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 October 26, 1996
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 latest practical date.
As of November 25, 1996, of the 10,000,000 shares of common stock
delivered to First Union National Bank of North Carolina ("FUNB"), as Escrow
Agent pursuant to the Modified and Restated First Amended Joint Plan of
Reorganization, 8,459,932 of such shares of common stock are outstanding. The
remaining 542,941 shares held in escrow will be distributed by FUNB in
satisfaction of disputed Class 3 claims as and when such claims are resolved.
If all pending claims are resolved adversely to the Company, approximately
8,632,463 shares of common stock will be outstanding. If all pending claims
are resolved in accordance with the Company's records, approximately 8,602,173
shares of common stock will be outstanding. The foregoing estimates do not
include any additional shares that may be issued with respect to late-filed
claims which the Bankruptcy Court may allow which have not been filed as of
the date hereof or the effect of negotiated settlements made for amounts in
excess of amounts shown in the Company's records. To the extent that escrowed
shares of common stock are not used to satisfy claims, they will revert to the
Company and will be retired or held in the treasury of the Company.
<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 of Rose's Stores, Inc.
(the "Company"), which is unaudited, reflects all adjustments which are, in
the opinion of management, necessary to reflect a fair statement of the
information presented. Beginning in May 1995, the statements of operations
and cash flows reflect the application of Fresh Start accounting as described
in the Company's annual report on Form 10-K for the year ended January 27,
1996. The balance sheet reflects the application of Fresh Start accounting
beginning April 1995.
ROSE'S STORES, INC.
STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
October 26, 1996 October 28, 1995
<S> <C> <C>
Revenue:
Gross sales $ 160,796 162,937
Leased department sales 4,907 4,995
Net sales 155,889 157,942
Leased department income 1,124 1,140
Total revenue 157,013 159,082
Costs and Expenses:
Cost of sales 116,813 119,900
Selling, general and administrative 37,757 (a) 38,858
Depreciation and amortization (568) (857)
Interest 2,563 1,956
Total costs and expenses 156,565 159,857
Net Earnings (Loss) $ 448 (775)
Net Earnings (Loss) Per Share $ .05 (0.09)
Weighted Average Shares 8,632 8,632
</TABLE>
(a) Included in 1996 selling, general and administrative costs is a third
quarter charge of $657 related to the formerly announced merger
agreement which was terminated on August 20, 1996.
See notes to financial statements.
PAGE
<PAGE>
ROSE'S STORES, INC.
STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Successor Predecessor
Thirty-Nine Twenty-Six Thirteen
Weeks Ended Weeks Ended Weeks Ended
October 26, 1996 October 28, 1995 April 29, 1995
<S> <C> <C> <C>
Revenue:
Gross sales $ 481,066 331,425 159,407
Leased department sales 14,867 10,759 5,117
Net sales 466,199 320,666 154,290
Leased department income 3,364 2,318 1,114
Total revenue 469,563 322,984 155,404
Costs and Expenses:
Cost of sales 352,942 242,371 116,838
Selling, general and administrative 114,155 (a) 79,454 35,486
Depreciation and amortization (1,856) (1,648) 1,812
Interest 5,928 3,674 726
Total costs and expenses 471,169 323,851 154,862
Earnings (Loss) Before Reorganization
Benefit (Expense) (1,606) (867) 542
Reorganization Benefit (Expense) - - (3,847)
Fresh Start Revaluation - - (17,432)
Loss Before Extraordinary Item (1,606) (867) (20,737)
Extraordinary Item - Gain on Debt Discharge - - 90,924
Net Earnings (Loss) $ (1,606) (867) 70,187
Earnings (Loss) Per Share Before
Extraordinary Item $ (.19) (0.10) (1.11)
Net Earnings (Loss) Per Share $ (.19) (0.10) 3.74
Weighted Average Shares 8,632 8,632 18,758
</TABLE>
(a) Included in 1996 selling, general and administrative costs is a second
quarter charge of $914 of prepaid bank fees related to the former
financing agreement; and a third quarter charge of $657 related to the
formerly announced merger agreement which was terminated on August 20,
1996.
See notes to financial statements.
PAGE
<PAGE>
ROSE'S STORES, INC.
BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
October 26, January 27, October 28,
1996 1996 1995
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 582 593 609
Accounts receivable 20,192 7,209 18,867
Inventories 200,054 153,190 200,206
Other current assets 3,774 4,706 3,815
Total current assets 224,602 165,698 223,497
Property and Equipment, at cost
Less accumulated depreciation and amortization 7,638 5,122 3,647
Other Assets 458 424 -
$ 232,698 171,244 227,144
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 95,743 33,673 81,657
Bank drafts outstanding 3,657 9,530 5,161
Accounts payable 35,507 23,845 35,441
Accrued salaries and wages 4,879 7,456 4,915
Pre-petition liabilities 4,261 4,632 5,327
Other current liabilities 13,042 11,396 14,388
Total current liabilities 157,089 90,532 146,889
Excess of Net Assets Over Reorganization Value,
Net of Amortization 22,747 25,371 39,073
Reserve for Income Taxes 12,673 12,673 -
Deferred Income 533 974 1,143
Other Liabilities 702 1,134 5,906
Stockholders' Equity
Common Stock, authorized 50,000 shares;
issued 8,460 at 10/26/96; 8,158 at 1/27/96
(Note 1) 35,000 35,000 35,000
Preferred Stock, authorized 10,000 shares;
none issued - - -
Paid-in capital 1,159 1,159 -
Retained earnings (accumulated deficit) 2,795 4,401 (867)
Total stockholders' equity 38,954 40,560 34,133
$ 232,698 171,244 227,144
</TABLE>
See notes to financial statements.
PAGE
<PAGE>
ROSE'S STORES, INC.
STATEMENT OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Successor Predecessor
Thirty-Nine Twenty-Six Thirteen
Weeks Ended Weeks Ended Weeks Ended
October 26, 1996 October 28, 1995 April 29, 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,606) (867) 70,187
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization (1,855) (1,648) 1,812
(Gain) loss on disposal of property
and equipment (1) (2) (1)
LIFO expense (credit) - - (364)
Write-off of prepaid bank fees 914 - -
Write-off of merger costs 657 - -
Reversal of severance reserve (130) - -
Fresh start revaluation and debt discharge - - (73,492)
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable (12,983) (10,834) (630)
(Increase) decrease in inventories (46,864) (15,077) (40,291)
(Increase) decrease in other current
and non-current assets (573) 4,401 (3,620)
Increase (decrease) in accounts payable 11,662 (2,201) 14,361
Increase (decrease) in other liabilities (712) (743) (2,142)
Net cash increase (decrease) in reserve for
store closings (163) (2,524) (1,108)
Increase (decrease) in deferred income (441) (338) (201)
Increase (decrease) in accumulated PBO (300) 92 7
Net cash provided by (used in) operating
activities (52,395) (29,741) (35,482)
Cash flows from investing activities:
Purchases of property and equipment (3,219) (3,327) (510)
Proceeds from disposal of property
and equipment 2 2 5
Net cash provided by (used in) investing
activities (3,217) (3,325) (505)
Cash flows from financing activities:
Net activity on lines of credit 62,070 23,003 58,654
Payments of DIP Facility - - (600)
Payments on pre-petition secured debt - - (26,423)
Payments of unsecured claims (371) (1,768) (1,593)
Principal payments on capital lease
obligations (225) (255) (281)
Increase (decrease) in bank drafts outstanding (5,873) (601) 5,502
Other - 12,674 -
Net cash provided by (used in) financing
activities 55,601 33,053 35,259
Net decrease in cash (11) (13) (728)
Cash and cash equivalents at beginning of period 593 622 1,350
Cash and cash equivalents at end of period $ 582 609 622
Non cash activities in closed store reserve:
Retirement of net book value of assets - 17 623
</TABLE>
See notes to financial statements.
<PAGE>
Notes to Financial Statements:
(1) 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"). The Company's Modified and
Restated First Amended Joint Plan of Reorganization (the "Plan") was
approved by order of the Bankruptcy Court on April 24, 1995. On April
28, 1995 (the "Effective Date"), the Plan became effective. The periods
and dates prior to the Company's emergence from Chapter 11 are referred
to as those of the predecessor company (the "Predecessor") while the
period and dates subsequent to its emergence are referred to as those of
the successor company (the "Successor").
Since emergence, distributions of the common stock, no par value, of the
Company (the "Common Stock") have been made to holders of Allowed Class
3 Unsecured Claims (as defined in the Plan) in accordance with the
provisions of the Plan. As a result of distributions of the Common
Stock pursuant to the Plan, as of November 25, 1996, the Company had
8,460 shares of Common Stock outstanding of the 10,000 shares of Common
Stock which were delivered pursuant to the Plan on the Effective Date to
First Union National Bank of North Carolina ("FUNB") as escrow agent.
In addition, as of November 25, 1996, and pursuant to the provisions of
the Plan, 997 shares have reverted to the Company from escrow and have
been retired.
The remaining 543 shares held in escrow will be distributed by FUNB in
satisfaction of disputed Class 3 claims as and when such claims are
resolved.
The disputed Class 3 claims which remain unresolved at November 25, 1996
were primarily claims of landlords with respect to leases which were
rejected during the course of the Chapter 11 proceeding and general
liability claims being resolved under an alternative dispute resolution
program established by the Bankruptcy Court. If all pending claims are
resolved adversely to the Company, approximately 172 additional shares
of Common Stock will be issued and outstanding, and there will be a
total of approximately 8,632 shares of Common Stock issued and
outstanding. If all pending claims are resolved in accordance with the
Company's records and/or position as to such claims, approximately 142
additional shares of Common Stock will be issued, and there will be a
total of approximately 8,602 shares of Common Stock issued and
outstanding. The foregoing estimates do not include any additional
shares that may be issued with respect to late-filed claims which the
Bankruptcy Court may allow which have not been filed as of the date
hereof or the effect of negotiated settlements made for amounts in
excess of amounts shown in the Company's records. To the extent that
escrowed shares of Common Stock are not used to satisfy claims, they
will revert to the Company and will be retired or held in the treasury
of the Company.
On the Effective Date, all shares of the Company's pre-emergence Voting
Common Stock and Non-Voting Class B Stock were cancelled and the record
<PAGE>
owners of such stock as of such date received warrants to purchase the
new Common Stock of the Company. One warrant was issued for every 4.377
shares of pre-emergence Voting Common Stock or Non-Voting Class B Stock
and allows the holder to purchase one share of the new Common Stock.
The warrants may be exercised at any time until they expire on April 28,
2002. The initial warrant exercise price of $14.45 was calculated
pursuant to a formula set forth in the Plan. The exercise price was
adjusted to $12.01 on April 28, 1996, the first anniversary of the
Effective Date, and will be adjusted on the second and third
anniversaries of the Effective Date to reflect adjustments to the total
of allowed and disputed claims of the Company's unsecured creditors.
The exercise price will be further adjusted on the fourth, fifth and
sixth anniversaries to reflect 105%, 110% and 115%, respectively, of the
total of the allowed and disputed claims of the unsecured creditors.
Under the New Equity Compensation Plan, nonqualified stock options to
purchase 296 shares of Common Stock were outstanding on October 26,
1996. The option price per share is $2.875 for one half of the shares
and $5.750 for the remainder of the shares issuable upon the exercise of
such options. The options vest over a three year period (unless earlier
vested by reason of certain acceleration events, including a change of
control of the Company). One half of the options expire five years from
the date of issuance and the remainder seven years from the date of
issuance.
The exercise of outstanding stock options and warrants would not result
in a dilution of earnings per share and are excluded from the
calculation of earnings per share.
(2) If the Company had emerged from Chapter 11 at the beginning of fiscal
1995, the application of Fresh Start accounting would have resulted in
net earnings on a pro forma basis of approximately $18 for the thirty-
nine weeks ended October 28, 1995.
(3) Accounts receivable are net of an allowance for doubtful accounts of
$320 as of October 26, 1996; $398 as of January 27, 1996 and $3,642 as
of October 28, 1995.
(4) The operating results presented herein are not necessarily indicative of
the operating results for a full year due to seasonal factors, among
other reasons.
(5) The Fresh Start revaluation of $17,432 reflects the net expense to
record assets at their fair values and liabilities at their present
values in accordance with the provisions of Statement of Position 90-7
("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code", and to reduce noncurrent assets below their fair
values for the excess of the fair values of assets over the
reorganization value. The extraordinary gain of $90,924 represents the
gain on debt discharge for liabilities subject to settlement under the
Plan.
PAGE
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(6) 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.
(7) Certain information concerning benefits (expenses) resulting from the
Company's reorganization are as follows:
<TABLE>
<CAPTION>
Successor Predecessor
Thirty-Nine Twenty-Six Thirteen
Weeks Ended Weeks Ended Weeks Ended
October 26, 1996 October 28, 1995 April 29, 1995
<S> <C> <C> <C>
DIP financing fees, amortization and expenses $ - - (1,342)
Estimated professional fees - - (2,318)
Other reorganization costs and expenses - - (187)
TOTAL REORGANIZATION EXPENSE $ - - (3,847)
</TABLE>
(8) Certain reclassifications were made to 1995 balances to conform to the
1996 presentation. These reclassifications have no effect on
stockholders' equity.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollar amounts in thousands)
General
On May 1, 1995, the Company announced that it had satisfied all conditions
required under its plan of reorganization and had emerged from Chapter 11 of
the United States Bankruptcy Code on April 28, 1995 (the "Effective Date").
In accordance with SOP 90-7, the Company adopted Fresh Start accounting.
Under Fresh Start accounting, a new reporting entity was created, and the
Company was required to adjust its assets and liabilities to reflect their
estimated fair market value at the Effective Date, which reduced depreciation
and amortization related to property and equipment and created a deferred
credit, excess of net assets over reorganization value, which is being
amortized over 8 years.
At the same time, the Company made certain reclassifications between gross
margin and expenses and changed the method of accruing certain expenses
between periods. In addition, as a result of the Company's emergence,
reorganization expense and income taxes recognized by the Company prior to
April 28, 1995 are not comparable to amounts, if any, recognized subsequent to
the Effective Date.
To facilitate a better comparison of the Company's operating results for the
periods presented, the following discussion of the results of operations is
presented on a pro forma basis (as described below) for the thirty-nine weeks
ended October 28, 1995. The combined historical statements of operations for
the thirteen weeks ended April 29, 1995 (Predecessor) and twenty-six weeks
<PAGE>
ended October 28, 1995 (Successor) are not included in the discussion due to
the lack of comparability caused by the adoption of Fresh Start accounting at
the end of the first quarter of 1995. Certain items in the Successor's pro
forma statement of operations are not affected by Fresh Start adjustments and
are comparable to the historical combined results of the Predecessor and the
Successor.
The pro forma statement of operations gives effect to the transactions
occurring in conjunction with the Plan as if the Effective Date had occurred,
and such transactions had been consummated, on January 29, 1995. The
statement of operations has been adjusted to reflect: the reduction in
depreciation and amortization expense due to the write-off of property and
equipment, and property under capital leases; reclassification of DIP interest
from reorganization costs to interest expense; the elimination of all
reorganization costs; amortization of excess net assets over reorganization
value; the effects of changing to the accrual method for advertising; the
reversal of LIFO credits; the accrual of additional shrinkage; and the
recording of an appropriate income tax expense.
Pro Forma Results of Operations (Unaudited)
The following table sets forth the results of operations for the thirteen and
thirty-nine weeks ended October 26, 1996, and October 28, 1995:
(Dollar amounts in thousands,
except per share amounts.)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 26, October 28, October 26, October 28,
1996 1995 1996 1995
Historical Pro Forma Historical Pro Forma
<S> <C> <C> <C> <C>
Revenue:
Gross sales $ 160,796 162,937 481,066 490,832 (b)
Leased department sales 4,907 4,995 14,867 15,876 (b)
Net sales 155,889 157,942 466,199 474,956 (b)
Leased department income 1,124 1,140 3,364 3,432 (b)
Total revenue 157,013 159,082 469,563 478,388
Costs and Expenses:
Cost of sales 116,813 (a) 119,900 352,942 (a) 357,978
Selling, general and administrative 37,757 38,858 114,155 117,458
Depreciation and amortization (568) (857) (1,856) (2,447)
Interest 2,563 1,956 5,928 5,370
Total costs and expenses 156,565 159,857 471,169 478,359
Earnings (Loss) Before Income Taxes 448 (775) (1,606) 29
Income taxes - (295) - 11
Net Earnings (Loss) 448 (480) (1,606) 18
Earnings (Loss) Per Share 0.05 (c) (0.06)(c) 0.19 (c) - (c)
Weighted Average Shares 8,632 (c) 8,632 (c) 8,632 (c) 8,632 (c)
</TABLE>
PAGE
<PAGE>
(a) Included in 1996 selling, general and administrative costs is a second
quarter charge of $914 of prepaid bank fees related to the former
financing agreement; and a third quarter charge of $657 related to the
formerly announced merger agreement which was terminated on August 20,
1996.
(b) The pro forma amounts represent the combination of the Successor's
historical amounts with the Predecessor's historical amounts. See
statements of operations included in the historical financial
statements.
(c) The number of shares used in the earnings (loss) per share calculations
is 8,632, the number of shares that will be issued and outstanding if
all pending claims are resolved adversely to the Company. If all
pending claims are resolved in accordance with the Company's records,
8,602 shares will be issued and outstanding. Currently, 8,460 shares
are outstanding. The foregoing estimates do not include any additional
shares that may be issued with respect to late-filed claims which the
Bankruptcy Court may allow which have not been filed as of the date
hereof or the effect of negotiated settlements made for amounts in
excess of amounts shown in the Company's records. To the extent that
escrowed shares of Common Stock are not used to satisfy claims, they
will revert to the Company and will be retired or held in the treasury
of the Company.
Revenue
The Company reported sales for the third quarter of 1996 of $160,796, a
decrease of $2,141, or 1.3%, from the third quarter of 1995, and year-to-date
sales were $481,066, a decrease of $9,766, or 2.0%, from the comparable period
of the prior year. The decline in sales was due primarily to a decline in
sales on a comparable store basis of .8% for the quarter and 1.2% year-to-
date, together with the decrease in the number of stores (105 in 1996 as
compared to 106 in 1995).
Costs and Expenses
Cost of sales as a percent of net sales was 74.9% for the third quarter and
75.9% for the comparable period of the prior year. Year-to-date cost of sales
as a percent of net sales was 75.7% for 1996 and 75.4% (pro forma) for the
comparable period of the prior year. The decrease in the cost of sales as a
percent of net sales for the quarter of 1.0% was due primarily to an increase
in the initial markon (1.0%). For the third quarter, higher markdowns were
offset by lower shrinkage. The increase in the year-to-date cost of sales as
a percent of net sales of .3% was due to an increase in promotional markdowns
(.7%) which was reduced by a higher initial markon (.4%).
Selling, general and administrative expenses ("SG&A") as a percent of net
sales for the third quarter were 24.2% in 1996 and 24.6% for the comparable
quarter of the prior year. Year-to-date SG&A expenses as a percentage of sales
were 24.5% in 1996 and 24.7% in 1995 (pro forma). The decrease was due
primarily to additional realignment of corporate and administrative costs
during the first quarter of 1996, which were offset by a second quarter charge
<PAGE>
of $914 related to a former financing facility and a third quarter charge of
$657 related to the formerly announced merger agreement which was terminated
on August 20, 1996 (See "Liquidity and Capital Resources"). In addition,
income of $130 was recognized in the third quarter from the reversal of the
unused portion of a severance reserve. The Company had accrued a severance
reserve of $1,170 as of January 27, 1996, for the costs associated with a
downsizing completed in the first quarter of 1996.
On a pro forma basis, reorganization costs for 1995 would not have been
incurred. The actual reorganization costs in the first quarter of $3,847
included professional fees, DIP fees and expense amortizations, and other
expenditures related to the Chapter 11 filing. No reorganization costs have
been incurred subsequent to the first quarter of 1995.
The fresh start revaluation of $17,432 reflected the net expense to record
assets at their fair values and liabilities at their present values in
accordance with the provisions of SOP 90-7 and to reduce noncurrent assets
below their fair values for the excess of the fair values of assets over the
reorganization value. The extraordinary gain of $90,924 represented the gain
on debt discharge for liabilities subject to settlement under reorganization
proceedings.
Liquidity and Capital Resources
On May 23, 1996, the Company entered into a new financing arrangement with
Foothill Capital, Inc. and PPM Finance, Inc., as co-agents. The financing is
a $120,000 three-year revolving credit facility (the "Credit Facility") with a
letter of credit sublimit in the aggregate principal amount of $40,000. The
Credit Facility is secured by a perfected first priority lien and security
interest in all of the assets of the Company and replaced the Company's former
revolving credit agreement which would have expired in two years. As a result
of closing the Credit Facility, $914 of prepaid bank fees related to the
former financing agreement were written off in the second quarter of 1996 and
included in SG&A.
The interest rate on the direct borrowings under the Credit Facility is the
prime rate plus 1.375%, with a minimum rate of 7% payable monthly. The fee on
outstanding letters of credit is 1.5% payable monthly. Although there are no
compensating balances required, the Company is required to pay a fee of .375%
per annum on the average unused portion of the Credit Facility. Borrowing
availability is based upon certain eligible inventory times a borrowing base
percentage that varies by month. Under the Credit Facility, trade suppliers
which extend credit to the Company will continue to be supported by a $5,000
letter of credit and a subordinated lien of $15,000 in the real estate
properties of the Company, which letter of credit and lien expire April 29,
1997.
The Credit Facility includes certain financial covenants and financial
maintenance tests, including those related to minimum working capital and
current ratios, capital expenditures limitations, maximum total liabilities to
tangible net worth, and minimum tangible net worth which are measured
quarterly. In addition, there is a requirement that cumulative net losses
after May 31, 1996 shall not exceed $10,000. The Credit Facility also
<PAGE>
includes restrictions on the incurrence of additional liens and indebtedness,
a prohibition on paying dividends, and, except under certain conditions,
prepayment penalties. The Company is in compliance with these covenants.
As of November 30, 1996, under the Credit Facility, the Company had $88,299
outstanding in short-term borrowings, $11,389 in outstanding letters of credit
and unused availability of $12,931. The Company's management believes that
the Company's current financing arrangement and cash flows are adequate to
meet its liquidity needs.
The Company invested $880 in cash for property and equipment in the third
quarter of 1996 compared to $1,752 invested in the third quarter of 1995.
Year-to-date cash investment in property and equipment was $3,219 in 1996
compared to $3,837 in 1995 (combined Successor and Predecessor). The 1996
expenditures were primarily for store remodeling and new computer software.
The 1995 expenditures were primarily for store improvements, new apparel
fixtures, and new computer software.
Cash used in operating activities, primarily to fund inventory levels, was
$31,273 in the third quarter of 1996, and $52,395 year-to-date. Cash used in
operating activities during 1995 was $21,693 in the third quarter and $65,223
year-to-date (combined Successor and Predecessor).
Other
On August 20, 1996, the Company and Fred's, Inc. announced that the previously
announced merger agreement providing for the acquisition of the Company by
Fred's, Inc., had been terminated. As a result of such termination, prepaid
costs relating to the proposed merger of $657 were written-off during the
Company's third quarter.
PAGE
<PAGE>
PART II. OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders
Certain resolutions relating to a proposed acquisition of the Company by
Fred's, Inc. were submitted to a vote of stockholders during the fiscal
quarter ended October 26, 1996. On August 20, 1996, the Company and Fred's,
Inc. announced the termination of the merger agreement providing for the
acquisition. As a result of the termination of the merger agreement, Rose's
special stockholders' meeting, which had been called to consider the merger
agreement, was canceled.
The Company's Annual Meeting of Stockholders was held on November 20, 1996.
At the meeting, the following matters were approved:
(1) All nominees for directors listed in the proxy statement, relating
to such meeting were elected by a vote in favor of such elections
of at least 4,833,189.
(2) The resolution to confirm the appointment of KPMG Peat Marwick LLP
as the Company's independent certified public accountants for the
current year was approved by a vote of 4,839,379 shares voting in
favor of, and 28,373 shares voting against the resolution.
The total number of shares of the common stock, no par value, of the Company
which were issued, outstanding and entitled to vote at the meeting was
8,437,987.
ITEM 6: Exhibits and Reports on Form 8-K
(a) 10.1 Termination Agreement dated as of August 20, 1996 between
the Company, Fred's, Inc., and FR Acquisition Corp.
(b) The Company filed the following current reports on Form 8-K
during the quarter covered by this report:
(i) Report on Form 8-K dated August 20, 1996, reporting
under Item 5 the termination of the merger agreement
providing for the acquisition of the Company by
Fred's, Inc.
PAGE
<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: December 10, 1996 By
R. Edward Anderson
President,
Chief Executive Officer
Date: December 10, 1996 By
Jeanette R. Peters
Senior Vice President,
Chief Financial Officer
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<LEGEND>
This schedule contains summary financial information extracted from Rose's
Stores, Inc., Form 10-Q for the quarter ended October 26, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> ROSE'S STORES, INC.
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