FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-631
ROSE'S STORES, INC.
Incorporated Under the Laws of Delaware
I.R.S. Employer Identification No. 56-0382475
P. H. Rose Building
218 South Garnett Street
Henderson, North Carolina 27536
Telephone No. 919/430-2600
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Class Shares Outstanding
Voting common stock, no par value 8,262,420
Non-voting Class B stock, no par value 10,495,586<PAGE>
ROSE'S STORES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
(Amounts in thousands except per share amounts)
The following summary of financial information, which is unaudited,
reflects all adjustments (none of which were other than normal recurring
accruals) which are, in the opinion of management, necessary to a fair
statement of the information presented below for the twenty-six weeks ended
July 30, 1994 and July 31, 1993.
Notes:
(1)The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
payment of liabilities in the ordinary course of business. The Company
continues to operate as a debtor-in-possession pursuant to the provisions
of Sections 1107 and 1108 of the Bankruptcy Code. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
On August 1, 1994, the Company and the major constituencies in its Chapter
11 proceeding filed a joint plan of reorganization in the United States
Bankruptcy Court for the Eastern District of North Carolina. The Plan was
co-sponsored by the Company's significant secured creditors and its
unsecured creditors' and equity committees, and was consented to by GE
Capital, Rose's debtor-in-possession lender. The Company expects to
obtain approval of the Disclosure Statement by the Bankruptcy Court and
submit the Plan to the Company's creditors and stockholders for their
acceptance in accordance with the Bankruptcy Code by early October.
The following summary of the Plan is not intended as a solicitation of
acceptances, which can only be made after approval of the Disclosure
Statement by the Bankruptcy Court. The Plan provides secured creditors,
primarily senior secured noteholders, with payments reducing their debt
from $108,000 at the time of filing Chapter 11 to less than $40,000. The
Plan contemplates a four year amortizing note on the remaining debt
balance at an 11% annual interest rate. The unsecured creditors will
receive 100% of the shares of common stock of the reorganized company, or
such portion of the stock which will provide total realization of the
group's approved claims. The existing stockholders will receive warrants
for the purchase of up to 30% of the reorganized company's stock on a
fully diluted basis. In addition, existing stockholders will be entitled
to purchase rights to receive all or a portion of the new common stock
which would otherwise be distributed to the unsecured creditors. All
currently outstanding shares of stock, warrants and options will be
canceled. In order for the Plan to be effective, certain conditions must
be met, including the following: (a) the Company must have made all required
adequate protection payments to the secured lenders, and (b) the Company
must have an operating cash flow of at least $25,000 as of December 31, 1994.
The Company has received a post confirmation exit financing commitment.
The commitment is for a three year revolving credit agreement which would,
subject to the satisfaction of the terms and conditions contained therein,
allow the Company to borrow up to $80,000.
(2)The operating results presented herein are not necessarily indicative of
the operating results for a full year due to seasonal factors.
<PAGE>
(3)Included in the reorganization costs for the second quarter of 1994 is a
$12,000 reduction of the first quarter charge of $55,000 for the costs of
closing 59 stores in 1994 and to realign corporate and administrative
costs accordingly. This reduction resulted from better than expected
going-out-of-business sales proceeds and less than expected closing costs.
(4)Certain reclassifications were made to 1993 balances to conform to the
1994 presentation. These reclassifications have no effect on
stockholders' equity.
(5)LIFO expense (credit) is included as an adjustment to reconcile net loss
to net cash used in operating activities in the statements of cash flows
because LIFO expense (credit) is a noncash item included in cost of sales
to adjust inventories stated on a FIFO basis to a LIFO basis.
<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue:
Gross sales $ 175,231 301,831 $ 349,814 589,877
Leased department sales 6,368 12,087 11,882 21,149
Net sales 168,863 289,744 337,932 568,728
Leased department income 1,150 2,110 2,450 4,124
Total revenue 170,013 291,854 340,382 572,852
Costs and Expenses:
Cost of sales 127,535 225,816 254,231 434,046
Selling, general and administrative 39,406 71,169 79,587 136,566
Depreciation and amortization 2,387 3,262 4,862 6,476
Interest 1,621 3,223 3,405 6,206
Total costs and expenses 170,949 303,470 342,085 583,294
Earnings (Loss) Before Reorganization
Expense (936) (11,616) (1,703) (10,442)
Reorganization Expense(Note 1) 7,971 - (50,810) -
Net Earnings (Loss) $ 7,035 (11,616) $ (52,513) (10,442)
Earnings (Loss) Per Share $ 0.38 (0.62) $ (2.80) (0.56)
Weighted Average Shares 18,758 18,747 18,758 18,722
</TABLE>
Note 1
Closed store reserve (59 closings) $ 12,000 $ (43,000)
DIP financing fees, amortization &
expenses (510) (934)
Estimated professional fees (3,399) (6,514)
Other reorganization costs and
expenses (120) (362)
TOTAL REORGANIZATION COSTS $ 7,971 $ (50,810)
See notes to consolidated financial statements<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)
<TABLE>
July 30, January 29, July 31,
1994 1994 1993
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 11,009 11,955 1,108
Accounts receivable 14,895 15,057 17,106
Inventories 144,302 203,150 237,168
Prepaid merchandise 8,809 10,757 -
Other current assets 6,324 7,457 9,519
Total current assets 185,339 248,376 264,901
Property and Equipment, at cost
Less accumulated depreciation and amortization 38,411 50,234 56,381
Deferred Income Tax Benefits 6,447 6,447 5,760
Other Assets 597 3,048 4,702
$ 230,794 308,105 331,744
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Reclamation claims $ 384 4,000 -
Current installments of long-term debt - - 16,600
Current maturities of capital lease obligations 1,571 2,374 2,371
Bank drafts outstanding - - 4,194
Accounts payable 26,190 35,507 71,505
Federal and state income taxes - - 1,153
DIP financing 595 - -
Short-term debt - - 14,833
Accrued salaries and wages 9,364 12,295 11,486
Reserve for store closings and remerchandising 10,747 - 4,850
Deferred income tax liability 6,447 6,447 5,760
Other current liabilities 14,941 14,113 23,468
Total current liabilities 70,239 74,736 156,220
Liabilities Subject to Settlement Under
Reorganization Proceedings 188,420 207,456 -
Long-term Debt - - 73,900
Capital Lease Obligations 1,198 1,907 3,073
Reserve for Future Store Closings - - 17,443
Deferred Income 1,547 2,296 3,045
Accumulated Postretirement Benefit Obligation 5,807 5,614 6,203
Stockholders' Equity (Deficit)
Voting common stock
Authorized 30,000 shares; issued 10,800 shares 2,250 2,250 2,250
Non-voting Class B stock
Authorized 30,000 shares; issued 12,659 shares 18,795 18,795 18,795
Paid-in Capital-Stock Warrants 2,700 2,700 2,700
Retained earnings (Accumulated deficit) (41,544) 10,969 66,733
(17,799) 34,714 90,478
Treasury stock, at cost (4,701 shares at 7/31/94,
1/29/94 and 7/31/93) (18,618) (18,618) (18,618)
Total stockholders' equity (deficit) (36,417) 16,096 71,860
$ 230,794 308,105 331,744
</TABLE>
See notes to consolidated financial statements<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
For the Twenty-Six Weeks Ended
July 30, 1994 July 31, 1993
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (52,513) (10,442)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,862 6,476
(Gain) loss on disposal of property and equipment (300) 21
LIFO expense (576) 47
Provision for closed stores 43,000 -
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable 162 (3,822)
(Increase) decrease in prepaid merchandise 1,948 -
(Increase) decrease in inventories 59,424 (4,952)
(Increase) decrease in other current and non-current assets 1,035 (159)
Increase (decrease) in pre and post-petition accounts payable (14,327) (18,007)
Increase (decrease) in accrued expenses and other liabilities (2,021) (1,171)
Increase (decrease) in federal and state income taxes payable - 7,711
Increase (decrease) in reserves for closed stores $ 28,706 (4,450)
Non cash activities in closed store reserve:
Provision for closed stores (43,000) -
Retirement of net book value of assets 7,035 255
Write-off of leases (44) -
Write-off of inventory - 779
Net cash increase (decrease) in provisions for
closed stores (7,303) (3,416)
Increase (decrease) in deferred income (749) (501)
Increase (decrease) in accumulated postretirement
benefit obligation 193 188
Other, net - (1)
Net cash provided by (used in) operating activities 32,835 (28,028)
Cash flows from investing activities:
Purchases of property and equipment (784) (4,865)
Proceeds from disposal of property and equipment 715 3
Net cash provided by (used in) investing activities (69) (4,862)
Cash flows from financing activities:
Net activity on lines of credit (33,134) 14,833
Proceeds (payments) of DIP Facility 595 -
Principal payments on capital lease obligations (1,173) (1,196)
Increase (decrease) in bank drafts outstanding - 1,066
Other - 194
Net cash provided by (used in) financing activities (33,712) 14,897
Net decrease in cash (946) (17,993)
Cash and cash equivalents at beginning of period 11,955 19,101
Cash and cash equivalents at end of period $ 11,009 1,108
</TABLE>
See notes to consolidated financial statements<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollar amounts in thousands)
Chapter 11 Proceedings
The Company continues to operate as a debtor-in-possession pursuant to
the provisions of Sections 1107 and 1108 of the Bankruptcy Code. On
August 1, 1994, the Company and the major constituencies in its Chapter
11 proceeding filed a joint plan of reorganization in the United States
Bankruptcy Court for the Eastern District of North Carolina. The Plan
was co-sponsored by the Company's significant secured creditors and its
unsecured creditors' and equity committees, and was consented to by GE
Capital, Rose's debtor-in-possession lender. The Company expects to
obtain approval of the Disclosure Statement by the Bankruptcy Court and
submit the Plan to the Company's creditors and stockholders for their
acceptance in accordance with the Bankruptcy Code by early October. The
Company anticipates seeking Court approval of the Plan prior to November
30, 1994, but there can be no assurance as to the timing of approval,
the terms of the Plan upon approval or whether the Plan will be
approved.
The following summary of the Plan is not intended as a solicitation of
acceptances, which can only be made after approval of the Disclosure
Statement by the Bankruptcy Court. The Plan provides secured creditors,
primarily senior secured noteholders, with payments reducing their debt
from $108,000 at the time of filing Chapter 11 to less than $40,000.
The Plan also contemplates a four year amortizing note on the remaining
debt balance at an 11% annual interest rate. The unsecured creditors
will receive 100% of the shares of common stock of the reorganized
company, or such portion of the stock which will provide total
realization of the group's approved claims. The existing stockholders
will receive warrants for the purchase of up to 30% of the reorganized
company's stock on a fully diluted basis. In addition, existing
stockholders will be entitled to purchase rights to receive all or a
portion of the new common stock which would otherwise be distributed to
the unsecured creditors. All currently outstanding shares of stock,
warrants and options will be canceled. In order for the Plan to be effective,
certain conditions must be met, including the following: (a) the Company must
have made all required adequate protection payments to the secured lenders,
and (b) the Company must have an operating cash flow of at least $25,000 as of
December 31, 1994.
Following acceptance or rejection of the plan by impaired classes and
equity security holders, the Bankruptcy Court after notice and a hearing
would consider whether to confirm the plan. Among other things, to
confirm a plan the Bankruptcy Court is required to find (i) with respect
to each impaired class of creditors and equity security holders, that
each holder of a claim or interest of such class either (a) will,
pursuant to the plan, receive or retain property of a value, as of the
effective date of the plan, that is at least as much as such holder
would have received in a liquidation on such date of the Company, or (b)
has accepted the plan, (ii) with respect to each class of claims or
equity security holders, that such class has accepted the plan or such
class is not impaired under the plan and (iii) confirmation of the plan
is not likely to be followed by the liquidation or need for further
financial reorganization of the Company or any successors unless such
liquidation or reorganization is proposed in the plan.
The Company has received a post confirmation exit financing commitment.
The commitment is for a three year revolving credit agreement which
would, subject to the satisfaction of the terms and conditions contained
therein, allow the Company to borrow up to $80,000.
<PAGE>
Under the Bankruptcy Code, the rights of stockholders and pre-petition
creditors may be substantially altered by the plan of reorganization,
either voluntarily or by order of the Bankruptcy Court. The Company's
plan of reorganization permits the Company to fund its current
operations and meet its obligations to creditors (as they are
restructured under the plan) out of the projected cash flow generated by
the Company after approval and confirmation of the plan. The Company's
objective is subject to a number of factors, some of which are within
the ability of the Company to control and others of which are not. At
this time it is not possible to predict whether the Company will achieve
its objective or the effect of the plan of reorganization on the rights
of creditors and stockholders of the Company.
On confirmation of a plan of reorganization, the Company expects to
utilize "Fresh Start Accounting" in accordance with the guidelines for
accounting for emergence from bankruptcy. Fresh Start Accounting is
expected to result in a restatement of Company assets and liabilities to
reflect current values.
Revenue
The Company reported sales for the second quarter of 1994 of $175,231, a
decrease of $126,600 or 41.9% from the second quarter of 1993, and year-
to-date sales were $349,814, a decrease of $240,063 or 40.7% from last
year. Sales on a comparable store basis decreased 2.6% for the second
quarter and .3% year-to-date.
Costs and Expenses
Year-to-date cost of sales as a percent to net sales was 75.2% for 1994
and 76.3% for 1993. Increases in markdowns as a percent of sales were
more than offset by increases in markon and decreases in the shrink
percent to sales.
Selling, general and administrative expenses (SG&A) as a percent of
sales for the second quarter were 23.3% in 1994 and 24.6% in 1993.
Year-to-date SG&A expenses as a percentage of sales were 23.6% in 1994
and 24.0% in 1993.
Included in the reorganization costs for the second quarter of 1994 is a
$12,000 reduction of the first quarter provision of $55,000 for the
costs of closing 59 stores in 1994 and to realign corporate and
administrative costs accordingly. This reduction resulted from better
than expected going-out-of-business sales proceeds and less than
expected closing costs. Current year operating results exclude the
results of these 59 stores.
Also included in reorganization costs for the second quarter of 1994 is
$4,029 and year-to-date is $7,810 for professional fees, DIP fees and
expense amortizations, and other expenditures related directly to the
Chapter 11 filing.
Liquidity and Capital Resources
At the end of the second quarter of 1994, the Company had $595
outstanding under its DIP facility. The Company invested $506 in cash
for property and equipment in the second quarter of 1994 compared to
$3,074 invested in the second quarter of 1993. Year-to-date cash
investment in property and equipment was $784 in 1994 compared to $4,865
in 1993.
The Company received over $78,000 in gross proceeds from the second going-
out-of-business (GOB2) sales in the 59 stores. To-date, the Company has
paid the pre-petition secured lenders $37,800 of the net proceeds from the
encumbered GOB2 stores.
Cash provided by operating activities was $55,853 in the second quarter
of 1994 and $32,835 year-to-date. Cash used in operating activities
during 1993 were $2,501 in the second quarter and $28,028 year-to-date.
Rose's management expects the Company to realize positive cash flow from
its 1994 operations. The filing under Chapter 11 will protect the
Company from its pre-petition creditors while the plan of reorganization
is being confirmed. The adequacy of the Company's capital resources and
long-term liquidity cannot be determined until the plan is confirmed by
the Bankruptcy Court.
Other
The Board of Directors of Rose's Stores, Inc. announced on August 23,
1994 that R. Edward Anderson, previously the Company's Executive Vice
President of Finance, had been elected to the office of President and
Chief Executive Officer, succeeding George L. Jones who resigned on
August 16, 1994. The appointment was made at a meeting of the Board of
Directors after consultation with representatives of the major
constituencies in the Company's Chapter 11 proceedings, including the
Unsecured Creditors' Committee, the Equity Committee, and the Pre-
Petition Secured Noteholders. The Board also elected Mr. Anderson to
the additional position of Chairman of the Board of Directors, filling a
vacancy created by the resignation of Lucius H. Harvin, III.<PAGE>
PART II. OTHER INFORMATION
No securities (debt or equity) which were not registered under the
Securities Act of 1933 were sold by the registrant during the fiscal
quarter ended July 30, 1994.
ITEM 1: Legal Proceedings (Dollar amounts in thousands)
The Company's business ordinarily results in a number of negligence and
tort actions, most of which arise from injuries on store premises,
injuries from a product, or false arrest and detainer arising from
apprehending suspected shoplifters. The Company's liability for
uninsured general damages and punitive damages is not considered
material. No legal proceedings presently pending by or against the
Company are described because the Company believes that the outcome of
such litigation should not have a material adverse effect on the
financial position of the Company.
On September 5, 1993, the Company filed a voluntary Petition for Relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the Eastern District
of North Carolina (the "Bankruptcy Court") Case No. 93-01365-5-ATS (the
"Chapter 11 Case").
The Chapter 11 Case is described in the Form 10-K of the Company for the
year ended January 30, 1994 and subsequent Form 10-Qs and Form 8-Ks.
The following discussion sets forth certain developments in the Chapter
11 Case during the second quarter of 1994 and through the date hereof,
but is not intended to be an exhaustive summary. For additional
information regarding the effect of the Chapter 11 Case on the Company,
reference should be made to the Bankruptcy Code.
On August 1, 1994 the Company filed with the Court a proposed Joint Plan
of Reorganization (the "Plan") with the consent of the official
unsecured creditors committee, the pre-petition secured senior
noteholders, and the official equity committee. A copy of the Plan is
attached as Exhibit 10.1 to the Form 8-K dated August 1, 1994. Various
ancillary agreements required to effectuate the Plan are expected to be
negotiated with the official unsecured creditors committee, the Pre-
Petition Lenders, the official equity committee and any Plan/exit
funder, and filed at a later date.
The Company expects to obtain approval of the Disclosure Statement by
the Bankruptcy Court and submit the Plan to the Company's creditors and
stockholders for their acceptance in accordance with the Bankruptcy Code
by early October. The Company anticipates seeking Court approval of the
Plan prior to November 30, 1994, but there can be no assurance as to the
timing of approval, the terms of the Plan upon approval or whether the
Plan will be approved.
Post-Petition Litigation with Pre-Petition Lenders
On February 3, 1994, the Collateral Agent for the Pre-Petition Lenders
filed adversary proceeding number 94-00003-5-AP against the Company,
asking the Bankruptcy Court to determine the validity, priority and
extent of their lien claims on assets of the bankruptcy estate. On the
following day, the Company filed adversary proceeding number 94-00004-
5-AP against the Pre-Petition Lenders challenging the liens of the Pre-
Petition Lenders. The two separate adversary proceedings were
consolidated by order of the Bankruptcy Court entered on March 3, 1994.
On June 14, 1994, the Court indicated that it would allow dismissal of
the fraud related causes of action against the Pre-Petition Lenders
arising under Section 547 of the Bankruptcy Code until the Company
achieved an agreement with the Pre-Petition Lenders regarding the terms
of a consensual joint Plan.
ITEM 6: Exhibits and Reports on Form 8-K
(a) All exhibits included in the Company's 1993 Form 10K are
included herein by reference.
Exhibit 10.1, Proposed Joint Plan of Reorganization dated
August 1, 1994 is incorporated by reference from the Report on
Form 8-K dated August 1, 1994.
(b) Report on Form 8-K dated August 1, 1994, reporting under Item 5
the filing with the Court of the proposed Joint Plan of
Reorganization with the consent of the official unsecured
creditors committee, the pre-petition secured senior
noteholders, and the official equity committee.
(c) Report on Form 8-K dated August 16, 1994, reporting under Item
5 the election by the Board of Directors of R. Edward Anderson
to President and Chief Executive Officer, and a director of the
Company, filling the vacancy created by the resignation of
George Jones as President, Chief Executive Officer and a
director . The Board also elected Mr. Anderson Chairman of the
Board of Directors filling the vacancy created by the
resignation of Lucius H. Harvin, III, as a director and as
Chairman of the Board of Directors.<PAGE>
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.
ROSE'S STORES, INC.
Date By
R. Edward Anderson
President,
Chief Executive Officer
Date By
Jeanette R. Peters
Vice President and
Controller
(Chief Accounting Officer)
