SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 25, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No 0-631
ROSE'S STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-0382475
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
218 S. Garnett Street
Henderson, NC 27536
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (919) 430-2600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Stock Warrants (to purchase Common Stock)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
(continued on following page)
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(continued from previous page)
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
As of March 12, 1997, 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, the
Company has 8,571,964 shares of common stock outstanding. The remaining 430,909
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 8,660,179 shares of common
stock will be outstanding. If all pending claims are resolved in accordance
with the Company's records, approximately 8,613,609 shares of common stock will
be outstanding. 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.
As of March 31, 1997, the aggregate market value of common stock held by
non-affiliates of the Company (assuming all pending claims are resolved adverse-
ly to the Company) was approximately $15,300,000.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document Location in Form 10-K
Portions of Registrant's definitive Part III, Items 10, 11,
Proxy Statement to be filed in 12 and 13
connection with the Annual Meeting
of Shareholders to be held June 26,
1997.
PAGE
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PART I
ITEM 1: BUSINESS
(a) General Development of Business
Rose's* was organized in 1915 as a family partnership consisting of Paul H.
Rose and his wife, Emma M. Rose, who together opened a "5-10-25 cent" store in
Henderson, North Carolina. By 1927, when there were 28 stores, the business
was incorporated in the state of Delaware under the name of "Rose's 5, 10 & 25
cent Stores, Inc." In 1962, the name was changed to "Rose's Stores, Inc." Over
the years, Rose's has opened stores of a larger size. As a result, Registrant's
business has evolved from a chain of 5, 10 & 25 cent stores to a chain of
general merchandise discount stores.
On September 5, 1993, Rose's filed a voluntary petition for Relief under
Chapter 11, Title 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in 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 Plan became effec-
tive. Details of the bankruptcy proceedings are discussed in Note 1 to the
Company's Financial Statements included elsewhere herein.
(b) Industry Segments Registrant's business does not include industry
segments as defined under the Act.
(c) Narrative Description of Business
At the end of its last fiscal year, Registrant was operating 105 retail
stores in a region extending from Delaware to Georgia and westward to the
Mississippi Valley. All store buildings are leased. The stores range in size
from 24,000 square feet to 72,000 square feet. During the year, Rose's did not
open or close any stores. Rose's has closed one store subsequent to year-end
and plans to open two new stores in 1997. The new stores will average 26,000
square feet.
Registrant currently operates one class of stores, known as "ROSES". The
stores carry a wide range of general merchandise and popularly priced consumer
goods, such as clothing, shoes, household furnishings, small appliances,
toiletries, cosmetics, sporting goods, automobile accessories, food, yard and
garden products, electronics and occasional furniture. Registrant operates all
of the departments in its stores including the leased shoe departments.
* Reference in this Annual Report on Form 10-K to "Rose's," the "Registrant,"
or the "Company" shall mean Rose's Stores, Inc.
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Sales are primarily for cash, although credit cards such as MASTERCARD, VISA
and DISCOVER are honored. During the past fiscal year, credit card sales
amounted to approximately 14% of gross sales. Store sales are directly affected
by general economic conditions in the areas where the stores are located, as
well as by consumer spending and disposable income.
Merchandising Inventories are purchased in two principal ways. The
Company's buyers purchase and distribute merchandise to the various stores, and
to a lesser extent the store managers purchase merchandise for their individual
stores from listings and sources approved by the Company's buyers. Rose's
purchases from a large number of suppliers and sells to a large number of
customers and does not believe that the loss of any one customer or supplier
would have a material adverse effect on the Company. Rose's does not engage in
any material research activities and has no plans for new product lines.
The Company has an agreement with an independent contractor to sell shoes
within the Company's stores. The Company receives a percentage of the sales
under the agreement which expires July 30, 1998.
Distribution Approximately 15% of the Company's merchandise is shipped
directly to stores from suppliers, and 85% is shipped to stores from Rose's
distribution and consolidating facilities located in Henderson, North Carolina.
The majority of trailers used in shipping are owned by Rose's; the majority of
tractors are leased.
Seasonal Aspects of Operations Rose's business is highly seasonal and
directly influenced by general economic conditions in its operating area. The
Christmas season is the period of highest sales volume. During the past fiscal
year, a total of approximately 23% of the year's gross sales were made in the
months of November and December combined.
Competition Rose's business is intensely competitive. Rose's Stores com-
pete directly with chains such as Wal-Mart, Kmart, Target, and Hills, and with
independently owned stores. At the end of the fiscal year, 91% of Rose's Stores
faced competition from these stores. Wal-Mart and Kmart and more recently
Target and Hills have been opening or expanding stores in the areas in which
Rose's stores are located. Of the Company's 105 stores, 14 faced new competi-
tors' openings or expansions in 1996, compared to 28 stores in 1995 and 10
stores in 1994. In 1997, the Company expects to have 5 stores facing new com-
petition. There is also competition from grocery stores, drug chains and home
improvement centers. In addition, other distribution channels, such as telemar-
keting and catalogs also compete with the Registrant's stores.
Associates* Rose's employed, on a full-time or part-time basis,
approximately 8,800 persons at fiscal year-end. Rose's considers its relations
with its associates to be good.
* Persons employed by Rose's Stores, Inc.
PAGE
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ITEM 2: PROPERTIES
The following table shows the geographical distribution of the 105 Rose's
stores in operation on January 25, 1997:
State Number of Stores
North Carolina 47
Virginia 27
Georgia 8
South Carolina 6
Maryland 4
Mississippi 4
Kentucky 3
Delaware 3
Tennessee 2
West Virginia 1
TOTAL 105
During the fiscal year which ended January 25, 1997, Rose's opened no new
stores and closed no stores. The Registrant occupies approximately 5,437,000
total square feet of store space (including office, stockroom, and other
non-selling areas), or an average of 51,780 per store. The Registrant has closed
one store subsequent to year-end and plans to open two new stores in 1997. The
new stores will average 26,000 square feet. Rose's currently leases all store
space under long-term leases which are normally for initial terms of 15 to 20
years with one or more five-year renewal options. (See Leased Assets and Lease
Commitments, Note 15, to the Financial Statements for additional information
about the Registrant's commitments under the terms of its long-term leases.)
The two new stores will operate under three year leases with renewal options.
Following is a table of the number of stores opened, closed and remodeled
in the last five years:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Number of stores at the
beginning of year 105 113 172 217 232
Stores opened - - - - -
Stores closed - (8) (59) (45) (15)
Number of stores at the
end of year 105 105 113 172 217
Remodeled stores 19 15 - 21 7
</TABLE>
Most of the stores' fixtures are owned by the Registrant. The remaining
fixtures are manufacturers' racks that are supplied by vendors. Most of the
electronic equipment located in the stores, including point of sale equipment,
is owned by the Registrant.
The Registrant owns its Executive and Buying Offices, its 860,300 square
foot central warehouse, an additional warehouse containing 134,400 square feet,
a 31,000 square foot graphic productions building and a 30,000 square foot data
center, all of which are located in Vance County, North Carolina. The Registrant
also leases facilities in Henderson, North Carolina for offices (approximately
30,000 square feet). The Registrant also owns a 78,000 square foot warehouse
in Henderson, North Carolina, which is leased to a third party. Subsequent to
year-end, the Registrant terminated the lease with respect to approximately
6,000 square feet of office space.
On May 21, 1996, the Company entered into a new financing arrangement with
Foothill Capital, Inc. and PPM Finance, Inc. as co-agents. The financing is a
$120,000,000 three-year revolving credit facility (the "Credit Facility") with
a letter of credit sublimit in the aggregate principal amount of $40,000,000.
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. Under the
Credit Facility, trade suppliers which extend credit to the Company are support-
ed by a $5,000,000 letter of credit and a subordinated lien of $15,000,000 in
the real estate properties of the Company, which letter of credit and subordina-
ted lien expire April 29, 1997. The Company plans to extend or replace this
security package. The Credit Facility includes certain restrictive covenants
which the Company was in compliance with at January 25, 1997. (See Debt,
Note 7, to the Financial Statements for additional information about the Regis-
trant's financing agreement.)
ITEM 3: LEGAL PROCEEDINGS
The Registrant'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. General damages are covered by insurance, subject to specified
self-retention amounts, and are adjusted and managed by a third party claims
management service which also manages defense of the claims.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of the
fiscal year.
PAGE
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
INVESTOR INFORMATION
Rose's new common stock was delivered to First Union National Bank of North
Carolina as Escrow Agent on April 28, 1995, pursuant to the Modified and Restat-
ed First Amended Joint Plan of Reorganization (the "Plan") for distribution on
allowed claims of unsecured creditors and to officers of the Company pursuant
to a consummation bonus plan approved by order of the Bankruptcy Court on
February 14, 1995. Rose's stock is listed on the Nasdaq National Market System
("NASDAQ"; symbol "RSTO"). Rose's had 2,846 stockholders of record of common
stock on April 3, 1997. High and low prices of the Company's common stock, as
reported on NASDAQ, are shown in the table below:
<TABLE>
<CAPTION>
Fiscal Year Thirty-Nine Weeks
Ended January 25, 1997 Ended January 27, 1996
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter 2 3/32 1 5/16 NA NA
2nd Quarter 2 1/8 1 11/16 3 3/8 1 57/64
3rd Quarter 1 27/32 1 1/2 3 1/4 1 5/8
4th Quarter 1 31/32 1 1/2 2 5/16 1 1/2
</TABLE>
On the effective date of the Plan, all shares of the Company's pre-emergence
Voting Common Stock and Non-voting Class B Stock were canceled pursuant to the
Plan. The stockholders of record of such stock as of such date became entitled
to receive their prorata share of 4,285,714 warrants to purchase the newly
issued 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. See Stock-
holders' Equity, Note 11, to the Financial Statements for additional informa-
tion. The warrants are listed on NASDAQ (symbol "RSTOW"). High and low prices
of the warrants from the first day listed (October 31, 1995), as reported on
NASDAQ, are shown on the table below:
<TABLE>
<CAPTION>
Fiscal Year Thirty-Nine Weeks
Ended January 25, 1997 Ended January 27, 1996
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter 1/4 1/32 NA NA
2nd Quarter 1/4 1/8 NA NA
3rd Quarter 1/8 1/32 5/16 3/16
4th Quarter 3/32 1/32 1/4 1/16
</TABLE>
There were no dividends paid in 1996 and 1995. The Registrant is restricted
from paying dividends under the terms of its financing facility.
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ITEM 6: SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts)
(Not covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
Thirty-Nine | Thirteen
Weeks Ended | Weeks Ended
Fiscal Year January 27, | April 29, Fiscal Years
1996 1996 | 1995 1994 1993 1992
<S> <C> <C> | <C> <C> <C> <C>
Net sales $ 641,884 524,397 | 154,290 731,926 1,203,223 1,362,243
Leased department income 4,647 3,784 | 1,114 5,288 8,707 9,816
Earnings (loss) before |
reorganization expense, |
fresh-start revaluation, |
income taxes, and |
extraordinary items 1,370 5,484 | 542 6,617 (27,069) (59,509)
Reorganization expense(b) - - | (3,847) (57,899) (39,138) -
Fresh-Start revaluation(c) - - | (17,432) - - -
Earnings (loss) before |
cumulative effect of |
accounting change and |
extraordinary items 1,294 4,401 | (20,737) (51,282) (66,207) (58,560)
Cumulative effect of |
accounting change(d) - - | - - - (5,031)
Extraordinary items |
Gain on debt |
discharge(e) - - | 90,924 - - -
Loss on early extinguishment |
of debt(f) (914) - | - - - -
Net earnings (loss)(g) 380 4,401 | 70,187 (51,282) (66,207) (63,591)
Per Share Results |
Earnings (loss) before |
cumulative effect of |
accounting change and |
extraordinary items 0.15 0.51 | (1.11) (2.73) (3.53) (3.14)
Net earnings (loss) 0.04 0.51 | 3.74 (2.73) (3.53) (3.41)
Cash dividends - - | - - - -
Total assets 160,322 171,244 | 204,561 183,186 308,105 337,040
Excess of net assets over |
reorganization value 21,872 25,371 | 32,201 - - -
Reserve for income |
taxes(h) 12,996 12,673 | - - - -
Long-term obligations 1,079 2,108 | (i) (i) (i) 83,433
</TABLE>
(a) In accordance with Fresh-Start Reporting, the Company adjusted its assets
and liabilities to reflect their estimated fair market value at the Effective
Date, and made certain reclassifications between gross margin and expenses and
changed the method of accruing certain expenses between periods (See Note 2 to
the Financial Statements). Accordingly, the selected financial data above for
the thirty-nine weeks ended January 27, 1996 is not comparable in material
respects to such data for prior periods. Furthermore, the Company's results of
operations for the period prior to reorganization are not necessarily indicative
of results of operations that may be achieved in the future.
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(b) Reorganization costs include the DIP facility fee amortization and expenses,
professional fees and other reorganization costs. Additionally, included in the
reorganization expense for 1994 is a provision of $43,000 for the costs of
closing 59 stores in May 1994 and realigning corporate and administrative costs.
Included in the reorganization expense for 1993 is a provision of $39,500 for
the costs of closing 43 stores in January 1994. Offsetting the 1993 expense is
a reversal of prior reserves for closings due to the anticipated rejections of
closed store leases.
(c) 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 accord-
ance 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.
(d) In 1992, the Company adopted SFAS 106, "Employers' Accounting for Postre-
tirement Benefits Other Than Pensions," requiring the Company to accrue health
insurance benefits over the period in which associates become eligible for such
benefits. The cumulative effect of adopting SFAS 106 was a one-time charge of
$5,031.
(e) The extraordinary item - gain on debt discharge represents the extinguish-
ment of liabilities subject to settlement under reorganization proceedings in
accordance with the Plan.
(f) The extraordinary item - loss on early extinguishment of debt represents the
deferred financing costs of the previous facility which were written off as a
result of the Company obtaining a new financing facility.
(g) Included in 1996 net earnings is a charge of $657 related to a merger agree-
ment which was terminated on August 20, 1996, a charge of $207 for the reserve
for a store closing in 1997 and income of $1,397 resulting from the settlement
of pre-petition liabilities. Included in 1995 earnings is a gain of $4,701
which represents the effect of canceling a postretirement healthcare benefit, a
charge of $1,170 for severance costs, and a gain of $586 on the sale of a store
lease.
(h) During 1995, the Company filed for and received a federal refund of $16,898
to carry back losses described in Section 172(f) of the Internal Revenue Code.
Additionally, during 1996 the Company filed a $10,620 refund claim under Section
172(f), which is currently being evaluated by the IRS. Section 172(f) is an
area of tax law without substantial legal precedent or guidance. The IRS may
challenge the Company's ability to carry back such a substantial portion of
losses under this provision. Accordingly, assurances cannot be made as to the
Company's entitlement to all of these claims. Consequently, an income tax re-
serve has been set up in the amount of the refund already received net of the
collection expenses which will be reimbursed if the Company's position does not
withstand any such challenge and the refund is reversed.
(i) Not comparable for the thirteen weeks ended April 29, 1995, and the fiscal
years 1994 and 1993, the majority of the amounts comprising this item have been
reclassed to liabilities subject to settlement under reorganization proceedings.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS FROM OPERATIONS
(Dollars in thousands except per share amounts)
Results of Operations
The following table sets forth for the periods indicated the percentage
which each item listed relates to net sales:
<TABLE>
<CAPTION>
Fiscal Years
% to Net 1995(a) % to Net % to Net
1996 Sales Pro forma Sales 1994 Sales
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Gross sales $661,684 103.1% 700,325(b) 103.2% 756,356 103.3%
Leased department sales 19,800 3.1 21,638(b) 3.2 24,430 3.3
Net sales 641,884 100.0 678,687(b) 100.0 731,926 100.0
Leased department income 4,647 0.7 4,898(b) 0.7 5,288 0.7
Total revenue 646,531 100.7 683,585 100.7 737,214 100.7
Costs and Expenses:
Cost of sales 489,450 76.3 519,727 76.6 555,087 75.8
Selling, general and
administrative 150,143 23.4 153,900 22.7 160,346 21.9
Depreciation and
amortization (2,378) (0.4) (3,349) (0.5) 9,257 1.3
Interest 7,946 1.2 6,927 1.0 5,907 0.8
Total costs and expenses 645,161 100.5 677,205 99.8 730,597 99.8
Earnings (loss) before
reorganization expense,
income taxes, and
extraordinary item 1,370 0.2 6,380 0.9 6,617 0.9
Reorganization expense (a) - - - - (57,899) (7.9)
Earnings (loss) before income
taxes and extraordinary item 1,370 0.2 6,380 0.9 (51,282) (7.0)
Income taxes 76 0.0 1,272 0.2 - -
Earnings (loss) before
extraordinary item 1,294 0.2 5,108 0.7 (51,282) (7.0)
Extraordinary item - loss on early
extinguishment of debt (914) 0.1 - - - -
Net earnings (loss) $ 380 0.1% 5,108 0.7% (51,282) (7.0)%
</TABLE>
(a) On September 5, 1993, the Company filed a voluntary petition in the United
States Bankruptcy Court for the Eastern District of North Carolina seeking to
reorganize under Chapter 11 of the Bankruptcy Code. The Company emerged from
Chapter 11 on April 28, 1995. Beginning in May 1995, the income statements re-
flect the application of Fresh-Start Reporting as described in Fresh-Start Re-
porting, Note 2 to the Financial Statements, and are therefore not comparable to
prior years. The 1995 year-to-date results are presented on a pro forma basis
to reflect the results as if the Company had adopted Fresh-Start Reporting at
the beginning of the year. The adjustments are related to interest expense,
reorganization costs, depreciation and amortization, advertising accrual, LIFO
shrinkage and income taxes.
(b) The Successor's proforma amounts represent the combination of the Succes-
sor's historical amounts with the Predecessor's historical amounts. See State-
ments of Operations included in the historical financial statements.
PAGE
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Chapter 11 Proceedings
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.
Technical modifications to the Company's First Amended Joint Plan of Reorgan-
ization (which was confirmed by the Bankruptcy Court on December 14, 1994)
were approved by orders of the Bankruptcy Court dated February 3, 1995 and
February 13, 1995 and a Modified and Restated First Amended Joint Plan of
Reorganization (the "Plan") was approved by order of the Bankruptcy Court on
April 24, 1995. On May 1, 1995, the Company announced that it had satisfied all
conditions required under its plan of reorganization and had emerged from Chap-
ter 11 of the United States Bankruptcy Code on April 28, 1995 (the "Effective
Date").
For a further discussion of the Chapter 11 proceedings, see Item 3: Legal
Proceedings and Note 1 to the Financial Statements.
In accordance with SOP 90-7, the Company adopted fresh-start reporting.
Under fresh-start reporting, a new reporting entity is 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 amorti-
zation 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.
For further information, see Note 2 to the Financial Statements.
To facilitate a better comparison of the Company's operating results for the
periods presented, the following discussion is based on the results of opera-
tions which are presented on a pro forma basis (as described below) for 1995.
The combined historical statements of operations for the thirteen weeks ended
April 29, 1995 (Predecessor) and thirty-nine weeks ended January 27, 1996
(Successor), are not included in the discussion due to the lack of comparability
caused by the adoption of fresh-start reporting at the end of the first quarter.
Certain items in the Successor's pro forma statements of operations are not
affected by fresh-start adjustments and are comparable to the historical com-
bined results of the Predecessor and the Successor.
The pro forma statements of operations combine the results of operations of
the Predecessor and Successor for 1995 and give 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 statements
of operations have 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 other 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;
accrual of additional shrinkage; and the recording of an appropriate income tax
expense.
Revenue
The Company reported sales in 1996 of $661,684, a decrease of $38,641 or
5.5% from 1995. The decline in sales was due primarily to a decline in sales
on a comparable store basis of 5.0%. Same store sales were negatively affected
by the Company's program in the fourth quarter of running less intensive
promotions thereby improving the gross margin rate.
In 1995, the Company reported sales of $700,325, a decrease of $56,031 or
7.4% from fiscal 1994. The closings of 7 stores in May 1995 and 1 store in
October 1995 were the reasons for a significant portion of the sales decrease.
Same store sales for 1995 decreased 1.5% from 1994. Same store sales in 1995
were negatively affected by poor weather at the beginning of the year, a change
in layaway promotions, and by a poor Christmas selling season for retailers in
general.
In 1994, the Company reported sales of $756,356, a decrease of $489,341 or
39.3% from fiscal 1993. The closing of 43 stores in January 1994 and 59 stores
in May 1994 were the reasons for the sales decrease. Same store sales for 1994
increased 1.2% from 1993.
Sales have been adversely affected over the last three years as a result of
new competition. Wal-Mart and Kmart and more recently Target and Hills have
been opening or expanding stores in the areas in which Rose's stores are
located. Of the 105 stores open in 1996, 14 faced new competitors' openings or
expansions, compared to 28 in 1995 and 10 in 1994. In 1997, the Company expects
to have 5 stores facing new competition.
Inflation has had little effect on the Company's operations in the last
three years.
Costs and Expenses
In 1996, the cost of sales as a percent of sales decreased .3% from the 1995
pro forma percent to sales. This was due primarily to (i) lower shrinkage
resulting in a decrease of the cost of sales rate by .1%, (ii) decreased
markdowns resulting in a decrease in the rate by .2%, and (iii) an increase in
the initial markon resulting in a decrease in the rate by .1%. These decreases
in the cost of sales were offset somewhat by a decrease in advertising co-op
income resulting in an increase of .1% in the 1996 cost of sales.
In 1995, the pro forma cost of sales as a percent of sales increased .8% from
the 1994 percent to sales. This was due primarily to (i) higher shrinkage
resulting in an increase of the cost of sales rate by .8%, (ii) increased
markdowns resulting in an increase in the rate by .5%, and (iii) no LIFO credit
was recorded in 1995 resulting in an increase in the cost of sales rate by .7%.
These increases in the cost of sales were offset somewhat by the reclassifica-
tion of advertising co-op income and cash discounts to cost of sales resulting
in a decrease of 1.1% in the 1995 cost of sales.
In 1994, the cost of sales as a percent of sales decreased 1.7% from the
1993 percent to sales. This was due to (i) higher markup decreasing the cost
of sales rate by .7%, (ii) lower shrinkage resulting in a decrease of the rate
by 1.1%, and (iii) LIFO credit decreasing the rate by .6%. These improvements
were offset by higher markdowns and increases in freight costs.
<PAGE>
Selling, general and administrative (SG&A) expenses as a percent of sales
were 23.4% in 1996, 22.7% in 1995 (pro forma), and 21.9% in 1994. The 1996 SG&A
included a charge of $657 related to a merger agreement with Fred's, Inc., which
was terminated on August 20, 1996, and a $207 charge for the reserve for a store
closing in 1997. Also included in 1996 SG&A, is income of $1,397 resulting from
the settlement of pre-petition tax claims (See "Other") and some pre-petition
workers' compensation insurance claims.
The 1995 pro forma SG&A increase as a percentage of sales was due in part
to the reclassification of advertising co-op and cash discounts from SG&A to
gross margin and to the decline in 1995 sales. Included in 1995 SG&A, is a gain
of $4,701 which represents the effect of canceling a postretirement healthcare
benefit, a charge of $1,170 for severance costs related to a downsizing on
February 23, 1996, of approximately 175 positions in the home office,
distribution and store operations support staff, and a gain of $586 on the sale
of a store lease.
The decrease in 1994 SG&A is due in part to the realignment of corporate and
administrative costs as well as a reduction in store expenses.
The Company made the decision in the first quarter of 1994 to close 59 stores
and realign corporate and administrative costs accordingly. A charge of $43,000
relating to these closings is included in the 1994 reorganization expenses of
$57,899. The reserve remaining at the end of 1994 was adequate to cover the
costs of closing an additional seven stores in May 1995.
Interest expense for 1996 was $7,946. Interest for 1995 pro forma and 1994
including the interest on the DIP facility was $6,927 and $9,352, respectively.
Interest expense increased 14.7% in 1996 due primarily to increased amortization
of deferred financing costs and other interest. Interest expense decreased 25.9%
in 1995 (pro forma), and 29.6% in 1994 (including DIP interest), primarily due
to payments made to pre-petition secured lenders. Generally, under the
Bankruptcy Code, interest on pre-petition claims ceases accruing upon the filing
of a petition unless the claims are collateralized by an interest in property
with value exceeding the amount of debt. The Bankruptcy Court ordered the
Company to make monthly adequate protection payments to its Pre-petition Secured
lenders which were booked as interest.
Other
The Internal Revenue Service has examined the Company's federal income tax
returns for the years 1988 through 1991, and claims arising from those
examinations have been settled. The provision for these claims made in prior
years was reduced by $397 during 1996 to the amount of the settled claim.
Federal net operating loss carryovers for fiscal years subsequent to January
1992 are subject to future adjustments, if any, by the IRS. All state income
and franchise tax returns for taxable years ending prior to fiscal 1993 are not
subject to adjustment, primarily because of the application of certain facets
of bankruptcy law.
During 1995, the Company filed for and received a federal refund of $16,898
to carry back losses described in Section 172(f) of the Internal Revenue Code.
Additionally, during 1996 the Company filed a $10,620 refund claim under Section
172(f), which is currently being evaluated by the IRS. Section 172(f) is an
area of tax law without substantial legal precedent or guidance. The IRS may
challenge the Company's ability to carry back such a substantial portion of
losses under this provision. Accordingly, assurances cannot be made as to the
Company's entitlement to all of these claims. Consequently, an income tax
reserve has been set up in the amount of the refund already received net of the
collection expenses which will be reimbursed if the Company's position does not
withstand any such challenge and the refund is reversed.
Liquidity and Capital Resources
On May 21, 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, a loss on early extinguishment of debt of $914
in prepaid bank fees related to the former facility was recognized as an
extraordinary item.
The interest rate on the direct borrowings under the Credit Facility is the
prime rate plus 1.375% (9.625% at January 25, 1997), 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 are support-
ed 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 Company plans
to extend or replace this security package.
The Credit Facility includes certain financial covenants and financial
maintenance tests, including those related to minimum working capital and cur-
rent 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 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 January 25, 1997. The
Company's management believes that the Company's current financing arrangement
is adequate to meet its liquidity needs.
On April 28, 1995 (the "Effective Date"), the Company closed on its exit
financing loan (which was replaced on May 21, 1996, see above), thereby
satisfying the last condition of the Plan and emerged from bankruptcy. The exit
financing was a $125,000 (subsequently amended to $110,000, see below) three-
year revolving credit facility (the "Facility") with a letter of credit sublimit
in the aggregate principal amount of $40,000 with the First National Bank of
Boston and The CIT Group/Business Credit, Inc., (the "Banks") as facility
agents. The Facility was secured by a perfected first priority lien and securi-
ty interest in all of the assets of the Company. The interest rate on the Fa-
cility was either (a) the Banks' base rate plus 1.5% payable monthly or (b) a
LIBOR rate plus 3.75% payable at the expiration of the LIBOR loan, depending on
which option the Company chose. Although there were no compensating balances
required, the Company was required to pay a fee of .5% per annum on the average
unused portion of the Facility. Borrowing availability was based upon certain
eligible inventory times a borrowing base percentage that varied by month. Under
the Facility, trade suppliers which extended credit to the Company were support-
ed by a $5,000 letter of credit and subordinated lien of $15,000 in the real
estate properties of the Company which expired April 30, 1996 (extended to April
29, 1997).
The Facility included certain financial covenants and financial maintenance
tests, including those relating to earnings before interest, taxes, depreciation
and amortization (EBITDA), debt service coverage, capital expenditures
limitations, minimum stockholders' equity, and minimum/maximum inventory levels,
which were measured quarterly. The Facility also included restrictions on the
incurrence of additional liens and indebtedness; a requirement that the Facility
be paid down to certain levels for 30 consecutive days between December 1st and
February 15th each year; and a prohibition on paying dividends.
On January 31, 1996, the Company and the Banks agreed to an amendment to the
Facility that reduced the Facility size to $110,000. The covenants for the end
of fiscal 1995 and the remaining life of the Facility were amended and certain
covenants were added, including those related to days on hand inventory, maximum
borrowings exposure, and an interest coverage ratio. Also, the measurement
period for most covenants was changed from quarterly to monthly. In addition,
the LIBOR option was eliminated and the Banks agreed to extend the trade letter
of credit and subordinated lien until April 29, 1997.
The Company's current ratio for 1996 is 1.82 compared to 1.83 in 1995, and
2.73 in 1994. In 1996, cash and cash equivalents increased $648, compared to
a decrease of $757 in 1995 (combined Successor and Predecessor) and a decrease
of $10,605 in 1994. The Company's working capital was $68,697 in 1996, $75,166
in 1995, and $92,009 in 1994. The decrease in 1996 of $6,469 was due in part
to a decrease in inventory and an increase in borrowings on the financing
facility. The decrease in 1995 of $16,843 was due in part to the increased
inventories as a result of the write-off of $25,831 in LIFO reserves as part of
Fresh-Start Reporting, and an increase in investment in inventory, increased
borrowings on the line of credit, reclassification of pre-petition liabilities
from liabilities subject to settlement under reorganization proceedings and
increased bank drafts outstanding.
The fixed charge coverage ratio was .93 in 1996, 1.11 in 1995 (pro forma),
and (0.65) in 1994. The fixed charge coverage ratio is defined as the sum of
net income before taxes, LIFO provision, interest, depreciation, and minimum
rent divided by the sum of interest and minimum rent. The ratio, excluding
items that are typically non-recurring such as reorganization costs, reserves
for store closings and remerchandising, was .93 in 1996, 1.11 in 1995 (pro
forma), and 1.39 in 1994.
In 1996, $5,521 of cash was provided by operating activities, while $3,248
was used in 1995 (combined Successor and Predecessor) and $58,884 was provided
in 1994. The increase in cash from operating activities in 1996 is due primarily
to lower inventory levels. The decrease in cash from operating activities in
1995 is due primarily to increased investments in inventory. The increase in
cash from operating activities in 1994 is due to a decrease in inventory related
to closed stores and reductions of inventory prepayments.
Investing activities used cash of $3,608 in 1996, $5,381 in 1995 (combined
Successor and Predecessor), and $1,281 in 1994. The Company invested cash in
property and equipment totaling $3,644 in 1996, $5,431 (combined Successor and
Predecessor) in 1995, and $2,015 in 1994. The 1996 expenditures were primarily
for store remodeling, and new computer software. The 1995 expenditures were
primarily for store improvements and new computer software. The Company closed
no stores in 1996, closed 8 stores in 1995, and closed 59 stores in 1994. The
Company plans to invest $2,000 in 1997 primarily for store improvements, new
computer software, and improvements to the Company's distribution center. The
Company does plan to open two stores and has closed one store in 1997.
Financing activities used cash of $1,265 in 1996, provided cash of $7,872
(combined Successor and Predecessor) in 1995, and used cash of $68,208 in 1994.
The Company had net borrowings on its line of credit of $10,465 in 1996 and
$33,673 in 1995 (combined Successor and Predecessor). The Predecessor made
$26,423 of payments on long-term debt in 1995, and $65,437 in 1994. The
Company's debt agreements include a restriction on the payment of cash dividends
and the repurchase of stock.
ITEM 8: FINANCIAL STATEMENTS
See Financial Statements contained elsewhere herein.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PAGE
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Registrant will file a definitive proxy statement with the SEC within 120
days after the close of its fiscal year. The information on the Directors
required by this Item is disclosed in Registrant's Proxy Statement to
Stockholders for the Annual Meeting to be held June 26, 1997 under the caption
"Proposal 2. Election of Board of Directors" and is incorporated herein by
reference. The information required with respect to Executive Officers is set
forth in Part III, Item 10 below. Information with regard to family
relationships among Directors and Executive Officers is contained in the Proxy
Statement under the caption "Family Relationships".
The following information is furnished with respect to each of the executive
officers of the Registrant as of April 3, 1997:
Name, Age, Position Business Experience During Past Five Years
R. Edward Anderson (47) Appointed August 22, 1994; Executive Vice
Chairman of the Board, President, Chief Financial Officer,
President and Chief October 19, 1992 to August 21, 1994;
Executive Officer Senior Vice President, Chief Financial
Officer, January 12, 1990 to October 18, 1992.
Howard Parge (50) Appointed February 9, 1995; Vice President,
Senior Vice President, Operations, March 1992 to February 1995;
Operations Target Stores, District Manager, 1989
through 1991.
Jeanette R. Peters (41) Appointed Treasurer September 7, 1995;
Senior Vice President, Appointed Senior Vice President, Chief
Chief Financial Officer Financial Officer November 2, 1994; Vice
and Treasurer President and Controller April 24, 1991
through November 1994.
A. Len Priode (52) Appointed November 20, 1996;
Senior Vice President, Stirling Douglas, Vice President, U.S.
Distribution and Customer Services, December 1995 through
Information Services November 1996; Michael's Stores, Vice
President, Information Services, March 1994
through December 1995; Rose's Stores, Inc.,
Vice President, Information Services, May
1988 through March 1994.
Bob L. Sasser (44) Appointed December 16, 1996; Michael's
Senior Vice President, Stores, Vice President, General Merchandise
Merchandising and Manager, March 1994 through November 1996;
Marketing Rose's Stores, Inc., Vice President, GMM
Hardlines, January 1990 through March 1994.
PAGE
<PAGE>
G. Templeton Blackburn, II Appointed Vice President, Real Estate
(46) November 2, 1994; Elected Secretary
Vice President, Real February 17, 1993; Appointed Vice President,
Estate, General Counsel General Counsel April 19, 1991.
and Secretary
Barry L. Gouge (49) Appointed January 16, 1997; Divisional
Vice President, General Merchandise Manager, Toys and Electronics,
Merchandise Manager September 1996 through January 1997;
Hardlines Variety Wholesalers, Senior Vice President,
Merchandising and Distribution, July 1994
through August 1996; Rose's Stores, Vice
President, Marketing, January 1992 through
July 1994.
Robert A. Greenwald (49) Appointed January 16, 1997; Rich's
Vice President, General Department Stores, Executive Vice President,
Merchandise Manager Merchandising and Advertising, February
Softlines 1996 through December 1996; Senior Vice
President, GMM Softlines, April 1995 through
January 1996; Jamesway Stores, Inc., Senior
Vice President, GMM, July 1992 through
January 1995.
Officers of the Registrant are elected each year at the Annual Meeting of
the Board of Directors to serve for the ensuing year and until their successors
are elected and qualified.
Section 16(a) Reporting
The Registrant believes that all executive officers and directors of the
Registrant and all other persons known by the Registrant to be subject to Sec-
tion 16 of the Securities Exchange Act of 1934, filed all reports required to be
filed during fiscal year 1996 under Section 16(a) of that Act on a timely basis.
The Registrant's belief is based solely on its review of Forms 3, 4 and 5 and
amendments thereto furnished to the Registrant during, and with respect to, its
most recent fiscal year by persons known to be subject to Section 16.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item is disclosed in Registrant's Proxy
Statement to Stockholders for the Annual Meeting to be held June 26, 1997, under
the caption "Executive Compensation and Other Information" and said information
is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is disclosed in Registrant's Proxy
Statement (as referenced above) under the captions "Principal Holders of Voting
Securities" and "Stock Ownership of Management" and said information is
incorporated herein by reference.
PAGE
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is disclosed in Registrant's Proxy
Statement (as referenced above) under the headings "Certain Relationships and
Related Transactions" and said information is incorporated herein by reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Independent Auditors' Report
Statements of Operations for the year ended
January 25, 1997, for the thirty-nine weeks
ended January 27, 1996, thirteen weeks ended
April 29, 1995, and the year ended January
28, 1995
Balance Sheets - January 25, 1997 and
January 27, 1996
Statements of Stockholders' Equity for the
year ended January 25, 1997, for the thirty-
nine weeks ended January 27, 1996, thirteen
weeks ended April 29, 1995, and the year
ended January 28, 1995
Statements of Cash Flows for the year ended
January 25, 1997, for the thirty-nine weeks
ended January 27, 1996, thirteen weeks ended
April 29, 1995, and the year ended January
28, 1995
Notes to the Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable
or not required, or because the required information is
included in the financial statements or notes thereto.
PAGE
<PAGE>
3. EXHIBITS
Exhibit
No.
10.1 Agreement and Plan of Merger dated as of Incorporated
May 7, 1996, by and among Fred's Inc., by reference
FR Acquisition Corp. and the Registrant.
(Incorporated by reference to Exhibit 10.1
to Registrant's Form 10-Q for the quarter
ended April 27, 1996).
10.2 Loan and Security Agreement among the Incorporated
Registrant, as Borrower, the Financial by reference
Institutions as listed on the signature
pages, as the Lenders, PPM Finance, Inc., as
Co-Agent, and Foothill Capital Corporation,
as Agent, dated as of May 21, 1996.
(Incorporated by reference to Exhibit 10.2
to Registrant's Form 10-Q for the quarter
ended April 27, 1996).
10.3 Deed of Trust, Assignment of Rents and Incorporated
Security Agreement for the headquarters by reference
property, dated as of May 21, 1996, by and
among Registrant, Foothill Capital
Corporation, and David L. Huffstetler,
pursuant to the Loan and Security Agreement.
(Incorporated by reference to Exhibit 10.3
to Registrant's Form 10-Q for the quarter
ended April 27, 1996).
10.4 Deed of Trust, Assignment of Rents and Incorporated
Security Agreement for the warehouse by reference
property, dated as of May 21, 1996, by and
among Registrant, Foothill Capital
Corporation, and David L. Huffstetler,
pursuant to the Loan and Security Agreement.
(Incorporated by reference to Exhibit 10.4
to Registrant's Form 10-Q for the quarter
ended April 27, 1996).
10.5 Subordination Agreement dated as of May 21, Incorporated
1996, among Registrant, Foothill Capital by reference
Corporation, M.J. Sherman & Associates,
Inc., and Alan H. Peterson. (Incorporated
by reference to Exhibit 10.5 to Registrant's
Form 10-Q for the quarter ended April 27,
1996).
10.6 Intellectual Property Security Agreement Incorporated
dated as of May 21, 1996, among Registrant by reference
and Foothill Capital Corporation, pursuant
to the Loan and Security Agreement.
(Incorporated by reference to Exhibit 10.6
to Registrant's Form 10-Q for the quarter
ended April 27, 1996).
10.7 Termination Agreement dated as of August 20, Incorporated
1996 between the Company, Fred's, Inc., and by reference
FR Acquisition Corp. (Incorporated by
reference to Exhibit 10.1 to Registrant's
Form 10-Q for the quarter ended July 27,
1996).
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Registrant filed no reports on Form 8-K during the last quarter of
the period covered by this report.
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Rose's Stores, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ROSE'S STORES, INC.
By: /s/ R. Edward Anderson
R. Edward Anderson, President and
Chief Executive Officer
By: /s/ Jeanette R. Peters
Jeanette R. Peters, Senior Vice President,
Chief Financial Officer and Treasurer
Date: April 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Regis-
trant and on the dates indicated:
/s/ R. Edward Anderson /s/ J. David Rosenberg
R. Edward Anderson, Director J. David Rosenberg, Director
/s/ Jack Howard /s/ Harold Smith
Jack Howard, Director Harold Smith, Director
/s/ Warren Lichtenstein /s/ N. Hunter Wyche, Jr.
Warren Lichtenstein, Director N. Hunter Wyche, Jr., Director
/s/ Joseph L. Mullen
Joseph L. Mullen, Director
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
January 25, 1997
The financial statements on the following pages have been prepared by
management in conformity with generally accepted accounting principles.
Management is responsible for the reliability and fairness of the financial
statements and other financial information included herein.
To meet its responsibilities with respect to financial information,
management maintains and enforces internal accounting policies, procedures and
controls which are designed to provide reasonable assurance that assets are
safeguarded and that transactions are properly recorded and executed in
accordance with management's authorization. Management believes that the
Company's accounting controls provide reasonable, but not absolute, assurance
that errors or irregularities which could be material to the financial state-
ments are prevented or would be detected within a timely period by Company
personnel in the normal course of performing their assigned functions. The con-
cept of reasonable assurance is based on the recognition that the cost of con-
trols should not exceed the expected benefits. Management maintains an internal
audit function and an internal control function which are responsible for eval-
uating the adequacy and application of financial and operating controls and for
testing compliance with Company policies and procedures.
The responsibility of our independent auditors, KPMG Peat Marwick LLP, is
limited to an expression of their opinion on the fairness of the financial
statements presented. Their opinion is based on procedures, described in the
second paragraph of their report, which include evaluation and testing of
controls and procedures sufficient to provide reasonable assurance that the
financial statements neither are materially misleading nor contain material
errors.
The Audit Committee of the Board of Directors meets periodically with
management, internal auditors and independent auditors to discuss auditing and
financial matters and to assure that each is carrying out its responsibilities.
The independent auditors have full and free access to the Audit Committee and
meet with it, with and without management being present, to discuss the results
of their audit and their opinions on the quality of financial reporting.
/s/ R. Edward Anderson
R. Edward Anderson
President and
Chief Executive Officer
/s/ Jeanette R. Peters
Jeanette R. Peters
Senior Vice President,
Chief Financial Officer
and Treasurer
PAGE
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rose's Stores, Inc.:
We have audited the accompanying balance sheets of Rose's Stores, Inc. (the
"Successor"), as of January 25, 1997 and January 27, 1996, and the related
statements of operations, stockholders' equity, and cash flows for the year
ended January 25, 1997 and the thirty-nine weeks ended January 27, 1996. We also
have audited the accompanying statements of operations, stockholders' equity and
cash flows for the thirteen weeks ended April 29, 1995, and the year ended
January 28, 1995 of Rose's Stores, Inc. (the "Predecessor"). These financial
statements are the responsibility of the Company's management. Our responsibi-
lity is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Successor as of January
25, 1997 and January 27, 1996, and the Successor's results of operations and
cash flows for the year ended January 25, 1997 and the thirty-nine weeks ended
January 27, 1996, and the Predecessor's results of operations and cash flows for
the thirteen weeks ended April 29, 1995, and the year ended January 28, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective April 29,
1995, the Company was required to adopt "Fresh-Start" reporting principles in
accordance with the American Institute of Certified Public Accountant's State-
ment of Position 90-7, "Financial Reporting by Entities in Reorganization under
the Bankruptcy Code." As a result, the financial information for the period
subsequent to the adoption of Fresh-Start reporting are presented on a different
cost basis than for prior periods and therefore, are not comparable.
/s/ KPMG Peat Marwick LLP
Raleigh, North Carolina KPMG Peat Marwick LLP
March 19, 1997
<PAGE> <PAGE>
STATEMENTS OF OPERATIONS
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Successor | Predecessor
Thirty-Nine | Thirteen
Year Ended Weeks Ended | Weeks Ended Year Ended
January 25, January 27, | April 29, January 28,
1997 1996 | 1995 1995
<S> <C> <C> | <C> <C>
Revenue: |
Gross sales $ 661,684 540,918 | 159,407 756,356
Leased department sales 19,800 16,521 | 5,117 24,430
Net sales 641,884 524,397 | 154,290 731,926
Leased department income 4,647 3,784 | 1,114 5,288
Total revenue 646,531 528,181 | 155,404 737,214
Costs and Expenses: |
Cost of sales 489,450 404,120 | 116,838 555,087
Selling, general and administrative 150,143 115,895 | 35,486 160,346
Depreciation and amortization (2,378) (2,549) | 1,812 9,257
Interest 7,946 5,231 | 726 5,907
Total costs and expenses 645,161 522,697 | 154,862 730,597
Earnings Before Reorganization Expense, |
Fresh-Start Revaluation, Income Taxes, |
and Extraordinary Items 1,370 5,484 | 542 6,617
Reorganization Expense - - | (3,847) (57,899)
Fresh-Start Revaluation - - | (17,432) -
Earnings (Loss) Before Income Taxes |
and Extraordinary Items 1,370 5,484 | (20,737) (51,282)
Income Taxes (Benefits): |
Current - 1,159 | - -
Deferred 76 (76) | - -
Total 76 1,083 | - -
Earnings (Loss) Before Extraordinary |
Items 1,294 4,401 | (20,737) (51,282)
Extraordinary Items: |
Gain on debt discharge - - | 90,924 -
Loss on early extinguishment |
of debt (914) - | - -
Net Earnings (Loss) $ 380 4,401 | 70,187 (51,282)
|
Earnings (Loss) Per Share Before |
Extraordinary Items $ 0.15 .51 | (1.11) (2.73)
Extraordinary Items: |
Gain on debt discharge - - | 4.85 -
Loss on early extinguishment |
of debt (0.11) - | - -
Net Earnings (Loss) Per Share $ 0.04 .51 | 3.74 (2.73)
|
Weighted Average Shares 8,660 8,660 | 18,758 18,758
</TABLE>
See accompanying notes to financial statements.
PAGE
<PAGE>
BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
January 25, January 27,
1997 1996
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 1,241 593
Accounts receivable 5,101 7,209
Inventories 141,287 153,190
Other current assets 4,503 4,706
Total current assets 152,132 165,698
Property and Equipment, at cost,
less accumulated depreciation and amortization 7,710 5,122
Other Assets 480 424
$ 160,322 171,244
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 44,138 33,673
Bank drafts outstanding - 9,530
Accounts payable 19,230 23,845
Accrued salaries and wages 6,422 7,456
Pre-petition liabilities 2,737 4,632
Other current liabilities 10,908 11,396
Total current liabilities 83,435 90,532
Excess of Net Assets Over Reorganization Value,
Net of Amortization 21,872 25,371
Reserve for Income Taxes 12,996 12,673
Deferred Income 339 974
Other Liabilities 740 1,134
Stockholders' Equity
Preferred stock, Authorized 10,000 shares;
none issued - -
Common stock, Authorized 50,000 shares;
issued 8,660 at 1/25/97 and 1/27/96 35,000 35,000
Paid-in capital 1,159 1,159
Retained earnings 4,781 4,401
Total stockholders' equity 40,940 40,560
$ 160,322 171,244
</TABLE>
See accompanying notes to financial statements.
PAGE
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Retained
Voting Non-Voting Earnings
Common Stock Class B Stock Paid-In (Accumulated) Treasury Stock
Shares Amount Shares Amount Capital (Deficit) Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 29, 1994 10,800 $ 2,250 12,659 $ 18,795 $ 2,700 $ 10,969 (4,701) $(18,618)
Net loss for fiscal year 1994 - - - - - (51,282) - -
Balance January 28, 1995 10,800 2,250 12,659 18,795 2,700 (40,313) (4,701) (18,618)
Net earnings for thirteen
weeks ended April 29, 1995 - - - - - 70,187 - -
Cancellation of former equity and
elimination of retained
earnings (10,800) (2,250) (12,659) (18,795) (2,700) (29,874) 4,701 18,618
Issuance of new equity
under the Plan 8,660 35,000 - - - - - -
Balance April 29, 1995 8,660 35,000 - - - - - -
Net earnings for thirty-nine
weeks ended January 27, 1996 - - - - - 4,401 - -
Paid-in capital - taxes - - - - 1,159 - - -
Balance January 27, 1996 8,660 35,000 - - 1,159 4,401 - -
Net earnings for fiscal
year 1996 - - - - - 380 - -
Balance January 25, 1997 8,660 $35,000 - $ - $ 1,159 $ 4,781 - $ -
</TABLE>
See accompanying notes to financial statements.
PAGE
<PAGE>
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Successor | Predecessor
Thirty-Nine | Thirteen
Year Ended Weeks Ended | Weeks Ended Year Ended
January 25, January 27, | April 29, January 28,
1997 1996 | 1995 1995
<S> <C> <C> | <C> <C>
Cash flows from operating activities: |
Net earnings (loss) $ 380 4,401 | 70,187 (51,282)
Expenses not requiring the outlay of cash: |
Depreciation & amortization (2,378) (2,549) | 1,812 9,257
Amortization of deferred financing costs 562 46 | 502 1,433
(Gain) loss on disposal of property |
& equipment (34) (46) | (1) (278)
Deferred income taxes 76 (76) | - -
Additional paid-in capital - 1,159 | - -
LIFO expense (credit) - - | (364) (4,816)
Extraordinary loss on early extinguishment |
of debt 914 - | - -
Write off of merger costs 657 - | - -
Provision for closed stores & severance 77 1,170 | - 43,000
Settlement of pre-petition liabilities (1,397) - | - -
Gain on termination of postretirement |
healthcare - (4,701) | - -
Fresh-Start revaluation & debt discharge - - | (73,492) -
Cash provided by (used in) assets & liabilities: |
(Inc.) dec. in accounts receivable 2,108 824 | (630) 2,917
(Inc.) dec. in inventories 11,903 31,939 | (40,291) 91,817
(Inc.) dec. in other assets (273) 3,577 | (1,197) 6,346
Inc. (dec.) in accounts payable (4,615) (13,797) | 14,361 (17,152)
Inc. (dec.) in other liabilities (553) (177) | (2,142) (9,429)
Inc. (dec.) in income tax reserves 323 12,673 | - -
Inc. (dec.) in reserve for store closings |
& severance (1,227) (4,674) | (1,108) (13,060)
Inc. (dec.) in deferred income (635) (507) | (201) (303)
Inc. (dec.) in accumulated PBO (367) 47 | 7 434
Net cash provided by (used in) operating |
activities 5,521 29,309 | (32,557) 58,884
Cash flows from investing activities: |
Purchases of property & equipment (3,644) (4,921) | (510) (2,015)
Proceeds from disposal of property |
& equipment 36 45 | 5 734
Net cash used in investing activities (3,608) (4,876) | (505) (1,281)
Cash flows from financing activities: |
Net activity on line of credit 10,465 (24,981) | 58,654 -
Net activity on debtor-in-possession |
facility - - | (600) 600
Payments on pre-petition secured debt - - | (26,423) (65,437)
Payments on unsecured priority & |
administrative claims (403) (2,463) | (1,593) -
Principal payments on capital leases (285) (346) | (281) (2,047)
Payments of deferred financing costs (1,512) (440) | (2,925) (1,324)
Inc. (dec.) in bank drafts outstanding (9,530) 3,768 | 5,502 -
Net cash provided by (used in) |
financing activities (1,265) (24,462) | 32,334 (68,208)
Net inc. (dec.) in cash & cash equivalents 648 (29) | (728) (10,605)
Cash & cash equivalents at beginning of period 593 622 | 1,350 11,955
Cash & cash equivalents at end of period $ 1,241 593 | 622 1,350
<PAGE>
STATEMENTS OF CASH FLOWS (continued)
(Amounts in thousands)
Successor | Predecessor
Thirty-Nine | Thirteen Predecessor
Year Ended Weeks Ended | Weeks Ended Year Ended
January 25, January 27, | April 29, January 28,
1997 1996 | 1995 1995
Supplemental disclosure of additional noncash |
investing & financing activities: |
Retirement of net book value of assets |
in reserve for store closings $ - 17 | 623 7,018
Capital lease obligations entered |
into for new equipment 67 374 | - -
</TABLE>
See accompanying notes to financial statements.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Year Ended January 25, 1997; Thirty-Nine Weeks Ended January 27, 1996; Thirteen
Weeks Ended April 29, 1995; and Year Ended January 28, 1995
(Amounts in thousands except per share amounts)
1 REORGANIZATION AND EMERGENCE FROM CHAPTER 11
The Company filed a petition for reorganization under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11") on September 5, 1993 (the "Filing Date").
The Company's Modified and Restated First Amended Joint Plan of Reorganization
(the "Plan") was consummated on April 28, 1995 (the "Effective Date").
The Plan provided for, among other things, the cash payment of $26,423 to the
Company's pre-petition secured lenders and amounts owing under the debtor-in-
possession revolving credit agreement and various administrative and tax claims
due at the Effective Date (Note 8), and the distribution of common stock of
reorganized Rose's to be issued pursuant to the Plan to creditors (Note
11). Additionally, stockholders of record as of the Effective Date received
their pro-rata share of warrants (Note 11) and the shares of stock, stock
options, and stock warrants of the Company's Predecessor were canceled. In
addition, RSI Trading, Inc., a wholly owned subsidiary of the Company, was
merged into the Company under the provisions of the Plan. Also, a new board of
directors was elected for the Successor. Upon consummation of the Plan, the
Company obtained $125 million of post-emergence financing.
Under Chapter 11, the Company elected to assume or reject real estate leases,
employment contracts, and unexpired executory pre-petition contracts subject to
Bankruptcy Court approval. The Company established and recorded its estimated
liabilities for such items and settled or carried forward portions of the
liabilities (for assumed leases) at the Effective Date.
2 FRESH-START REPORTING
In 1990, the American Institute of Certified Public Accountants issued
Statement of Position 90-7 ("SOP 90-7") "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (sometimes called "Fresh-Start
Reporting"). The application of Fresh-Start Reporting changed the Company's
basis of accounting for financial reporting purposes. Specifically, SOP 90-7
required the adjustment of the Company's assets and liabilities to reflect their
estimated fair market value at the Effective Date. At the same time, the Company
made certain reclassifications between gross margin and expenses and changed the
method of accruing certain expenses between periods. Accordingly, the statements
of operations and changes in cash flows commencing May 1995, and the balance
sheets beginning with April 1995, are not comparable to the financial informa-
tion for prior periods.
In accordance with SOP 90-7, the reorganization value of the Company was
determined as of the Effective Date. The reorganization value of $35,000 was
derived by an outside company using various valuation methods, including
discounted cash flow analyses (utilizing the Company's projections), analyses
of the market values of other publicly traded companies whose businesses are
reasonably comparable, and analyses of the present value of the Company's
equity.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The adjustments to reflect the consummation of the Plan and the adoption of
Fresh-Start Reporting, including the gain on debt discharge for liabilities
subject to settlement under reorganization proceedings, the adjustment to re-
state assets and liabilities at their fair value, and the adjustment to non-
current assets for the excess of the fair value of net assets which exceeded
reorganization value, have been reflected in the financial statements below:
BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
Actual Fresh- Restated
April 29, Debt Start April 29,
1995 Discharge Accounting 1995
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 622 622
Accounts receivable 12,076 (2,841)(a) 9,235
Inventories 160,111 25,018 (b) 185,129
Prepaid merchandise 7,100 7,100
Other current assets 2,475 2,475
Total current assets 182,384 - 22,177 204,561
Property and Equipment, at cost,
less accumulated depreciation
and amortization 33,703 (33,703)(c) -
Other Assets 6,302 (6,302)(c) -
$ 222,389 - (17,828) 204,561
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Current maturities of capital lease
obligations $ 400 400
Bank drafts outstanding 5,762 5,762
Accounts payable 37,642 37,642
Short-term debt 58,654 58,654
Reserve for store closings and
remerchandising 4,952 4,952
Accrued salaries and wages 5,212 50 (d) 5,262
Pre-petition liabilities - 4,352 (e) 4,352
Other current liabilities 9,543 3,878 (f) 13,421
Total current liabilities 122,165 4,352 3,928 130,445
Liabilities Subject to Settlement
Under Reorganization Proceedings 130,276 (130,276)(g) -
Excess of Net Assets Over
Reorganization Value - 32,021 (h) 32,021
Capital Lease Obligations 593 593
Deferred Income 1,792 (311)(i) 1,481
Accumulated Postretirement Benefit
Obligation 6,055 (1,034)(j) 5,021
Stockholders' Equity (Deficit) (38,492) 90,924 (k) (17,432)(l) 35,000
$ 222,389 (35,000) 17,172 204,561
</TABLE>
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(2) Continued
Explanations of adjustment columns of the balance sheet are as follows:
(a) To reflect appropriate current value of accounts
receivable
(b) Adjusted inventories to current market value
(c) Wrote off long-term assets
(d) Increased bonuses payable as a result of emergence from
bankruptcy
(e) Reclassified pre-petition priority claims and cure
amounts
(f) Accrued an additional year of property taxes to reflect
such taxes on assessment date basis, increased insurance
and loss reserves, and accrued any remaining
reorganization costs to be incurred after emergence
from Chapter 11
(g) Unsecured pre-petition claims settled as follows:
(a) $4,352 of priority claims and cure amounts
reclassified to current liabilities
(b) The remaining unsecured claims settled with stock
(h) The excess reorganization value was allocated to non-
current assets, with any excess recorded as a deferred
credit to be amortized over the period of 8 years
(i) Reduction of deferred income to current value
(j) Adjustment to reverse unrecognized gain on transition
obligation
(k) Extraordinary item-gain on debt discharge
(l) Value of new company established
During the third quarter of 1995, the excess of net assets over
reorganization value was decreased by $3,945 for increases in the reserve for
workers' compensation claims and an additional allowance for receivables of the
Predecessor.
The following unaudited pro forma statement of operations reflects the
financial results of the Company as if the Plan had been consummated on January
29, 1995:
Pro forma
Year Ended
January 27,
1996
Total revenue $ 683,585
Total costs and expenses 677,205
Earnings before income taxes 6,380
Income taxes 1,272
Net earnings $ 5,108
Earnings per share $ 0.59
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The unaudited pro forma 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 other 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; accrual of additional shrinkage; and
the recording of an appropriate income tax expense.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fresh-Start Reporting The Company has implemented the required accounting
for entities emerging from Chapter 11 in accordance with the American Institute
of Certified Public Accountant's (AICPA) Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7),
and reflected the effects of such adoption in the balance sheet as of April 29,
1995. Under Fresh-Start Reporting, the balance sheet as of April 29, 1995,
became the opening balance sheet of the reorganized Company. Since Fresh-Start
Reporting was reflected in the balance sheet as of April 29, 1995, the financial
statements as of January 25, 1997 and January 27, 1996 are that of a reorganized
entity, and are therefore not comparable in material respects to the financial
statements of the Predecessor. Accordingly, a vertical black line is shown to
separate post-emergence operations from those ended prior to April 29, 1995 in
the financial statements.
Basis of Presentation The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company's financial statements include the accounts of a wholly-owned
subsidiary for fiscal year ending January 28, 1995. Intercompany accounts and
transactions are eliminated. In January 1995, the wholly-owned subsidiary was
merged with the Company.
Nature of Operations The Company is a retail concern with 105 general
merchandise discount stores located in the southeastern United States. The
Company has closed one store subsequent to year-end and plans to open two stores
in 1997.
Fiscal Year Fiscal year 1996 ended on January 25, 1997. Due to the
emergence from Chapter 11, fiscal year 1995 is comprised of the thirty-nine
weeks ended January 27, 1996 (Successor), and the thirteen weeks ended April 29,
1995 (Predecessor). Fiscal year 1994 ended on January 28, 1995. Fiscal years
1996, 1995 and 1994 contained 52 weeks.
Cash Equivalents The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. Cash
equivalents are stated at cost, which approximates market. Bank drafts
<PAGE>
NOTES TO FINANCIAL STATEMENTS
outstanding have been reported as a current liability.
Inventories Substantially all merchandise inventories are stated at the
lower of cost, using the last-in, first-out (LIFO) method, or market and include
the capitalization of transportation and distribution center costs.
Deferred Financing Costs The costs related to the issuance of debt are
capitalized and amortized to interest expense straight-line over the life of
the related debt.
Revenue Sales are recorded at the time merchandise is exchanged for tender.
The Company does not make any warranties on the merchandise sold, but allows
customers to return merchandise which reduces sales. In many cases, the Company
returns damaged goods to the vendor for credit or has negotiated a damage
allowance to offset the cost of writing off the merchandise. In the case of
layaways, sales are recorded for the total amount of the merchandise when the
customer puts the merchandise on layaway. If the layaway is not paid in full
by the end of 60 days, the Company's policy is to cancel the layaway, reduce
sales and return the merchandise to stock.
Leased Department Sales and Income The Company has an agreement with an
independent contractor to sell shoes within the Company's stores. The Company
receives a percentage of the sales under the agreement.
Depreciation and Amortization The provision for depreciation and amorti-
zation is based upon the estimated useful lives of the individual assets and is
computed principally by the declining balance and straight-line methods. The
principal lives for depreciation purposes are 40 to 45 years for buildings and
5 to 10 years for furniture, fixtures, and equipment. Improvements to leased
premises are amortized by the straight-line method over the term of the lease
or the useful lives of the improvements, whichever is shorter. Capitalized
leases are generally amortized on a straight-line basis over the lease term or
life of the asset, whichever is shorter. The amortization of the excess of net
assets over reorganization value is included with depreciation and amortization
and is amortized over 8 years. The amortization of the excess of net assets over
reorganization value was $3,499 for fiscal year 1996 and $2,705 for the thirty-
nine weeks ended January 27, 1996.
Profit-Sharing and 401(k) Plan The Company's noncontributory trusteed
profit-sharing plan was merged into the 401(k) plan maintained by the Company
effective July 1, 1995. The merger was approved by the Board of Directors on
February 15, 1995. The Company's 401(k) plan covers employees who meet minimum
service requirements and who elect to participate. Contributions are at the
discretion of the Company while participants' contributions are voluntary.
Income Taxes The Company accounts for income taxes under an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, the Company generally considers all expected future
events other than enactments of changes in the tax laws or rates.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Advertising The Company expenses the cost of advertising during the month
the sale is effective.
Earnings (Loss) Per Share Earnings (loss) per share is computed on the
estimated number of shares that will be outstanding if all pending claims are
resolved adversely to the Company for fiscal year 1996 and for the thirty-nine
weeks ended January 27, 1996, and on the weighted average number of shares
outstanding during the period for prior periods. The average number of shares
used to compute earnings (loss) per share was 8,660 shares for fiscal year 1996
and for the thirty-nine weeks ended January 27, 1996; 18,758 shares for the
thirteen weeks ended April 29, 1995 and fiscal year 1994. The exercise of
outstanding stock options would not result in a dilution of earnings per share
for 1996 and 1995 and are excluded from the calculation. The exercise of
outstanding stock options and warrants would have resulted in an anti-dilutive
effect on loss per share for 1994 and are excluded from the calculation.
Stock-Based Compensation Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. Refer to Note 12.
Reclassifications Certain reclassifications have been made to the 1995 and
1994 financial statements to conform with the 1996 presentation.
4 ACCOUNTS RECEIVABLE
A summary of accounts receivable as of January 25, 1997 and January 27, 1996,
is as follows:
January 25, January 27,
1997 1996
Layaway receivables $ 1,856 2,496
Other receivables 3,665 5,111
5,521 7,607
Allowance for doubtful accounts (420) (398)
$ 5,101 7,209
Other receivables consist primarily of amounts due from vendors for returns,
co-op advertising, and coupons. Also, other receivables as of January 27, 1996,
included a receivable for shoe department income.
The Company does not provide for an allowance for doubtful accounts for
layaways because the Company holds the merchandise.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
5 INVENTORIES
A summary of inventories as of January 25, 1997 and January 27, 1996 is as
follows:
January 25, January 27,
1997 1996
Inventories valued at FIFO cost $ 141,287 153,190
LIFO reserve - -
Inventories substantially valued
at LIFO cost $ 141,287 153,190
As a part of Fresh-Start Reporting (See Note 2), the LIFO reserve was written
off and the base year inventory was restated to the April 29, 1995 value. Since
the January 25, 1997 and January 27, 1996 inventories at LIFO cost are greater
than FIFO cost, no LIFO reserve is warranted.
6 PROPERTY AND EQUIPMENT
Property and equipment, adjusted for Fresh-Start Reporting (see Note 2),
consists of the following:
January 25, January 27,
1997 1996
Buildings $ 46 27
Furniture, fixtures, and equipment 4,777 2,871
Improvements to leased premises 3,724 2,005
Total 8,547 4,903
Less accumulated depreciation
and amortization (1,190) (155)
7,357 4,748
Capitalized leases 441 374
Less accumulated amortization (88) -
353 374
Net property and equipment $ 7,710 5,122
7 DEBT
As of January 25, 1997, the Company had $44,138 outstanding in short-term
borrowings, $11,971 in outstanding letters of credit and unused availability of
$8,649. As of January 27, 1996, the Company had $33,673 outstanding in direct
borrowings, $11,610 in outstanding letters of credit and unused availability of
$19,690. The average direct borrowings were $66,576 in 1996 and $66,501 in 1995
with an average daily weighted annual interest rate of 9.7% in 1996 and 9.8% in
1995. The average borrowings under the Debtor-in-Possession Facility (DIP
Facility) were $13,700 in the thirteen weeks ended April 29, 1995 with a daily
weighted average annual interest rate of 8.6%. The maximum amount of direct
borrowings at any period end was $96,202 in 1996 and $83,579 in 1995.
Foothill Capital, Inc. Facility
On May 21, 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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, a loss on early extinguishment of debt of $914
in prepaid bank fees related to the former facility was recognized as an
extraordinary item.
The interest rate on the direct borrowings under the Credit Facility is the
prime rate plus 1.375% (9.625% at January 25, 1997), 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 are support-
ed 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 Company plans
to extend or replace this security package.
The Credit Facility includes certain financial covenants and financial
maintenance tests, including those related to minimum working capital and cur-
rent 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 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 January 25, 1997.
8 PRE-PETITION LIABILITIES
The Company had pre-petition liabilities of $2,737 at January 25, 1997 and
$4,632 at January 27, 1996.
During 1996, the Company settled pre-petition tax claims and some pre-
petition workers' compensation insurance claims resulting in a reduction to pre-
petition liabilities of $1,397. The Company paid $403 for pre-petition
liabilities and reclassed $95 related to landlords to other liabilities.
During the thirteen weeks ended April 29, 1995, the liabilities subject to
settlement under reorganization proceedings increased by $1,818 due primarily
to an additional accrual for lease rejection claims for the seven stores closed
in 1995. As of the Effective Date, the Company paid $1,593 and reclassified to
current liabilities $4,352 of priority claims and cure amounts included in the
remaining liabilities subject to settlement under reorganization proceedings.
The pre-petition secured debt and interest were paid with proceeds from the exit
financing when the Company emerged from Chapter 11 (See Note 7.) Subsequent to
the Effective Date, the Company paid $2,463 of pre-petition liabilities and
established an additional liability of $2,743 for pre-petition workers'
compensation insurance claims.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The remaining liabilities subject to settlement at April 29, 1995 of $125,924
were written off as these were settled or are in the process of being settled
in common stock. The Company is actively negotiating with creditors and/or
seeking the court-ordered disallowance of claims which have been filed in the
Chapter 11 proceeding and are disputed by the Company. The Company estimates
that the ultimate liability for unsecured claims will be approximately $119,000.
There are currently approximately $113,000 in allowed claims which have received
distributions of common stock pursuant to the plan of reorganization (See Note
11), and there are approximately $2,326 of disputed claims remaining which may
receive distributions of common stock pursuant to the plan.
Additional bankruptcy claims and pre-petition liabilities may arise from the
settlement of disputed claims. Consequently, the amount included in the balance
sheet as pre-petition liabilities may be subject to further adjustment.
9 INTEREST EXPENSE
Interest expense consisted of the following:
<TABLE>
<CAPTION>
Thirty-Nine | Thirteen
Fiscal Weeks Ended | Weeks Ended Fiscal
Year January 27, | April 29, Year
1996 1996 | 1995 1994
<S> <C> <C> | <C> <C>
Long-term debt $ - - | 683 5,494
Short-term debt 7,128 5,051 | 16 118
Capital leases 106 72 | 27 295
Amortization of deferred |
financing costs 562 46 | - -
Other 150 62 | - -
Interest expense $ 7,946 5,231 | 726 5,907
</TABLE>
Interest expense and amortization of deferred financing costs associated with
the DIP facility are included in reorganization costs (See Note 13). The Company
paid interest (including deferred financing costs) of $7,776 in 1996, $1,888 for
the thirty-nine weeks ended January 27, 1996, $3,650 for the thirteen weeks
ended April 29, 1995, and $7,100 in 1994. The interest paid includes $291 in
the thirteen weeks ended April 29, 1995, and $612 in 1994 related to the DIP
facility classified as reorganization expense.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
10 RESERVE FOR FUTURE STORE CLOSINGS
The closed store reserve increased $94 in 1996, decreased $4,691 in the
thirty-nine weeks ended January 27, 1996 and $1,731 in the thirteen weeks ended
April 29, 1995. Following are the cash and noncash changes to the reserves in
1996 and 1995:
<TABLE>
<CAPTION>
Thirty-Nine | Thirteen
Weeks Ended | Weeks Ended
Fiscal Year January 27, | April 29,
1996 1996 | 1995
<S> <C> <C> | <C>
Noncash activity: |
Retirement of net book |
value of assets $ - 17 | 623
Provision for additional |
closing (207) - | -
Other noncash expenses (100) - | -
Cash expenses 213 4,674 | 1,108
(Increase) decrease in the |
closed store reserve $ (94) 4,691 | 1,731
</TABLE>
The cash expenses include the operating results until closing, rental
payments and costs of removing fixtures from closed stores as well as subsequent
expenses associated with closings. The Company closed an additional store in
the third quarter of 1995. The proceeds of the sale of that store lease were
sufficient to cover the costs of closing expenses and inventory write-offs;
therefore, the Company recognized a net gain of $586 in the fourth quarter of
1995. The Company has closed one store subsequent to year-end.
11 STOCKHOLDERS' EQUITY
Effective April 28, 1995, the Company authorized 50,000 shares of Common
Stock and 10,000 shares of Preferred Stock. No Preferred Stock has been issued.
Pursuant to the Plan, the Company issued and delivered to First Union National
Bank of North Carolina ("FUNB"), as Escrow Agent for the unsecured creditors of
the Company, 9,850 shares of the Company's new Common Stock for distribution on
allowed claims of unsecured creditors in accordance with a schedule for
distributions set forth in the Plan; and 150 shares of the Company's new common
stock were delivered to the Escrow Agent for distribution to officers of the
Company pursuant to a consummation bonus plan approved by order of the Bankrupt-
cy Court on February 14, 1995.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 under the Plan) in accordance with the provisions
of the Plan. As the result of distributions of the Common Stock pursuant to the
Plan, the Company had the following:
January 25, January 27,
1997 1996
Common Stock outstanding 8,461 8,065
Shares reverted to the Company 997 976
Shares held in escrow 542 959
Shares delivered to FUNB
on the Effective Date 10,000 10,000
As of March 12, 1997, the Company has 8,572 shares of Common Stock
outstanding of the 10,000 shares of Common Stock which were delivered to FUNB
pursuant to the Plan on the Effective Date. In addition, as of March 12, 1997,
and pursuant to the provisions of the Plan, 997 shares have reverted to the
Company from escrow to be retired or held in the treasury of the Company.
The remaining 431 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 January 25, 1997 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 88 additional shares of Common Stock will be issued and
outstanding, and there will be a total of approximately 8,660 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 42
additional shares of Common Stock will be issued, and there will be a total of
approximately 8,614 shares of Common Stock issued and outstanding. 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 (8,262 shares) and Non-Voting Class B Stock (10,496 shares) were
canceled and the record owners of such stock as of such date became entitled to
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 total number of warrants issued was 4,286. 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
formula requires that the total allowed and disputed claims of the Company's
unsecured creditors be divided by 9,850, the number of shares of the reorganized
Company's stock to be issued under 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
12 STOCK OPTIONS
The Company's New Equity Compensation Plan was adopted on February 14, 1995
and was designed for the benefit of the executives and key employees of the
Company by allowing the grant of a variety of different types of equity-based
compensation to eligible participants. The Plan provides for the granting of
a maximum of 700 shares of stock. The options vest over a three year period.
The price of the options granted will not be less than 100 percent of the fair
market value of the shares on the date of grant. One half of the options expire
in five years and the remainder in seven years. The following table summarizes
stock option activity:
Option Price Number of Weighted
Range Options Average Price
Granted 2.88 - 5.75 388 4.31
Outstanding, January 27, 1996 2.88 - 5.75 388 4.31
Granted 1.78 - 1.88 55 1.85
Canceled 2.88 - 5.75 (125) 4.31
Outstanding, January 25, 1997 1.78 - 5.75 318 3.89
Exercisable at:
January 27, 1996 - -
January 25, 1997 2.88 - 5.75 88
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plan.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Expected dividend yield 0.00%
Expected stock price volatility 28.00%
Risk-free interest rate 6.63%
Expected life of options 5 years
The weighted average grant-date fair value of options granted during 1996
and 1995 was $.70 and $.73 per share. The pro forma disclosures have not been
included as the compensation cost based on the fair value of the options granted
in 1996 and 1995 is immaterial.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
13 REORGANIZATION COSTS
Professional fees and expenditures directly related to Chapter 11 have been
segregated from normal operations and are disclosed separately. The major
components of these costs are as follows:
<TABLE>
<CAPTION>
Thirty-Nine | Thirteen
Fiscal Weeks Ended | Weeks Ended Fiscal
Year January 27, | April 29, Year
1996 1996 | 1995 1994
<S> <C> <C> | <C> <C>
Closed store provision $ - - | - 43,000
DIP financing fees and expense |
amortization - - | 1,342 3,445
Professional fees and other |
bankruptcy related expenses - - | 2,505 11,454
Total reorganization costs $ - - | 3,847 57,899
</TABLE>
The 1994 store closing provision covered the costs incurred in closing 59
stores in May 1994 and closing 7 stores in May 1995. The store closing provision
included penalties to be incurred upon the rejection of related building and
personal property leases.
In addition, during Fresh-Start Reporting, the Company increased the
liability for reorganization costs by $1,666 to cover post-emergence expenses.
At January 27, 1996, $158 remained in the liability for reorganization costs
which was paid during 1996.
14 INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Thirty-Nine | Thirteen
Fiscal Weeks Ended | Weeks Ended Fiscal
Year January 27, | April 29, Year
1996 1996 | 1995 1994
<S> <C> <C> | <C> <C>
Current: |
Federal $ - 952 | - -
State - 207 | - -
- 1,159 | - -
Deferred (benefit): |
Federal 67 (67) | - -
State 9 (9) | - -
76 (76) | - -
$ 76 1,083 | - -
</TABLE>
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A reconciliation of the statutory federal income tax rate to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
Thirty-Nine | Thirteen
Fiscal Weeks Ended | Weeks Ended Fiscal
Year January 27, | April 29, Year
1996 1996 | 1995 1994
% of Pretax Earnings (Loss)
|
<S> <C> <C> | <C> <C>
Income taxes (benefits) at |
federal statutory rates 35.0% 34.0% | (34.0)% (34.0)%
State income taxes, net of |
federal income tax benefits 4.5 4.6 | (4.3) (4.3)
Amortization of excess value (302.8) (19.0) | - -
Reorganization items (5.6) - | 39.3 6.6
Net operating loss |
carryforward - - | (1.0) 31.7
Valuation allowance 268.9 - | - -
Other - 0.1 | 0.0 0.0
- % 19.7% | - % - %
</TABLE>
The tax effects of temporary differences since the Effective Date that give
rise to significant portions of the deferred tax assets and liabilities were as
follows:
January 25, January 27,
1997 1996
Deferred tax assets:
Reserves $ 2,271 473
Capitalized inventory 73 14
Co-op credits 10 29
VHS inventory 354 104
Percentage rent 254 -
Net Operating Loss Carryforward 3,096 -
Tax Credit Carryforward 2 -
Total deferred tax assets 6,060 620
Deferred tax liabilities:
Reserves - (401)
Percentage rent - (18)
Fixed Assets (244) (125)
Total deferred tax liabilities (244) (544)
Total deferred tax assets
(liabilities) net 5,816 76
Less: Valuation Allowance (5,816) -
Net deferred tax assets (liabilities) $ - 76
In connection with the adoption of Fresh-Start Reporting (Note 2), the
carrying values of several assets were adjusted. As a result, SFAS No. 109, in
conjunction with SOP 90-7 (Note 2), requires that any tax benefits realized
after the Effective Date, from cumulative temporary differences, net operating
loss carryovers and tax credit carryovers be reported in the future as an
addition to paid-in capital rather than as a reduction in the tax provision in
<PAGE>
NOTES TO FINANCIAL STATEMENTS
the statements of operations.
At January 25, 1997, the Company has certain net operating loss carry-
forwards totaling $70,629 which are scheduled to expire during the period 2008
through 2012. The Company has treated net operating losses incurred prior to
the Effective Date in accordance with Section 382(l)(5) of the Internal Revenue
Code. As a result, there is approximately $59,565 in net operating losses
incurred prior to the Effective Date available as carryovers without any annual
limitation. The Company also has substantial potential state net operating loss
carryovers. It is difficult, however, to quantify the utilizable amounts of such
state operating losses because of the uncertainty related to the mix of future
profits in specific states.
The Internal Revenue Service has examined the Company's federal income tax
returns for the years 1988 through 1991, and claims arising from those
examinations have been settled. The provision for these claims made in prior
years was reduced during 1996 to the amount of the settled claim. Federal net
operating loss carryovers for fiscal years subsequent to January, 1992 are
subject to future adjustments, if any, by the IRS. All state income and
franchise tax returns for taxable years ending prior to fiscal 1993 are not
subject to adjustment, primarily because of the application of certain facets
of Bankruptcy law.
During 1995, the Company filed for and received a federal refund of $16,898
to carry back losses described in Section 172(f) of the Internal Revenue Code.
Additionally, during 1996 the Company filed a $10,620 refund claim under Section
172(f), which is currently being evaluated by the IRS. Section 172(f) is an area
of tax law without substantial legal precedent or guidance. The IRS may
challenge the Company's ability to carry back such a substantial portion of
losses under this provision. Accordingly, assurances cannot be made as to the
Company's entitlement to all of these claims. Consequently, an income tax
reserve has been set up in the amount of the refund already received net of the
collection expenses which will be reimbursed if the Company's position does not
withstand any such challenge and the refund is reversed.
15 LEASED ASSETS AND LEASE COMMITMENTS
The Company has entered into leases for store locations which expire during
the next 20 years. Computer equipment, transportation equipment and certain
other equipment are also leased under agreements which will expire during the
next five years. Management expects that leases which expire in the normal
course of business will be renewed or replaced by other leases. Under Chapter
11, the Company renegotiated or rejected leases that it may otherwise have
retained had no filing been made.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
At January 25, 1997, minimum rental payments due under the above leases are
as follows:
Capital Operating
Leases Leases
1997 $ 339 16,305
1998 259 14,827
1999 259 12,634
2000 114 11,599
2001 - 11,367
Later Years - 50,526
Total minimum lease payments 971 117,258
Imputed interest (rates
ranging from 7.6% to 11.3%) (168)
Present value of net minimum
lease payments 803
Less current maturities 260
Capital lease obligations $ 543
Executory costs, such as real estate taxes, insurance, and maintenance, are
generally the obligation of the lessor.
Amortization of capitalized leases was approximately $88 in 1996, $220 in
the thirteen weeks ended April 29, 1995, and $1,746 in 1994. The capital lease
assets were written off in Fresh-Start Reporting (See Note 2), thus no
amortization was incurred in the thirty-nine weeks ended January 27, 1996.
Total rental expense for the three years ended January 25, 1997 was as
follows:
<TABLE>
<CAPTION>
Successor | Predecessor
Thirty-Nine | Thirteen
Fiscal Weeks Ended | Weeks Ended Fiscal
Year January 27, | April 29, Year
1996 1996 | 1995 1994
<S> <C> <C> | <C> <C>
Operating Leases: |
Minimum rentals $ 20,430 15,787 | 5,265 22,481
Contingent rentals 3,417 2,990 | 843 4,309
$ 23,847 18,777 | 6,108 26,790
</TABLE>
Contingent rentals are determined on the basis of a percentage of sales in
excess of stipulated minimums for certain store facilities and on the basis of
mileage for transportation equipment.
Rent expense for the year ended January 25, 1997 and the thirty-nine weeks
ended January 27, 1996, did not include any payments to lessors controlled by
or affiliated with directors of the Successor. Included in rent expense was $132
for the thirteen weeks ended April 29, 1995, and $665 for 1994, paid to lessors
controlled by or affiliated with certain directors of the Predecessor.
16 POSTRETIREMENT HEALTH INSURANCE BENEFITS
The Company provided health insurance benefits for retirees who met minimum
age and service requirements until they reached the age of sixty-five. In
<PAGE>
NOTES TO FINANCIAL STATEMENTS
addition, the associate must have been covered under the active medical plan at
the time of retirement to be eligible for postretirement benefits and must have
agreed to contribute a portion of the cost. The plan was not funded. The
expected cost of retiree health care benefits was charged to expense during the
year that the employees rendered service.
Effective December 30, 1995, the Board of Directors terminated postretirement
and post-service benefits under the Rose's Stores, Inc. Health Care Plan, except
for one year of benefits for current retirees. The termination of these benefits
resulted in a gain of $4,701.
The periodic postretirement benefit cost under SFAS 106 was as follows:
Net Periodic Postretirement Benefit Costs:
<TABLE>
<CAPTION>
Thirty-Nine | Thirteen
Fiscal Weeks Ended | Weeks Ended Fiscal
Year January 27, | April 29, Year
1996 1996 | 1995 1994
<S> <C> <C> | <C> <C>
Service costs $ - 76 | 28 236
Interest costs - 249 | 93 493
Other - - | (39) 72
Net periodic costs $ - 325 | 82 801
</TABLE>
The present value of accumulated postretirement benefit obligations and the
amount recognized in the balance sheets were as follows:
Accumulated Postretirement Benefit Obligations:
January 25, January 27,
1997 1996
Retirees $ - 367
Fully eligible active plan
participants - -
Other active plan participants - -
367
Unrecognized gain (loss) - -
Total accumulated postretirement
benefit obligations $ - 367
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for fiscal year 1994.
17 SEVERANCE RESERVE
The Company completed a downsizing of the Home Office, Distribution and Store
Operations support work force of approximately 175 positions on February 23,
1996. The Company accrued $1,170 in other current liabilities as of January 27,
1996, for the costs associated with the downsizing. The expense is included in
the 1995 selling, general and administrative expenses. The Company made payments
of $1,014 and reversed $130 of the accrual during 1996. The Company plans to
make payments of $26 in 1997.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
18 CONTINGENCIES
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management and counsel, all material contingencies are either adequately covered
by insurance or are without merit.
19 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are cash and cash equivalents, accounts
receivable, accounts payable and short-term debt. The carrying values of these
financial instruments approximate fair value.
20 MERGER COSTS
On May 7, 1996, the Company and Fred's, Inc. ("Fred's") executed a definitive
merger agreement providing for the acquisition of the Company by Fred's. On
August 20, 1996, the Company and Fred's, Inc. announced that the previously
announced merger agreement had been terminated. As a result of such termination,
costs related to the proposed merger of $657 were written-off in the third
quarter. These costs are included in the 1996 selling, general and
administrative expenses.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
21 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Following is a summary of the quarterly results of operations during the
years ended January 25, 1997 and January 27, 1996:
<TABLE>
<CAPTION>
Fiscal 1996
Quarters Ended
April 27, July 27, October 26, January 25,
1996 1996 1996 1997
<S> <C> <C> <C> <C>
Gross sales $ 154,426 165,844 160,796 180,618
Leased department sales 4,281 5,679 4,907 4,933
Leased department income 1,080 1,160 1,124 1,283
Cost of sales 113,040 123,089 116,813 136,508
Earnings (loss) before
extraordinary item 652 (1,792) 448 1,986
Extraordinary item - loss on
early extinguishment of debt(b) - (914) - -
Net earnings (loss) $ 652 (2,706) 448 1,986
Earnings (loss) per share
before extraordinary item $ 0.08 (0.21) 0.05 0.23
Net earnings (loss)
per share $ 0.08 (0.31) 0.05 0.23
Fiscal 1995(a)
Quarters Ended
April 29, | July 29, October 28, January 27,
1995 | 1995 1995 1996
|
Gross sales $ 159,407 | 168,488 162,937 209,493
Leased department sales 5,117 | 5,764 4,995 5,762
Leased department income 1,114 | 1,178 1,140 1,466
Cost of sales 116,838 | 122,471 119,900 161,749
Income (loss) before |
reorganization expense, |
income taxes, and |
extraordinary item 542 | (92) (775) 6,351
Reorganization expense (3,847) | - - -
Fresh-Start revaluation (17,432) | - - -
Earnings (loss) before |
extraordinary item (20,737) | (92) (775) 5,268
Extraordinary item - |
gain on debt discharge 90,924 | - - -
Net earnings (loss) $ 70,187 | (92) (775) 5,268
Earnings (loss) per share |
before extraordinary item $ (1.11) | (0.01) (0.09) 0.61
Net earnings (loss) |
per share $ 3.74 | (0.01) (0.09) 0.61
</TABLE>
(a) On September 5, 1993, the Company filed a voluntary petition in the United
States Bankruptcy Court for the Eastern District of North Carolina seeking to
reorganize under Chapter 11 of the Bankruptcy Code. The Company emerged from
Chapter 11 on April 28, 1995. Beginning in May 1995, the statements of
operations reflect the application of Fresh-Start Reporting (Note 2), and are
therefore not comparable to prior periods.
(b) The second quarter reflects the early extinguishment of debt as an
extraordinary item. The 10-Q for that period reflected it as part of SG&A.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Rose's
Stores, Inc., Form 10-K for the year ended January 25, 1997, 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> 12-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-END> JAN-25-1997
<CASH> 1,241
<SECURITIES> 0
<RECEIVABLES> 5,521
<ALLOWANCES> 420
<INVENTORY> 141,287
<CURRENT-ASSETS> 152,132
<PP&E> 8,988
<DEPRECIATION> 1,278
<TOTAL-ASSETS> 160,322
<CURRENT-LIABILITIES> 83,435
<BONDS> 0
0
0
<COMMON> 35,000
<OTHER-SE> 5,940
<TOTAL-LIABILITY-AND-EQUITY> 160,322
<SALES> 641,884
<TOTAL-REVENUES> 646,531
<CGS> 489,450
<TOTAL-COSTS> 489,450
<OTHER-EXPENSES> (2,378)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,946
<INCOME-PRETAX> 1,370
<INCOME-TAX> 76
<INCOME-CONTINUING> 1,294
<DISCONTINUED> 0
<EXTRAORDINARY> (914)
<CHANGES> 0
<NET-INCOME> 380
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
