UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 2020 (April 29, 2020)
FREDS, INC.
(Exact Name of Registrant as Specified in Charter)
Commission File Number 001-14565
Tennessee | 62-0634010 | |
(State or other Jurisdiction of Incorporation) |
(IRS Employer Identification No.) |
6625 Lenox Park, Suite 200, Memphis, Tennessee 38115
(Address of principal executive offices) (Zip Code)
(901) 365-8880
Registrants telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
None (1) |
N/A (1) | N/A (1) |
(1) | On September 18, 2019, the NASDAQ Stock Market (NASDAQ) suspended trading of Freds, Inc. Class A common stock (common stock). NASDAQ filed a Form 25 with the U.S. Securities and Exchange Commission on October 11, 2019, to delist the common stock from the NASDAQ Global Select Market. The delisting was effective 10 days after the filing of the Form 25. The deregistration of the common stock under Section 12(b) of the Securities Exchange Act of 1934 was effective 90 days after the filing of the Form 25. |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financing accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01. Regulation FD Disclosure
On April 29, 2020, the Company and certain of its subsidiaries (collectively with the Company, the Debtors) filed with the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court) their monthly operating report for the period beginning March 1, 2020 and ending April 4, 2020 (the Monthly Operating Report). The Monthly Operating Report is attached hereto as Exhibit 99.1, and is incorporated herein by reference. This Current Report on Form 8-K (including the exhibits hereto) (this Form 8-K) will not be deemed an admission as to the materiality of any information disclosed in this Item 7.01. The Monthly Operating Report and other filings with the Bankruptcy Court related to the voluntary petitions under Chapter 11 of Title 11 of the United States Code (the Chapter 11 Cases) may be available electronically at https://dm.epiq11.com/Freds. Documents and other information available on such website are not part of this Form 8-K and shall not be deemed incorporated by reference in this Form 8-K.
The information contained in this Item 7.01, including Exhibit 99.1, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any of the Companys filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing.
Cautionary Statement Regarding the Monthly Operating Report
The Company cautions investors and potential investors not to place undue reliance upon the information contained in the Monthly Operating Report, which was not prepared for the purpose of providing the basis for an investment decision relating to any of the securities of the Company. The Monthly Operating Report is limited in scope, covers a limited time period and has been prepared solely for the purpose of complying with the monthly reporting requirements of the Bankruptcy Court. The Monthly Operating Report was not audited or reviewed by independent accountants, was not prepared in accordance with generally accepted accounting principles in the United States, is in a format prescribed by applicable bankruptcy laws or rules, and is subject to future adjustment and reconciliation. There can be no assurance that, from the perspective of an investor or potential investor in the Companys securities, the Monthly Operating Report is complete. Results set forth in the Monthly Operating Report should not be viewed as indicative of future results.
As previously reported in a Form 12b-25 filed on September 13, 2019 and a Form 12b-25 filed on December 12, 2019, the Company does not currently intend to file a Quarterly Report on Form 10-Q for the quarters ended August 3, 2019 and November 2, 2019 or any other reports on Forms 10-Q or 10-K for subsequent periods. Instead, the Company will file Current Reports on Form 8-K containing (i) disclosure of all material events in the Chapter 11 Cases and any other information required by the instructions to Form 8-K and (ii) as exhibits, the operating reports and any other documents that include unaudited financial information that are filed by the Company with the Bankruptcy Court.
Forward Looking Statements
Comments in this Current Report on Form 8-K and the Monthly Operating Report that are not historical facts are forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. A reader can identify forward-looking statements because they are not limited to historical facts or they use such words as outlook, guidance, may, should, could, believe, anticipate, project, plan, expect, estimate, objective, forecast, goal, intend, committed, continue, or will and similar expressions that concern the Companys strategy, plans, intentions or beliefs about future occurrences or results. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Forward-looking statements include, but are not limited to, statements about future financial and operating results, the Companys plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, demand for products, strategic initiatives, including those relating
to store closures and dispositions by the Company and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts. Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct. A wide variety of potential risks, uncertainties and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to risks and uncertainties associated with: (i) the competitive nature of the industries in which we operate; (ii) our store closures and the related sales of inventory and real estate issues; (iii) our divestitures; (iv) utilizing our stores and the extent of our pharmacy department presence in stores; (v) conditions affecting the retail sector as a whole; (vi) our reliance on a single supplier of pharmaceutical products; (vii) our pharmaceutical drug pricing; (viii) reimbursement rates and the terms of our agreements with pharmacy benefit management companies; (ix) consolidation in the healthcare industry; (x) our private brands; (xi) the seasonality of our business and the impact of adverse weather conditions; (xii) operational, supply chain and distribution difficulties; (xiii) merchandise supply and pricing; (xiv) consumer demand and product mix; (xv) our employees; (xvi) risks relating to payment processing; (xvii) our computer systems, and the processes supported by our information technology infrastructure; (xviii) our ability to protect the personal information of our customers and employees; (xix) cyber-attacks; (xx) changes in governmental regulations; (xxi) the outcome of legal proceedings, including claims of product liability; (xxii) insurance costs; (xxiii) tax assessments and unclaimed property audits; (xxiv) current economic conditions; (xxv) the terms of our existing and future indebtedness, including the covenants set forth in the documents governing such indebtedness; (xxvi) our ability to remediate the material weaknesses in our internal controls over financial reporting and otherwise maintain effective internal controls over financial reporting; (xxvii) our largest stockholder holding a significant percentage of our outstanding equity; (xxviii) our ability to attract and retain talented executives; (xxix) any strategic alternatives that we decide to pursue, if any; (xxx) the effects of public health emergencies, including the COVID-19 pandemic; (xxxi) risks related to the trading of the Companys common stock on the OTC Pink Market; (xxxii) the risks and uncertainties relating to the Companys Chapter 11 Cases, including but not limited to, our ability to obtain Bankruptcy Court approval with respect to motions in the Chapter 11 Cases, the effects of the Chapter 11 Cases on our Company and on the interests of various constituents, Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the length of time we will operate under the Chapter 11 Cases, risks associated with third-party motions in the Chapter 11 Cases, the potential adverse effects of the Chapter 11 Cases on our liquidity or results of operations and increased legal and other professional costs in connection with the Chapter 11 Cases; (xxxiii) the conditions to which our debtor-in-possession financing is subject and the risk that these conditions may not be satisfied for various reasons, including for reasons outside our control; and (xxxiv) the factors listed under Item 1A: Risk Factors in our Annual Report on Form 10-K, filed on May 3, 2019, with the Securities and Exchange Commission, under Part II, Item 1A: Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended May 4, 2019 and in any subsequent quarterly filings on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made. The Company undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
99.1 | Monthly Operating Report for the period ended April 4, 2020, filed with the United States Bankruptcy Court for the District of Delaware. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FREDS, INC. | ||||||
Date: May 1, 2020 | By: | /s/ Mark Renzi | ||||
Name: | Mark Renzi | |||||
Title: | Chief Restructuring Officer |
Exhibit 99.1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: FREDS, INC., et al. |
Case No. 19-11984 (CSS) | |
Reporting Period: March 1, 2020 to April 4, 2020 |
MONTHLY OPERATING REPORT
File with Court and submit copy to United States Trustee within 20 days after end of month
Submit copy of report to any official committee appointed in the case.
REQUIRED DOCUMENTS |
Form No. | Document Attached |
Explanation Attached |
Affidavit/Supplement Attached |
||||||||
Schedule of Cash Receipts and Disbursements |
MOR-1 | ✓ | ||||||||||
Bank Reconciliation (or copies of debtors bank reconciliations) |
MOR-1a | ✓ | ||||||||||
Schedule of Professional Fees Paid |
MOR-1b | ✓ | ||||||||||
Copies of bank statements |
||||||||||||
Cash disbursements journals |
||||||||||||
Statement of Operations |
MOR-2 | ✓ | ||||||||||
Balance Sheet |
MOR-3 | ✓ | ||||||||||
Status of Postpetition Taxes |
MOR-4 | ✓ | ||||||||||
Copies of IRS Form 6123 or payment receipt |
||||||||||||
Copies of tax returns filed during reporting period |
||||||||||||
Summary of Unpaid Postpetition Debts |
MOR-4 | ✓ | ||||||||||
Listing of aged accounts payable |
MOR-4 | ✓ | ||||||||||
Accounts Receivable Reconciliation and Aging |
MOR-5 | ✓ | ||||||||||
Debtor Questionnaire |
MOR-5 | ✓ |
I declare under penalty of perjury (28 U.S.C. Section 1746) that this report and the attached documents are true and correct to the best of my knowledge and belief.
Signature of Debtor |
Date |
|||||
Signature of Joint Debtor |
Date |
|||||
/s/ Mark Renzi |
4/29/2020 |
|||||
Signature of Authorized Individual* | Date | |||||
Mark Renzi |
Chief Restructuring Officer |
|||||
Printed Name of Authorized Individual | Title of Authorized Individual |
* | Authorized individual must be an officer, director or shareholder if debtor is a corporation; a partner if debtor is a partnership; a manager or member if debtor is a limited liability company. |
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
SCHEDULE OF CASH RECEIPTS AND DISBURSEMENTS
For period from March 1, 2020 to April 4, 2020
($ in 000s) Cash Flow Summary |
Current Month |
Cumulative | ||||||
Receipts |
||||||||
FS Collections |
| 28,296 | ||||||
Rx Collections (1) |
1,331 | 37,884 | ||||||
Asset Sales |
| 61,206 | ||||||
Other Collections |
272 | 5,940 | ||||||
|
|
|
|
|||||
Total Cash Receipts |
1,603 | 133,326 | ||||||
Disbursements |
||||||||
FS Merchandise |
| (856 | ) | |||||
RX Merchandise |
| (10,670 | ) | |||||
Payroll and Other Employee Obligations |
(219 | ) | (12,718 | ) | ||||
Rent |
| (2,269 | ) | |||||
Sales Tax |
| (3,971 | ) | |||||
Utilities |
(40 | ) | (2,511 | ) | ||||
Other Operating Disbursements |
(388 | ) | (12,401 | ) | ||||
Third Party Rx Reimbursement |
(1,666 | ) | (13,860 | ) | ||||
Other Non-Operating Disbursements |
(2,019 | ) | (30,612 | ) | ||||
|
|
|
|
|||||
Total Cash Disbursements |
(4,331 | ) | (89,868 | ) | ||||
Net Cash Flow (2) |
(2,728 | ) | 43,457 |
(1) | The Company collected pharmacy proceeds on behalf 3rd party buyers for sold pharmacies during this period; generally a one week delay from collecting to disbursing those proceeds. |
(2) | The Company was operating under cash collateral over the cumulative period and cash was used to pay down the DIP loan. |
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
Total Disbursements by Filed Legal Entity (unaudited, in thousands)
For period from March 1, 2020 to April 4, 2020 |
||||||||
Legal Entity |
Case Number | Disbursements | ||||||
Freds, Inc. |
19-11984 | $ | 4,331 | |||||
Freds Stores of Tennessee, Inc. |
19-11982 | $ | | |||||
505 N. Main Opp, LLC |
19-11983 | $ | | |||||
National Equipment Management and Leasing, Inc. |
19-11985 | $ | | |||||
National Pharmaceutical Network, Inc. |
19-11986 | $ | | |||||
Summit Properties Bridgeport, LLC |
19-11987 | $ | | |||||
Summit Properties Jacksboro, LLC |
19-11988 | $ | | |||||
Reeves-Sain Drug Store, Inc. |
19-11989 | $ | |
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
Bank Reconciliations (unaudited)
Values in $
Debtor Name |
Name of Institution |
Type of Account |
Account Number (last 4 digits) | Account balance as of 4/4 (1) | ||||||||
Freds, Inc. |
Regions Bank | Pharmacy Lockbox | 7214 | 134,010 | ||||||||
Freds, Inc. |
Regions Bank | Master | 5477 | 33,948 | ||||||||
Freds, Inc. |
Regions Bank | Master Funding | 4352 | 259,952 | ||||||||
Freds, Inc. |
Regions Bank | Controlled Disbursement | 3377 | | ||||||||
Freds, Inc. |
Bank of America | EDI | 4407 | 93,186 | ||||||||
Freds, Inc. |
Regions Bank | Stub Rent Escrow Acct | 5920 | 84,788 | ||||||||
Freds, Inc. |
Regions Bank | Utility Escrow Acct | 5742 | 359,258 | ||||||||
Freds, Inc. |
Regions Bank | Asset Disposition | 4585 | 27,426,483 | ||||||||
|
|
|||||||||||
Total Bank Cash (2) |
28,391,625 |
(1) | Account balances provided as of COB 4/4/2020 |
(2) | Excludes outstanding checks accounted for in book cash on balance sheet |
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
Total Disbursements to Retained Professionals (unaudited, in thousands)
For period from March 1, 2020 to April 4, 2020 |
||||||||||||
Retained Professionals |
Role | Current Month Disbursements |
Cumulative Disbursements |
|||||||||
Morris, Nichols, Arsht & Tunnell LLP |
Debtor Counsel | 90 | 660 | |||||||||
Akin Gump Strauss |
Debtor Counsel | | 512 | |||||||||
Kasowitz Benson Torres LLP |
Debtor Counsel | 874 | 3,078 | |||||||||
Berkeley Research Group |
Debtor Financial Advisor | 425 | 1,992 | |||||||||
Epiq Corporate Restructuring LLC |
Claims Agent | 139 | 775 | |||||||||
Alvarez & Marsal LLC |
UCC Financial Advisor | 134 | 690 | |||||||||
Lowenstein Sandler LLP |
UCC Counsel | 346 | 1,081 | |||||||||
Womble Bond Dickinson |
UCC Counsel | 21 | 63 | |||||||||
|
|
|
|
|||||||||
Total |
$ | 2,029 | $ | 8,850 | ||||||||
|
|
|
|
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
MOR 2 - CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands)
For period from March 1, 2020 to April 4, 2020 |
||||
Net sales |
2 | |||
Cost of goods sold |
303 | |||
|
|
|||
Gross profit |
(300 | ) | ||
Depreciation and amortization |
| |||
Selling, general and administrative expenses |
1,262 | |||
|
|
|||
Operating income (loss) |
(1,562 | ) | ||
Gain (loss) from disposal of assets/liabilities |
| |||
Interest expense (income) |
| |||
|
|
|||
Income (loss) before income taxes |
(1,562 | ) | ||
Provision (benefit) for income taxes |
| |||
|
|
|||
Net income (loss) from continuing operations |
(1,562 | ) | ||
Net income (loss) from discontinued operations |
| |||
|
|
|||
Net income (loss) |
(1,562 | ) |
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
MOR 3 - CONSOLIDATED BALANCE SHEETS (unaudited, in thousands)
As of Apr. 4 2020 |
||||
ASSETS |
||||
Current assets: |
||||
Cash and cash equivalents (1) |
28,289 | |||
Inventories |
| |||
Receivables, less allowance for doubtful accounts of $1,752 |
949 | |||
Other non-trade receivables (2) |
9,057 | |||
Prepaid expenses and other current assets |
855 | |||
|
|
|||
Total current assets |
39,151 | |||
Property and equipment, less accumulated depreciation and amortization |
50 | |||
Goodwill |
| |||
Intangible assets, net |
| |||
Other noncurrent assets, net (3) |
10,269 | |||
|
|
|||
Total assets |
49,469 | |||
|
|
|||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||
Current liabilities: |
||||
Accounts payable |
70,082 | |||
Current portion of indebtedness |
68 | |||
Accrued expenses and other |
12,368 | |||
|
|
|||
Total current liabilities |
82,518 | |||
Long-term portion of indebtedness |
14,388 | |||
Other noncurrent liabilities |
5,005 | |||
|
|
|||
Total liabilities |
101,911 | |||
|
|
|||
Shareholders equity: |
||||
Preferred stock, nonvoting, no par value |
| |||
Preferred stock, Series A junior participating nonvoting, no par value |
| |||
Preferred stock, Series C junior participating voting, no par value |
| |||
Common stock, Class A voting, no par value |
128,131 | |||
Common stock, Class B nonvoting, no par value |
| |||
Treasury Stock, at cost |
(10,826 | ) | ||
Retained earnings |
(170,302 | ) | ||
Accumulated other comprehensive income |
555 | |||
|
|
|||
Total shareholders equity |
(52,442 | ) | ||
|
|
|||
Total liabilities and shareholders equity |
49,469 | |||
|
|
(1) | Cash includes pharmacy proceeds the Company collected on behalf of 3rd party buyers for sold pharmacies that had not been disbursed as of 4/4/20; the Company generally holds 1-2 weeks of 3rd party pharmacy proceeds before disbursing funds |
(2) | Other Non-Trade Receivables include franchise receivables, scan-down receivables, pharmacy rebates, and other receivables; subject to adjustment due to collectability and other factors |
(3) | Other Non-Current Assets include outstanding letters of credit and utility deposits; subject to adjustment due to collectability and other factors |
Note: This does not include potential lease rejection damages.
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
MOR - 4 Status of Post Petition Taxes
The Debtors continue to pay post-petition taxes as they become due and are current on those payments.
If payments become past due the Debtors will include a schedule in the MOR listing past due post-petition taxes.
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
Summary of Unpaid Post-Petition Debts (unaudited, in Thousands)
Post-Petition Debts Aging Amount | Total | |||
Current |
2 | |||
0 - 30 Days Old |
32 | |||
31 - 60 Days Old |
14 | |||
61 - 90 Days Old |
42 | |||
91+ Days Old |
672 | |||
|
|
|||
Total Post-Petition Debts |
761 | |||
Note: Does not include post-petition AP where there is currently an ongoing dispute |
|
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
Trade Receivable Aging (unaudited, in Thousands)
Trade Receivable Aging Amount | Credit Card | Pharmacy | Total | Allowance for Doubtful Accounts |
Total, less Allowance for Doubtful Accounts |
|||||||||||||||
Current |
| | | | | |||||||||||||||
0 - 30 Days Old |
| 2,701 | 2,701 | 1,752 | 949 | |||||||||||||||
31 - 60 Days Old |
| | | | | |||||||||||||||
61 - 90 Days Old |
| | | | | |||||||||||||||
91+ Days Old |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Trade Receivable |
| 2,701 | 2,701 | 1,752 | 949 |
FREDS, INC., et al.
DEBTORS AND DEBTORS IN POSSESSION
Questionnaire
Yes
|
No
|
|||||||||||||||||
1. Have any assets been sold or transferred outside the normal course of business this reporting period? If yes, provide an explanation below.
|
|
X | ||||||||||||||||
2. Have any funds been disbursed from any account other than a debtor in possession account this reporting period? If yes, provide an explanation below.
|
|
X | ||||||||||||||||
3. Have all post-petition tax returns been filed timely? If no, provide an explanation below.
|
|
X | ||||||||||||||||
4. Are workers compensation, general liability, and other necessary insurance coverages in effect? If no, provide an explanation below.
|
|
X | ||||||||||||||||
5. Has any bank account been opened during the reporting period? If yes, provide documentation identifying the opened account(s). If an investment has been opened provide the required documentation pursuant to the Delaware Local Rule 4001-3.
|
|
X | ||||||||||||||||
Account Name |
Purpose | Business | Acct Number | Bank Name | Date | |||||||||||||