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 27, 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 August 1, 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, 8,332,078 of such shares of common stock are outstanding. The
remaining 675,841 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
8,624,622 shares of common stock will be outstanding. If all pending claims
are resolved in accordance with the Company's records, approximately 8,607,599
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
<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, and therefore are not comparable to the prior year. 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
July 27, 1996 July 29, 1995
<S> <C> <C>
Revenue:
Gross sales $ 165,844 168,488
Leased department sales 5,679 5,764
Net sales 160,165 162,724
Leased department income 1,160 1,178
Total revenue 161,325 163,902
Costs and Expenses:
Cost of sales 123,089 122,471
Selling, general and administrative 39,579(a) 40,596
Depreciation and amortization (616) (791)
Interest 1,979 1,718
Total costs and expenses 164,031 163,994
Net Earnings (Loss) $ (2,706) (92)
Net Earnings (Loss) Per Share $ (.31) (.01)
Weighted Average Shares 8,625 8,625
</TABLE>
(a) Included in 1996 selling, general and administrative costs is a second
quarter write-off of $914 of prepaid bank fees related to the former
financing agreement (see "ITEM 2. Management's Discussion and
Analysis).
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 Successor Predecessor
Twenty-Six Thirteen Thirteen
Weeks Ended Weeks Ended Weeks Ended
July 27, 1996 July 29, 1995 April 29, 1995
<S> <C> <C> <C>
Revenue:
Gross sales $ 320,270 168,488 159,407
Leased department sales 9,960 5,764 5,117
Net sales 310,310 162,724 154,290
Leased department income 2,240 1,178 1,114
Total revenue 312,550 163,902 155,404
Costs and Expenses:
Cost of sales 236,129 122,471 116,838
Selling, general and administrative 76,398(a) 40,596 35,486
Depreciation and amortization (1,288) (791) 1,812
Interest 3,365 1,718 726
Total costs and expenses 314,604 163,994 154,862
Earnings (Loss) before reorganization
benefit (expense) (2,054) (92) 542
Reorganization benefit (expense) (Note 1) - - (3,847)
Fresh start revaluation - - (17,432)
Loss before extraordinary item (2,054) (92) (20,737)
Extraordinary item - gain on debt discharge - - 90,924
Net earnings (loss) (Note 2) $ (2,054) (92) 70,187
Earnings (Loss) per share before
extraordinary item (Note 3) $ (.24) (.01) (1.11)
Net Earnings (Loss) per share (Note 3) $ (.24) (.01) 3.74
Weighted average shares (Note 3) 8,625 8,625 18,758
</TABLE>
(a) Included in 1996 selling, general and administrative costs is a second
quarter write-off of $914 of prepaid bank fees related to the former
financing agreement (see "ITEM 2. Management's Discussion and
Analysis).
See notes to financial statements
PAGE
<PAGE>
ROSE'S STORES, INC.
BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
July 27, January 27, July 29,
1996 1996 1995
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 232 593 641
Accounts receivable 10,681 7,209 10,646
Inventories 179,848 153,190 178,551
Other current assets 4,174 4,706 6,661
Total current assets 194,935 165,698 196,499
Property and Equipment, at cost,
less accumulated depreciation and amortization 7,066 5,122 1,566
Other Assets 565 424 -
$ 202,566 171,244 198,065
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 66,546 33,673 72,094
Bank drafts outstanding - 9,530 3,498
Accounts payable 36,761 23,845 26,717
Accrued salaries and wages 6,610 7,456 7,169
Pre-petition liabilities 4,554 4,632 2,980
Other current liabilities 11,701 11,396 12,576
Total current liabilities 126,172 90,532 125,034
Excess of Net Assets Over Reorganization Value,
Net of Amortization 23,621 25,371 31,221
Reserve for Income Taxes 12,673 12,673 -
Deferred Income 727 974 1,312
Other Liabilities 867 1,134 5,590
Stockholders' Equity
Common Stock, authorized 50,000 shares;
issued 8,332 at 7/27/96; 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 2,347 4,401 (92)
Total stockholders' equity 38,506 40,560 34,908
$ 202,566 171,244 198,065
</TABLE>
See notes to financial statements
PAGE
<PAGE>
ROSE'S STORES, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Successor Successor Predecessor
Twenty-Six Thirteen Thirteen
Weeks Ended Weeks Ended Weeks Ended
July 27, 1996 July 29, 1995 April 29, 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (2,054) (92) 70,187
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization (1,288) (791) 1,812
(Gain) loss on disposal of property
and equipment (2) (1) (1)
LIFO expense (credit) - - (364)
Write-off of prepaid bank fees 914 - -
Fresh-Start revaluation and debt discharge - - (73,492)
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable (3,472) (1,411) (630)
(Increase) decrease in inventories (26,658) 6,578 (40,291)
(Increase) decrease in other current
and non-current assets (523) 1,555 (3,620)
Increase (decrease) in accounts payable 12,916 (10,925) 14,361
Increase (decrease) in other liabilities (487) 579 (2,142)
Increase (decrease) in reserve for
store closings (21) (3,401) (1,108)
Increase (decrease) in deferred income (247) (169) (201)
Increase (decrease) in accumulated PBO (200) 30 7
Net cash provided by (used in)
operating activities (21,122) (8,048) (35,482)
Cash flows from investing activities:
Purchases of property and equipment (2,339) (1,575) (510)
Proceeds from disposal of property
and equipment 2 1 5
Net cash used in investing activities (2,337) (1,574) (505)
Cash flows from financing activities:
Net activity on line of credit 32,873 13,440 58,654
Net activity on debtor-in-possession facility - - (600)
Payments on pre-petition secured debt - - (26,423)
Payments of unsecured priority
and administrative claims (78) (1,372) (1,593)
Principal payments on capital leases (167) (163) (281)
Increase (decrease) in bank drafts outstanding (9,530) (2,264) 5,502
Net cash provided by (used in)
financing activities 23,098 9,641 35,259
Net increase (decrease) in cash (361) 19 (728)
Cash and cash equivalents at beginning of period 593 622 1,350
Cash and cash equivalents at end of period $ 232 641 622
<PAGE> <PAGE>
Supplemental disclosure of additional non-cash
investing and financing activities:
Retirement of net book value of assets in reserve
for store closings $ - - 623
</TABLE>
See notes to financial statements
PAGE
<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 August 1, 1996, the Company had 8,332
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 August 1, 1996, and pursuant to the provisions of
the Plan, 992 shares have reverted to the Company from escrow and have
been retired.
The remaining 676 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 remained unresolved at August 1, 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 293 additional shares
of Common Stock will be issued and outstanding, and there will be a
total of approximately 8,625 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 276
additional shares of Common Stock will be issued, and there will be a
total of approximately 8,608 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.
PAGE
<PAGE>
Notes to Financial Statements (Continued):
(1) Continued
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
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 313 shares of Common Stock were outstanding on July 27, 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 $498 for the twenty-
six weeks ended July 29, 1995.
(3) Accounts receivable is net of an allowance for doubtful accounts of
$289 as of July 27, 1996; $398 as of January 27, 1996 and $2,571 as of
July 29, 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 Postion 90-7
("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under
<PAGE>
Notes to Financial Statements (Continued):
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.
(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 Successor Predecessor
Twenty-six Thirteen Thirteen
Weeks Ended Weeks Ended Weeks Ended
July 27, 1996 July 29, 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 (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
<PAGE>
periods presented, the following discussion of the results of operations is
presented on a pro forma basis (as described below) for the twenty-six weeks
ended July 29, 1995. The combined historical statement of operations for the
thirteen weeks ended April 29, 1995 (Predecessor) and thirteen weeks ended
July 29, 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
twenty-six weeks ended July 27, 1996, and July 29, 1995:
(Amounts in thousands, except
per share amounts.)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
July 27, 1996 July 29, 1995 July 27, 1996 July 29, 1995
Historical Pro Forma Historical Pro Forma
<S> <C> <C> <C> <C>
Revenue:
Gross sales $ 165,844 168,488 320,270 327,895 (a)
Leased department sales 5,679 5,764 9,960 10,881 (a)
Net sales 160,165 162,724 310,310 317,014 (a)
Leased department income 1,160 1,178 2,240 2,292 (a)
Total revenue 161,325 163,902 312,550 319,306
Costs and Expenses:
Cost of sales 123,089 122,471 236,129 238,078
Selling, general and administrative 39,579 40,596 76,398 78,601
Depreciation and amortization (616) (791) (1,288) (1,591)
Interest 1,979 1,718 3,365 3,414
Total costs and expenses 164,031 163,994 314,604 318,502
Earnings (Loss) Before Income Taxes (2,706) (92) (2,054) 804
Income taxes - (34) - 306
Net Earnings (Loss) (2,706) (58) (2,054) 498
Earnings (Loss) Per Share (.31)(b) (.01)(b) (.24)(b) 0.06 (b)
Weighted Average Shares 8,625 (b) 8,625 (b) 8,625 (b) 8,625 (b)
</TABLE>
<PAGE>
(a) 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.
(b) The number of shares used in the earnings (loss) per share calculations
is 8,625, 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,
8,608 shares will be issued and outstanding. Currently, 8,332 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 second quarter of 1996 of $165,844, a
decrease of $2,644, or 1.6%, from the second quarter of 1995, and year-to-
date sales were $320,270, a decrease of $7,625, or 2.3%, from the comparable
period of the prior year. The decline in sales was primarily attributable to
a decline in sales on a comparable store basis of .5% for the quarter and 1.3%
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 76.9% for the second quarter and
75.3% for the comparable period of the prior year. Year-to-date cost of sales
as a percent of net sales was 76.1% for 1996 and 75.1% (pro forma) for the
comparable period of the prior year. The increase in the cost of sales as a
percent of net sales for the quarter of 1.6% was due primarily to an increase
in promotional markdowns (1.0%) and to a lower initial markon (.5%). The
increase in the year-to-date cost of sales as a percent of net sales of 1.0%
was also due to an increase in promotional markdowns.
Selling, general and administrative expenses ("SG&A") as a percent of net
sales for the second quarter were 24.7% in 1996 and 24.9% for the comparable
quarter of the prior year. Year-to-date SG&A expenses as a percentage of
sales were 24.6% in 1996 and 24.8% 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 write-
off of $914 related to a former financing facility (see "Liquidity and Capital
Resources").
On a pro forma basis, reorganization costs for 1995 would not have been
incurred. The actual reorganization costs in 1995 of $3,847 included
professional fees, DIP fees and expense amortizations, and other expenditures
related to the Chapter 11 filing. No reorganization costs were incurred
<PAGE>
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 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. The Company was in compliance with these covenants as of July 27,
1996. In addition, there is a requirement that cumulative net losses after
May 31, 1996 shall not exceed $10,000. The Credit Facility also includes
restrictions on the incurrence of additional liens and indebtedness, a
prohibition on paying dividends, and, except under certain conditions,
prepayment penalties.
As of August 31, 1996, under the Credit Facility, the Company had $82,466
outstanding in short-term borrowings, $13,550 in outstanding letters of credit
and unused availability of $13,551. 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 $1,479 in cash for property and equipment in the second
quarter of 1996 compared to $1,575 invested in the second quarter of 1995.
<PAGE>
Year-to-date cash investment in property and equipment was $2,339 in 1996
compared to $2,085 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 softline
fixtures, and new computer software.
Cash used in operating activities, primarily to fund inventory levels, was
$8,163 in the second quarter of 1996, and $21,122 year-to-date. Cash used in
operating activities during 1995 was $8,048 in the second quarter and $43,530
year-to-date (combined Successor and Predecessor).
Subsequent Event
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 approximately $485 as of July 27,
1996, as well as additional costs incurred subsequent to July 27, 1996, will
be written-off during the Company's third quarter.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
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 Acquistion
Corp.
(b) The Company filed the following reports on Form 8-K during
the quarter covered by this report:
(i) Report on Form 8-K dated May 8, 1996, reporting under
Item 5 the definitive merger agreement regarding the
acquisition of the Company by Fred's, Inc.
(ii) 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 Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSE'S STORES, INC.
Date: September 10, 1996 By /s/ R. Edward Anderson
R. Edward Anderson
President,
Chief Executive Officer
Date: September 10, 1996 By /s/ Jeanette R. Peters
Jeanette R. Peters
Senior Vice President,
Chief Financial Officer
TERMINATION AGREEMENT
TERMINATION AGREEMENT, dated as of August 20, 1996 (this
"Agreement"), among FRED'S, INC., a Tennessee corporation
("Fred's"), FR ACQUISITION CORP., a Delaware corporation and a
wholly-owned subsidiary of Fred's ("Sub"), and ROSE'S STORES, INC.,
a Delaware corporation ("Rose's").
W I T N E S S E T H:
WHEREAS, Fred's, Sub and Rose's are parties to an
agreement and plan of merger, dated as of May 7, 1996 (the "Merger
Agreement"), providing, among other things, for the merger of Sub
and Rose's (the "Merger"); and
WHEREAS, the respective Boards of Directors of Fred's
and Rose's have determined that the Merger Agreement should be
terminated and that the Merger should be abandoned;
NOW, THEREFORE, in consideration of the premises,
representations, warranties and agreements herein contained, the
parties hereto agree as follows:
1. Termination of Merger Agreement. The Merger
Agreement is hereby terminated pursuant to Section 7.1(a) thereof
and, notwithstanding the provisions thereof to the contrary, the
Merger Agreement is of no further force or effect.
<PAGE>
2. Release. Each party hereto hereby releases (for
purposes of this Section 2 and in such capacity, the "Releasor")
and discharges the other parties hereto, their respective
directors, officers, employees, agents, affiliates and professional
advisers (for purposes of this Section 2 and in such capacity, the
"Releasees") from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, extents,
executions, claims and demands whatsoever, whether in tort, in
contract, or otherwise, which against the Releasees, the Releasor
ever had, now has, or hereafter can, shall or may have for, upon
or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the day of the date of this Agreement;
provided, however, that nothing in this Section 2, shall release
a party from its obligations contained in this Agreement.
3. Standstill Agreement. Each of the parties hereto
agrees that, without the prior written consent of the Board of
Directors of the other parties, for a period of five years from
the date hereof, neither it nor any Affiliate (as that term is
defined in Rule 405 under the Securities Act of 1933) of it
(regardless of whether such person or entity is an Affiliate of it
on the date hereof) will (a) acquire, offer to acquire or agree to
acquire, directly or indirectly, by purchase or otherwise, any
voting securities or direct or indirect rights or
<PAGE>
options to acquire any voting securities of the other parties, (b) make, or
in any way participate, directly or indirectly, in any
"solicitation" of "proxies" to vote (as such terms are used in the
proxy rules of the Securities and Exchange Commission), or seek to
advise or influence any person or entity with respect to the voting
of any voting securities of the other parties, (c) form, join or
in any way participate in a "group" within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934 with respect to any
voting securities of the other parties or (d) otherwise act, alone
or in concert with others, to seek to control or influence the
management, Board of Directors or policies of the other parties;
provided, however, that this Section 3 shall not be deemed to
prohibit any transactions solely between Fred's and Sub.
4. Confidentiality and Non-Solicitation.
(a) Except as and to the extent required by law,
each of the parties hereto shall not disclose or use, and it shall
cause its representatives not to disclose or use, any Confidential
Information (as defined herein) with respect to the other parties
furnished at any time or in any manner by the other parties or
their respective representatives in connection with the Merger
Agreement. For purposes of this Section 4(a), "Confidential
Information" means any information about either of Fred's or Rose's
stamped "confidential" or identified in writing as such to the
other by the affected party; provided that it does not include
information which the party which seeks non-
<PAGE>
confidential treatment shall demonstrate (i) is generally available to
or known by the public other than as a result of improper disclosure
by such party or (ii) is obtained by such party from a source other than the
other party, provided that such source was not bound by a duty of
confidentiality to the other party or another party with respect
to such information. Each of Fred's and Rose's shall promptly
return to the other any Confidential Information in its possession
concerning the other party.
(b) For a period of one year from and after the date
hereof, neither Fred's nor Rose's shall solicit or hire any
employee of the other whose salary at the termination of employment
with the other was in excess of $80,000.
5. Public Announcements. The joint press release
relating to the termination of the Merger Agreement is annexed
hereto as Exhibit 1, which joint press release shall be issued by
Fred's and Rose's as soon as practicable after the execution
hereof. None of the parties hereto shall issue any other press
release or otherwise make public announcements inconsistent with
such press release with respect to the Merger, the termination of
the Merger Agreement or the other transactions contemplated by the
Merger Agreement, this Agreement or the other parties hereto,
except (i) as may be required by law or by obligations pursuant to
any listing agreement with or rules of the Nasdaq Stock Market and
(ii) this Agreement may be filed with reports filed with the
Securities and Exchange Commission and with the Nasdaq Stock
Market.
<PAGE>
6. Representations. Each of the parties hereto
represents and warrants to the others as follows:
(a) All necessary corporate proceedings of such party
have been duly taken to authorize the execution, delivery and
performance of this Agreement by such party.
(b) This Agreement has been duly authorized, executed
and delivered by such party, is the legal, valid, and binding
obligation of such party and is enforceable as to it in accordance
with its terms.
(c) No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with,
any governmental authority or any court or other tribunal is
required by such party for the execution, delivery or performance
of this Agreement by such party.
(d) No consent of any party to any contract, agreement,
instrument, lease, license, arrangement or understanding to which
such party is a party, or to which any of its properties or assets
are subject, is required for the execution, delivery or performance
of this Agreement; and the execution, delivery and performance of
this Agreement will not violate, result in a breach of, conflict
with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default
under any such contract, agreement, instrument, lease, license,
arrangement or understanding, or violate or result in a breach of
any term of
<PAGE>
the certificate of incorporation (or other charter
document) or by-laws of such party, or violate, result in a breach
of, or conflict with, any law, rule, regulation, order, judgment
or decree binding on such party or to which any of its operations,
business, properties, or assets are subject.
7. Binding Effect. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
8. Separability. If any provision of this Agreement
is invalid, illegal or unenforceable, the balance of this Agreement
shall remain in effect and if any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable to
all other persons and circumstances.
9. Headings. The headings in this Agreement are solely
for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
10. Counterparts; Governing Law.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
It shall be governed by and construed in accordance with the laws
of Tennessee, without giving effect to rules governing the conflict
of laws.
<PAGE>
11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given when
delivered personally, one day after being delivered to an overnight
courier or when telecopied (with a confirmation copy sent by
overnight courier) to the parties at the following addresses (or
at such other address for a party as shall be specified by like
notice):
if to Rose's to:
R. Edward Anderson
Rose's Stores, Inc.
P.H. Rose Building
218 South Garnett Street
Henderson, North Carolina 27536
Facsimile: 919/430-2003
with a copy to:
Henry O. Smith III, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036-8299
Facsimile: 212/969-2900
if to Fred's or Sub to:
Michael J. Hayes
Fred's, Inc.
4300 New Getwell Road
Memphis, Tennessee 38118
Facsimile: 901/362-3733 ext. 3777
with a copy to:
Samuel D. Chafetz, Esq.
Waring Cox, PLC
50 North Front Street, Suite 1300
Memphis, Tennessee 38103
Facsimile: 901/543-8036
<PAGE>
12. Entire Agreement; No Third Party Beneficiaries.
This Agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, including
the Merger Agreement. This Agreement is not intended to confer
upon any person other than the parties hereto any rights or
remedies hereunder.
IN WITNESS WHEREOF, the undersigned have caused this
Agreement to be executed by their duly authorized representatives
as of the date first written above.
FRED'S, INC. ROSE'S STORES, INC.
By /s/ Michael J. Hayes By /s/ R. Edward Anderson
Michael J. Hayes R. Edward Anderson
President and Chairman, President and
Chief Executive Officer Chief Executive Officer
FR ACQUISITION CORP.
By /s/ Michael J. Hayes
Michael J. Hayes
President and
Chief Executive Officer
<PAGE>
<PAGE>
EXHIBIT 1
For Immediate Release
ROSE'S STORES, INC. AND FRED'S, INC. ANNOUNCE
TERMINATION OF MERGER AGREEMENT
Henderson, North Carolina and Memphis, Tennessee--August 20,
1996...Rose's Stores, Inc. (Nasdaq: "RSTO") and Fred's, Inc.
(Nasdaq: "FRED") announced today that the previously announced
merger agreement providing for the acquisition of Rose's Stores,
Inc. by Fred's, Inc. has been terminated.
Rose's operates 105 stores and Fred's operates 207 stores, in
the southeastern United States.
FOR: Fred's, Inc. FOR: Rose's Stores, Inc.
Investor Relations and Press Contact: Investor Relations and Press Contact:
Name: Bruce D. Smith Name: G. Templeton Blackburn II
Company: Fred's, Inc. Company: Rose's Stores, Inc.
Phone: (910)365-8880 Phone: (919) 430-2019
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Rose's
Stores, Inc., Form 10-Q for the quarter ended July 27, 1996, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000085149
<NAME> ROSE'S STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-END> JUL-27-1996
<CASH> 232
<SECURITIES> 0
<RECEIVABLES> 10,970
<ALLOWANCES> 289
<INVENTORY> 179,848
<CURRENT-ASSETS> 194,935
<PP&E> 7,683
<DEPRECIATION> 617
<TOTAL-ASSETS> 202,566
<CURRENT-LIABILITIES> 126,172
<BONDS> 0
0
0
<COMMON> 35,000
<OTHER-SE> 3,506
<TOTAL-LIABILITY-AND-EQUITY> 202,566
<SALES> 310,310
<TOTAL-REVENUES> 312,550
<CGS> 236,129
<TOTAL-COSTS> 236,129
<OTHER-EXPENSES> (1,288)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,365
<INCOME-PRETAX> (2,054)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,054)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,054)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
