FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended November 2, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
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Commission file number 001-14565
FRED'S, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0634010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4300 New Getwell Rd., Memphis, Tennessee 38118
(Address of principal executive offices) (zip code)
(901) 365-8880
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer.
Yes X No
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The registrant had 25,662,535 shares of Class A voting, no par value common
stock outstanding as of December 6, 2002.
FRED'S, INC.
INDEX
Page No.
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Part I - Financial Information
Item 1 - Financial Statements (unaudited):
Consolidated Balance Sheets as of
November 2, 2002 and February 2, 2002 3
Consolidated Statements of Income
for the Thirteen Weeks Ended November 2, 2002
and November 3, 2001 and the Thirty-Nine Weeks
Ended November 2, 2002 and November 3, 2001 4
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended November 2, 2002
and November 3, 2001 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 7 - 11
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 10
Item 4 - Controls and Procedures
Part II - Other Information 12
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Signatures 13
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Certifications
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Certification of the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 15
Certification of the Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 16
Certification of the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 18
Certification of the Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 19
2
2
FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
November 2, February 2,
2002 2002
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ASSETS:
Current assets:
Cash and cash equivalents $2,078 $15,906
Receivables, less allowance for doubtful
accounts of $697 ($657 at February 2, 2002) 18,523 15,705
Inventories 218,957 163,560
Deferred income taxes 464 1,790
Other current assets 3,073 2,499
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Total current assets 243,095 199,460
Property and equipment, at depreciated cost 96,003 78,225
Equipment under capital leases, less accumulated
amortization of $2,346 ($1,849 at February 2,2002) 2,366 1,533
Other noncurrent assets 4,721 4,841
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Total assets $346,185 $284,059
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $67,482 $43,747
Current portion of indebtedness 281 562
Current portion of capital lease obligations 656 678
Accrued liabilities 15,549 14,228
Income taxes payable 3,640 1,866
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Total current liabilities 87,608 61,081
Long term portion of indebtedness 13,010 141
Deferred tax liability 696 696
Capital lease obligations 1,981 1,179
Other noncurrent liabilities 2,355 2,055
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Total liabilities 105,650 65,152
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Shareholders' equity:
Common stock, Class A voting, no par value,
25,649,791 shares issued and outstanding
(25,361,112 shares at February 2, 2002) 117,083 110,508
Retained earnings 123,495 108,462
Deferred compensation on restricted
stock incentive plan (43) (63)
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Total shareholders' equity 240,535 218,907
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Total liabilities and shareholders' equity $346,185 $284,059
============= =============
See accompanying notes to consolidated financial statements.
3
FRED'S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------- ----------------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---------------------- ----------------------
Net sales $263,197 $219,242 $778,094 $636,879
Cost of goods sold 187,203 157,204 563,037 460,302
------- ------- ------- -------
Gross profit 75,994 62,038 215,057 176,577
Selling, general and
administrative expenses 64,475 53,697 188,477 157,235
------- ------- ------- -------
Operating income 11,519 8,341 26,580 19,342
Interest expense, net 121 439 54 1,775
------- ------- ------- -------
Income before income taxes 11,398 7,902 26,526 17,567
Provision for income taxes 3,990 2,774 9,176 6,166
------- ------- ------- -------
Net income $ 7,408 $ 5,128 $ 17,350 $ 11,401
======== ======== ======== ========
Net income per share
* Basic $ .29 $ .22 $ .68 $ .50
======== ======== ======== ========
* Diluted $ .28 $ .21 $ .66 $ .48
======== ======== ======== ========
Weighted average shares outstanding
* Basic 25,552 23,750 25,467 22,962
======== ======== ======== ========
* Diluted 26,175 23,945 26,166 23,750
======== ======== ======== ========
Dividends per share $ .03 $ .027 $ .03 $ .027
======== ======== ======== ========
* All share and per share amounts have been adjusted to reflect the
distribution of a three-for-two stock split on February 1, 2002.
See accompanying notes to consolidated financial statements.
4
FRED'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Thirty-Nine Weeks Ended
----------------------
November 2, November 3,
2002 2001
---- ----
Cash flows from operating activities:
Net income $17,350 $11,401
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 15,502 13,125
Provision for uncollectible receivables 40 (171)
Lifo reserve 900 700
Deferred income taxes 1,326 878
Tax benefit on exercise of stock options 1,492 610
Amortization of deferred compensation on
restricted stock incentive plan 39 106
Cancellation of restricted stock -- (32)
(Increase)decrease in assets:
Receivables (2,858) (936)
Inventories (56,297) (36,170)
Other assets (573) (31)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 25,056 19,844
Income taxes payable 1,774 (1,994)
Other noncurrent liabilities 300 40
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Net cash provided by operating activities 4,051 7,370
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Cash flows from investing activities:
Capital expenditures (31,289) (13,436)
Asset acquisition, net of cash acquired
(primarily intangibles) (1,374) (742)
------- -----
Net cash used in investing activities (32,663) (14,178)
------- -------
Cash flows from financing activities:
Reduction of indebtedness and capital lease
obligations (972) (9,597)
Proceeds from revolving line of credit,
net of payments 13,010 (22,623)
Proceeds from exercise of options 1,528 1,905
Proceeds from sale of additional shares 3,537 38,088
Cash dividends paid (2,319) (1,822)
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Net cash provided by financing activities 14,784 5,951
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Decrease in cash and cash equivalents (13,828) (857)
Beginning of period cash and cash equivalents 15,906 2,569
------ -----
End of period cash and cash equivalents $2,078 $1,712
====== ======
Supplemental disclosures of cash flow information:
Interest paid $30 $1,696
===== ======
Income taxes paid $7,300 $6,700
====== ======
Non cash investing and financing activities:
Assets acquired through capital lease obligations $1,330 $691
====== =====
Common stock issued for acquisitions $--- $937
==== ====
See accompanying notes to consolidated financial statements.
5
FRED'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1: BASIS OF PRESENTATION
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Fred's, Inc. ("We", "Our" or "Us") operates 432 discount general
merchandise stores, including 26 franchised Fred's stores, in fourteen states
primarily in the Southeastern United States. Two hundred and ten of the stores
have full service pharmacies.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The statements do reflect all adjustments
(consisting of only normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of financial position in
conformity with generally accepted accounting principles. The statements should
be read in conjunction with the Notes to the Consolidated Financial Statements
for the fiscal year ended February 2, 2002 incorporated into Our Annual Report
on Form 10-K.
The results of operations for the thirty-nine week period ended
November 2, 2002 are not necessarily indicative of the results to be expected
for the full fiscal year.
Certain prior quarter amounts have been reclassified to conform to the
2002 presentation.
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NOTE 2: INVENTORIES
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Wholesale inventories are stated at the lower of cost or market using
the FIFO (first-in, first-out) method. Retail inventories, excluding pharmacy
inventories, are stated at the lower of cost or market as determined by the
retail inventory method. For pharmacy inventories, which comprise approximately
17% of the retail inventories at November 2, 2002, cost was determined using the
LIFO (last-in, first-out) method. The current cost of pharmacy inventories
exceeded the LIFO cost by approximately $5,503,000 and $4,603,000 at November 2,
2002 and February 2, 2002, respectively.
LIFO pharmacy inventory costs can only be determined annually when inflation
rates and inventory levels are finalized; therefore, LIFO pharmacy inventory
costs for interim financial statements are estimated.
6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
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GENERAL
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Our business is subject to seasonal influences, but has tended to experience
less seasonal fluctuation than many other retailers due to the mix of everyday
basic merchandise and pharmacy business. The fourth quarter is typically the
most profitable quarter because it includes the Christmas selling season. The
overall strength of the fourth quarter is partially mitigated, however, by the
inclusion of the month of January, which is generally the least profitable month
of the year.
The impact of inflation on labor and occupancy costs can significantly affect
our operations. Many of our employees are paid hourly rates related to the
federal minimum wage and, accordingly, any increase affects us. In addition,
payroll taxes, employee benefits and other employee-related costs continue to
increase. Occupancy costs, including rent, maintenance, taxes and insurance,
also continue to rise. We believe that maintaining adequate operating margins
through a combination of price adjustments and cost controls, careful evaluation
of occupancy needs, and efficient purchasing practices is the most effective
tool for coping with increasing costs and expenses.
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RESULTS OF OPERATIONS
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Thirteen Weeks Ended November 2, 2002 and November 3, 2001
- ------------------------------------------------------
Net sales increased to $263.2 million in 2002 from $219.2 million in 2001, an
increase of $44.0 million or 20.1%. The increase was attributable to comparable
store sales increases of 10.3% ($22.2 million) and sales by stores not yet
included as comparable stores ($21.5 million). Sales to franchisees increased
$.3 million in 2002. The sales mix for the period was 48.5% Hardlines, 34.8%
Pharmacy, 13.3% Softlines, and 3.4% Franchise. This compares with 48.0%
Hardlines, 36.1% Pharmacy, 12.1% Softlines, and 3.8% Franchise for the same
period last year.
Gross profit increased to 28.9% of sales in 2002 compared with 28.3% of sales in
the prior-year period. Gross profit margin increased as a result of higher
initial markups in both store and pharmacy departments.
Selling, general and administrative expenses increased to $64.5 million in 2002
from $53.7 million in 2001. As a percentage of sales, expenses were 24.5%, the
same as last year. The stabilizing of this percentage results from higher
distribution cost this year to support the new store growth. The distribution
and transportation cost increased as the Company opened 21 new stores during the
quarter. Most of these new locations were in areas that will be served by the
new Georgia Distribution Center after its completion. This has added
transportation cost in the current year due to the added distance from the
Memphis Distribution Center.
During the quarter interest expense decreased by $.3 million when compared to
2001, reflecting the benefit of our public offering of stock in September 2001.
7
Thirty-nine Weeks Ended November 2, 2002 and November 3, 2001
- --------------------------------------------------------
Net sales increased to $778.1 million in 2002 from $636.9 million in 2001, an
increase of $141.2 million or 22.2%. The increase was attributable to comparable
store sales increases of 12.5% ($77.2 million) and sales by stores not yet
included as comparable stores ($62.4 million). Sales to franchisees increased
$1.6 million in 2002. The sales mix for the period was 48.6% Hardlines, 34.7%
Pharmacy, 13.3% Softlines, and 3.4% Franchise. This compares with 48.2%
Hardlines, 36.0% Pharmacy, 11.9% Softlines, and 3.9% Franchise for the same
period last year.
Gross profit decreased to 27.6% of sales in 2002 compared with 27.7% of sales in
the prior-year period. Gross profit margins decreased as a result of increased
promotions to drive higher customer traffic during the first quarter together
with greater pricing pressure on the pharmacy department sales. Gross margins
have been favorable in the second and third quarters.
Selling, general and administrative expenses increased to $188.5 million in 2002
from $157.2 million in 2001. As a percentage of sales, expenses decreased to
24.2% of sales compared to 24.7% of sales last year. Selling, general and
administrative expenses were improved primarily by leveraging the higher sales
to improved productivity and labor cost controls. In the first quarter, we
increased reserves for insurance claims to reflect rising insurance cost and
internal growth causing an additional 30 basis points increase in selling,
general, and administrative expenses as a percent of sales for that quarter.
For the first nine months of 2002, interest expense was $.1 million as compared
to interest expense of $1.8 million last year. The difference primarily
results from the benefit of our public offering of stock in September 2001 as
well as our management of the working capital generated from operations.
For the first nine months of 2002, the effective income tax rate was 34.6% as a
result of the income tax benefits received from the Economic Stimulus Act that
was passed after September 11, 2001.
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LIQUIDITY AND CAPITAL RESOURCES
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Due to the seasonality of our business and the continued increase in the number
of stores and pharmacies, inventories are generally lower at year-end than at
each quarter-end of the following year.
Cash flows provided by operating activities totaled $4.1 million during the
thirty-nine week period ended November 2, 2002. Cash was primarily used to
increase inventories by approximately $56.3 million in the first nine months of
2002. This increase was primarily attributable to 52 new stores in the first
nine months of 2002. Accounts payable increased approximately $25.1 million
during the first nine months of 2002.
Cash flows used in investing activities totaled $32.7 million, and consisted
primarily of capital expenditures associated with the store and pharmacy
expansion program ($18.2 million), for the new distribution center to be
constructed in Dublin, Georgia ($10.6 million) and ($2.5 million) additional
investment in the Memphis distribution center primarily for expanding the
transportation fleet. During the first nine months, we opened 52 stores and 8
pharmacies. We expect to open 60 stores for the year. Our capital expenditure
plan for 2002 is in the $20 million dollar range for store and pharmacy
expansion and will approximate depreciation expense for the year. Our capital
expenditure plan for the new distribution center is in the $35 million dollar
range, of which $25 to $28 million is planned in the current year. The new
distribution center is currently on plan in regard to budget dollars, completion
date, and planning/ preparing for integration with our current distribution
system.
8
Cash flows provided by financing activities totaled $14.8 million and included
$3.5 million from proceeds of additional shares sold and $13.0 of borrowings
under our revolver to fund the accelerated store and pharmacy growth and the new
distribution center.
On April 3, 2000, we entered into a new Revolving Loan and Credit Agreement (the
"Agreement") with a bank to replace the May 15, 1992 Revolving Loan and Credit
Agreement, as amended. The Agreement provides us with an unsecured revolving
line of credit commitment of up to $40 million and bears interest at a 1.5%
below prime rate or a LIBOR-based rate. Under the most restrictive covenants of
the Agreement, we are required to maintain specified shareholders' equity and
net income levels. We are required to pay a commitment fee to the bank at a rate
per annum equal to .18% on the unutilized portion of the revolving line
commitment over the term of the Agreement. The term of the Agreement extends to
March 31, 2004. The borrowings outstanding under the Agreement at November 2,
2002 totaled $13.0 million and the Company used the proceeds of the public
offering to pay down the borrowings at November 3, 2001 to zero.
On April 23, 1999, we entered into a Loan Agreement (the "Loan Agreement") with
a bank. The Loan Agreement provided us with a four-year unsecured term loan of
$2.3 million to finance the replacement of our mainframe computer system. The
Loan Agreement bears interest of 6.15% per annum and matures on April 15, 2003.
Under the most restrictive covenants of the Loan Agreement, we are required to
maintain specified debt service levels. There were $.3 million and $.8 million
borrowings outstanding under the Loan Agreement at November 2, 2002 and November
3, 2001, respectively.
On May 5, 1998, we entered into a Loan Agreement (the "Term Loan Agreement")
with a bank. The Term Loan Agreement provided us with an unsecured term loan of
$12 million to finance the modernization and automation of our distribution
center and corporate facilities. The Term Loan Agreement bore interest of 6.82%
per annum and would have matured on November 1, 2005. We used the proceeds of
our September 2001 public offering to pay off the Term Loan Agreement prior to
November 3, 2001.
We believe that sufficient capital resources are available in both the
short-term and long-term through currently available cash and cash generated
from future operations and, if necessary, the ability to obtain additional
financing.
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RECENT ACCOUNTING PRONOUNCEMENTS
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In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 146, Accounting for Cost
Associated with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for cost associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issues No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including certain costs incurred in a restructuring)." This Statement
improves financial reporting by requiring that a liability for a cost associated
with an exit or disposal activity be recognized and measured initially at fair
value only when the liability is incurred. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company believes that the adoption
of this statement will not have a material impact on its financial position or
results of operation.
9
Beginning fiscal year 2002, we adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. This Statement supersedes SFAS No.
121, Accounting for the Impairment of Long-lived Assets to Be Disposed of, but
retains the fundamental provision of SFAS 121 for recognition and measurement of
the impairment of long-lived assets to be held and used and measurement of
long-lived assets to be held for sale. The statement requires that whenever
events or changes in circumstances indicate that a long-lived asset's carrying
value may not be recoverable, the asset should be tested for recoverability. The
statement also requires that a long-lived asset classified as held for sale
should be carried at the lower of its carrying value or fair value, less cost to
sell. The adoption of SFAS No. 144 did not have a material impact on our
financial statements.
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Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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We have no holdings of derivative financial or commodity instruments as of
November 2, 2002. We are exposed to financial market risks, including changes in
interest rates. All borrowings under our Revolving Credit Agreement bear
interest at 1.5% below prime rate or a LIBOR-based rate. An increase in interest
rates of 100 basis points would not significantly affect our income. All of our
business is transacted in U.S. dollars and, accordingly, foreign exchange rate
fluctuations have never had a significant impact on us, and they are not
expected to in the foreseeable future.
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Item 4 - CONTROLS AND PROCEDURES
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We maintain a rigorous set of disclosure controls and procedures and internal
controls designed to ensure that information required to be disclosed in our
filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Our principal executive and financial
officers have evaluated our disclosure controls and procedures within 90 days
prior to the filing of this Quarterly Report on Form 10-Q and have determined
that such disclosure controls and procedures are effective.
Subsequent to our evaluation, there were no significant changes in internal
controls or other factors that could significantly affect internal controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
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Statements, other than those based on historical facts that we expect or
anticipate may occur in the future are forward-looking statements which are
based upon a number of assumptions concerning future conditions that may
ultimately prove
to be inaccurate. Actual events and results may materially differ from
anticipated results described in such statements. Our ability to achieve such
results is subject to certain risks and uncertainties, including:
o Economic and weather conditions which affect buying patterns of our
customers and supply chain efficiency;
o Changes in consumer spending and our ability to anticipate buying
patterns and implement appropriate inventory strategies;
o Continued availability of capital and financing;
o Competitive factors;
o Changes in reimbursement practices for pharmaceuticals;
o Governmental regulation;
o Increases in fuel and utility rates;
10
o Timely completion and integration of the Dublin, Georgia distribution
center; and
o Other factors affecting business beyond our control.
Consequently, all of the forward-looking statements are qualified by this
cautionary statement and there can be no assurance that the results or
developments anticipated by us will be realized or that they will have the
expected effects on our business or operations. Actual results, performance or
achievements can differ materially from results suggested by this
forward-looking statement because of a variety of factors. We undertake no
obligation to update any forward-looking statement to reflect events or
circumstances arising after the date on which it was made.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Not Applicable.
Item 5. Other Information
On May 29, 2002, a portion of the Company's workers in its
Memphis distribution center voted to be represented by a
Union, which certification is currently being appealed.
The Company does not anticipate this representation will have
a material effect upon the Company's results of operations.
Item 6. Exhibits and Reports on Form 8-K/A
Exhibits:
Reports on Form 8-K:
Not Applicable.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRED'S, INC.
Date: December 16, 2002 /s/ Michael J. Hayes
------------------------ ------------------------------
Michael J. Hayes
Chief Executive Officer
-------------------------
Date: December 16, 2002 /s/ Jerry A. Shore
------------------------ ------------------------------
Jerry A. Shore
Chief Financial Officer
-------------------------
13
Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Michael J. Hayes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fred's, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
14
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 16, 2002 /s/Michael J. Hayes
-------------------------------------
Michael J. Hayes
Chief Executive Officer
15
Certification of Chief Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-Q of Fred's, Inc. I, Michael
J. Hayes, Chief Executive Officer of Fred's, Inc., certify, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
1. The report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in this report fairly presents, in all
material respects, the financial condition and results of
operations of Fred's, Inc.
Date: December 16, 2002
/s/Michael J. Hayes
-------------------------------------
Michael J. Hayes
Chief Executive Officer
16
Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Jerry A. Shore, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fred's,
Inc.
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
17
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: December 16, 2002
/s/Jerry A. Shore
-------------------------------------
Jerry A. Shore
Executive Vice President and
Chief Financial Officer
18
Certification of Chief Financial Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-Q of Fred's, Inc. I, Jerry
A. Shore, Executive Vice President and Chief Financial Officer of Fred's, Inc.,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in this report fairly presents, in
all material respects, the financial condition and results of
operations of Fred's, Inc.
Date: December 16, 2002
/s/Jerry A. Shore
-------------------------------------
Jerry A. Shore
Executive Vice President and Chief
Financial Officer
19