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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 November 1, 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 39,092,119 shares of Class A voting, no par value common
stock outstanding as of December 5, 2003.
1
FRED'S, INC.
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INDEX
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Page No.
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Part I - Financial Information
- ------------------------------
Item 1 - Financial Statements (unaudited):
Consolidated Balance Sheets as of
November 1, 2003 and February 1, 2003 3
Consolidated Statements of Income
for the Thirteen Weeks Ended November 1, 2003
and November 2, 2002 and the Thirty-Nine Weeks Ended
November 1, 2003 and November 2, 2002 4
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended November 1, 2003
and November 2, 2002 5
Notes to Consolidated Financial Statements 6 - 7
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
- ---------------------------
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures 13
- ----------
2
FRED'S, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except for number of shares)
November 1, February 1,
2003 2003
---- ----
ASSETS:
- -------
Current assets:
Cash and cash equivalents $2,279 $8,209
Receivables, less allowance for doubtful
accounts of $976 ($975 at February 1, 2003) 16,828 18,400
Inventories 260,589 193,506
Other current assets 4,951 7,775
---------- ---------
Total current assets 284,647 227,890
Property and equipment, at depreciated cost 128,339 110,794
Equipment under capital leases, less accumulated
amortization of $3,025 ($2,542 at February 1,2003) 1,942 2,425
Other noncurrent assets 4,256 4,739
---------- ---------
Total assets $419,184 $345,848
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $78,427 $58,489
Current portion of indebtedness 125 177
Current portion of capital lease obligations 735 728
Accrued liabilities 23,079 19,484
Current deferred tax liability 11,016 10,559
---------- ---------
Total current liabilities 113,382 89,437
---------- ---------
Long term portion of indebtedness 19,284 121
Capital lease obligations 1,844 2,389
Deferred tax liability 3,445 676
Other noncurrent liabilities 2,755 2,455
---------- ---------
Total liabilities 140,710 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 39,049,091
shares issued and outstanding
(38,509,888 shares at February 1, 2003) 125,959 117,209
Common stock, Class B nonvoting, no par value,
11,500,000 shares authorized, none outstanding --- ---
Retained earnings 152,515 133,589
Deferred compensation on restricted
stock incentive plan --- (28)
---------- ---------
Total shareholders' equity 278,474 250,770
---------- ---------
Total liabilities and shareholders' equity $419,184 $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 Thirty-Nine Weeks Ended
---------------------- -----------------------
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
---------------------- -----------------------
Net sales $311,668 $263,197 $924,627 $778,094
Cost of goods sold 220,477 187,203 660,544 563,037
------- ------- ------- -------
Gross profit 91,191 75,994 264,083 215,057
Selling, general and
administrative expenses 77,303 64,475 231,533 188,477
------- ------- ------- -------
Operating income 13,888 11,519 32,550 26,580
Interest expense(income),net 93 121 290 54
------- ------- ------- -------
Income before income taxes 13,795 11,398 32,260 26,526
Provision for income taxes 4,767 3,990 10,990 9,176
------- ------- ------- -------
Net income $ 9,028 $ 7,408 $ 21,270 $ 17,350
======== ======== ======== ========
Net income per share *
Basic $ .23 $ .19 $ .55 $ .45
======== ======== ======== ========
Diluted $ .23 $ .19 $ .54 $ .44
======== ======== ======== ========
Weighted average shares outstanding *
Basic 38,901 38,328 38,680 38,201
======== ======== ======== ========
Effect of dilutive
securities 937 934 914 1,048
----- ------- ----- ------
Diluted 39,838 39,262 39,594 39,249
======== ======== ======== ========
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)
Thirty-Nine Weeks Ended
-----------------------
November 1, November 2,
2003 2002
---- ----
Cash flows from operating activities:
Net income $21,270 $17,350
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 18,994 15,502
Provision for uncollectible receivables 1 40
LIFO reserve 1,132 900
Deferred income taxes 3,226 1,326
Amortization of deferred compensation on
restricted stock incentive plan 35 39
Tax benefit upon exercise of stock options 1,360 1,492
(Increase)decrease in assets:
Receivables 1,571 (2,858)
Inventories (68,215) (56,297)
Other assets 2,824 (573)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 23,533 26,830
Other noncurrent liabilities 300 300
------- ------
Net cash provided by operating activities 6,031 4,051
------- ------
Cash flows from investing activities:
Capital expenditures (34,798) (31,289)
Asset acquisition, net of cash acquired
(primarily intangibles) (776) (1,374)
----- -------
Net cash used in investing activities (35,574) (32,663)
-------- --------
Cash flows from financing activities:
Reduction of indebtedness and capital lease
obligations (710) (972)
Proceeds from revolving line of credit,
net of payments 19,284 13,010
Proceeds from exercise of options 1,919 1,528
Proceeds from sale of additional shares 8,110 3,537
Repurchase of shares (2,646) --
Cash dividends paid (2,344) (2,319)
------- -------
Net cash provided by financing activities 23,613 14,784
------ -------
Decrease in cash and cash equivalents (5,930) (13,828)
Beginning of period cash and cash equivalents 8,209 15,906
------ -------
End of period cash and cash equivalents $2,279 $2,078
====== =======
Supplemental disclosures of cash flow information:
Interest paid $285 $30
==== ===
Income taxes paid $--- $7,300
==== ======
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)
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NOTE 1: BASIS OF PRESENTATION
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Fred's, Inc. ("We", "Our" or "Us") operates 508 discount general
merchandise stores, including 26 franchised Fred's stores, in fourteen states
mainly in the southeastern United States. Two hundred and thirty-six 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 thirty-nine week period ended November 1,
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 $38,591 and $32,607 at November 1, 2003 and November 2, 2002,
respectively, cost was determined using the LIFO (last-in, first-out) method.
The current cost of inventories exceeded the LIFO cost by $7,270 at November 1,
2003 and $5,503 at November 2, 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 Thirty-Nine Weeks Ended
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
---- ---- ---- ----
Net income $9,028 $7,408 $21,270 $17,350
SFAS No. 123 pro forma
compensation expense,
net of income taxes (257) (114) (770) (342)
----- ----- ----- -----
SFAS No. 123 pro forma
Net income $ 8,771 $ 7,294 $ 20,500 $17,008
======= ======= ======== =======
Pro forma earnings per share:
* Basic $ 0.23 $ 0.19 $ .53 $ .45
======= ======= ====== ======
* Diluted $ 0.22 $ 0.19 $ .52 $ .43
======= ======= ====== ======
Earnings per share, as reported:
* Basic $ 0.23 $ 0.19 $ .55 $ .45
======= ======= ====== ======
* Diluted $ 0.23 $ 0.19 $ .54 $ .44
======= ======= ====== ======
* 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
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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 November 1, 2003 and November 2, 2002
----------------------------------------------------------
Net sales increased to $311.7 million in 2003 from $263.2 million in 2002, an
increase of $48.5 million or 18.4%. The increase was attributable to comparable
store sales increases of 6.0% ($15.2 million) and sales by stores not yet
included as comparable stores ($33.1 million). Sales to franchisees increased
$.2 million in 2003. The sales mix for the period was 49.6% Hardlines, 34.1%
Pharmacy, 13.4% Softlines, and 2.9% Franchise. This compares with 48.5%
Hardlines, 34.8% Pharmacy, 13.3% Softlines, and 3.4% Franchise for the same
period last year.
Gross profit increased to 29.3% of sales in 2003 compared with 28.9% of sales in
the prior-year period. Gross profit margin increased as a result of improved
initial markup on shipments, product mix, controlling markdowns and shrinkage,
and vendor allowances of $0.6 million associated with the opening of our Georgia
distribution center.
Selling, general and administrative expenses increased to $77.3 million in 2003
from $64.5 million in 2002. As a percentage of sales, expenses increased to
24.8% of sales compared to 24.5% of sales last year. The increase in expenses is
primarily due to cost associated with our growth program for stores and the
servicing of additional stores by the Georgia distribution center and was
partially offset by recovery from our business insurance interruption coverage
from the July windstorm in the amount of $.3 million.
During the third quarter of 2003 interest expense was less than $.1 million, due
to managing working capital from operations during the quarter.
For the third quarter of 2003, the effective income tax rate was 34.6%, compared
with 35.0% for the third quarter of last year. Income taxes benefited from
federal tax credits that became available in 2002 and from a decrease in the
valuation allowance previously established against net operating losses carry
forwards as they were utilized.
Thirty-nine Weeks Ended November 1, 2003 and November 2, 2002
- -------------------------------------------------------------
Net sales increased to $924.6 million in 2003 from $778.1 million in 2002, an
8
increase of $146.5 million or 18.8%. The increase was attributable to comparable
store sales increases of 6.0% ($44.7 million) and sales by stores not yet
included as comparable stores ($102.1 million). Sales to franchisees decreased
$0.3 million in 2003. The sales mix for the period was 49.6% Hardlines, 33.5%
Pharmacy, 14.1% Softlines, and 2.8% Franchise. This compares with 48.6%
Hardlines, 34.7% Pharmacy, 13.3% Softlines, and 3.4% Franchise for the same
period last year.
Gross profit increased to 28.6% of sales in 2003 compared with 27.6% of sales in
the prior-year period. Gross profit margins increased as a result of improved
initial markup on shipments, product mix, markdown control and vendor allowances
of $1.9 million associated with the opening of our Georgia distribution center.
Selling, general and administrative expenses increased to $231.5 million in 2003
from $188.5 million in 2002. As a percentage of sales, expenses increased to
25.1% of sales compared to 24.2% 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 nine months of 2003, we incurred interest expense of $.3 million
as compared to less than $0.1 million last year. The difference primarily
results from borrowing for the completion of our Georgia distribution center and
our store expansion program.
For the first nine months of 2003, the effective income tax rate was 34.1%,
compared with 34.6% for last year. Income taxes in the first nine months of the
year benefited from federal tax credits that became available in 2002 and from a
decrease in the valuation allowance previously established against state net
operating loss carry forwards as they were utilized.
- ---------------------------------------------------------------------------
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 $6.0 million during the
thirty-nine week period ended November 1, 2003. Cash was primarily used to
increase inventories by approximately $68.2 million in the first nine months of
2003. This increase was primarily attributable to 72 new stores in the first
nine months of 2003 as well as stocking the new distribution center. Accounts
payable and accrued liabilities increased approximately $23.5 million during the
first nine months of 2003.
Cash flows used in investing activities totaled $35.6 million, and consisted
primarily of capital expenditures associated with the store and pharmacy
expansion program ($19.6 million), expenditures for the new distribution center
in Dublin, Georgia ($9.2 million) and ($6.0 million) for technology and other
corporate expenditures. During the first nine months, we opened 72 stores,
closed 4 stores, opened 22 pharmacies, closed 2 pharmacies and remodeled 26
stores. We expect to open approximately 6 stores in the fourth quarter and
approximately 78 stores for the year. Our capital expenditure plan for 2003 is
in the $21 million dollar range for store and pharmacy expansion. Depreciation
expense for the year will be in the $24 million dollar range.
Cash flows provided by financing activities totaled $23.6 million including $5.5
million from proceeds of 150,000 (pre split) additional shares on June 6, 2003,
and $19.3 million from borrowings under our revolving line of credit. These
amounts were used to fund the store and pharmacy growth program and complete the
Georgia distribution center. During the quarter, we sold $2.6 million in common
stock with the intention of purchasing an airplane. Later, we decided not to
purchase the airplane, whereupon we purchased and retired $2.6 million of common
stock of the CEO at a nominal profit to the Company. The CEO purchased the
9
airplane for $4.7 million. We entered into a dry lease agreement with the CEO
for its usage for the remainder of the year at the annualized rate of 2.5%. We
have an option to purchase the airplane for $4.7 million during the lease
period. As of November 1, 2003, we have 201,244 (pre split) 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
restrictive covenants of the Agreement, we are required to maintain specified
tangible net worth (which was $203,830,000 at November 1, 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 $19.3 million in borrowings outstanding under the Agreement at
November 1, 2003.
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.
- ---------------------------------------------------------------------------
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
obligation to update any forward-looking statement to reflect events or
circumstances arising after the date on which it was made.
10
Item 3.
- ---------------------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ---------------------------------------------------------------------------
As of November 1, 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 have materially affected, or are 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
Not Applicable
Item 5. Other Information
In May of 2002, certain of our Memphis distribution center
employees voted in an election conducted by the National Labor
Relations Board to decide whether or not they wished to be
represented by the Union of Needletrades, Industrial and Textile
Employees (UNITE). Subsequent to the subject quarter, we received
notice that the National Labor Relations Board has reviewed the
appeal and is certifying UNITE as the collective bargaining
representative of those Memphis distribution center employees.
The Company is currently analyzing the various options to
determine its next step.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.15 Third Modification Agreement of the Revolving Loan
and Credit Agreement*
31.1 Certification of Chief Executive Officer.
31.2 Certification of Chief Financial Officer.
32.0 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.
* Entered into on July 31, 2003.
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, 2003 /s/ Michael J. Hayes
- ------------------------ ------------------------------
Michael J. Hayes
Chief Executive Officer
Date: December 16, 2003 /s/ Jerry A. Shore
- ------------------------ ------------------------------
Jerry A. Shore
Chief Financial Officer
13
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: December 16, 2003 Chief Executive Officer
- ------------------------
/s/Jerry A. Shore
-----------------
Jerry A. Shore
Date: December 16, 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: December 16, 2003 /s/ Michael J. Hayes
----------------------------------
Michael J. Hayes
Chief Executive Officer
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: December 16, 2003 /s/ Jerry A. Shore
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Jerry A. Shore
Executive Vice President and
Chief Financial Officer
Exhibit 32
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: December 16, 2003 /s/ Michael J. Hayes
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Michael J. Hayes
Chief Executive Officer
/s/ Jerry A. Shore
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Jerry A Shore
Executive Vice President and
Chief Financial Officer