16
EXHIBIT 13
SELECTED FINANCIAL DATA
Fiscal Year Ended
------------------------------------------------------------------
(In thousands, except per-share January 29, January 30, February 1, February 2,
data and statistical information) 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Net sales. . . . . . . . . . . . . . . . . $2,979,082 $2,853,962 $2,702,721 $2,476,055
Gross margin . . . . . . . . . . . . . . . 890,375/1 857,086 809,900 741,720
Operating and administrative expenses. . . 761,627 752,004 731,892 674,212
Restructuring charge (reversal). . . . . . -- -- (8,289) --
Income from operations . . . . . . . . . . 128,748/1 105,082 86,297/6 67,508
Interest expense, net of interest income/2 8,246 8,912 15,302 15,974
Income (loss) before income taxes. . . . . 120,502 96,170 70,995 51,534
Income tax expense (benefit) . . . . . . . 49,598/3 35,583 25,768 17,951
Net income (loss) before accounting
change or extraordinary item . . . . . . 70,904/3 60,587 45,227/6 33,583
Effect of an accounting change . . . . . . (2,588)/4 -- -- --
Extraordinary item . . . . . . . . . . . . -- -- -- --
--------- ---------- ---------- ----------
Net income (loss). . . . . . . . . . . . . $ 68,316 $ 60,587 $ 45,227/6 $ 33,583
========= ========== ========== ==========
Earnings (loss) per common share:
Net income (loss) before accounting
change or extraordinary item. . . . . $2.50 $2.21 $1.80/6 $1.37
Effect of accounting change. . . . . . . (.09)/4 -- -- --
Extraordinary item . . . . . . . . . . . -- -- -- --
----- ----- ----- -----
Net income (loss). . . . . . . . . . . . $2.41 $2.21 $1.80/6 $1.37
===== ===== ===== =====
BALANCE SHEET DATA
Total assets . . . . . . . . . . . . . . . $1,318,782 $1,079,103 $ 972,794 $ 905,756
---------- ---------- ---------- ----------
Capitalization:
Long-term debt . . . . . . . . . . . . . $ 321,398 $ 195,837 $ 240,968 $ 232,881
Lease obligations. . . . . . . . . . . . 65,955 70,313 67,387 67,664
Stockholders' equity . . . . . . . . . . 527,686 450,128 335,154 285,299
---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . $ 915,039 $ 716,278 $ 643,509 $ 585,844
========== ========== ========== ==========
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales. . . . . . . . . . . . . . 62.5% 63.3% 63.7% 64.3%
Food sales . . . . . . . . . . . . . . . 37.5% 36.7% 36.3% 35.7%
Total stores sales growth. . . . . . . . . 4.4% 5.6% 9.2% 11.6%/8
Comparable stores sales percentage
increase/5. . . . . . . . . . . . . . . . 2.4% 3.0% 4.0% 3.6%/8
Long-term debt as a percent of total
capitalization . . . . . . . . . . . . . 42.3% 37.2% 47.9% 51.3%
Net income (loss) as a percent of
net sales. . . . . . . . . . . . . . . . 2.3% 2.1% 1.7% 1.4%
Number of stores opened during year. . . . 7 6 3 5
Number of stores closed during year. . . . 3 5 3 8
Number of stores operated at end of year . 127 123 122 122
Total retail square feet at end of year. . 13,423,000 12,646,000 12,679,000 12,213,000
Selling square feet at end of year . . . . 9,999,000 9,471,000 9,657,000 9,361,000
Sales per selling square foot
(weighted average) . . . . . . . . . . . $312 $304 $283 $269
Common shares outstanding (weighted
average) . . . . . . . . . . . . . . . . 28,375,000 27,446,000 25,182,000 24,500,000
- - ------------------------------------------------------------------------------------------------------------
/TABLE
17
SELECTED FINANCIAL DATA (continued)
Fiscal Year Ended
-----------------------------------------------------------------
(In thousands, except per-share February 3, January 28, January 30, January 31,
data and statistical information) 1990 1989 1988 1987
- - -----------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Net sales. . . . . . . . . . . . . . . . . $2,284,535 $2,073,544 $1,847,843 $1,688,208
Gross margin . . . . . . . . . . . . . . . 671,044 610,415 547,157 487,829
Operating and administrative expenses. . . 620,953 544,225 485,822 430,469
Restructuring charge (reversal). . . . . . 49,277 -- -- --
Income from operations . . . . . . . . . . 814/7 66,190 61,335 57,360
Interest expense, net of interest income/2 13,947 9,291 7,449 11,945
Income (loss) before income taxes. . . . . (13,133) 56,899 53,886 45,415
Income tax expense (benefit) . . . . . . . (6,285) 20,238 21,850 21,350
Net income (loss) before accounting
change or extraordinary item . . . . . . (6,848)/7 36,661 32,036 24,065
Effect of an accounting change . . . . . . -- -- -- --
Extraordinary item . . . . . . . . . . . . -- -- -- (1,530)/9
--------- --------- ---------- ----------
Net income (loss). . . . . . . . . . . . . $ (6,848)/7 $ 36,661 $ 32,036 $ 22,535
========= ========= ========== ==========
Earnings (loss) per common share to:
Net income (loss) before accounting
change or extraordinary item. . . . . $(.28)/7 $1.50 $1.31 $1.15
Effect of accounting change. . . . . . . -- -- -- --
Extraordinary item . . . . . . . . . . . -- -- -- (.07)/9
----- ----- ----- -----
Net income (loss). . . . . . . . . . . . $(.28)/7 $1.50 $1.31 $1.08
===== ===== ===== =====
BALANCE SHEET DATA
Total assets . . . . . . . . . . . . . . . $ 796,894 $ 686,806 $ 626,522 $ 533,986
--------- ---------- ---------- ----------
Capitalization:
Long-term debt . . . . . . . . . . . . . $ 188,441 $ 92,180 $ 87,730 $ 76,874
Lease obligations. . . . . . . . . . . . 66,393 50,774 46,904 36,093
Stockholders' equity . . . . . . . . . . 251,546 258,188 221,056 186,692
--------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . $ 506,380 $ 401,142 $ 355,690 $ 299,659
========== ========== ========== ==========
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales. . . . . . . . . . . . . . 66.8% 68.2% 67.6% 66.1%
Food sales . . . . . . . . . . . . . . . 33.2% 31.8% 32.4% 33.9%
Total stores sales growth. . . . . . . . . 8.4%/8 12.2% 9.5% 6.6%
Comparable stores sales percentage
increase/5. . . . . . . . . . . . . . . . 4.5%/8 7.9% 6.6% 4.3%
Long-term debt as a percent of total
capitalization . . . . . . . . . . . . . 50.3% 35.6% 37.9% 37.7%
Net income (loss) as a percent of
net sales. . . . . . . . . . . . . . . . (.3)%/7 1.8% 1.7% 1.3%
Number of stores opened during year. . . . 15 14 8 1
Number of stores closed during year. . . . 2 1 2 1
Number of stores operated at end of year . 125 112 99 93
Total retail square feet at end of year. . 11,743,000 10,925,000 10,494,000 9,738,000
Selling square feet at end of year . . . . 9,056,000 8,388,000 8,064,000 7,497,000
Sales per selling square foot
(weighted average) . . . . . . . . . . . $261/8 $253 $239 $228
Common shares outstanding (weighted
average) . . . . . . . . . . . . . . . . 24,801,000 24,470,000 24,403,000 20,870,000
- - -----------------------------------------------------------------------------------------------------------
17
SELECTED FINANCIAL DATA (continued)
Fiscal Year Ended
-----------------------------------------------
(In thousands, except per-share February 1, February 2, January 28,
data and statistical information) 1986 1985 1984
- - -----------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Net sales. . . . . . . . . . . . . . . . . $1,583,796 $1,449,108 $1,213,992
Gross margin . . . . . . . . . . . . . . . 447,960 395,419 336,677
Operating and administrative expenses. . . 397,841 354,914 293,864
Restructuring charge (reversal). . . . . . -- -- --
Income from operations . . . . . . . . . . 50,119 40,505 42,813
Interest expense, net of interest income/2 17,652 19,565 18,020
Income (loss) before income taxes. . . . . 32,467 20,940 24,793
Income tax expense (benefit) . . . . . . . 13,000 8,000 10,000
Net income (loss) before accounting
change or extraordinary item . . . . . . 19,467 12,940 14,793
Effect of an accounting change . . . . . . -- -- --
Extraordinary item . . . . . . . . . . . . -- 2,649/10 --
--------- --------- ----------
Net income (loss). . . . . . . . . . . . . $ 19,467 $ 15,589 $ 14,793
========= ========= ==========
Earnings (loss) per common share to:
Net income (loss) before accounting
change or extraordinary item. . . . . $1.06 $.73 $.86
Effect of accounting change. . . . . . . -- -- --
Extraordinary item . . . . . . . . . . . -- .15/10 --
----- ----- -----
Net income (loss). . . . . . . . . . . . $1.06 $.88 $.86
===== ===== =====
BALANCE SHEET DATA
Total assets . . . . . . . . . . . . . . . $ 568,531 $ 538,847 $ 420,379
---------- ---------- ----------
Capitalization:
Long-term debt . . . . . . . . . . . . . $ 130,940 $ 175,375 $ 124,964
Lease obligations. . . . . . . . . . . . 89,236 89,297 70,340
Stockholders' equity . . . . . . . . . . 98,395 78,584 62,965
---------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $ 318,571 $ 343,256 $ 258,269
========== ========== ==========
STATISTICAL INFORMATION
Percent of net sales:
Nonfood sales. . . . . . . . . . . . . . 65.6% 63.5% 59.3%
Food sales . . . . . . . . . . . . . . . 34.4% 36.5% 40.7%
Total stores sales growth. . . . . . . . . 11.2%/11 17.3%/11 10.0%
Comparable stores sales percentage
increase/5. . . . . . . . . . . . . . . . 4.1%/11 4.4%/11 5.9%
Long-term debt as a percent of total
capitalization . . . . . . . . . . . . . 69.1% 77.1% 75.6%
Net income (loss) as a percent of
net sales. . . . . . . . . . . . . . . . 1.2% 1.1% 1.2%
Number of stores opened during year. . . . 4 23/12 1
Number of stores closed during year. . . . 1 1 0
Number of stores operated at end of year . 93 90 68
Total retail square feet at end of year. . 9,536,000 8,919,000 6,902,000
Selling square feet at end of year . . . . 7,309,000 6,772,000 5,174,000
Sales per selling square foot
(weighted average) . . . . . . . . . . . $228 $226/11 $238
Common shares outstanding (weighted
average) . . . . . . . . . . . . . . . . 18,355,000 17,790,000 17,139,000
- - -----------------------------------------------------------------------------------------
<FN>
/1 Includes a nonrecurring LIFO credit of $6,178.
/2 Interest income was $707, $544, $517, $467, $482, $336,
$350, $1,679, $2,983, $3,090, and $3,772. Excludes
interest expense related to occupancy.
/3 Includes $3,588 from the resolution of an IRS audit,
($2,286) related to the LIFO credit, and a 38% tax rate.
/4 Effect of adopting Statement of Financial Accounting
Standards No. 109 relating to income taxes.
/5 Includes only sales of stores operating throughout each of
the periods compared.
/6 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.
/7 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.
/8 Excludes 53rd week in the fiscal year ended February 3,
1990.
/9 Prepayment costs of $1,530 ($.07 per share) from early
extinguishment of 17% Senior and Subordinated Notes, net
of taxes.
/10 Extraordinary gain of $2,649 ($.15 per share) arising from
the disposition of a limited partnership interest in
Properties.
/11 Excludes 53rd week in the fiscal year ended February 2,
1985.
/12 Includes 21 nonfood stores acquired from Grand Central,
Inc.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion summarizes Fred Meyer, Inc.'s (the
"Company") operating results for the fiscal year ended
January 29, 1994 ("1993") compared with the fiscal year ended
January 30, 1993 ("1992") and for 1992 compared with the fiscal
year ended February 1, 1992 ("1991"). 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--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 hardlines distribution
capabilities, and soft apparel sales.
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
(which had a net impact of $23,000 on reported net income) and
an accounting change in 1993, net income increased 17.0%
to $70.9 million; and earnings per share were $2.50 for 1993,
assuming a 38% tax rate for 1993 versus
19
37% in 1992. On a reported basis, net income for 1993
increased 12.8% to $68.3 million from $60.6 million in
1992, after reflecting the accounting change and three
accounting adjustments that resulted in a reduction in net
income of $2.6 million 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.
RESULTS OF OPERATIONS--1992 COMPARED WITH 1991
Net sales for 1992 increased $151,241,000 or 5.6% over 1991.
This increase reflects sales growth at existing stores,
inflation, and new store openings of two full-size
multidepartment stores and four small specialty stores in
malls. This increase was offset in part by the closure of two
multidepartment stores without food departments and three
specialty stores. Comparable store sales increased 3.0% for
1992. Food comparable store sales increased 2.8% and nonfood
comparable store sales increased 3.2%. Food sales as a percent
of net sales were 36.7% and 36.3%, respectively, for 1992 and
1991. 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 30.0% for both 1992
and 1991. The LIFO charge decreased from $6,172,000 in 1991 to
$4,167,000 in 1992, primarily as a result of lower inflation
rates. Excluding the impact of the lower LIFO charge, gross
margin was essentially flat with the prior year.
Operating and administrative expenses as a percent of net sales
decreased to 26.3% in 1992 compared with 27.1% in 1991. This
expense ratio decrease was primarily related to lower
advertising, store labor, administrative and support department,
and occupancy expenses, continuing changes begun in 1991.
These percentage reductions were partially offset by higher
costs related to implementation of the Company's new management
information systems ("MIS"), and by the expensing of costs
related to the Company's election in the first quarter of 1992
to adopt the Statement of Financial Accounting Standards ("SFAS")
No. 106, entitled Employers Accounting for Postretirement
Benefits Other Than Pensions. Operating and administrative
expenses for the year 1991 included an $8,748,000 fourth-
quarter charge for the write-off of previously capitalized
software development costs associated with the MIS conversion.
These MIS development costs were expensed due to the change in
the Company's IBM system architecture from a distributed system
to a centralized computer system. Excluding the impact of the
1991 fourth-quarter write-off, operating and administrative
expenses as a percent of net sales was 26.8% in 1991. Total
operating and administrative expenses increased 2.7% to
$752,004,000 in 1992 from $731,892,000 in 1991.
Net interest expense was $8,912,000 for 1992 and $15,302,000
for 1991, a 41.8% decrease. The decrease primarily reflects
lower interest rates and, to a lesser extent, lower borrowings
resulting from the receipt of the proceeds from the Company's
April 1992 public stock offering.
The effective tax rate was 37.0% for 1992 and 36.3% for 1991.
Net income for 1992 increased 34.0% from $45,227,000 in 1991 to
$60,587,000 in 1992. Earnings per common share increased 22.8%
from $1.80 per share reported in 1991 to $2.21 per share in
1992 after reflecting an increase in shares outstanding due to
the April 1992 offering of 2,000,000 additional shares of
common stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company funded its working capital and capital expenditure
needs in 1993 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 million 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.
The Company maintains a credit facility with several domestic
and foreign banks for committed lines of credit which provide
for borrowings of up to $300,000,000. This agreement was
extended in July 1993 for an additional year and continues
through July 31, 1996, at which time the outstanding amounts
convert to a term loan payable quarterly through July 31, 2000.
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 29, 1994 the Company had unrated
commercial paper outstanding in the amount of approximately
$161,000,000, and a total of approximately $139,000,000
available for borrowing under its committed credit facilities.
The average interest rate for commercial paper outstanding at
January 29, 1994 was 3.39%. 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 January 29, 1994, the Company had outstanding
four interest rate contracts with commercial banks which
effectively fix the Company's interest rate exposure on an
aggregate $75,000,000 principal amount of commercial paper and
bank line borrowings at rates of between 4.63% and 7.60% and
mature between June 1994 and November 1998. The Company also
purchased two interest rate derivative products ("CAPs") which
limit the maximum interest rate the Company can pay at 5.00% on
a notional amount of $25,000,000 of its short-term floating
rate debt, and which expire in November of 1996 and 1998. In
the event of nonperformance by the other parties to the
interest rate swap agreements (which is not anticipated), the
Company would be exposed to credit loss.
During 1993, the Company opened five new multidepartment stores
and completed seven major store remodels, two of which included
the addition of new food departments to previously nonfood
stores. It began construction of five additional
multidepartment stores scheduled to open in 1994 and has
completed construction of a new wing to the corporate main
offices. The Company is planning on the completion of at least
seven major remodels in 1994, three of which will include the
addition of food departments. The Company closed two
multidepartment stores in 1993 and plans to close one
multidepartment store in 1994. Other capital projects in 1993
included
20
improvements to the main distribution center, central bakery
and dairy plant, a new retail service center in Chehalis,
Washington which opened in April 1994, and continuation of the
Company's MIS improvement program. In April of 1994, the
Company received commitments from major insurance companies to
fund $57,500,000 for privately placed notes with maturities of
between five and 13 years. Funding is scheduled for July of 1994.
Interest will be paid at fixed rates of between 7.25% and 7.98%
payable on a semi-annual basis. The Company believes that a
combination of cash flow from operations, the above-mentioned
note issuance, and borrowings under its expanded credit
facilities will permit it to finance its capital expenditure
requirements for 1994, budgeted to be $265,000,000. Due
primarily to the current favorable interest rates in relation
to market rents, the Company believes that it is presently
desirable for it to own its newly constructed facilities. If
the Company determines that it is preferable, it may also 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
The Financial Accounting Standards Board issued SFAS
No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions. This Statement requires accrual of
postretirement benefits (such as health-care benefits)
during the years an employee provides services to the
Company. The Company adopted this Statement for its
fiscal year beginning February 2, 1992. This resulted in
an increase of $1,533,000 being charged to operations in 1992.
In February 1992, the Financial Accounting Standards Board
issued 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 acquisition of the
Company in 1981 and 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 29, 1994, 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
that was made simultaneously by an institutional investor.
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
----------------------------------------------------
1993 1992 1991
---------------- ---------------- ----------------
Fiscal Quarter High Low High Low High Low
- - --------------------------------------------------------------------------
First. . . . . . . . $33 7/8 $27 7/8 $29 1/4 $23 1/2 $19 1/4 $13 3/4
Second . . . . . . . 35 5/8 29 1/4 27 1/2 22 3/4 22 1/4 16
Third. . . . . . . . 37 31 29 1/2 24 3/4 24 3/4 19 3/4
Fourth . . . . . . . 38 1/2 34 1/2 33 7/8 29 28 3/4 20 1/2
- - --------------------------------------------------------------------------
/TABLE
21
STATEMENTS OF CONSOLIDATED OPERATIONS
Fiscal Year Ended
-----------------------------------------
January 29, January 30, February 1,
(In thousands, except per-share data) 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------
Net Sales . . . . . . . . . . . . . . . . . . . . . . . $2,979,082 $2,853,962 $2,702,721
----------------------------------------
Cost of Goods Sold (Notes 3 and 7):
General . . . . . . . . . . . . . . . . . . . . . . . 2,083,141 1,991,310 1,887,255
Related party lease . . . . . . . . . . . . . . . . . 5,566 5,566 5,566
----------------------------------------
Total cost of goods sold. . . . . . . . . . . . . . 2,088,707 1,996,876 1,892,821
----------------------------------------
Gross Margin. . . . . . . . . . . . . . . . . . . . . . 890,375 857,086 809,900
Operating and Administrative Expenses (Notes 3, 6, and 7):
General . . . . . . . . . . . . . . . . . . . . . . . 692,354 680,991 660,980
Related party leases. . . . . . . . . . . . . . . . . 57,942 59,876 63,108
Interest related to occupancy . . . . . . . . . . . . 11,331 11,137 7,804
----------------------------------------
Total operating and administrative expenses . . . . 761,627 752,004 731,892
----------------------------------------
Reversal of Restructuring Charge (Note 4) . . . . . . . -- -- (8,289)
----------------------------------------
Income From Operations. . . . . . . . . . . . . . . . . 128,748 105,082 86,297
Interest Expense--Net of interest income of $707,
$544, and $517. . . . . . . . . . . . . . . . . . . . 8,246 8,912 15,302
----------------------------------------
Income Before Income Taxes. . . . . . . . . . . . . . . 120,502 96,170 70,995
Provision For Income Taxes (Note 5) . . . . . . . . . . 49,598 35,583 25,768
----------------------------------------
Net Income Before Cumulative Effect of
Accounting Change . . . . . . . . . . . . . . . . . . 70,904 60,587 45,227
Cumulative Effect of Accounting Change (Notes 2 and 5). (2,588) -- --
----------------------------------------
Net Income. . . . . . . . . . . . . . . . . . . . . . . $ 68,316 $ 60,587 $ 45,227
==========-----==========-----==========
Earnings Per Common Share:
Net income before cumulative effect of
accounting change . . . . . . . . . . . . . . . . . $2.50 $2.21 $1.80
Cumulative effect of accounting change. . . . . . . . (.09) -- --
-----------------------------------
Net Income. . . . . . . . . . . . . . . . . . . . . . . $2.41 $2.21 $1.80
=====----------=====----------=====
Weighted Average Number of Common Shares Outstanding. . 28,375 27,446 25,182
- - --------------------------------------------------------------======---------======---------======
See Notes to Consolidated Financial Statements.
/TABLE
22
CONSOLIDATED BALANCE SHEETS
ASSETS January 29, January 30,
(In thousands) 1994 1993
- - ----------------------------------------------------------------------------------------------------
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,054 $ 31,884
Receivables (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . 18,306 14,715
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . 477,568 426,078
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 54,098 57,496
Current portion of deferred taxes. . . . . . . . . . . . . . . . . . 7,828 --
-----------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 591,854 530,173
-----------------------------
Property And Equipment:
Buildings, fixtures and equipment. . . . . . . . . . . . . . . . . . 956,360 752,336
Property held under capital leases (Note 7). . . . . . . . . . . . . 19,818 23,855
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,505 82,840
-----------------------------
Total property and equipment . . . . . . . . . . . . . . . . . . . . 1,091,683 859,031
Less accumulated depreciation and amortization . . . . . . . . . . . 372,345 316,821
-----------------------------
Property and equipment--net. . . . . . . . . . . . . . . . . . . . . 719,338 542,210
-----------------------------
Other Assets:
Goodwill--net (Note 2) . . . . . . . . . . . . . . . . . . . . . . . 5,523 5,831
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,067 889
-----------------------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . 7,590 6,720
-----------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,318,782 $1,079,103
- - -----------------------------------------------------------------------==========---------==========
See Notes to Consolidated Financial Statements.
23
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY January 29, January 30,
(In thousands) 1994 1993
- - ----------------------------------------------------------------------------------------------------
Current Liabilities:
Outstanding checks (Note 2). . . . . . . . . . . . . . . . . . . . . . . $ 72,373 $ 70,411
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,277 188,819
Current portion of long-term debt and lease obligations. . . . . . . . . 1,749 1,974
Income taxes payable (Note 5). . . . . . . . . . . . . . . . . . . . . . 18,660 15,418
Accrued expenses:
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,100 39,511
Insurance and other. . . . . . . . . . . . . . . . . . . . . . . . . . 31,834 28,783
--------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 382,993 344,916
--------------------------
Long-term Debt (Note 6). . . . . . . . . . . . . . . . . . . . . . . . . 321,398 195,837
--------------------------
Capital Lease Obligations (Note 7) . . . . . . . . . . . . . . . . . . . 14,895 16,621
--------------------------
Deferred Lease Transactions (Note 7) . . . . . . . . . . . . . . . . . . 48,254 44,785
--------------------------
Deferred Income Taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . 18,496 16,376
--------------------------
Other Long-term Liabilities (Notes 4 and 10) . . . . . . . . . . . . . . 5,060 10,440
--------------------------
Commitments and Contingencies (Notes 2, 7 and 12). . . . . . . . . . . .
--------------------------
Stockholders' Equity (Notes 3 and 8):
Preferred stock, $.01 par value (authorized, 5,000 shares;
outstanding, none) . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value (authorized, 100,000 shares;
issued, 1993--26,705 shares, and 1992--25,862 shares;
outstanding, 1993--26,415 shares, and 1992--25,572 shares) . . . . . . 267 259
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 193,719 185,080
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . . . (527) (1,122)
Treasury stock (1993--290 shares, and 1992--290 shares). . . . . . . . . (3,896) (3,896)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 338,123 269,807
--------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 527,686 450,128
--------------------------
Total liabilities and stockholders' equity $1,318,782 $1,079,103
- - --------------------------------------------------------------------------==========------==========
See Notes to Consolidated Financial Statements.
24
STATEMENTS OF CONSOLIDATED CASH FLOWS
Fiscal Year Ended
-----------------------------------------
January 29, January 30, February 1,
(In thousands) 1994 1993 1992
- - --------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 68,316 $ 60,587 $ 45,227
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment. . . . . . . . . . . . . . . . . . . . . 70,547 66,958 48,139
Write-off of capitalized software development costs. . . -- -- 8,748
Reversal of restructuring charge . . . . . . . . . . . . -- -- (8,289)
Deferred lease transactions. . . . . . . . . . . . . . . 3,469 4,768 3,958
Deferred income taxes. . . . . . . . . . . . . . . . . . (5,708) (189) 1,984
Other liabilities. . . . . . . . . . . . . . . . . . . . 721 1,533 --
Inventories. . . . . . . . . . . . . . . . . . . . . . . (51,490) (22,803) (25,015)
Other current assets . . . . . . . . . . . . . . . . . . (1) (19,759) 5,710
Accounts payable and accrued expenses. . . . . . . . . . 32,354 32,316 5,672
Income taxes . . . . . . . . . . . . . . . . . . . . . . 3,242 13,687 (4,013)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . (5,067) 356 3,393
----------------------------------------
Net cash provided by operating activities. . . . . . . . . 116,383 137,454 85,514
Cash Flows from Financing Activities:
Proceeds from stock offering . . . . . . . . . . . . . . . -- 45,608 --
Issuance of other common stock--net. . . . . . . . . . . . 8,647 8,779 4,628
Collection of notes receivable . . . . . . . . . . . . . . 264 1,092 139
Increase in notes receivable . . . . . . . . . . . . . . . (1,402) (114) (1,167)
Increase (decrease) in outstanding checks. . . . . . . . . 1,962 (11,960) 9,701
Long-term financing:
Borrowings . . . . . . . . . . . . . . . . . . . . . . . 126,310 2,941 13,728
Repayments . . . . . . . . . . . . . . . . . . . . . . . (1,015) (51,761) (5,652)
----------------------------------------
Net cash provided by (used in) financing activities. . . . 134,766 (5,415) 21,377
Cash Flows from Investing Activities:
Property and equipment . . . . . . . . . . . . . . . . . . (253,920) (144,628) (105,881)
Net proceeds from sale/leaseback of property and
retirement of other assets . . . . . . . . . . . . . . . 4,941 14,485 --
----------------------------------------
Net cash used for investing activities . . . . . . . . . . (248,979) (130,143) (105,881)
----------------------------------------
Cash Increase for the Year . . . . . . . . . . . . . . . . 2,170 1,896 1,010
Cash, Beginning of Year. . . . . . . . . . . . . . . . . . 31,884 29,988 28,978
----------------------------------------
Cash, End of Year. . . . . . . . . . . . . . . . . . . . . $ 34,054 $ 31,884 $ 29,988
=========------=========-------=========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (including interest capitalized of
$1,689, $406, and $1,321). . . . . . . . . . . . . . . $ 17,984 $ 18,193 $ 18,066
Income taxes . . . . . . . . . . . . . . . . . . . . . . 53,197 21,514 27,106
- - --------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
25
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 2, 1991. . . . . . . . . . . . 22,564 $229 $124,848 $ 0 $(3,771) $163,993 $285,299
Issuance/purchase of common stock:
Stock options exercised. . . . . . . . . . . . 233 2 2,750 -- -- -- 2,752
Stock awards . . . . . . . . . . . . . . . . . 1 -- 11 -- -- -- 11
Stock bonuses/sale . . . . . . . . . . . . . . 120 1 2,612 (1,637) -- -- 976
Tax benefit from stock options . . . . . . . . -- -- 691 -- -- -- 691
Amortization of unearned compensation. . . . . -- -- -- 198 -- -- 198
Net income . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 45,227 45,227
-----------------------------------------------------------------------------
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/purchase 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
- - -----------------------------------------------------======-----====-----========----------======---========---========---========
See Notes to Consolidated Financial Statements.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Fred Meyer, Inc., a Delaware corporation, and its subsidiaries
(the "Company") operate a chain of 127 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 97 free-standing, multidepartment
stores and 30 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 1993,
1992, and 1991 ended on January 29, 1994, January 30, 1993, and
February 1, 1992, 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.
Inventories--The Company's 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 $56,685,000,
$53,155,000, and $48,988,000 higher at January 29, 1994,
January 30, 1993, and February 1, 1992, respectively.
Property and Equipment--Property and equipment is stated at
cost. Depreciation is provided using the straight-line method
over the estimated useful lives of the related assets.
Amortization of property under capital leases is provided using
the straight-line method over the related lease terms.
Goodwill--Goodwill is being amortized on a straight-line basis
over 30 years. Accumulated amortization was $3,736,000 at
January 29, 1994 and $3,428,000 at January 30, 1993. Management
periodically evaluates the recoverability of goodwill based
upon current and anticipated net income and undiscounted future
cash flows.
Outstanding Checks--Checks 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 Statement of
Financial Accounting Standards ("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 5).
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 $36.75 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 net income.
3. RELATED-PARTY TRANSACTIONS
At January 29, 1994, the Company leased or subleased, under
operating or capital 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 $21,290,000 in 1993, $23,368,000 in 1992,
and $27,041,000 in 1991. 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 $39,573,000 in 1993 and $38,476,000 in both
1992 and 1991.
Total rents included in operating and administrative expenses
for locations leased or subleased from related parties were
$57,942,000 in 1993, $59,876,000 in 1992, and $63,108,000 in
1991, 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 in
the amount of $5,566,000 in each of the years 1993, 1992 and
1991.
27
During 1991, the Company charged Properties and its wholly
owned subsidiaries for accounting and general and
administrative services rendered. As of September 3, 1991, the
Company discontinued providing such services to Properties.
Charges for these services were $206,000 in 1991.
At January 30, 1993, $18,000 was outstanding on a note
receivable due from an officer of the Company related to common
stock purchased. The balance was paid to the Company during
1993.
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. Rents
paid on this property in 1992 and 1991 totaled $393,000 and
$472,000, respectively.
4. RESTRUCTURING CHARGE
During 1989, the Company incurred a restructuring charge of
$49,277,000 ($31,045,000 after a deferred tax benefit of
$18,232,000) related to the write-down of certain assets and
other noncash charges in connection with remodeling, replacing,
and closing stores and to the conversion of the Company's MIS
hardware from Honeywell to IBM.
During 1991, as a result of a reassessment by current
management, based in part on the better-than-expected operating
results, six stores previously scheduled for closure were not
closed. Accordingly, the Company recognized a fourth quarter
increase to pre-tax earnings of $8,289,000 relating to the
reversal of a portion of the restructuring charge taken in
1989. This reversal was offset in part by increased obligations
for leases on stores previously closed as part of the
restructuring in 1989.
At January 29, 1994, included in other long-term liabilities,
were charges for net rentals under noncancelable leases for
future fiscal years for stores which will be replaced or closed
and for Honeywell hardware in the amounts of (in thousands):
Less
Estimated Estimated
Subleases/ Net
Fiscal Year Leases Discounts Rentals
- - -----------------------------------------------------------------
1994. . . . . . . . . . . . . . .$ 1,701 $ 800 $ 901
1995. . . . . . . . . . . . . . . 1,368 823 545
1996. . . . . . . . . . . . . . . 1,271 824 447
1997. . . . . . . . . . . . . . . 1,122 830 292
1998. . . . . . . . . . . . . . . 1,122 830 292
1999 and thereafter . . . . . . . 7,949 6,720 1,229
--------------------------------
Total . . . . . . . . . . . . . .$14,533 $10,827 $3,706
- - ---------------------------------=======------=======------======
5. INCOME TAXES
The provision for income taxes includes the following (in thousands):
1993 1992 1991
- - -----------------------------------------------------------------
Current . . . . . . . . . . . . .$57,894 $35,772 $23,784
Deferred. . . . . . . . . . . . . (8,296) (189) 1,984
--------------------------------
Total . . . . . . . . . . . . .$49,598 $35,583 $25,768
- - ---------------------------------=======-----=======------=======
A reconciliation between the statutory federal income tax rate
to the provision for income taxes is as follows (in thousands):
1993 1992 1991
- - -----------------------------------------------------------------
Federal income taxes at the
statutory rate. . . . . . . . .$42,176 $32,698 $24,138
Settlement of certain
IRS audits. . . . . . . . . . . 3,588 -- --
Deferred income taxes increase
in statutory rate . . . . . . . 219 -- --
State income taxes. . . . . . . . 3,615 2,885 2,130
Targeted jobs and other
tax credits . . . . . . . . . . (926) (1,180) (1,771)
Other, net. . . . . . . . . . . . 926 1,180 1,271
--------------------------------
Provision for income taxes. . . .$49,598 $35,583 $25,768
- - ---------------------------------========----========----========
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 29, 1994 are as follows (in
thousands):
- - --------------------------------------------------------------
Deferred tax assets:
Capitalized inventory costs . . . . . . . . . . . . $ 6,332
Accrued expenses. . . . . . . . . . . . . . . . . . 17,710
Restructuring related charges . . . . . . . . . . . 4,154
Deferred lease transactions . . . . . . . . . . . . 18,337
Other . . . . . . . . . . . . . . . . . . . . . . . 6,860
-------
Total deferred tax assets . . . . . . . . . . . . 53,393
-------
Deferred tax liabilities:
Accumulated depreciation. . . . . . . . . . . . . . 41,712
Prepaid expenses. . . . . . . . . . . . . . . . . . 12,785
LIFO inventory. . . . . . . . . . . . . . . . . . . 9,564
-------
Total deferred tax liabilities. . . . . . . . . . 64,061
-------
Net deferred income taxes . . . . . . . . . . . . $10,668
=======
Current deferred income taxes--asset. . . . . . . . . $(7,828)
Noncurrent deferred income taxes--liability . . . . . 18,496
-------
Net deferred income taxes . . . . . . . . . . . . . . $10,668
- - -------------------------------------------------------=======
Under the prior method of accounting, the deferred income tax
provision included the following (in thousands):
1992 1991
- - -----------------------------------------------------------------
Depreciation . . . . . . . . . . . . . . . . $ 3,122 $ 1,757
Restructuring charge . . . . . . . . . . . . 4,073 6,381
Prepaids . . . . . . . . . . . . . . . . . . 10 973
Rental expense . . . . . . . . . . . . . . . (1,827) (1,827)
Capitalized inventory costs. . . . . . . . . (366) (189)
Purchase discounts received in advance . . . (1,177) (812)
Pension and profit sharing payment . . . . . 665 36
Computer system development
costs capitalized. . . . . . . . . . . . . (6,516) (963)
Vacation pay . . . . . . . . . . . . . . . . (798) (984)
Other. . . . . . . . . . . . . . . . . . . . 2,625 (2,388)
-------------------
Total deferred income tax
(benefit) provision. . . . . . . . . . . . $ (189) $ 1,984
- - ---------------------------------------------========----========
28
6. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
1993 1992
- - ------------------------------------------------------------------------------------------------
Commercial paper, payable 1994 at current interest
rates of 2.95% to 3.65%, classified as long-term. . . . . . . . . . . $160,911 $ 99,818
Uncommitted bank borrowings, effective interest
rate 3.44%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 8,000
Long-term notes secured by trust deeds, due 2010 through
2012, fixed interest rates from 9.0% to 9.52% . . . . . . . . . . . . 43,943 44,531
Long-term notes, unsecured:
Due 1998, interest rate is periodically reset, 4.07%
at January 29,1994. . . . . . . . . . . . . . . . . . . . . . . . . 70,000 --
Due 1996, interest rate 7.74% . . . . . . . . . . . . . . . . . . . . 10,000 10,000
Zero coupon notes, due in 1994, fixed interest rate
of 9.3%, classified as long-term. . . . . . . . . . . . . . . . . . . 37,024 33,806
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 323
---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,147 196,478
Less current portion. . . . . . . . . . . . . . . . . . . . . . . . . . (749) (641)
---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $321,398 $195,837
- - ---------------------------------------------------------------------------========-----========
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 $197,935,000 of these
borrowings as long-term debt. On July 31, 1993, the Company
amended its Credit Agreement, which now provides for, among
other things: (1) a revolving credit commitment of $300,000,000
and, at the option of the Company, conversion of the unpaid
balance at July 31, 1996 into term notes payable over four
years; (2) interest at a spread over LIBOR on such borrowings
or various other pricing options; and (3) a facility fee
of .20% of the amount of the commitment. The Agreement, among
other things, requires the maintenance of specified ratios and
restricts the amounts of fixed asset acquisitions, debt
incurred, and cash dividends paid. At January 29, 1994,
$17,079,000 of retained earnings was available for dividends,
which are limited to 25% of current-year earnings payable in
the following year.
The Company has established uncommitted lines of credit with
international banks for $35,000,000 and has uncommitted bid
lines of credit with certain banks within its committed bank
group for $105,000,000. These lines, which generally have terms
of one year, allow the Company to borrow from the banks at the
banks' discretion at mutually agreed upon rates, usually below
the rates offered under the Credit Agreement. The Company has
unrated commercial paper programs with maturities ranging from
one to 270 days in amounts up to a maximum of $300,000,000. The
Company also has available a letter of credit line for
$25,000,000, against which letters of credit for $11,109,000
had been issued at January 29, 1994.
In 1991, the Company financed the land and building portion of
one new store with an insurance company. The note requires
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. Other notes secured by trust
deeds entered into in 1990 require similar payment terms.
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
30 to 180 days. Interest on the notes is paid not later than
quarterly.
The Company has entered into interest rate swap agreements to
reduce the impact of changes in interest rates on its floating
rate debt. At January 29, 1994, the Company had outstanding six
interest rate contracts with commercial banks, having a total
notional principal amount of $100,000,000. Four 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 $75,000,000. These contracts
expire at various dates through 1998. The remaining two
agreements are interest rate derivative products ("CAPs")
which effectively limit the maximum interest rate the
Company will pay at 5.0% on a notional principal amount of
$25,000,000. These two agreements mature in 1996 and 1998. 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 other parties.
Beginning in 1992, 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
owned stores into the operating and administrative expenses in
its financial statements. Interest expense reclassified was
$11,331,000, $11,137,000 and $7,804,000 for the fiscal years
ending January 29, 1994, January 30, 1993, and February 1,
1992, respectively.
Annual estimated long-term debt maturities for the five fiscal
years subsequent to January 29, 1994 are: 1994, $749,000; 1995,
$753,000; 1996, $35,764,000; 1997, $50,143,000; 1998,
$50,412,000; and thereafter, $184,326,000. The Company expects
to renegotiate and extend maturities on portions of its credit
facilities in 1994.
7. 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 is charged to rent
expense.
29
At January 29, 1994, deferred lease transactions consisted of
$11,780,000 unamortized gain on capital leases, $35,591,000 of
excess of rent expense over cash rents for the aforementioned
leases, and unamortized deferred gain on a sale-leaseback
transaction of $883,000.
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 29, 1994, minimum rentals under noncancelable leases
for future fiscal years were (in thousands):
Operating Capitalized Less Net
Fiscal Year Leases Leases Subleases Rentals
- - ---------------------------------------------------------------------------
1994. . . . . . . . . . . $ 89,331 $ 1,947 $ 7,625 $ 83,653
1995. . . . . . . . . . . 84,616 1,947 6,624 79,939
1996. . . . . . . . . . . 79,782 1,947 4,396 77,333
1997. . . . . . . . . . . 77,078 1,988 3,816 75,250
1998. . . . . . . . . . . 74,913 2,109 2,673 74,349
1999 and thereafter . . . 688,594 35,342 18,072 705,864
- - ------------------------------------ ------- ------- ----------
Total . . . . . . . . . . $1,094,314 45,280 $43,206 $1,096,388
========== ======= ==========
Less imputed interest . . (30,286)
--------
Present value of minimum
rental payments . . . . . 14,994
Less current portion. . . (99)
--------
Capitalized lease
obligations . . . . . . $14,895
- - -------------------------------------------=======-------------------------
As of January 29, 1994, the leases for 10 store locations and
one distribution center 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 $2,111,000 in 1993, $2,261,000 in 1992, and
$2,529,000 in 1991.
Accumulated amortization of property under capital leases was
$6,072,000 at January 29, 1994, $7,708,000 at January 30, 1993,
and $7,156,000 at February 1, 1992.
Rent expense under operating leases included in operating and
administrative expenses, executory costs, and payments under
capital leases were as follows (in thousands):
1993 1992 1991
- - --------------------------------------------------------------------------
Gross rent expense. . . . . . . . . . . . . $104,892 $113,894 $125,111
Rent income from subleases. . . . . . . . . (11,582) (10,332) (9,450)
------------------------------
Net rent expense. . . . . . . . . . . . . . 93,310 103,562 115,661
Payments under capital leases . . . . . . . 2,178 2,370 2,370
------------------------------
Total . . . . . . . . . . . . . . . . . . . $ 95,488 $105,932 $118,031
- - --------------------------------------------========---========---========
Included in gross rent expense for 1993, 1992, and 1991 were
contingent rents of $1,650,000, $1,845,000, and $1,832,000,
respectively.
8. STOCKHOLDERS' EQUITY
Stock Incentive Plans--At January 29, 1994, 2,525,406 shares of
common stock were reserved for issuance to employees, including
officers and directors, and non-employee 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, February 1, 1992. . . . . 1,880 $12.125-23.000 $32,116
Options granted. . . . . . . . . . 344 24.750-30.875 8,687
Options exercised. . . . . . . . . (356) 12.125-21.750 (5,829)
Options cancelled. . . . . . . . . (43) 12.125-24.750 (643)
----- -------
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
===== =======
Shares exercisable,
January 29, 1994 . . . . . . . . 719 12.125-30.875
Shares available for option:
January 30, 1993 . . . . . . . . 1,039
January 29, 1994 . . . . . . . . . 372
- - --------------------------------------------------------------------------
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
$6,718,000. In 1993, 505,067 shares were exercised, resulting
in a balance of 1,566,441 shares for an aggregate of
$5,080,000.
Stock Awards--During 1993, 1992, and 1991, 142 shares, 78
shares, and 615 shares with a market value of $5,000, $2,000,
and $11,000, respectively, were awarded to non-executive
employees of the Company.
Management Bonus--In 1992, the Company awarded stock bonuses
to a corporate officer for 5,000 shares totaling $124,000.
Shares issued vest annually over five years. In 1991, the
Company awarded cash and stock bonuses to two corporate
officers totaling $2,212,000. Shares issued of 74,700, with a
market value at the times of the issuance of $1,637,000,
vest monthly over three years.
Non-employee 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 non-employee 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.
30
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 pre-tax 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. The Company expensed $3,944,000 in
1993, $3,248,000 in 1992, and $3,056,000 in 1991 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 $9,667,000 in 1993, $9,157,000 in 1992, and
$9,424,000 in 1991. 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.
Cash Incentive Plan--Under the Company's cash incentive plan
for selected management personnel, a maximum of 600,000 units
may be awarded. Recipients of an award are paid an amount per
unit equivalent to the increase in book value, adjusted to
exclude certain items, of a share of common stock for the
period the unit is outstanding. At January 30, 1993, 517,925
units had been awarded, of which zero units were outstanding.
The Company accrues expenses incurred under the plan, which
were $5,000 in 1992 and $18,000 in 1991. No executive officers
or directors of the Company participate in this plan, unless
they were awarded units prior to their promotion to such
positions.
Employee Stock Purchase Plan--In April 1992, the Company
implemented a non-contributory 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 Benefit Plan--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
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 and younger and variable
annuity contracts for participants 55 and older. Each
participant is the owner of his/her respective contract.
10. OTHER POSTRETIREMENT BENEFITS
For employees who retired prior to January 1, 1994, the Company
sponsors a retiree health plan, with eligibility requirements
for postretirement health care coverage varying by region of
the Company, as follows:
Eastern Region
Retirement after attaining age 60 with 25 years of continuous
service as a salaried employee.
Southern & Northern Regions:
Salaried employees
(A) Age 60 or more with 25 years of continuous service
(B) Age 62 or more with 20 years of continuous service
(C) Age 65 or more with 15 years of continuous service
Salaried and hourly employees
(D) Ages 62 to 65 with 15 years of continuous service: self-
pay, with coverage to terminate upon Medicare eligibility.
The Company contributes 100% of the premium for eligible
retirees, up to a monthly cap of $250 per person, except
there is no Company contribution for eligibility requirement
(D), for which the retiree pays the entire premium.
As of January 1, 1994, the Company changed the eligibility
requirements for all salaried and non-union hourly employees
for all regions to: Age 60 or more with 10 years of continuous
service. Under the plan, the retiree pays the premium at
current employee rates.
In 1992, the Company changed its method of accounting for these
postretirement benefits to conform with SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions.
This statement requires accrual of postretirement benefits
during the years an employee provides services. Prior to 1992,
the costs of these benefits were expensed on a pay-as-you-go
basis. Adoption of this statement resulted in an increase of
$747,000 and $1,484,000 being charged to operations for these
postretirement benefits in 1993 and 1992, respectively.
The following table sets forth the plan's funded status,
reconciled with the amount shown in the Company's balance sheet
at January 29, 1994 and January 30, 1993:
January 29, 1994 January 30, 1993
- - --------------------------------------------------------------------------
Accumulated postretirement benefit
obligation:
Current retirees. . . . . . . . . . . . $ 1,415,454 $ 1,584,153
Fully eligible plan participants. . . . 715,869 751,256
Other active plan participants. . . . . 2,902,136 7,606,918
-----------------------------
Total . . . . . . . . . . . . . . . . . . $ 5,033,459 $ 9,942,327
===========-------===========
Accumulated postretirement benefit
obligation in excess of plan assets . . $(5,033,459) $(9,942,327)
Unrecognized transition obligation,
transition date 1/31/93 and 2/2/92. . . 1,503,635 7,081,836
Unrecognized prior service cost . . . . . 407,792 --
Unrecognized net loss . . . . . . . . . . 841,184 1,376,535
-----------------------------
Accrued postretirement benefit cost . . . $(2,280,848) $(1,483,956)
============------===========
Net periodic postretirement benefit
cost for 1993 and 1992 included the
following components:
Service cost--benefits attributed to
service during the period . . . . . . $ 297,804 $ 494,282
Interest cost on accumulated
postretirement benefit obligation . . 462,477 666,398
Actual return on plan assets. . . . . . -- --
Amortization of transition obligation
over 20 years . . . . . . . . . . . . 125,783 372,729
Amortization of unrecognized
net loss. . . . . . . . . . . . . . . 25,551 --
-----------------------------
Net periodic postretirement benefit cost. $ 911,615 $ 1,533,409
- - --------------------------------------------------------------------------
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation were as follows:
Under Medicare Retirement Age:
All Regions
9% for two years, then grading down to 5% over the next five
years
Medicare Retirement Age and Over:
All Regions
8% for one year, then grading down to 5% over the next six
years
31
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 29, 1994 and the aggregate of the
service and interest cost components of the net periodic
postretirement benefit cost for the 1994-95 fiscal year as
follows:
- - ---------------------------------------------------------------------------
Increase in accumulated postretirement benefit obligation. . . . . $909,569
Increase in service and interest costs . . . . . . . . . . . . . . 154,060
- - ---------------------------------------------------------------------------
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5%.
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.
The estimated fair value of the Company's financial instruments
is as follows (in thousands):
January 29, 1994
------------------------
Carrying Estimated
Amount Fair Value
- - ----------------------------------------------------------------------
Financial assets:
Cash. . . . . . . . . . . . . . . . . . . $ 34,054 $ 34,054
Receivables . . . . . . . . . . . . . . . 18,306 18,306
Prepaid expenses and other. . . . . . . . 54,098 54,388
Other long-term assets. . . . . . . . . . 2,067 2,067
Financial liabilities:
Outstanding checks. . . . . . . . . . . . 72,373 72,373
Accounts payable. . . . . . . . . . . . . 217,277 217,277
Long-term debt. . . . . . . . . . . . . . 322,147 330,677
- - ----------------------------------------------------------------------
Cash, Accounts and Notes Receivable--Current and Other Long-
term Assets--The carrying amounts of these items are a
reasonable estimate of their fair value.
Prepaid Expenses and Other--For stocks, bonds and other
investments (generally municipal securities), the fair value 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--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
6), the carrying amounts are a reasonable estimate of their
fair value.
Interest Rate Agreements--The fair value of interest rate swap
agreements and CAPs are based on estimated amounts at which
they could be settled. At January 29, 1994, the Company could
settle these agreements at a cost of $2,580,000.
Management is not aware of any factors that would significantly
change the Estimated Fair Value amounts shown here. A
comprehensive revaluation for purposes of these financial
statements has not been performed since January 29, 1994, 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.
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)
1993 Fiscal Quarters 1992 Fiscal Quarters
----------------------------------------- ---------------------------------------
(In thousands, except per-share data) Fourth Third Second First Fourth Third Second First
- - ---------------------------------------------------------------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . . . . $807,777 $644,527 $674,719 $852,059 $758,013 $629,374 $641,748 $824,827
Gross margin . . . . . . . . . . . . . . 247,492/1 189,897 206,863/2 246,123 233,880/5 187,084 193,528 242,594
Income from operations . . . . . . . . . 50,775/1 17,900 35,567/2 24,506 42,719/5 14,947 25,689 21,727
Net income before cumulative effect of
an accounting change. . . . . . . . . 30,034/1 9,897 16,962/2,3 14,011 25,830/5 8,320 14,886 11,551
Cumulative effect of an accounting
change. . . . . . . . . . . . . . . . -- -- -- (2,588)/4 -- -- -- --
Net income. . . . . . . . . . . . . . . 30,034/1 9,897 16,962/2,3 11,423/4 25,830/5 8,320 14,886 11,551
Earnings per common share:
Net income before cumulative effect of
an accounting change. . . . . . . . $1.05/1 $.35 $.60/2,3 $.50 $.92/5 $.30 $.54 $.44
Cumulative effect of an
accounting change . . . . . . . . . . -- -- -- (.09)/4 -- -- -- --
Net income. . . . . . . . . . . . . . $1.05/1 $.35 $.60/2,3 $.41)/4 $.92/5 $.30 $.54 $.44
Weighted average number of shares
outstanding . . . . . . . . . . . . . 28,571 28,495 28,338 28,165 28,163 27,908 27,711 26,363
- - ---------------------------------------------------------------------------------------------------------------------------------
<FN>
/1 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.
/2 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.
/3 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.
/4 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.
/5 The LIFO adjustment in the fourth quarter of 1992 increased
gross margin and income from operations by $3,216; net
income by $2,026; and earnings per common share by $.07.
/TABLE
32
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 29, 1994 and
January 30, 1993, 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 29, 1994. 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 29, 1994 and
January 30, 1993, and the results of their operations and their
cash flows for each of the three fiscal years in the period
ended January 29, 1994, in conformity with generally accepted
accounting principles.
As discussed in Notes 5 and 10 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in the fiscal year ended January 29, 1994 and
postretirement benefits in the fiscal year ended January 30,
1993.
DELOITTE & TOUCHE
March 7, 1994
Appendix A - Fred Meyer 1993 Annual Report Graphic Material
- - -----------------------------------------------------------
1. The following is a description of graphic material
omitted from the current filing:
Graph Title: Net Earnings Per Common Share
Graph Page Number: 18
Type of Graph: Bar Graph
X-Axis Information: Years from left to right 1990, 1991,
1992 and 1993
Y-Axis Information: Dollars from bottom to top 0.0, 0.5,
1.0, 1.5, 2.0, 2.5
Specific Data Points: 1990 1991 1992 1993
---- ---- ---- ----
1.37 1.80 2.21 2.50*
*Before nonrecurring items and
accounting change
2. The following is a description of graphic material
omitted from the current filing:
Graph Title: Net Income as a Percent of Net Sales
Graph Page Number: 18
Type of Graph: Bar Graph
X-Axis Information: Years from left to right 1990, 1991,
1992 and 1993
Y-Axis Information: Percent from bottom to top 0.0, 0.5,
1.0, 1.5, 2.0, 2.5
Specific Data Points: 1990 1991 1992 1993
---- ---- ---- ----
1.4 1.7 2.1 2.4*
*Before nonrecurring items and
accounting change
3. The following is a description of graphic material
omitted from the current filing:
Graph Title: Stockholders' Equity
Graph Page Number: 18
Type of Graph: Bar Graph
X-Axis Information: Years from left to right 1990, 1991,
1992 and 1993
Y-Axis Information: Dollars in millions from bottom to top
0, 100, 200, 300, 400, 500, 600
Specific Data Points: 1990 1991 1992 1993
---- ---- ---- ----
285.3 335.2 450.1 527.7