1995. . . . . . . . . . . . . . . . . . $ 82,826 $ 1,808 $ 6,856 $ 77,778
1996. . . . . . . . . . . . . . . . . . 78,106 1,808 4,912 75,002
1997. . . . . . . . . . . . . . . . . . 76,498 1,848 4,125 74,221
1998. . . . . . . . . . . . . . . . . . 74,878 1,969 3,058 73,789
1999. . . . . . . . . . . . . . . . . . 73,693 1,969 2,319 73,343
2000 and thereafter . . . . . . . . . . 615,004 30,800 16,699 629,105
---------- ------- ------- ----------
Total . . . . . . . . . . . . . . . . . $1,001,005 40,202 $37,969 $1,003,238
========== ======= ==========
Less imputed interest . . . . . . . . . (26,272)
-------
Present value of minimum
rental payments . . . . . . . . . . . 13,930
Less current portion. . . . . . . . . . (107)
-------
Capitalized lease obligations . . . . . $13,823
=======
- -------------------------------------------------------------------------------------------
As of January 28, 1995, the leases for nine store locations and certain
equipment were accounted for as capital leases. The amounts representing
interest expense on these capital lease obligations were included in
operating and administrative expenses and were $1,848,000, $2,112,000, and
$2,261,000 in 1994, 1993, and 1992, respectively.
Accumulated amortization of property under capital leases was $6,098,000,
$6,072,000, and $7,708,000 at January 28, 1995, January 29, 1994, and
January 30, 1993, respectively.
Rent expense under operating leases including executory costs, and payments
under capital leases were as follows (in thousands):
1994 1993 1992
- ---------------------------------------------------------------------------------------
Gross rent expense. . . . . . . . . . . . . . . . $101,163 $104,892 $113,894
Rent income from subleases. . . . . . . . . . . . (12,803) (11,582) (10,332)
------------------------------------
Net rent expense. . . . . . . . . . . . . . . . . 88,360 93,310 103,562
Payments under capital leases . . . . . . . . . . 1,947 2,178 2,370
------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . $ 90,307 $ 95,488 $105,932
======== ======== ========
- ---------------------------------------------------------------------------------------
Included in gross rent expense for 1994, 1993 and 1992 were contingent rents
of $1,421,000, $1,650,000, and $1,845,000, respectively.
In 1989, the Company incurred a restructuring charge in connection with
management's decision to replace or close certain stores and to convert the
Company's MIS hardware from Honeywell to IBM. The decision to close certain
stores was subsequently reassessed by management, and in 1991 revisions were
made to the amounts accrued. At January 28, 1995, included in other
long-term liabilities, were future net rentals under noncancelable leases
for closed stores and for outdated computer hardware as follows (in thousands):
Less
Estimated Estimated
Subleases/ Net
Fiscal Year Leases Discounts Rentals
- -------------------------------------------------------------------------
1995. . . . . . . . . . . . . . . . . . $ 1,590 $ 824 $ 766
1996. . . . . . . . . . . . . . . . . . 1,492 824 668
1997. . . . . . . . . . . . . . . . . . 1,344 830 514
1998. . . . . . . . . . . . . . . . . . 1,344 830 514
1999. . . . . . . . . . . . . . . . . . 1,332 830 502
2000 and thereafter . . . . . . . . . . 7,441 5,889 1,552
------- ------- ------
Total . . . . . . . . . . . . . . . . . $14,543 $10,027 $4,516
======= ======= ======
9. EMPLOYEE BENEFIT PLANS
Employees' Profit-sharing Plan--Profit-sharing contributions under this
Plan, which covers the Company's nonunion employees, are made to a trust
fund held by a third-party trustee. Contributions are based on the Company's
pretax income, as defined, at rates determined by the Board of Directors and
are not to exceed amounts deductible under applicable provisions of the
Internal Revenue Code. In 1994, the Company added a 1% basic contribution to
all eligible employees' accounts each year subject to normal plan vesting.
The Company expensed $5,891,000, $3,944,000, and $3,248,000 in 1994, 1993,
and 1992, respectively for these contributions.
Multi-employer Pension Plan--The Company contributes to multi-employer
pension plan trusts at specified rates in accordance with collective
bargaining agreements. Contributions to the trusts were $8,498,000,
$9,667,000, and $9,157,000 in 1994, 1993, and 1992, respectively. The
Company's relative positions in these plans with respect to the actuarial
present value of the accumulated benefit obligation and the projected
benefit obligation, net assets available for benefits, and the assumed rates
of return used by the plans are not determinable.
Employee Stock Purchase Plan--In April 1992, the Company implemented a
noncontributory employee stock purchase plan. The plan allows employees to
purchase stock in the Company via payroll deductions. The Company pays all
brokerage fees associated with the purchase of the stock. The plan is
available to all employees over age 18 who have completed six months of
continuous employment with the Company.
Supplemental Retirement Program--In January 1994, the Company implemented a
supplemental retirement program for senior management, selected vice
presidents, and selected key individuals. Program provisions are as follows:
Senior Management--The plan is funded with life insurance contracts on the
lives of the participants. The Company is the owner of the contracts and
makes annual contributions of $25,000 per participant. Total contributions
were $325,000 in 1994 and 1993. Retirement age under the plan is normally 62
with an alternative age of 65, at which point the Company will make 15
annual benefit payments to the executive.
Selected Vice Presidents and Selected Key Individuals--The Company will
contribute annually a percentage of each participant's gross salary. The
plan is funded with life insurance contracts on participants 54 years old
and younger and variable annuity contracts for participants 55 years old and
older. Each participant is the owner of his/her respective contract.
10. OTHER POSTRETIREMENT BENEFITS
For employees who qualified prior to January 1, 1994, the Company sponsored
a retiree health plan for postretirement health care coverage with
eligibility requirements and benefits varying by region of the Company.
Under this plan, the Company contributes 100% of the premiums for retired
salaried employees qualifying under eligibility requirements which specify
minimum age and years of continuous service at age 60 with 25 years of
service, age 62 with 20 years of service, and age 65 with 15 years of service.
For retired salaried and hourly employees between the ages of 62 to 65 years
and having completed minimum continuous service of 15 years, the retiree
pays premiums at current employee rates.
As of January 1, 1994, the Company changed the eligibility requirements and
benefits available under the retiree health plan. For all salaried and
non-union hourly employees in all regions who retire after January 1, 1994,
eligibility requirements changed to a minimum of 60 years of age with 10
years of continuous service. Under the revised plan, the retiree pays
premiums at current employee rates.
The following table sets forth the plan's funded status, reconciled with the
amount shown in the Company's balance sheet:
January 28, 1995 January 29, 1994
- -------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Current retirees. . . . . . . . . . . . . . . . . $ 1,231,478 $ 1,415,454
Fully eligible plan participants. . . . . . . . . 656,973 715,869
Other active plan participants. . . . . . . . . . 2,331,405 2,902,136
-----------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets. . . . . . . . . . . . . 4,219,856 5,033,459
Unrecognized transition obligation,
transition date 1/31/93 and 2/1/92. . . . . . . . (1,420,100) (1,503,635)
Unrecognized prior service cost . . . . . . . . . (366,138) (407,792)
Unrecognized net gain/(loss). . . . . . . . . . . 657,774 (841,184)
-----------------------------------
Accrued postretirement benefit cost . . . . . . . $ 3,091,392 $ 2,280,848
===================================
Net periodic postretirement benefit cost included
the following components:
Service cost--benefits attributed to service
during the period . . . . . . . . . . . . . $353,305 $297,804
Interest cost on accumulated postretirement
benefit obligation. . . . . . . . . . . . . 372,483 462,477
Amortization of transition obligation
over 20 years . . . . . . . . . . . . . . . 125,189 125,783
Amortization of unrecognized loss . . . . . . 27,897 25,551
-----------------------------------
Net periodic postretirement benefit cost. . . . . $878,874 $911,615
===================================
- -------------------------------------------------------------------------------------
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were as follows:
Under Medicare Retirement Age--8% for one year, then grading down to 4.5%
over the next seven years
Medicare Retirement Age and Over--7% for one year, then grading down to 4.5%
over the next five years
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of January 28, 1995 and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for 1994 as follows:
- ------------------------------------------------------------------------------
Increase in accumulated postretirement benefit obligation. . . . . . $707,931
Increase in service and interest costs . . . . . . . . . . . . . . . 154,060
- ------------------------------------------------------------------------------
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8%.
11. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Company using available market information and valuation methodologies as
shown below. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could actually realize.
Management is not aware of any factors that would significantly change the
estimated fair value amounts shown below. A comprehensive revaluation for
purposes of these financial statements has not been performed since
January 28, 1995, and current estimates of fair value may differ from the
amounts presented herein. There are no financial instruments that
potentially subject the Company to concentrations of credit risk.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
January 28, 1995
--------------------
Carrying Estimated
Amount Fair Value
- ------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 34,868 $ 34,868
Receivables. . . . . . . . . . . . . . . . . . . . . . 20,025 20,025
Prepaid expenses and other . . . . . . . . . . . . . . 42,092 42,092
Other long-term assets . . . . . . . . . . . . . . . . 19,423 19,370
Financial liabilities:
Outstanding checks . . . . . . . . . . . . . . . . . . 81,341 81,341
Accounts payable . . . . . . . . . . . . . . . . . . . 230,703 230,703
Long-term debt and interest rate agreements. . . . . . 540,916 539,068
- ------------------------------------------------------------------------------
Cash and Cash Equivalents, Receivables, Prepaid Expenses and Other--The
carrying amounts of these items are a reasonable estimate of their fair
value.
Other Long-term Assets--The fair value of debt and equity investments
(primarily municipal securities) is estimated using quoted market prices.
Outstanding Checks and Accounts Payable--The carrying amounts of these items
are a reasonable estimate of their fair value.
Long-term Debt and Interest Rate Agreements--The fair value of notes,
mortgages, and real estate assessments payable is estimated by discounting
expected future cash flows. The discount rate used is the rate currently
available to the Company for issuance of debt with similar terms and
remaining maturities. For commercial paper and bid lines of credit under the
revolving credit agreement (see Note 5), the carrying amounts are a
reasonable estimate of their fair value.
The fair value of interest rate swap and cap agreements is the estimated
amount at which they could be settled. At January 28, 1995, the Company
could settle these agreements for a $3,851,000 gain, which is included in
the estimated fair value of long-term debt.
12. 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.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1994 Fiscal Quarters 1993 Fiscal Quarters
(In thousands, except -------------------------------------------- ---------------------------------------------
per-share data) Fourth Third Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales . . . . . . . . . . . . . $831,997 $626,804 $737,284 $932,347 $807,777 $644,527 $674,719 $852,059
Gross margin. . . . . . . . . . . . 220,508/1 152,358 221,733 271,435 247,492/3 189,897 206,863/4 246,123
Income (loss) from operations . . . 18,511/1 (54,799)/2 33,746 28,856 50,775/3 17,900 35,567/4 24,506
Net income (loss) before cumulative
effect of accounting change . . . 8,568/1 (36,579)/2 19,193 15,986 30,034/3 9,897 16,962/4,5 14,011
Cumulative effect of accounting
change. . . . . . . . . . . . . . -- -- -- -- -- -- -- (2,588)/6
Net income (loss) . . . . . . . . . 8,568/1 (36,579)/2 19,193 15,986 30,034/3 9,897 16,962/4,5 11,423/6
======== ======= ========= ======== ======== ======== ======== ========
Earnings (loss) per common share:
Net income (loss) before cumulative
effect of accounting change . . . $.30/1 $(1.28)/2 $.67 $.56 $1.05/3 $.35 $.60/4,5 $ .50
Cumulative effect of accounting
change. . . . . . . . . . . . . . -- -- -- -- -- -- -- (.09)/6
---- ------ ---- ---- ----- ---- ---- -----
Net income (loss) . . . . . . . . . $.30/1 $(1.28)/2 $.67 $.56 $1.05/3 $.35 $.60/4,5 $ .41/6
==== ====== ==== ==== ===== ==== ==== =====
Weighted average number of shares
outstanding . . . . . . . . . . . 28,510 28,556 28,676 28,725 28,571 28,495 28,338 28,165
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
/1 The LIFO adjustment in the fourth quarter of 1994 increased gross margin
and income from operations by $2,549; net income by $1,580; and earnings
per common share by $.06.
/2 The writedown of California assets in the third quarter of 1994
decreased income from operations by $15,978; net income by $9,906;
and earnings per common share by $.35.
/3 The LIFO adjustment in the fourth quarter of 1993 increased gross margin
and income from operations by $4,493; net income by $2,786; and earnings
per common share by $.10.
/4 In the second quarter of 1993, a change in the LIFO computation
increased gross margin by $6,178; net income by $3,892; and earnings
per common share by $.14.
/5 In the second quarter of 1993, resolution of certain IRS audits and a
charge for recently enacted federal statutory tax rates, applied
retroactively to January 31, 1993, decreased net income by $4,368 and
earnings per common share by $.15.
/6 In the first quarter of 1993, the Company adopted SFAS No. 109 which
decreased net income by $2,588 and earnings per common share by $.09.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Fred Meyer, Inc. has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity.
The statements were prepared in accordance with generally accepted
accounting principles. The financial statements include amounts that are
based on management's best estimates and judgments. Management also prepared
other information in the annual report and is responsible for its accuracy
and consistency with the financial statements.
The Company's financial statements have been audited by Deloitte & Touche
LLP, independent auditors. Management has made available to Deloitte &
Touche LLP all the Company's financial records and related data, as well as
the minutes of shareholders' and directors' meetings.
Management has established and maintains an internal control structure that
provides reasonable assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial
reporting. The internal control structure provides for the appropriate
division of responsibility, which is monitored for compliance.
The Company maintains an internal auditing program that assesses the
effectiveness of the internal control structure and recommends improvements.
Deloitte & Touche LLP also considered the internal control structure in
connection with its audit. Management has considered the internal auditors'
and Deloitte & Touche LLP's recommendations concerning the Company's
internal control structure and has taken the appropriate actions to respond
to these recommendations.
The Company's principles of business conduct address, among other things,
potential conflicts of interests and compliance with laws, including those
relating to financial disclosure and the confidentiality of proprietary
information.
The Board of Directors pursues its responsibility for the quality of the
Company's financial reporting primarily through its Audit Committee, which
is comprised of outside directors. The Audit Committee meets approximately
three times a year with management, the corporate internal audit manager,
and the independent auditors to ensure that each is meeting its
responsibilities and to discuss matters concerning internal controls and
accounting and financial reporting. The corporate internal audit manager and
independent auditors have unrestricted access to the Audit Committee.
KENNETH THRASHER
Kenneth Thrasher
Senior Vice President, Finance and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Fred Meyer, Inc.:
We have audited the accompanying consolidated balance sheets of Fred Meyer,
Inc. and subsidiaries as of January 28, 1995 and January 29, 1994, and the
related statements of consolidated operations, changes in consolidated
stockholders' equity, and consolidated cash flows for each of the three
fiscal years in the period ended January 28, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Fred Meyer, Inc. and
subsidiaries at January 28, 1995 and January 29, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended January 28, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in the fiscal year
ended January 29, 1994.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Portland, Oregon
March 6, 1995
DIRECTORS
Saul A. Fox/3 (41, 1986)*
General Partner,
Kohlberg Kravis Roberts & Co.
San Francisco, California
A.M. Gleason/1 (64, 1992)
Vice Chairman of the Board
PacifiCorp (diversified public utility)
Portland, Oregon
Jerome Kohlberg, Jr. (69, 1981)
General Partner,
Kohlberg & Co.
New York, New York
Roger S. Meier/1,2,3 (69, 1985)
President,
AMCO, Inc. (investment enterprise)
Portland, Oregon
Michael W. Michelson/2,3 (43, 1981)
General Partner,
Kohlberg Kravis Roberts & Co.
San Francisco, California
Robert G. Miller/2 (50, 1991)
Chairman of the Board and
Chief Executive Officer
Fred Meyer, Inc.
Portland, Oregon
Paul E. Raether (48, 1986)
General Partner,
Kohlberg Kravis Roberts & Co.
New York, New York
/1 Audit Committee
/2 Executive Committee
/3 Compensation Committee
* Age as of March 1, 1995 and year joined Board
MANAGEMENT COMMITTEE
Robert G. Miller (50, 1991)*
Chairman of the Board and
Chief Executive Officer
Cyril K. Green (63, 1947)
President and Chief Operating Officer
R. Eric Baltzell (54, 1962)
Senior Vice President, Stores
Roger A. Cooke (46, 1992)
Senior Vice President, General Counsel
and Secretary
Edward A. Dayoob (55, 1973)
Senior Vice President, Jewelry Group
Curt A. Lerew, III (47, 1991)
Senior Vice President, Food Group
Keith W. Lovett (51, 1992)
Senior Vice President, Human Resources
Ronald J. McEvoy (47, 1991)
Senior Vice President,
Chief Information Officer
Norman O. Myhr (47, 1978)
Senior Vice President, Sales Promotion
and Marketing
Cheryl D. Perrin (56, 1976)
Senior Vice President, Public Affairs
Mary F. Sammons (48, 1973)
Senior Vice President, General Group
Kenneth Thrasher (45, 1982)
Senior Vice President, Finance and
Chief Financial Officer
Scott L. Wippel (41, 1992)
Senior Vice President, Corporate Facilities
* Age as of March 1, 1995 and year joined Fred Meyer
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders will be held at 1:00 p.m. on Tuesday,
June 27, 1995 at the Red Lion Inn (East), Jantzen Beach, 909 N. Hayden
Island Drive, Portland, Oregon.
Stock Listing
Fred Meyer, Inc.'s common stock is traded on the New York Stock Exchange
(NYSE). The ticker symbol is FMY and the Dow Jones newspaper quotation is
under FredMeyer or FrMeyer.
Form 10-K
A copy of the company's Form 10-K, as filed with the Securities and Exchange
Commission, may be obtained at no cost by writing: Shareholder Relations,
Fred Meyer, Inc., P.O. Box 42121, Portland, Oregon 97242.
Independent Auditors
Deloitte & Touche LLP
Portland, Oregon
Transfer Agent and Registrar
Chemical Trust Company of California
Securityholder Relations Department
50 California Street, 10th Floor
San Francisco, California 94111
Toll-free telephone: 1-800-647-4273