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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 2, 2003.
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 .
------- ------------
Indicate by check mark whether the registrant is an accelerated filer.
Yes X No
----------- -----------
The registrant had 39,101,108 shares of Class A voting, no par value common
stock outstanding as of September 5, 2003.
1
FRED'S, INC.
------------
INDEX
-----
Page No.
- --------------------------------------------------------------------------------
Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements (unaudited):
Consolidated Balance Sheets as of
August 2, 2003 and February 1, 2003 3
Consolidated Statements of Income
for the Thirteen Weeks Ended August 2, 2003
and August 3, 2002 and the Twenty-Six Weeks ended
August 2, 2003 and August 3, 2002 4
Consolidated Statements of Cash Flows
for the Twenty-six Weeks Ended August 2, 2003
and August 3, 2002 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations 8 - 11
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 11
Item 4 - Controls and Procedures 11
Part II - Other Information 12
- ---------------------------
Signatures 13
- ----------
2
FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
August 2, February 1,
2003 2003
---- ----
ASSETS:
- -------
Current assets:
Cash and cash equivalents $2,202 $8,209
Receivables, less allowance for doubtful
accounts of $975 ($975 at February 1, 2003) 15,967 18,400
Inventories 218,770 193,506
Other current assets 6,106 7,775
-------- --------
Total current assets 243,045 227,890
Property and equipment, at depreciated cost 124,751 110,794
Equipment under capital leases, less accumulated
amortization of $2,881 ($2,542 at February 1,2003) 2,086 2,425
Other noncurrent assets 4,345 4,739
-------- --------
Total assets $374,227 $345,848
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $54,327 $58,489
Current portion of indebtedness 36 177
Current portion of capital lease obligations 705 728
Accrued liabilities 17,839 19,484
Current deferred tax liability 11,273 10,559
-------- --------
Total current liabilities 84,180 89,437
-------- --------
Long term portion of indebtedness 8,489 121
Capital lease obligations 2,031 2,389
Deferred tax liability 7,328 676
Other noncurrent liabilities 2,655 2,455
-------- --------
Total liabilities 104,683 95,078
-------- --------
Shareholders' equity:
- ---------------------
Preferred stock, nonvoting, no par value,
10,000,000 shares authorized, none outstanding --- ---
Preferred stock, Series A junior participating
nonvoting, no par value, 224,594 shares
authorized, none outstanding --- ---
Common stock, Class A voting, no par value,
60,000,000 shares authorized 38,991,714
shares issued and outstanding
(38,509,888 shares at February 1, 2003) 125,277 117,209
Common stock, Class B nonvoting, no par value,
11,500,000 shares authorized, none outstanding --- ---
Retained earnings 144,267 133,589
Deferred compensation on restricted
stock incentive plan --- (28)
-------- --------
Total shareholders' equity 269,544 250,770
-------- --------
Total liabilities and shareholders' equity $374,227 $345,848
======== ========
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 2, August 3, August 2, August 3,
2003 2002 2003 2002
---------------------- ----------------------
Net sales $302,270 $256,470 $612,959 $514,897
Cost of goods sold 217,326 186,832 440,067 375,834
------- ------- ------- -------
Gross profit 84,944 69,638 172,892 139,063
Selling, general and
administrative expenses 78,259 63,990 154,230 124,002
------- ------- ------- -------
Operating income 6,685 5,648 18,662 15,061
Interest expense(income),net 100 7 197 (67)
------- ------- ------- -------
Income before income taxes 6,585 5,641 18,465 15,128
Provision for income taxes 2,200 1,974 6,223 5,186
------- ------- ------- -------
Net income $ 4,385 $ 3,667 $ 12,242 $ 9,942
======== ======== ======== ========
Net income per share *
Basic $ .11 $ .10 $ .32 $ .26
======== ======== ======== ========
Diluted $ .11 $ .09 $ .31 $ .25
======== ======== ======== ========
Weighted average shares outstanding *
Basic 38,695 38,229 38,569 38,133
======== ======== ======== ========
Diluted 39,510 39,167 39,328 39,164
======== ======== ======== ========
Dividends per share $ .02 $ .02 $ .02 $ .02
======== ======== ======== ========
* All share and per share amounts have been adjusted to reflect the
distribution of a three-for-two stock split on July 1, 2003.
See accompanying notes to consolidated financial statements.
4
FRED'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Twenty-six Weeks Ended
August 2, August 3,
2003 2002
---- ----
Cash flows from operating activities:
Net income $12,242 $9,942
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 12,124 10,107
Provision for uncollectible receivables - (42)
LIFO reserve 670 600
Deferred income taxes 7,366 756
Amortization of deferred compensation on
restricted stock incentive plan 28 23
Tax benefit upon exercise of stock options 1,066 1,305
(Increase)decrease in assets:
Receivables 2,433 366
Inventories (25,934) (20,043)
Other assets (1,287) (1,034)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (5,807) 158
Income taxes payable 2,962 (459)
Other noncurrent liabilities 200 200
-------- --------
Net cash provided by operating activities 6,063 1,879
-------- --------
Cash flows from investing activities:
Capital expenditures (24,879) (19,431)
Asset acquisition, net of cash acquired
(primarily intangibles) (468) (1,110)
-------- --------
Net cash used in investing activities (25,347) (20,541)
-------- --------
Cash flows from financing activities:
Reduction of indebtedness and capital lease
obligations (551) (479)
Proceeds from revolving line of credit,
net of payments 8,397 2,564
Proceeds from exercise of options 1,531 1,277
Proceeds from sale of additional shares 5,464 3,537
Cash dividends paid (1,564) (1,550)
-------- --------
Net cash provided by financing activities 13,277 5,349
-------- --------
Decrease in cash and cash equivalents (6,007) (13,313)
Beginning of period cash and cash equivalents 8,209 15,906
-------- --------
End of period cash and cash equivalents $2,202 $2,593
======== ========
Supplemental disclosures of cash flow information:
Interest (received) paid $192 ($49)
======== ========
Income taxes paid $6,300
======== ========
Non cash investing and financing activities:
Assets acquired through capital lease obligations $--- $1,330
======== ========
See accompanying notes to consolidated financial statements.
5
FRED'S, INC.
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(amounts in thousands, except per share data)
- -------------------------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
- -------------------------------------------------------------------------------
Fred's, Inc. ("We", "Our" or "Us") operates 494 discount general
merchandise stores, including 26 franchised Fred's stores, in fourteen states
mainly in the southeastern United States. Two hundred and thirty 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 accounting
principles generally accepted in the United States. 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 accounting principles generally accepted in the United
States. The statements should be read in conjunction with the Notes to the
Consolidated Financial Statements for the fiscal year ended February 1, 2003
incorporated into Our Annual Report on Form 10-K.
The results of operations for the twenty-six week period ended August 2,
2003 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 2003
presentation.
- -------------------------------------------------------------------------------
NOTE 2: INVENTORIES
- -------------------------------------------------------------------------------
Warehouse 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. Under the retail
inventory method ("RIM"), the valuation of inventories at cost and the resulting
gross margin are calculated by applying a calculated cost-to-retail ratio to the
retail value of inventories. The RIM is an averaging method that has been widely
used in the retail industry due to its practicality. Also, it is recognized that
the use of the RIM will result in valuing inventories at lower of cost or market
if markdowns are currently taken as a reduction of the retail value of
inventories. Inherent in the RIM calculation are certain significant management
judgments and estimates including, among others, initial markups, markdowns, and
shrinkage, which significantly impact the ending inventory valuation at cost as
well as resulting gross margin. These significant estimates, coupled with the
fact that the RIM is an averaging process, can, under certain circumstances,
produce distorted or inaccurate cost figures. Management believes that our RIM
provides an inventory valuation which reasonably approximates cost and results
in carrying inventory at the lower of cost or market. For pharmacy inventories,
which are $35,882 and $31,304 at August 2, 2003 and August 3, 2002,
respectively, cost was determined using the LIFO (last-in, first-out) method.
The current cost of inventories exceeded the LIFO cost by $6,808 at August 2,
2003 and $5,203 at August 3, 2002.
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 based upon the latest
available published index.
6
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NOTE 3: INCENTIVE STOCK OPTIONS
- -------------------------------------------------------------------------------
As permitted under accounting principles generally accepted in the United
States, we account for our stock-based compensation plans using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
stock-based employee compensation expense is reflected in net income because the
exercise price of our incentive employee stock options equals the market price
of the underlying stock on the date of grant. The following table illustrates
the effect on net income and earnings per share if we had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), to stock-based
employee compensation.
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 2, 2003 August 3, 2002 August 2, 2003 August 3, 2002
-------------- -------------- -------------- --------------
Net income $ 4,385 $ 3,667 $12,242 $9,942
SFAS No. 123 pro forma
compensation expense,
net of income taxes (432) (110) (513) (228)
------- -------- ------- ------
SFAS No. 123 pro forma
Net income $ 3,953 $ 3,557 $ 11,729 $ 9,714
======= ======= ======== =======
Pro forma earnings per share:
* Basic $ 0.10 $ 0.09 $ .30 $ .25
======= ======= ====== ======
* Diluted $ 0.10 $ 0.09 $ .30 $ .25
======= ======= ====== ======
Earnings per share, as reported:
* Basic $ 0.11 $ 0.10 $ .32 $ .26
======= ======= ====== ======
* Diluted $ 0.11 $ 0.09 $ .31 $ .25
======= ======= ====== ======
* All share and per share amounts have been adjusted to reflect the
distribution of a three-for-two stock split on July 1, 2003.
7
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 are the most effective
tools for coping with increasing costs and expenses.
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Thirteen Weeks Ended August 2, 2003 and August 3, 2002
- ------------------------------------------------------
Net sales increased to $302.3 million in 2003 from $256.5 million in 2002, an
increase of $45.8 million or 17.9%. The increase was attributable to comparable
store sales increases of 5.5% ($13.5 million) and sales by stores not yet
included as comparable stores ($32.4 million). Sales to franchisees decreased
$.1 million in 2003. The sales mix for the period was 50.2% Hardlines, 33.2%
Pharmacy, 13.9% Softlines, and 2.7% Franchise. This compares with 49.4%
Hardlines, 34.0% Pharmacy, 13.3% Softlines, and 3.3% Franchise for the same
period last year.
Gross profit increased to 28.1% of sales in 2003 compared with 27.2% of sales in
the prior-year period. Gross profit margin increased as a result of improved
initial markup on shipments, product mix, and vendor allowances of $1.3 million
associated with the opening of our Georgia distribution facility.
Selling, general and administrative expenses increased to $78.3 million in 2003
from $64.0 million in 2002. As a percentage of sales, expenses increased to
25.9% of sales compared to 25.0% of sales last year. The increase in expenses is
primarily due to cost associated with our growth program for stores and the
opening of the Georgia distribution facility.
During the second quarter of 2003 interest expense increased by $.1 million when
compared to 2002, reflecting additional borrowings during the quarter for the
store growth program.
For the second quarter of 2003, the effective income tax rate was 33.4%,
compared with 35.0% for last year. Income taxes in the second quarter benefited
from federal tax credits that became available in 2002.
Twenty-six Weeks Ended August 2, 2003 and August 3, 2002
- --------------------------------------------------------
Net sales increased to $613.0 million in 2003 from $514.9 million in 2002, an
increase of $98.1 million or 19.1%. The increase was attributable to comparable
store sales increases of 5.8% ($28.5 million) and sales by stores not yet
included as comparable stores ($70.1 million). Sales to franchisees decreased
$0.5 million in 2003. The sales mix for the period was 49.7% Hardlines, 33.2%
8
Pharmacy, 14.4% Softlines, and 2.7% Franchise. This compares with 48.7%
Hardlines, 34.6% Pharmacy, 13.3% Softlines, and 3.4% Franchise for the same
period last year.
Gross profit increased to 28.2% of sales in 2003 compared with 27.0% of sales in
the prior-year period. Gross profit margins increased as a result of improved
initial markup on shipments and vendor allowances associated with the opening of
our Georgia distribution facility.
Selling, general and administrative expenses increased to $154.2 million in 2003
from $124.0 million in 2002. As a percentage of sales, expenses increased to
25.2% of sales compared to 24.1% of sales last year. The increase in expenses
was attributable to cost associated with our store expansion program and
distribution facilities, as well as higher insurance costs.
For the first six months of 2003, we incurred interest expense of $.2 million as
compared to interest income of $0.1 million last year. The difference is
primarily resulting from increased borrowing for the completion of our Georgia
distribution facility.
For the first six months of 2003, the effective income tax rate was 33.7%,
compared with 34.3% for last year. Income taxes in the first half of the year
benefited from federal tax credits that became available in 2002 and from a
decrease in the valuation allowance taken against state net operating loss carry
forwards. We anticipate the tax rate for the remaining two quarters of 2003 to
be in the 35% range.
- -------------------------------------------------------------------------------
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 $6.1 million during the
twenty-six week period ended August 2, 2003. Cash was primarily used to increase
inventories by approximately $25.9 million in the first six months of 2003. This
increase was primarily attributable to 54 additional stores in the first six
months of 2003 as well as stocking the new distribution facility. Accounts
payable decreased approximately $5.8 million during the first six months of
2003.
Cash flows used in investing activities totaled $25.3 million, and consisted
primarily of capital expenditures associated with the store and pharmacy
expansion program ($14.6 million), expenditures for the new distribution center
in Dublin, Georgia ($7.0 million) and ($3.7 million) for technology and other
corporate expenditures. During the first six months, we opened 56 stores, closed
2 stores, opened 15 pharmacies, closed 1 pharmacy and remodeled 20 stores. We
expect to open approximately 20 stores in the third quarter and approximately 70
to 75 stores for the year. Our capital expenditure plan for 2003 is in the $31
million dollar range for store and pharmacy expansion. Depreciation expense for
the year is in the $24 million dollar range.
Cash flows provided by financing activities totaled $13.3 million and included
$5.5 million on June 6, 2003 from proceeds of 150,000 (pre split) additional
shares sold and $8.4 million in borrowings under our revolving line of credit to
fund the store and pharmacy growth program and completion of the Georgia
distribution facility. As of August 2, 2003, we have 376,866 shares of Class A
common stock available to be issued from the March 6, 2002 Registration
Statement.
On July 31, 2003, we entered into an agreement to modify the new Revolving Loan
and Credit Agreement (the "Agreement") with a bank to replace the April 3, 2000
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
9
restrictive covenants of the Agreement, we are required to maintain specified
tangible net worth (which was $193,852,000 at August 2, 2003) and net income
levels. We are required to pay a commitment fee to the bank at a rate per annum
equal to .15% on the unutilized portion of the revolving line commitment over
the term of the Agreement. The term of the Agreement extends to July 31, 2006.
There was $8.4 million in borrowings outstanding under the Agreement at August
2, 2003.
We financed the construction of our Dublin, Georgia distribution center with
taxable industrial development revenue bonds issued by the City of Dublin and
County of Laurens Development Authority. We purchased 100% of the issued bonds
and intend to hold them to maturity, effectively financing the construction with
internal cash flow. We have offset the investment in the bonds ($33,234,000)
against the related liability and neither is reflected on the consolidated
balance sheet.
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.
- -------------------------------------------------------------------------------
STOCK SPLIT
- -------------------------------------------------------------------------------
On June 5, 2003, we announced a three-for-two stock split which we effected as a
stock dividend on July 1, 2003 to shareholders of record on June 16, 2003.
- -------------------------------------------------------------------------------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
- -------------------------------------------------------------------------------
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;
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; 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
10
obligation to update any forward-looking statement to reflect events or
circumstances arising after the date on which it was made.
Item 3.
- -------------------------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -------------------------------------------------------------------------------
As of August 2, 2003, we had no holdings of derivative financial or commodity
instruments. 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.
Item 4.
- -------------------------------------------------------------------------------
CONTROLS AND PROCEDURES
- -------------------------------------------------------------------------------
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-1(c)
under the Securities Exchange Act of 1934). Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer, concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in our periodic SEC reports. There were no
changes in our internal control over financial reporting (as defined in rule
13a-15(f) under the Securities Exchange Act of 1934) that occurred during our
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
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 18, 2003. 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 January 31, 2004.
The results of the voting were as follows:
Abstain/
For Against Withheld Broker Non-Vote
--- ------- -------- ---------------
Election of Directors:
Michael J. Hayes 18,036,303 6,512,132 1,196,535
John R. Eisenman 24,173,217 375,218 1,196,535
Roger T. Knox 24,172,720 375,715 1,196,535
John D. Reier 18,035,795 6,512,640 1,196,535
Thomas H. Tashjian 24,172,682 375,753 1,196,535
Appointment of
Ernst & Young LLP: 22,949,444 1,588,059 1,207,467
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.15 Third loan modification agreement dated July 31,
2003 (modifies the Revolving Loan and Credit Agreement
dated April 3, 2000.)
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350.
Reports on Form 8-K:
1) Current Report filed August 21, 2003, reporting sales and
earnings for the second quarter ended August 2, 2003, and
other matters relating to the Company's operational and
financial condition.
Current Report filed June 5, 2003, reporting information
relating to board approval of a three-for-two stock split.
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: September 15, 2003
- ------------------------- ------------------------------
Michael J. Hayes
Chief Executive Officer
Date: September 15, 2003
- ------------------------- ------------------------------
Jerry A. Shore
Chief Financial Officer
13
14
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 15, 2003 Chief Executive Officer
- -------------------------
/s/Jerry A. Shore
-----------------
Jerry A. Shore
Date: September 15, 2003 Chief Financial Officer
- -------------------------
Exhibit 31.1
Certification of Chief Executive Officer
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 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 report;
3. Based on my knowledge, the financial statements, and other
financial information included in this 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 report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designated
under our supervision, 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
report is being prepared;
b) Designated such internal control over financial reporting,
or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 15, 2003 --------------------------
Michael J. Hayes
Chief Executive Officer
16
Exhibit 31.2
Certification of Chief Financial Officer
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 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 report;
3. Based on my knowledge, the financial statements, and other
financial information included in 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 report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designated
under our supervision, 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
report is being prepared;
b) Designated such internal control over financial reporting,
or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any changes in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 15, 2003 ---------------------------
Jerry A. Shore
Executive Vice President and
Chief Financial Officer
17
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 18 U.S.C. Section 1350
In connection with this quarterly report on Form 10-Q of Fred's, Inc. each of
the undersigned, Michael J. Hayes and Jerry A. Shore, certifies, pursuant to
Section 18 U.S.C. Section 1350, 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 15, 2003 -----------------------------
Michael J. Hayes
Chief Executive Officer
-----------------------------
Jerry A. Shore
Executive Vice President and
Chief Financial Officer
18