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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 August 3, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
--------------- ---------------
Commission file number 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
----------- -----------
The registrant had 25,627,141 shares of Class A voting, no par value common
stock outstanding as of September 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
August 3, 2002 and February 2, 2002 3
Consolidated Statements of Income
for the Thirteen Weeks Ended August 3, 2002
and August 4, 2001 and the Twenty-Six Weeks
Ended August 3, 2002 and August 4, 2001 4
Consolidated Statements of Cash Flows
for the Twenty-Six Weeks Ended August 3, 2002
and August 4, 2001 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 7 - 10
Item 3 - Quantitative and Qualitative Disclosure
about Market Risk 10
Part II - Other Information 12
- ---------------------------
Signatures 13
- ----------
Certifications
- --------------
Certification of the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 14
Certification of the Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 15
Certification of the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 16
Certification of the Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 17
2
FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
August 3, February 2,
2002 2002
------------- ------------
ASSETS:
Current assets:
Cash and cash equivalents $2,593 $15,906
Receivables, less allowance for doubtful
accounts of $615 ($657 at February 2, 2002) 15,381 15,705
Inventories 183,003 163,560
Deferred income taxes 1,034 1,790
Other current assets 3,533 2,499
------------- -------------
Total current assets 205,544 199,460
Property and equipment, at depreciated cost 88,838 78,225
Equipment under capital leases, less accumulated
amortization of $2,149 ($1,849 at February 2,2002) 2,563 1,533
Other noncurrent assets 4,962 4,841
------------- -------------
Total assets $301,907 $284,059
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $43,437 $43,747
Current portion of indebtedness 422 562
Current portion of capital lease obligations 742 678
Accrued liabilities 14,696 14,228
Income taxes payable 1,407 1,866
------------- -------------
Total current liabilities 60,704 61,081
------------- -------------
Long term portion of indebtedness 2,705 141
Deferred tax liability 696 696
Capital lease obligations 2,106 1,179
Other noncurrent liabilities 2,255 2,055
------------- -------------
Total liabilities 68,466 65,152
------------- -------------
Shareholders' equity:
Common stock, Class A voting, no par value,
25,620,577 shares issued and outstanding
(25,361,112 shares at February 2, 2002) 116,627 110,508
Retained earnings 116,854 108,462
Deferred compensation on restricted
stock incentive plan (40) (63)
------------- -------------
Total shareholders' equity 233,441 218,907
------------- -------------
Total liabilities and shareholders' equity $301,907 $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 Twenty-Six Weeks Ended
---------------------- ----------------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
---------------------- ----------------------
Net sales $256,470 $210,278 $514,897 $417,637
Cost of goods sold 186,832 153,497 375,834 303,098
------- ------- ------- -------
Gross profit 69,638 56,781 139,063 114,539
Selling, general and
administrative expenses 63,990 52,817 124,002 103,538
------- ------- ------- -------
Operating income 5,648 3,964 15,061 11,001
Interest expense (income),net 7 706 (67) 1,336
------- ------- ------- -------
Income before income taxes 5,641 3,258 15,128 9,665
Provision for income taxes 1,974 1,144 5,186 3,392
------- ------- ------- -------
Net income $ 3,667 $ 2,114 $ 9,942 $ 6,273
======== ======== ======== ========
Net income per share
* Basic .14 $ .09 $ .39 $ .28
======== ======== ======== ========
* Diluted .14 $ .09 $ .38 $ .27
======== ======== ======== ========
Weighted average shares outstanding
* Basic 25,486 22,659 25,422 22,584
======== ======== ======== ========
* Diluted 26,111 22,902 26,109 23,228
======== ======== ======== ========
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)
Twenty-Six Weeks Ended
----------------------
August 3, August 4,
2002 2001
---- ----
Cash flows from operating activities:
Net income $9,942 $6,273
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 10,107 8,518
Provision for uncollectible receivables (42) --
Lifo reserve 600 400
Deferred income taxes 756 483
Tax benefit on exercise of stock options 1,305 397
Amortization of deferred compensation on
restricted stock incentive plan 23 69
Cancellation of restricted stock -- (21)
(Increase)decrease in assets:
Receivables 366 3,527
Inventories (20,043) (10,559)
Other assets (1,034) 253
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 158 (758)
Income taxes payable (459) (3,160)
Other noncurrent liabilities 200 28
------ -----
Net cash provided by operating activities 1,879 5,450
------ -----
Cash flows from investing activities:
Capital expenditures (19,431) (9,673)
Asset acquisition, net of cash acquired
(primarily intangibles) (1,110) (383)
------- -----
Net cash used in investing activities (20,541) (10,056)
------- -------
Cash flows from financing activities:
Reduction of indebtedness and capital lease
obligations (479) (1,343)
Proceeds from revolving line of credit,
net of payments 2,564 5,281
Proceeds from exercise of options 1,277 1,238
Proceeds from sale of additional shares 3,537 --
Cash dividends paid (1,550) (1,211)
------ ------
Net cash provided by financing activities 5,349 3,965
Decrease in cash and cash equivalents (13,313) (641)
Beginning of period cash and cash equivalents 15,906 2,569
------ -----
End of period cash and cash equivalents $2,593 $1,928
====== ======
Supplemental disclosures of cash flow information:
Interest (received) paid ($ 49) $1,223
===== ======
Income taxes paid $6,300 $5,700
====== ======
Non cash investing and financing activities:
Assets acquired through capital lease obligations $1,330 $691
====== =====
Common stock issued for acquisition $--- $596
==== ====
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 410 discount general
merchandise stores, including 26 franchised Fred's stores, in fourteen states in
the southeastern United States. Two hundred and nine 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 twenty-six week period ended August
3, 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.
- --------------------------------------------------------------------------------
NOTE 2: INVENTORIES
- --------------------------------------------------------------------------------
Wholesale inventories are stated at the lower of cost or market using
the FIFO (first-in, first-out) method. Retail inventories are stated at the
lower of cost or market as determined by the retail inventory method. For
pharmacy inventories, which comprise approximately 18% of the retail inventories
at August 3, 2002, cost was determined using the LIFO (last-in, first-out)
method. The current cost of pharmacy inventories exceeded the LIFO cost by
approximately $5,203,000 and $4,603,000 at August 3, 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
- --------------------------------------------------------------------------------
GENERAL
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Thirteen Weeks Ended August 3, 2002 and August 4, 2001
- ------------------------------------------------------
Net sales increased to $256.5 million in 2002 from $210.3 million in 2001, an
increase of $46.2 million or 22.0%. The increase was attributable to comparable
store sales increases of 12.2% ($24.7 million) and sales by stores not yet
included as comparable stores ($20.8 million). Sales to franchisees increased
$.7 million in 2002. The sales mix for the period was 49.4% Hardlines, 34.0%
Pharmacy, 13.3% Softlines, and 3.3% Franchise. This compares with 50.1%
Hardlines, 34.7% Pharmacy, 11.6% Softlines, and 3.6% Franchise for the same
period last year.
Gross profit increased to 27.2% of sales in 2002 compared with 27.0% of sales in
the prior-year period. Gross profit margin increased as a result of better
pharmacy department initial margins resulting from the mix of generic drugs to
brand name drug sales.
Selling, general and administrative expenses increased to $64.0 million in 2002
from $52.8 million in 2001. As a percentage of sales, expenses decreased to
25.0% of sales compared to 25.1% of sales last year. Selling, general and
administrative expenses were improved primarily by leveraging the higher sales
to improved productivity and the control of labor cost.
During the quarter interest expense decreased by $.7 million when compared to
2001, reflecting the benefit of our public offering of stock in September 2001.
7
Twenty-six Weeks Ended August 3, 2002 and August 4, 2001
- --------------------------------------------------------
Net sales increased to $514.9 million in 2002 from $417.6 million in 2001, an
increase of $97.3 million or 23.3%. The increase was attributable to comparable
store sales increases of 13.3% ($53.2 million) and sales by stores not yet
included as comparable stores ($42.8 million). Sales to franchisees increased
$1.3 million in 2002. The sales mix for the period was 48.7% Hardlines, 34.6%
Pharmacy, 13.3% Softlines, and 3.4% Franchise. This compares with 49.2%
Hardlines, 35.5% Pharmacy, 11.7% Softlines, and 3.6% Franchise for the same
period last year.
Gross profit decreased to 27.0% of sales in 2002 compared with 27.4% 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.
Selling, general and administrative expenses increased to $124.0 million in 2002
from $103.5 million in 2001. As a percentage of sales, expenses decreased to
24.1% of sales compared to 24.8% 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 six months of 2002, we earned interest income of $.1 million as
compared to interest expense of $1.3 million last year. The difference is
primarily resulting from the benefit of our public offering of stock in
September 2001 as well as managing the working capital generated from
operations.
For the first six months of 2002, the effective income tax rate was 34.3% 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
- --------------------------------------------------------------------------------
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 $1.9 million during the
twenty-six week period ended August 3, 2002. Cash was primarily used to increase
inventories by approximately $20.0 million in the first six months of 2002. This
increase was primarily attributable to 31 new stores in the first six months of
2002. Accounts payable increased approximately $.2 million during the first six
months of 2002.
Cash flows used in investing activities totaled $20.5 million, and consisted
primarily of capital expenditures associated with the store and pharmacy
expansion program ($16.5 million) and expenditures for the new distribution
center to be constructed in Dublin, Georgia ($4.0 million). During the first six
months, we opened 31 stores and 7 pharmacies. We expect to open 15 to 20 stores
in the third quarter and approximately 55 to 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
8
the year. Our capital expenditure plans for the new distribution center is in
the $25 million dollar range.
Cash flows provided by financing activities totaled $5.3 million and included
$3.5 million from proceeds of additional shares sold 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 August 3, 2002
totaled $2.7 million and the borrowings outstanding under the Agreement at
August 4, 2001 totaled $27.9 million.
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 $.4 million and $1.0 million
borrowings outstanding under the Loan Agreement at August 3, 2002 and August 4,
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 and the
borrowings outstanding under the Term Loan Agreement at August 4, 2001 totaled
$8.0 million.
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.
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------------------------
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 cost incurred in a restructuring)." This Statement
improves financial reporting by requiring
9
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.
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.
- --------------------------------------------------------------------------------
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- --------------------------------------------------------------------------------
We have no holdings of derivative financial or commodity instruments as of
August 3, 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.
- --------------------------------------------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
- --------------------------------------------------------------------------------
Statements, other than those based on historical facts that the 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;
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;
10
o Changes in reimbursement practices for pharmaceuticals;
o Governmental regulation;
o Increases in fuel and utility rates; 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
The Annual Meeting of the Shareholders of Fred's, Inc. was held on June
26, 2002. Michael J. Hayes, John R. Eisenman, Roger T. Knox, John D.
Reier, and Thomas H. Tashjian were elected to continue as directors of
the Company. The shareholders also ratified the appointment of Ernst &
Young LLP as independent public accountants for the fiscal year ending
February 1, 2003. The shareholders also approved the amendment to the
Company's charter increasing the authorized shares and the adoption of
the 2002 Long Term Incentive Plan and ratify the grants thereunder.
The results of the voting were as follows:
Abstain/
For Against Withheld Broker Non-Vote
--- ------- -------- ---------------
Election of Directors:
Michael J. Hayes 18,387,031 3,663,179 3,489,103
John R. Eisenman 21,873,863 176,347 3,489,103
Roger T. Knox 21,873,836 176,374 3,489,103
John D. Reier 18,388,665 3,661,545 3,489,103
Thomas H. Tashjian 21,873,836 176,374 3,489,103
Appointment of
Ernst & Young LLP: 21,645,920 363,128 3,530,265
Approval of amendment to increase authorized shares:
14,855,227 7,140,018 3,544,068
Approval of 2002 Long Term Incentive Plan and ratify grants:
13,647,679 4,438,360 7,453,274
Item 5. Other Information
Not Applicable.
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.
/s/Michael J. Hayes
------------------------------
Michael J. Hayes
Date: September 11, 2002 Chief Executive Officer
- -------------------------
/s/Jerry A. Shore
------------------------------
Jerry A. Shore
Date: September 11, 2002 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. ("Fred's");
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 Fred's as
of, and for, the periods presented in this quarterly report.
Date: September 11, 2002 /s/ Michael J. Hayes
--------------------------------
Michael J. Hayes
Chief Executive Officer
14
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: September 11, 2002 /s/ Michael J. Hayes
--------------------------------
Michael J. Hayes
Chief Executive Officer
15
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. ("Fred's");
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 Fred's as
of, and for, the periods presented in this quarterly report.
Date September 11, 2002 /s/ Jerry A. Shore
--------------------------------
Jerry A. Shore
Executive Vice President and
Chief Financial Officer
16
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 September 11, 2002 /s/ Jerry A. Shore
--------------------------------
Jerry A. Shore
Executive Vice President and
Chief Financial Officer
17