-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HFA1HeNTB2kI4kTX/xuPflIF21kXkfdkwCqQIBVFlXZqWtDCsy5WuVz4GctgIS0K oN+uk1KlEcNRHdXmPmfwLg== 0000085149-96-000014.txt : 19961211 0000085149-96-000014.hdr.sgml : 19961211 ACCESSION NUMBER: 0000085149-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961026 FILED AS OF DATE: 19961210 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROSES STORES INC CENTRAL INDEX KEY: 0000085149 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 560382475 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00631 FILM NUMBER: 96678143 BUSINESS ADDRESS: STREET 1: PO DRAWER 947 STREET 2: 218 S GARNETT ST CITY: HENDERSON STATE: NC ZIP: 27536 BUSINESS PHONE: 9194302600 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended October 26, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-631 ROSE'S STORES, INC. Incorporated Under the Laws of Delaware I.R.S. Employer Identification No. 56-0382475 P. H. Rose Building 218 South Garnett Street Henderson, North Carolina 27536 Telephone No. 919/430-2600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. As of November 25, 1996, of the 10,000,000 shares of common stock delivered to First Union National Bank of North Carolina ("FUNB"), as Escrow Agent pursuant to the Modified and Restated First Amended Joint Plan of Reorganization, 8,459,932 of such shares of common stock are outstanding. The remaining 542,941 shares held in escrow will be distributed by FUNB in satisfaction of disputed Class 3 claims as and when such claims are resolved. If all pending claims are resolved adversely to the Company, approximately 8,632,463 shares of common stock will be outstanding. If all pending claims are resolved in accordance with the Company's records, approximately 8,602,173 shares of common stock will be outstanding. The foregoing estimates do not include any additional shares that may be issued with respect to late-filed claims which the Bankruptcy Court may allow which have not been filed as of the date hereof or the effect of negotiated settlements made for amounts in excess of amounts shown in the Company's records. To the extent that escrowed shares of common stock are not used to satisfy claims, they will revert to the Company and will be retired or held in the treasury of the Company. ROSE'S STORES, INC. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Amounts in thousands except per share amounts) The following summary of financial information of Rose's Stores, Inc. (the "Company"), which is unaudited, reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the information presented. Beginning in May 1995, the statements of operations and cash flows reflect the application of Fresh Start accounting as described in the Company's annual report on Form 10-K for the year ended January 27, 1996. The balance sheet reflects the application of Fresh Start accounting beginning April 1995. ROSE'S STORES, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in Thousands Except Per Share Amounts)
For the Thirteen Weeks Ended October 26, 1996 October 28, 1995 Revenue: Gross sales $ 160,796 162,937 Leased department sales 4,907 4,995 Net sales 155,889 157,942 Leased department income 1,124 1,140 Total revenue 157,013 159,082 Costs and Expenses: Cost of sales 116,813 119,900 Selling, general and administrative 37,757 (a) 38,858 Depreciation and amortization (568) (857) Interest 2,563 1,956 Total costs and expenses 156,565 159,857 Net Earnings (Loss) $ 448 (775) Net Earnings (Loss) Per Share $ .05 (0.09) Weighted Average Shares 8,632 8,632
(a) Included in 1996 selling, general and administrative costs is a third quarter charge of $657 related to the formerly announced merger agreement which was terminated on August 20, 1996. See notes to financial statements. PAGE ROSE'S STORES, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in Thousands Except Per Share Amounts)
Successor Predecessor Thirty-Nine Twenty-Six Thirteen Weeks Ended Weeks Ended Weeks Ended October 26, 1996 October 28, 1995 April 29, 1995 Revenue: Gross sales $ 481,066 331,425 159,407 Leased department sales 14,867 10,759 5,117 Net sales 466,199 320,666 154,290 Leased department income 3,364 2,318 1,114 Total revenue 469,563 322,984 155,404 Costs and Expenses: Cost of sales 352,942 242,371 116,838 Selling, general and administrative 114,155 (a) 79,454 35,486 Depreciation and amortization (1,856) (1,648) 1,812 Interest 5,928 3,674 726 Total costs and expenses 471,169 323,851 154,862 Earnings (Loss) Before Reorganization Benefit (Expense) (1,606) (867) 542 Reorganization Benefit (Expense) - - (3,847) Fresh Start Revaluation - - (17,432) Loss Before Extraordinary Item (1,606) (867) (20,737) Extraordinary Item - Gain on Debt Discharge - - 90,924 Net Earnings (Loss) $ (1,606) (867) 70,187 Earnings (Loss) Per Share Before Extraordinary Item $ (.19) (0.10) (1.11) Net Earnings (Loss) Per Share $ (.19) (0.10) 3.74 Weighted Average Shares 8,632 8,632 18,758
(a) Included in 1996 selling, general and administrative costs is a second quarter charge of $914 of prepaid bank fees related to the former financing agreement; and a third quarter charge of $657 related to the formerly announced merger agreement which was terminated on August 20, 1996. See notes to financial statements. PAGE ROSE'S STORES, INC. BALANCE SHEETS (Amounts in thousands)
October 26, January 27, October 28, 1996 1996 1995 (Unaudited) (Audited) (Unaudited) Assets Current Assets Cash and cash equivalents $ 582 593 609 Accounts receivable 20,192 7,209 18,867 Inventories 200,054 153,190 200,206 Other current assets 3,774 4,706 3,815 Total current assets 224,602 165,698 223,497 Property and Equipment, at cost Less accumulated depreciation and amortization 7,638 5,122 3,647 Other Assets 458 424 - $ 232,698 171,244 227,144 Liabilities and Stockholders' Equity Current Liabilities Short-term debt $ 95,743 33,673 81,657 Bank drafts outstanding 3,657 9,530 5,161 Accounts payable 35,507 23,845 35,441 Accrued salaries and wages 4,879 7,456 4,915 Pre-petition liabilities 4,261 4,632 5,327 Other current liabilities 13,042 11,396 14,388 Total current liabilities 157,089 90,532 146,889 Excess of Net Assets Over Reorganization Value, Net of Amortization 22,747 25,371 39,073 Reserve for Income Taxes 12,673 12,673 - Deferred Income 533 974 1,143 Other Liabilities 702 1,134 5,906 Stockholders' Equity Common Stock, authorized 50,000 shares; issued 8,460 at 10/26/96; 8,158 at 1/27/96 (Note 1) 35,000 35,000 35,000 Preferred Stock, authorized 10,000 shares; none issued - - - Paid-in capital 1,159 1,159 - Retained earnings (accumulated deficit) 2,795 4,401 (867) Total stockholders' equity 38,954 40,560 34,133 $ 232,698 171,244 227,144
See notes to financial statements. PAGE ROSE'S STORES, INC. STATEMENT OF CASH FLOWS (Unaudited) (Amounts in thousands)
Successor Predecessor Thirty-Nine Twenty-Six Thirteen Weeks Ended Weeks Ended Weeks Ended October 26, 1996 October 28, 1995 April 29, 1995 Cash flows from operating activities: Net earnings (loss) $ (1,606) (867) 70,187 Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization (1,855) (1,648) 1,812 (Gain) loss on disposal of property and equipment (1) (2) (1) LIFO expense (credit) - - (364) Write-off of prepaid bank fees 914 - - Write-off of merger costs 657 - - Reversal of severance reserve (130) - - Fresh start revaluation and debt discharge - - (73,492) Cash provided by (used in) assets and liabilities: (Increase) decrease in accounts receivable (12,983) (10,834) (630) (Increase) decrease in inventories (46,864) (15,077) (40,291) (Increase) decrease in other current and non-current assets (573) 4,401 (3,620) Increase (decrease) in accounts payable 11,662 (2,201) 14,361 Increase (decrease) in other liabilities (712) (743) (2,142) Net cash increase (decrease) in reserve for store closings (163) (2,524) (1,108) Increase (decrease) in deferred income (441) (338) (201) Increase (decrease) in accumulated PBO (300) 92 7 Net cash provided by (used in) operating activities (52,395) (29,741) (35,482) Cash flows from investing activities: Purchases of property and equipment (3,219) (3,327) (510) Proceeds from disposal of property and equipment 2 2 5 Net cash provided by (used in) investing activities (3,217) (3,325) (505) Cash flows from financing activities: Net activity on lines of credit 62,070 23,003 58,654 Payments of DIP Facility - - (600) Payments on pre-petition secured debt - - (26,423) Payments of unsecured claims (371) (1,768) (1,593) Principal payments on capital lease obligations (225) (255) (281) Increase (decrease) in bank drafts outstanding (5,873) (601) 5,502 Other - 12,674 - Net cash provided by (used in) financing activities 55,601 33,053 35,259 Net decrease in cash (11) (13) (728) Cash and cash equivalents at beginning of period 593 622 1,350 Cash and cash equivalents at end of period $ 582 609 622 Non cash activities in closed store reserve: Retirement of net book value of assets - 17 623
See notes to financial statements. Notes to Financial Statements: (1) On September 5, 1993, the Company filed a voluntary Petition for Relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Eastern District of North Carolina (the "Bankruptcy Court"). The Company's Modified and Restated First Amended Joint Plan of Reorganization (the "Plan") was approved by order of the Bankruptcy Court on April 24, 1995. On April 28, 1995 (the "Effective Date"), the Plan became effective. The periods and dates prior to the Company's emergence from Chapter 11 are referred to as those of the predecessor company (the "Predecessor") while the period and dates subsequent to its emergence are referred to as those of the successor company (the "Successor"). Since emergence, distributions of the common stock, no par value, of the Company (the "Common Stock") have been made to holders of Allowed Class 3 Unsecured Claims (as defined in the Plan) in accordance with the provisions of the Plan. As a result of distributions of the Common Stock pursuant to the Plan, as of November 25, 1996, the Company had 8,460 shares of Common Stock outstanding of the 10,000 shares of Common Stock which were delivered pursuant to the Plan on the Effective Date to First Union National Bank of North Carolina ("FUNB") as escrow agent. In addition, as of November 25, 1996, and pursuant to the provisions of the Plan, 997 shares have reverted to the Company from escrow and have been retired. The remaining 543 shares held in escrow will be distributed by FUNB in satisfaction of disputed Class 3 claims as and when such claims are resolved. The disputed Class 3 claims which remain unresolved at November 25, 1996 were primarily claims of landlords with respect to leases which were rejected during the course of the Chapter 11 proceeding and general liability claims being resolved under an alternative dispute resolution program established by the Bankruptcy Court. If all pending claims are resolved adversely to the Company, approximately 172 additional shares of Common Stock will be issued and outstanding, and there will be a total of approximately 8,632 shares of Common Stock issued and outstanding. If all pending claims are resolved in accordance with the Company's records and/or position as to such claims, approximately 142 additional shares of Common Stock will be issued, and there will be a total of approximately 8,602 shares of Common Stock issued and outstanding. The foregoing estimates do not include any additional shares that may be issued with respect to late-filed claims which the Bankruptcy Court may allow which have not been filed as of the date hereof or the effect of negotiated settlements made for amounts in excess of amounts shown in the Company's records. To the extent that escrowed shares of Common Stock are not used to satisfy claims, they will revert to the Company and will be retired or held in the treasury of the Company. On the Effective Date, all shares of the Company's pre-emergence Voting Common Stock and Non-Voting Class B Stock were cancelled and the record owners of such stock as of such date received warrants to purchase the new Common Stock of the Company. One warrant was issued for every 4.377 shares of pre-emergence Voting Common Stock or Non-Voting Class B Stock and allows the holder to purchase one share of the new Common Stock. The warrants may be exercised at any time until they expire on April 28, 2002. The initial warrant exercise price of $14.45 was calculated pursuant to a formula set forth in the Plan. The exercise price was adjusted to $12.01 on April 28, 1996, the first anniversary of the Effective Date, and will be adjusted on the second and third anniversaries of the Effective Date to reflect adjustments to the total of allowed and disputed claims of the Company's unsecured creditors. The exercise price will be further adjusted on the fourth, fifth and sixth anniversaries to reflect 105%, 110% and 115%, respectively, of the total of the allowed and disputed claims of the unsecured creditors. Under the New Equity Compensation Plan, nonqualified stock options to purchase 296 shares of Common Stock were outstanding on October 26, 1996. The option price per share is $2.875 for one half of the shares and $5.750 for the remainder of the shares issuable upon the exercise of such options. The options vest over a three year period (unless earlier vested by reason of certain acceleration events, including a change of control of the Company). One half of the options expire five years from the date of issuance and the remainder seven years from the date of issuance. The exercise of outstanding stock options and warrants would not result in a dilution of earnings per share and are excluded from the calculation of earnings per share. (2) If the Company had emerged from Chapter 11 at the beginning of fiscal 1995, the application of Fresh Start accounting would have resulted in net earnings on a pro forma basis of approximately $18 for the thirty- nine weeks ended October 28, 1995. (3) Accounts receivable are net of an allowance for doubtful accounts of $320 as of October 26, 1996; $398 as of January 27, 1996 and $3,642 as of October 28, 1995. (4) The operating results presented herein are not necessarily indicative of the operating results for a full year due to seasonal factors, among other reasons. (5) The Fresh Start revaluation of $17,432 reflects the net expense to record assets at their fair values and liabilities at their present values in accordance with the provisions of Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", and to reduce noncurrent assets below their fair values for the excess of the fair values of assets over the reorganization value. The extraordinary gain of $90,924 represents the gain on debt discharge for liabilities subject to settlement under the Plan. PAGE (6) LIFO expense (credit) is included as an adjustment to reconcile net loss to net cash used in operating activities in the statements of cash flows because LIFO expense (credit) is a noncash item included in cost of sales to adjust inventories stated on a FIFO basis to a LIFO basis. (7) Certain information concerning benefits (expenses) resulting from the Company's reorganization are as follows:
Successor Predecessor Thirty-Nine Twenty-Six Thirteen Weeks Ended Weeks Ended Weeks Ended October 26, 1996 October 28, 1995 April 29, 1995 DIP financing fees, amortization and expenses $ - - (1,342) Estimated professional fees - - (2,318) Other reorganization costs and expenses - - (187) TOTAL REORGANIZATION EXPENSE $ - - (3,847)
(8) Certain reclassifications were made to 1995 balances to conform to the 1996 presentation. These reclassifications have no effect on stockholders' equity. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollar amounts in thousands) General On May 1, 1995, the Company announced that it had satisfied all conditions required under its plan of reorganization and had emerged from Chapter 11 of the United States Bankruptcy Code on April 28, 1995 (the "Effective Date"). In accordance with SOP 90-7, the Company adopted Fresh Start accounting. Under Fresh Start accounting, a new reporting entity was created, and the Company was required to adjust its assets and liabilities to reflect their estimated fair market value at the Effective Date, which reduced depreciation and amortization related to property and equipment and created a deferred credit, excess of net assets over reorganization value, which is being amortized over 8 years. At the same time, the Company made certain reclassifications between gross margin and expenses and changed the method of accruing certain expenses between periods. In addition, as a result of the Company's emergence, reorganization expense and income taxes recognized by the Company prior to April 28, 1995 are not comparable to amounts, if any, recognized subsequent to the Effective Date. To facilitate a better comparison of the Company's operating results for the periods presented, the following discussion of the results of operations is presented on a pro forma basis (as described below) for the thirty-nine weeks ended October 28, 1995. The combined historical statements of operations for the thirteen weeks ended April 29, 1995 (Predecessor) and twenty-six weeks ended October 28, 1995 (Successor) are not included in the discussion due to the lack of comparability caused by the adoption of Fresh Start accounting at the end of the first quarter of 1995. Certain items in the Successor's pro forma statement of operations are not affected by Fresh Start adjustments and are comparable to the historical combined results of the Predecessor and the Successor. The pro forma statement of operations gives effect to the transactions occurring in conjunction with the Plan as if the Effective Date had occurred, and such transactions had been consummated, on January 29, 1995. The statement of operations has been adjusted to reflect: the reduction in depreciation and amortization expense due to the write-off of property and equipment, and property under capital leases; reclassification of DIP interest from reorganization costs to interest expense; the elimination of all reorganization costs; amortization of excess net assets over reorganization value; the effects of changing to the accrual method for advertising; the reversal of LIFO credits; the accrual of additional shrinkage; and the recording of an appropriate income tax expense. Pro Forma Results of Operations (Unaudited) The following table sets forth the results of operations for the thirteen and thirty-nine weeks ended October 26, 1996, and October 28, 1995: (Dollar amounts in thousands, except per share amounts.)
Thirteen Weeks Ended Thirty-nine Weeks Ended October 26, October 28, October 26, October 28, 1996 1995 1996 1995 Historical Pro Forma Historical Pro Forma Revenue: Gross sales $ 160,796 162,937 481,066 490,832 (b) Leased department sales 4,907 4,995 14,867 15,876 (b) Net sales 155,889 157,942 466,199 474,956 (b) Leased department income 1,124 1,140 3,364 3,432 (b) Total revenue 157,013 159,082 469,563 478,388 Costs and Expenses: Cost of sales 116,813 (a) 119,900 352,942 (a) 357,978 Selling, general and administrative 37,757 38,858 114,155 117,458 Depreciation and amortization (568) (857) (1,856) (2,447) Interest 2,563 1,956 5,928 5,370 Total costs and expenses 156,565 159,857 471,169 478,359 Earnings (Loss) Before Income Taxes 448 (775) (1,606) 29 Income taxes - (295) - 11 Net Earnings (Loss) 448 (480) (1,606) 18 Earnings (Loss) Per Share 0.05 (c) (0.06)(c) 0.19 (c) - (c) Weighted Average Shares 8,632 (c) 8,632 (c) 8,632 (c) 8,632 (c)
PAGE (a) Included in 1996 selling, general and administrative costs is a second quarter charge of $914 of prepaid bank fees related to the former financing agreement; and a third quarter charge of $657 related to the formerly announced merger agreement which was terminated on August 20, 1996. (b) The pro forma amounts represent the combination of the Successor's historical amounts with the Predecessor's historical amounts. See statements of operations included in the historical financial statements. (c) The number of shares used in the earnings (loss) per share calculations is 8,632, the number of shares that will be issued and outstanding if all pending claims are resolved adversely to the Company. If all pending claims are resolved in accordance with the Company's records, 8,602 shares will be issued and outstanding. Currently, 8,460 shares are outstanding. The foregoing estimates do not include any additional shares that may be issued with respect to late-filed claims which the Bankruptcy Court may allow which have not been filed as of the date hereof or the effect of negotiated settlements made for amounts in excess of amounts shown in the Company's records. To the extent that escrowed shares of Common Stock are not used to satisfy claims, they will revert to the Company and will be retired or held in the treasury of the Company. Revenue The Company reported sales for the third quarter of 1996 of $160,796, a decrease of $2,141, or 1.3%, from the third quarter of 1995, and year-to-date sales were $481,066, a decrease of $9,766, or 2.0%, from the comparable period of the prior year. The decline in sales was due primarily to a decline in sales on a comparable store basis of .8% for the quarter and 1.2% year-to- date, together with the decrease in the number of stores (105 in 1996 as compared to 106 in 1995). Costs and Expenses Cost of sales as a percent of net sales was 74.9% for the third quarter and 75.9% for the comparable period of the prior year. Year-to-date cost of sales as a percent of net sales was 75.7% for 1996 and 75.4% (pro forma) for the comparable period of the prior year. The decrease in the cost of sales as a percent of net sales for the quarter of 1.0% was due primarily to an increase in the initial markon (1.0%). For the third quarter, higher markdowns were offset by lower shrinkage. The increase in the year-to-date cost of sales as a percent of net sales of .3% was due to an increase in promotional markdowns (.7%) which was reduced by a higher initial markon (.4%). Selling, general and administrative expenses ("SG&A") as a percent of net sales for the third quarter were 24.2% in 1996 and 24.6% for the comparable quarter of the prior year. Year-to-date SG&A expenses as a percentage of sales were 24.5% in 1996 and 24.7% in 1995 (pro forma). The decrease was due primarily to additional realignment of corporate and administrative costs during the first quarter of 1996, which were offset by a second quarter charge of $914 related to a former financing facility and a third quarter charge of $657 related to the formerly announced merger agreement which was terminated on August 20, 1996 (See "Liquidity and Capital Resources"). In addition, income of $130 was recognized in the third quarter from the reversal of the unused portion of a severance reserve. The Company had accrued a severance reserve of $1,170 as of January 27, 1996, for the costs associated with a downsizing completed in the first quarter of 1996. On a pro forma basis, reorganization costs for 1995 would not have been incurred. The actual reorganization costs in the first quarter of $3,847 included professional fees, DIP fees and expense amortizations, and other expenditures related to the Chapter 11 filing. No reorganization costs have been incurred subsequent to the first quarter of 1995. The fresh start revaluation of $17,432 reflected the net expense to record assets at their fair values and liabilities at their present values in accordance with the provisions of SOP 90-7 and to reduce noncurrent assets below their fair values for the excess of the fair values of assets over the reorganization value. The extraordinary gain of $90,924 represented the gain on debt discharge for liabilities subject to settlement under reorganization proceedings. Liquidity and Capital Resources On May 23, 1996, the Company entered into a new financing arrangement with Foothill Capital, Inc. and PPM Finance, Inc., as co-agents. The financing is a $120,000 three-year revolving credit facility (the "Credit Facility") with a letter of credit sublimit in the aggregate principal amount of $40,000. The Credit Facility is secured by a perfected first priority lien and security interest in all of the assets of the Company and replaced the Company's former revolving credit agreement which would have expired in two years. As a result of closing the Credit Facility, $914 of prepaid bank fees related to the former financing agreement were written off in the second quarter of 1996 and included in SG&A. The interest rate on the direct borrowings under the Credit Facility is the prime rate plus 1.375%, with a minimum rate of 7% payable monthly. The fee on outstanding letters of credit is 1.5% payable monthly. Although there are no compensating balances required, the Company is required to pay a fee of .375% per annum on the average unused portion of the Credit Facility. Borrowing availability is based upon certain eligible inventory times a borrowing base percentage that varies by month. Under the Credit Facility, trade suppliers which extend credit to the Company will continue to be supported by a $5,000 letter of credit and a subordinated lien of $15,000 in the real estate properties of the Company, which letter of credit and lien expire April 29, 1997. The Credit Facility includes certain financial covenants and financial maintenance tests, including those related to minimum working capital and current ratios, capital expenditures limitations, maximum total liabilities to tangible net worth, and minimum tangible net worth which are measured quarterly. In addition, there is a requirement that cumulative net losses after May 31, 1996 shall not exceed $10,000. The Credit Facility also includes restrictions on the incurrence of additional liens and indebtedness, a prohibition on paying dividends, and, except under certain conditions, prepayment penalties. The Company is in compliance with these covenants. As of November 30, 1996, under the Credit Facility, the Company had $88,299 outstanding in short-term borrowings, $11,389 in outstanding letters of credit and unused availability of $12,931. The Company's management believes that the Company's current financing arrangement and cash flows are adequate to meet its liquidity needs. The Company invested $880 in cash for property and equipment in the third quarter of 1996 compared to $1,752 invested in the third quarter of 1995. Year-to-date cash investment in property and equipment was $3,219 in 1996 compared to $3,837 in 1995 (combined Successor and Predecessor). The 1996 expenditures were primarily for store remodeling and new computer software. The 1995 expenditures were primarily for store improvements, new apparel fixtures, and new computer software. Cash used in operating activities, primarily to fund inventory levels, was $31,273 in the third quarter of 1996, and $52,395 year-to-date. Cash used in operating activities during 1995 was $21,693 in the third quarter and $65,223 year-to-date (combined Successor and Predecessor). Other On August 20, 1996, the Company and Fred's, Inc. announced that the previously announced merger agreement providing for the acquisition of the Company by Fred's, Inc., had been terminated. As a result of such termination, prepaid costs relating to the proposed merger of $657 were written-off during the Company's third quarter. PAGE PART II. OTHER INFORMATION ITEM 4: Submission of Matters to a Vote of Security Holders Certain resolutions relating to a proposed acquisition of the Company by Fred's, Inc. were submitted to a vote of stockholders during the fiscal quarter ended October 26, 1996. On August 20, 1996, the Company and Fred's, Inc. announced the termination of the merger agreement providing for the acquisition. As a result of the termination of the merger agreement, Rose's special stockholders' meeting, which had been called to consider the merger agreement, was canceled. The Company's Annual Meeting of Stockholders was held on November 20, 1996. At the meeting, the following matters were approved: (1) All nominees for directors listed in the proxy statement, relating to such meeting were elected by a vote in favor of such elections of at least 4,833,189. (2) The resolution to confirm the appointment of KPMG Peat Marwick LLP as the Company's independent certified public accountants for the current year was approved by a vote of 4,839,379 shares voting in favor of, and 28,373 shares voting against the resolution. The total number of shares of the common stock, no par value, of the Company which were issued, outstanding and entitled to vote at the meeting was 8,437,987. ITEM 6: Exhibits and Reports on Form 8-K (a) 10.1 Termination Agreement dated as of August 20, 1996 between the Company, Fred's, Inc., and FR Acquisition Corp. (b) The Company filed the following current reports on Form 8-K during the quarter covered by this report: (i) Report on Form 8-K dated August 20, 1996, reporting under Item 5 the termination of the merger agreement providing for the acquisition of the Company by Fred's, Inc. PAGE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROSE'S STORES, INC. Date: December 10, 1996 By R. Edward Anderson President, Chief Executive Officer Date: December 10, 1996 By Jeanette R. Peters Senior Vice President, Chief Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from Rose's Stores, Inc., Form 10-Q for the quarter ended October 26, 1996, and is qualified in its entirety by reference to such financial statements. 0000085149 ROSE'S STORES, INC. 1,000 9-MOS JAN-25-1997 OCT-26-1996 582 0 20,512 320 200,054 224,602 8,562 924 232,698 157,089 0 0 0 35,000 3,954 232,698 466,199 469,563 352,942 352,942 (1,856) 0 5,928 (1,606) 0 (1,606) 0 0 0 (1,606) (.19) (.19)
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