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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 1994
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 (IRS Employer
incorporation or organization) Identification Number)
218 S. Garnett Street
Henderson, NC 27536
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 430-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, No Par Value
Non-Voting Class B Stock, No Par Value
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)
(continued from previous page)
As of April 22, 1994, 8,262,420 Voting Common
shares and 10,495,586 Non-Voting Class
B shares were outstanding, and the aggregate market
value of the Voting Common shares
(based upon the quoted closing price of these shares
on that date) of Rose's Stores, Inc.
held by nonaffiliates was approximately $2,397,477.
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 sign)" 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 sign) 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 sign) 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"). Rose's is presently
operating its business as a debtor-in-
possession under Chapter 11 and is subject to the
jurisdiction and supervision of the
Bankruptcy Court. In the Chapter 11 case,
substantially all liabilities as of the
date of the filing of the petition for reorganization
are subject to settlement under
a plan of reorganization to be voted upon by Rose's
impaired creditors and
stockholders and confirmed by the Bankruptcy Court. As
of the date of this report,
Rose's has not yet presented its plan of
reorganization. Details of the bankruptcy
proceedings are discussed in Note 1 of the Consolidated
Financial Statements.
(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 172 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
76,000 square feet. During the year, Rose's opened no
new stores and closed 45
stores. Rose's anticipates closing approximately 58
stores during the 1994 fiscal
year and realigning corporate and administrative costs
accordingly.
Registrant 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
with the exception of the shoe departments.
Sales are primarily for cash, although credit
cards such as MASTER CARD, VISA and
DISCOVER are honored. During the past fiscal year,
credit card sales amounted to
approximately 10% of gross sales. Sales are directly
affected by general economic
conditions in the southeastern states, consumer
spending, and disposable income.
* Reference in this Annual Report on Form 10-K to
"Rose's", the "Registrant", or "the
Company" shall mean Rose's Stores, Inc.
Merchandising Inventories are purchased in two
principal ways. Buyers purchase
and distribute merchandise to the various stores, and
the store managers purchase
merchandise for their individual stores from listings
and sources approved by 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 materially adverse effect on it. Rose's has
registered some trademarks as
private label brands. During the past fiscal year,
private label merchandise
constituted approximately 11% of Rose's gross sales.
Rose's does not engage in any
material research activities and has no plans for new
product lines.
Distribution Approximately 20% of merchandise is
shipped directly to stores from
suppliers, and 80% 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 Roses; 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 fourth quarter,
which includes Christmas, is the period of highest
sales volume. During the past
fiscal year, a total of approximately 30% of
the year's gross sales were made in the
fourth quarter, beginning October 31, 1993.
Competition Rose's business is intensely
competitive. Some of Rose's lines of
merchandise compete directly with chains and
independent stores including Sears, J. C.
Penney, Belk, Leggett's and other similar stores.
Other lines compete with chain and
independent stores such as Wal-Mart, Kmart, Ames,
Hills, Jamesway, Jack Eckerd,
Peoples Drug, A&P, Winn-Dixie, Lowe's, Phar-Mor,
Marshall's, Office Depot and similar
stores. Wal-Mart and Kmart have been opening
stores in the area in which Rose's
stores are located. In 1993, 15 Company stores
faced new competitors' openings,
compared to 40 stores in 1992 and 26 stores in 1991.
Increasing competition also
results from grocery and drug chains expanding
merchandise lines to carry goods and
products normally identified with general merchandise
and variety stores. In
addition, other distribution channels, such as
telemarketing and catalogs also compete
with stores of the Registrant.
Associates* Rose's employed, on a full-time or
part-time basis, approximately
14,900 persons at fiscal year-end. Rose's considers
its relations with its associates
to be good.
ITEM 2: PROPERTIES
The following table shows the geographical
distribution of the 172 Rose's stores in operation
on January 29, 1994:
State Number of Stores
North Carolina 79
Virginia 40
South Carolina 10
Georgia 13
Kentucky 9
Tennessee 6
Maryland 4
Delaware 4
Mississippi 4
Alabama 1
West Virginia 2
TOTAL 172
* Persons employed by Rose's Stores, Inc.
During the fiscal year which ended January 29,
1994, Rose's opened no new stores
and closed 45 stores. Registrant expects to close
approximately 58 stores in the
coming year. The Registrant occupies approximately
8,864,000 square feet of store
space (including office, stockroom, and other non-
selling areas). Rose's leases all
store space from others 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 14, to the Consolidated
Financial Statements for additional
information about the Registrant's commitments under
terms of long-term leases.)
Following is a table of the number of stores
opened, closed and remodeled in the last 5 years:
1993 1992 1991 1990 1989
Number of stores at the
beginning of year 217 232 256 259 250
Stores opened - - 3 2 15
Stores closed (45) (15) (27) (5) (6)
Number of stores at the
end of year 172 217 232 256 259
Remodeled stores 21 7 - 9 3
Most of the store 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 leased by
Registrant.
The Registrant owns its Executive and Buying
Offices, its 860,300 square foot
central warehouse, an additional consolidating
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. Registrant also
leases facilities in Henderson, North Carolina for
offices (approximately 75,000
square feet) and service facilities (approximately
10,000 square feet) and leases
warehouse space in Wilmington, North Carolina
(approximately 30,000 square feet).
Registrant also owns a 78,000 square foot warehouse in
Henderson, North Carolina,
which is leased to a third party.
The Company has pledged inventories located in
approximately 64% of its stores
and a collateral pool of $26.5 million consisting of
the Distribution Center and, to
the extent necessary, its contents, and a secured
interest in all other property and
equipment to both the short-term and long-term lenders
in return for six and one-half
year notes and a working capital facility acquired May
29, 1992. Also, the Company
pledged approximately $3,000,000 of inventory to a
long-term lender to collateralize
the lender's deferral of previously scheduled payments.
The Company entered into a Debtor-in-Possession
Revolving Credit Agreement (the
DIP Facility) on September 20, 1993. The DIP Facility
gives the lender, G.E. Capital
Corporation, a super-priority claim against the
property of the Company other than
real property.
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 defended by the Registrant's
insurance carrier. The Registrant's liability for
uninsured general damages and punitive
damages is not considered material. No legal
proceedings presently pending by or against the
Registrant are described because the Registrant
believes that the outcome of such litigation
should not have a material adverse effect on the
financial position of the Registrant.
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 (the "Chapter 11 Case").
The following discussion sets forth certain
aspects of the Chapter 11 Case, but is not
intended to be an exhaustive summary. For additional
information regarding the effect of the
Chapter 11 Case on the Company, reference should be
made to the Bankruptcy Code.
Chapter 11 Reorganization Under the Bankruptcy Code
Pursuant to Section 362 of the Bankruptcy Code,
the commencement of the Chapter 11 Case
created an automatic stay, applicable generally to
creditors and other parties in interest, of:
(i) the commencement or continuation of a judicial
administrative or other action or proceeding
against the Registrant that was or could have been
commenced prior to commencement of the
Chapter 11 Case, or to recover for a claim that arose
prior to commencement of the Chapter 11
Case; (ii) the enforcement against the Registrant or
its property of any judgments obtained
prior to commencement of the Chapter 11 Case; (iii) the
taking of any action to obtain
possession of property of the Registrant or to exercise
control over property of the
Registrant; (iv) the creation, perfection or
enforcement of any lien against the property of
the Registrant's bankruptcy estate; (v) any act to
create, perfect or enforce against property
of the Registrant any lien that secures a claim that
arose prior to the commencement of the
Chapter 11 Case; (vi) the taking of any action to
collect, assess or recover claims against the
Registrant that arose before commencement of the
Chapter 11 Case; (vii) the setoff of any debt
owing to the Registrant that arose prior to
commencement of the Chapter 11 Case against any
claim against the Registrant or (viii) the commencement
or continuation of a proceeding before
the United States Tax Court concerning the Registrant.
Any entity may apply to the Bankruptcy
Court, upon an appropriate showing of cause, for relief
from the automatic stay to exercise the
foregoing remedies. The Registrant is authorized to
operate its business as a debtor-in-
possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code.
Plan of Reorganization - Procedures
Under Section 1121 of the Bankruptcy Code, for 120
days after the date of the filing of a
voluntary petition for relief under Chapter 11, only
the debtor-in-possession has the right to
propose and file a plan of reorganization with the
Bankruptcy Court. If a debtor-in-possession
files a plan of reorganization during the 120-day
exclusivity period, no other party may file a
plan of reorganization until 180 days after the date of
filing of the Chapter 11 petition,
during which period the debtor-in-possession has the
exclusive right to solicit acceptances of
the plan. If a debtor-in-possession fails to file a
plan during the 120-day exclusivity period
or such additional period as may be ordered by the
Bankruptcy Court or, after such plan has
been filed, fails to obtain acceptance of such plan
from impaired classes of creditors and
equity security holders during the exclusive
solicitation period, any party in interest,
including a creditors' committee, an equity security
holders' committee, a creditor, an equity
security holder, or any indenture trustee may file a
plan of reorganization for such debtor.
Additionally, if the Bankruptcy Court were to appoint a
trustee, the exclusivity period, if not
previously terminated, would terminate.
The Registrant has not yet filed a plan of
reorganization with the Bankruptcy Court and
has obtained from its creditors an extension of the
exclusivity period to May 31, 1994. The
Registrant intends to file a plan of reorganization
prior to May 31, 1994.
After a plan of reorganization has been filed with
the Bankruptcy Court, it will be sent,
together with a disclosure statement approved by the
Bankruptcy Court following a hearing, to
members of all classes of impaired creditors and equity
security holders for acceptance or
rejection. Following acceptance or rejection of any
plan by impaired classes of creditors and
equity security holders, the Bankruptcy Court after
notice and a hearing would consider whether
to confirm the plan. Among other things, to confirm a
plan the Bankruptcy Court is required to
find (i) with respect to each impaired class of
creditors and equity security holders, that
each holder of a claim of interest of such class either
(a) will, pursuant to the plan, receive
or retain property of a value, as of the effective date
of the plan, that is at least as much
as such holder would have received in a liquidation on
such date of the Registrant, or (b) has
accepted the plan, (ii) with respect to each class of
claims or equity security holders, that
such class has accepted the plan or such class is not
impaired under the plan and (iii)
confirmation of the plan is not likely to be followed
by the liquidation or need for further
financial reorganization of the Registrant or any
successors unless such liquidation or
reorganization is proposed in the plan.
If any impaired class of creditors or equity
security holders does not accept a plan and
assuming that all of the other requirements of section
1129(a) of the Bankruptcy Code are met,
the proponent of the plan may invoke the so-called
"cramdown" provisions of section 1129(b) of
the Bankruptcy Code. Under these provisions, the
Bankruptcy Court may confirm a plan,
notwithstanding the non-acceptance of the plan by an
impaired class of creditors or equity
security holders, if certain requirements of the
Bankruptcy Code are met, including that (i)
the plan does not discriminate unfairly and (ii) the
plan is fair and equitable, with respect
to each class of claims or interests that is impaired
under, and has not accepted, the plan.
As used in the Bankruptcy Code, the phrases
"discriminate unfairly" and "fair and equitable"
have narrow and specific meanings unique to bankruptcy
law.
Adversary Proceedings
On February 3, 1994, NationsBank as Collateral
Agent, for itself and other pre-petition
lenders (collectively, the "Pre-Petition Lenders")
filed a Complaint under 11 U.S.C. Section
506 to determine the validity, enforceability and
priority of the Pre-Petition Lenders' liens
and security interests in certain assets of the Company
described as collateral in various loan
documents entered into by the Company and the Pre-
Petition Lenders securing promissory notes
dated May 29, 1992.
The Company, under the provisions of the
Bankruptcy Code, commenced an Adversary
Proceeding on February 4, 1994 against the Pre-Petition
Lenders seeking to reduce the claim of
the Pre-Petition Lenders to unsecured status on a
variety of theories. The complaint alleged,
inter alia, defects in financing statements filed to
perfect security interests, defects in the
perfection of security interests in after-acquired
property and cash proceeds, and defective
documentation of collateral in a security instrument.
Most claims with respect to the secured status of
the Pre-Petition Lenders have been
resolved by summary judgment dismissing specific
challenges or by dismissal of claims by the
Company. Discovery has not been completed with respect
to the remaining 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.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
INVESTOR INFORMATION
CORPORATE DATA
Rose's Stores, Inc. is a Delaware Corporation. Rose's stock is
listed on the NASDAQ System for over-the-counter securities; the
Voting Common Stock has the symbol "RSTOQ" and the Non-Voting
Class B Stock has the symbol "RSTBQ".
COMMON STOCK
High and low prices of Rose's Voting Common Stock and Non-Voting
Class B Stock as reported on the NASDAQ are shown below.
(Dollars in thousands except per share amounts)
Market Price Range and Dividends (a)
1993 1992
Dividends Dividends
High Low Declared High Low Declared
1st Quarter 7 1/4 3 3/8 - 6 1/4 3 1/2 -
2nd Quarter 5 1/2 3 1/8 - 6 3 13/16 -
3rd Quarter 3 5/8 11/16 - 4 5/8 3 3/4 -
4th Quarter 1 5/8 13/32 - 7 3 1/2 -
Dividends Total
High Low Per Share Dividends
1993 7 1/4 13/32 - -
1992 7 3 1/2 - -
1991 7 1/8 2 1/8 - -
1990 7 1/4 2 1/4 .210 3,991
1989 9 5/8 5 .210 4,138
1988 12 7 1/8 .210 4,194
1987 22 1/2 7 7/8 .210 4,316
1986 23 1/8 10 3/4 .200 4,115
1985 13 1/2 8 3/4 .190 3,900
1984 13 1/2 7 .185 3,798
1983 14 1/2 3 .135 2,660
(a) Adjusted to reflect the 2-for-1 stock split effected in 1986,
and the 3-for-2 and 3-for-1 stock splits in 1983.
On January 24, 1991, the Board of Directors
adopted a resolution suspending the payment of
dividends until future operating profits warrant
reinstatement. Among other things, the
Company's DIP financing agreement includes restrictions
on the payment of cash dividends and
the repurchase of stock. In addition, the Company is
precluded from paying dividends while the
Chapter 11 case is pending and the Registrant does not
believe it is likely that it will pay
dividends for the foreseeable future following
termination of the Chapter 11 case. At January
29, 1994, such restrictions preclude the payment of
dividends or the repurchase of stock. The
number of holders of record for the Company's Voting
Common Stock was 1,074 and for Non-Voting
Class B Stock was 1,537 at April 22, 1994.
ITEM 6: SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts)
(Not covered by Independent Auditors' Report)
Fiscal Years
1993 1992 1991 1990 1989
Operating Results
Revenue:
Gross sales $ 1,245,697 1,404,302 1,423,345 1,525,412 1,507,560
Leased department sales 42,474 42,059 42,715 23,382 -
Net sales 1,203,223 1,362,243 1,380,630 1,502,030 1,507,560
Leased department income 8,707 9,816 10,198 5,805 -
Total revenue 1,211,930 1,372,059 1,390,828 1,507,835 1,507,560
Costs and Expenses:
Cost of sales (a) 932,238 1,103,160 1,029,837 1,143,547 1,117,025
Selling, general and administrative 281,723 300,866 314,971 343,158 343,608
Provision for future store
closings and remerchandising (b) - - 33,891 35,355 -
Depreciation and amortization 12,984 13,661 16,730 18,503 19,637
Interest 12,054 13,881 13,924 14,648 12,964
Total costs and expenses 1,238,999 1,431,568 1,409,353 1,555,211 1,493,234
Gain on sale of shoe department
fixtures and inventory (c) - - - 5,415 -
Earnings (loss) before reorganization
expense, income taxes and cumulative
effect of accounting change (27,069) (59,509) (18,525) (41,961) 14,326
Reorganization expense (d) (39,138) - - - -
Earnings (loss) before income taxes
and cumulative effect of accounting
change (66,207) (59,509) (18,525) (41,961) 14,326
Income taxes (benefits) - (949) 4,779 (14,200) 5,400
Earnings (loss) before cumulative
effect of accounting change (66,207) (58,560) (23,304) (27,761) 8,926
Cumulative effect of adopting SFAS 106 (e) - (5,031) - - -
Net earnings (loss) $ (66,207) (63,591) (23,304) (27,761) 8,926
Cash dividends declared $ - - - 3,991 4,138
Financial Position at Year-End
Total assets $ 308,105 337,759 416,318 462,749 501,631
Long-term obligations (f) - 83,433 74,896 107,184 59,881
Stockholders' equity 16,096 82,109 142,720 165,968 204,574
Working capital (f) - 127,515 182,723 213,852 191,273
Stores in operation 172 217 232 256 259
Per Share Results
Earnings (loss) before cumulative
effect of accounting change $ (3.53) (3.14) (1.25) (1.46) 0.45
Cumulative effect of adopting SFAS 106 (e) - (0.27) - - -
Net earnings (loss) (3.53) (3.41) (1.25) (1.46) 0.45
Dividends declared - - - 0.21 0.21
Weighted Average Shares
Outstanding (000) 18,740 18,638 18,593 19,078 19,718
(a) In 1991, the Company changed its method of accounting for LIFO
inventories from the use of the inflation index provided by the
Bureau of Labor Statistics to an internally generated price index to
measure inflation in the retail prices of its merchandise inventories.
This change decreased 1991 cost of sales by $21,428 (or $1.15 per
share). Net loss would have been $44,732 in 1991 if the change in
accounting method had not been made. The information was not
available to determine the cumulative effect of this change nor the
impact of any year prior to 1991.
(b) The provision for future store
closings and remerchandising represents the anticipated costs of
closing approximately 15 stores during
fiscal year 1992 and 27 stores during fiscal 1991. The 1991 provision
also includes the costs incurred during fiscal 1992 in the
remerchandising of the remaining stores.
(c) The gain on sale of shoe department fixtures and inventory
results from an agreement with a footwear merchandising company to
assume total operations of the shoe departments within all Company
stores.
(d) 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 consolidated financial statements contained
herein
have been prepared in accordance with generally accepted accounting
principles applicable to a going concern and do not purport to
reflect or to provide for all the consequences of the ongoing Chapter
11 reorganization.
Included in the reorganization expense is a provision of $39,500
for the costs of closing 43 stores in January 1994, as well as the
DIP fee amortization and expenses, professional fees and other
reorganization costs. Offsetting these expenses is a reversal of
prior
reserves for closings due to the anticipated rejection of closed store
leases.
(e) In 1992, the Company adopted SFAS 106, "Employers' Accounting for
Postretirement 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.
(f) Not comparable for 1993, the majority of the amounts comprising
this item have been reclassed to liabilities subject to settlement
under reorganization proceedings.
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 bears to net sales:
As a Percentage of Net Sales
Fiscal Years
1993 1992 1991
Revenue:
Gross sales 103.5% 103.1% 103.1%
Leased department sales 3.5 3.1 3.1
Net sales 100.0 100.0 100.0
Leased department income 0.7 0.7 0.7
Total revenue 100.7 100.7 100.7
Costs and Expenses:
Cost of sales (a) 77.5 81.0 74.6
Selling, general and administrative 23.4 22.1 22.8
Provision for future store closings
and remerchandising (b) - - 2.5
Depreciation and amortization 1.0 1.0 1.2
Interest 1.0 1.0 1.0
Total costs and expenses 102.9 105.1 102.1
Loss before reorganization expense, income
taxes (benefits), and cumulative
effect of accounting change (2.2) (4.4) (1.4)
Reorganization expense (c) (3.3) - -
Loss before income taxes (benefits)
and before cumulative effect of
accounting change (5.5) (4.4) (1.4)
Income taxes (benefits) - (0.1) 0.3
Loss before cumulative effect of
accounting change (5.5) (4.3) (1.7)
Cumulative effect of adopting SFAS 106 (d) - (0.4) -
Net loss (5.5)% (4.7)% (1.7)%
(a) In 1991, the Company changed its method of accounting
for LIFO inventories from the use of the inflation index provided
by the Bureau of Labor Statistics to an internally generated
price index to measure inflation in the retail prices of its
merchandise inventories. This change decreased 1991 cost of sales
by $21,428 (or $1.15 per share). Net loss would have
been $44,732 in 1991 if the change in accounting method had
not been made.
(b) The 1991 provision for future store closings and
remerchandising represents the anticipated costs of closing
approximately 15 stores during fiscal 1992 and the costs
incurred during fiscal 1992 in the remerchandising of the
remaining stores.
(c) 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 consolidated
financial statements contained herein have been prepared
in accordance with generally accepted accounting principles
applicable to a going concern and do not purport to reflect
or to provide for all the consequences of the
ongoing Chapter 11 reorganization.
Included in the reorganization expense is a provision
of $39,500 for the costs of closing 43 stores in January 1994,
as well as the DIP fee amortization and expenses,
professional fees and other reorganization costs.
Offsetting these expenses is a reversal of prior reserves
for closings due to the anticipated rejection of
closed store leases.
(d) In 1992, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement
Benefits Other Than Pensions," which requires 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.
Chapter 11 Filing
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 is in possession of its property and is
maintaining and operating its property as a
debtor-in-possession pursuant to the provisions of
Sections 1107 and 1108 of the Bankruptcy Code.
For further discussion of the Chapter 11 proceedings,
see Footnote 1 in the Consolidated Financial Statements.
Revenue
The Company reported sales in 1993 of $1,245,697, a
decrease of $158,605 or 11.3% from
1992. Sales in same stores for 1993, on a comparable week-
to-week basis, decreased 7.7%
compared to 1992. Prior to its bankruptcy filing, poor
sales were caused by out-of-stocks
resulting from reduced purchases necessitated by the
Company's limited borrowing
availability. Also, just prior to and immediately after
filing the petition under Chapter
11, many suppliers interrupted their shipments of
merchandise causing out-of-stock positions
on most seasonal merchandise. It took several months to
restore inventory levels to
acceptable levels.
In 1992, the Company reported sales of $1,404,302, a
decrease of $19,043 or 1.3% from
fiscal 1991. 1992 same store sales, on a comparable week-
to-week basis, increased 2.5% from
1991. Sales in the first half of fiscal 1992 were
negatively affected by credit problems
related to the Company's bank facility negotiations and by
the significant disruptions
associated with the remerchandising of all stores. Sales in
the second half of 1992 were
positively impacted by the sale of clearance merchandise and
stronger promotional sales.
Sales have been adversely affected over the last three
years as a result of new
competition. For the stores open in 1993, 15 faced new
competitors, compared to 40 in 1992
and 26 in 1991. In 1994, the Company expects to have 6
stores facing new competition. Also,
the Company believes the soft and uncertain economy had a
negative impact on the sales
results for the sales in 1992 and 1991.
Inflation has had little effect on the Company's
operations in the last three years.
Costs and Expenses
In 1993, the cost of sales as a percent of
sales decreased 3.5% from the 1992 percent to
sales. This was due to (1) decreased markdowns
resulting in a decrease in the cost of sales
rate of 1.6%, (2) higher markup decreasing the rate by 1.5%,
and (3) lower shrinkage resulting in a decrease of the
rate by 1.1%. These improvements were offset somewhat by
increases in the freight costs. The Company took proactive
measures in 1993 to reduce the shrinkage to a normal
rate. Some of these measures included strengthening the
Company's loss prevention department, implementing systems that
automatically calculate markdowns, establishing a shrink
incentive program for the stores, and implementing stronger
store front-end controls.
In 1992, the cost of sales as a percent of sales
increased 6.4% over the 1991 percent to
sales. This was due primarily to higher clearance markdowns
taken during the year to
liquidate old and discontinued hardlines inventory and
seasonal apparel, resulting in an increase of 2.6% in the
cost of sales rate. Lower markup caused an increase to the 1992 cost
of sales rate of 1.5%. Higher inventory shrinkage increased
the cost of sales rate by 1.3%
over the 1991 percent to sales. The Company believes that
this increase in shrinkage was
caused primarily by the disruptions in the stores due to the
remerchandising in the first
half of 1992 and the large volumes of clearance markdowns
taken in the second half of 1992,
and by higher internal and external theft. Finally, the
cost of sales rate in 1992 increased
by .8% due to a higher LIFO charge.
In 1991, the Company developed and used internal price
indices instead of the inflation
index provided by the Bureau of Labor Statistics. The 1991
pre-tax LIFO provision included
in cost of sales (a credit of $10,323) would have been a
charge of $11,105 if the accounting
change had not been made; therefore, the accounting change
had the effect of decreasing cost
of sales by $21,428. The net loss for 1991 would have been
$44,732 if the change in
accounting method had not been made. A decrease in mark-up
in 1991 resulting from lowering
competitive prices was more than offset by a decrease in
markdowns as a percent to sales.
Selling, general and administrative expenses as a
percent of sales were 23.4% in 1993,
22.1% in 1992, and 22.8% in 1991. The increase in 1993 is
largely attributable to the decline in 1993 sales.
As part of its business plan, the Company decided to
close 43 stores in January of 1994
and recognized an expense of $39,500 associated with these
closings. Additionally, the
Company recognized a $13,026 benefit associated with the
anticipated rejection of closed
store leases on stores already closed. A net reorganization
expense of $39,138 before taxes,
relating to these closed stores and other bankruptcy costs,
was recorded during 1993.
In addition, the Company made the decision in the first
quarter of 1994 to close
approximately 58 stores and realign corporate and
administrative costs accordingly. It is
expected that a charge of approximately $55,000 relating to
these closings will be included
in the first quarter of 1994.
In 1991, a provision of $24,891 was recorded to provide
for the costs of closing 15
stores in 1992. In addition, the Company recorded a charge
of $9,000 to provide for payroll
costs and inventory reductions that were incurred in 1992 as
a result of a significant change
in the merchandise mix in the stores.
Interest expense decreased 13% in 1993 due to a
decrease in long-term debt outstanding.
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. Although no
determination has yet been made regarding
the value of the property which collateralizes various
creditors' claims, the Bankruptcy
Court has ordered the Company to make monthly adequate
protection payments which have been
booked as interest. The Company is disputing the claims to
collateral of its pre-petition
long-term debtholders. (See Item 3. Legal Proceedings)
Interest on the DIP facility and
other related DIP fees and expenses were $1,238 in 1993
(0.1% of net sales), and were
included in the reorganization costs. In addition, the
Company included in the
reorganization costs, a write-off of $4,528 related to
unamortized costs of pre-petition
debt. Interest expense decreased .3% in 1992 due to a
decrease in average short-term debt
offset by higher rates on renegotiated long-term senior
notes. Interest expense decreased
4.9% in 1991 due to a decrease in average short-term debt
outstanding.
Other
In February 1992, the Financial Accounting Standards
Board (FASB) issued Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Statement 109
requires a change from the deferred method of accounting for
income taxes of APB Opinion 11
to the asset and liability method of accounting for income
taxes. Under the asset and
liability method of Statement 109, deferred tax assets and
liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or
settled. Under Statement 109 the effect on deferred tax
assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
Effective the first quarter of 1993, the Company
adopted Statement 109. The only effect
of adopting Statement 109 was the establishment of a $5,760
current deferred tax liability
and a $5,760 non-current deferred tax asset. Under the
guidelines provided by APB 11, the
Company would have no current or non-current deferred tax
liability/asset.
In 1992, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement
Benefits Other Than Pensions," which requires 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 (or
$.27 per share).
A write-off of deferred tax assets of $8,970 negatively
impacted 1991. This write-off
was required so that the Company would not have deferred tax
assets greater than the tax
carrybacks available. If the Company becomes profitable,
the reinstatement of these deferred
tax assets will be used to reduce tax expense in future
years. Additional tax losses were
incurred during 1992; thus the remaining deferred tax assets
were consumed with the resulting
NOL which eliminated the need for an additional write-off.
The Internal Revenue Service (IRS) has completed its
examinations of the Company's
federal income tax returns for the years 1988 through 1991
and has proposed tax adjustments
of $2,882 plus interest and penalties. These adjustments
pertain to issues including the
timing of deductions for inventory shrinkage accruals,
depreciation expense and amortization
of movie rental assets. The Company's management and tax
counsel believe that certain of the
IRS's proposed adjustments are without merit and are
vigorously contesting these, and that
the ultimate resolution of the proposed adjustments will not
have a material effect on the
Company's financial position.
Liquidity and Capital Resources
On September 2, 1993, the Company received a notice of
default for failure to make an
interest payment due on August 31, 1993 under its primary
line of credit facility under the
Amended and Restated Loan Agreement dated May 29, 1992. The
notice of default demanded
payment in full of the $106,000 of outstanding principal and
declined to extend any further
credit.
The Chapter 11 filing caused a default under many of
the agreements to which the Company
is a party. Generally, actions to enforce or otherwise
effect the repayment of pre-petition
liabilities are stayed while the Company is under the
protection of Chapter 11 of the
Bankruptcy Code. These liabilities will be resolved as a
part of the reorganization
proceedings. Additional liabilities subject to similar
resolution may arise as a result of
claims filed by parties related to the rejection of
executory contracts, including expired
leases, and for the Bankruptcy Court's determination of
allowed claims for contingencies and
other disputed amounts.
On September 6, 1993, the day after the Company filed
for Chapter 11, the Company and
G. E. Capital Corporation ("GE Capital") entered into a
commitment letter pursuant to which
GE Capital would provide debtor-in-possession post-petition
financing to the Company in the
form of a two-year revolving credit facility of up to the
lesser of (i) 50% of the value of
inventory of the Registrant acceptable to GE Capital, less
reserves to be established in the
discretion of GE Capital or (ii) $125,000. (This two-year
credit agreement is hereinafter
referred to as the "DIP Facility".)
On October 14, 1993, the Bankruptcy Court approved the
DIP Facility with certain
restrictions on the borrowing base pending approval of the
Company's 1994 business plan by
the secured lenders.
The DIP Facility provides for interest to accrue at a
lower rate than the Company's
primary pre-petition revolving credit facility. As part of
the cash collateral order, the
Company pays the interest on the pre-petition debt monthly
in the form of adequate protection
payments.
With the approval of the DIP Facility, the Company's
short-term liquidity has improved
significantly. The cash requirements for the payment of
scheduled principal payments,
accrued interest, accounts payable and other liabilities
incurred prior to the Chapter 11
filing have in most cases been deferred until a Plan of
Reorganization is confirmed by the
Bankruptcy Court. Pre-petition claims of $207,456 were
outstanding as of the end of 1993.
In addition, $4,000 of estimated reclamation claims to be
paid according to court order are
included in current liabilities.
Rose's management expects the Company to realize
positive cash flow from its 1994
operations. The filing under Chapter 11 will protect the
Company from its pre-petition
creditors while a plan of reorganization is being
negotiated. Until such a plan is confirmed
by the Bankruptcy Court and consummated, payments on pre-
petition debt will not be made
(except as approved by the Bankruptcy Court) and all
existing unexpired contracts and leases
will be reviewed to determine whether they should be assumed
or rejected (subject to
Bankruptcy Court approval). The adequacy of the Company's
capital resources and long-term
liquidity cannot be determined until a plan of
reorganization is developed and confirmed by
the Bankruptcy Court.
The Company's current ratio for 1993, which includes
$4,000 of reclamation claims, is
3.32 compared to 1.87 in 1992 and 2.08 in 1991. In 1993,
cash and cash equivalents decreased
$7,146 compared to increases of $13,441 in 1992 and $4,416
in 1991. The Company's working
capital was $173,640 in 1993, $127,515 in 1992, and $182,723
in 1991. The increase in
working capital in 1993 of $46,125 was primarily due to a
reclassification of pre-petition
current liabilities to liabilities subject to settlement
under reorganization proceedings due
to the Chapter 11 filing.
The fixed charge coverage ratio was 0.00 in 1993, 0.10
in 1992 and 0.80 in 1991. 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, and the
adoption of SFAS 106 was 0.74 in
1993, 0.19 in 1992 and 1.37 in 1991.
In 1993, $8,373 of cash was provided from operating
activities, while $40,071 was
provided in 1992 and $16,081 was provided in 1991.
Declining sales, as well as an increased
investment in inventory and inventory prepayments
contributed to the decline in cash.
Investing activities used cash of $9,100 in 1993,
$9,140 in 1992, and $2,962 in 1991.
The Company invested cash in property and equipment totaling
$9,109 in 1993, $9,629 in 1992,
and $3,102 in 1991. The 1993 expenditures were primarily
for store improvements, remodels
and new computer software. The Company closed 45 stores in
1993, closed 15 stores in 1992,
and opened three stores and closed 27 in 1991.
Financing activities used cash of $6,419 in 1993,
$17,490 in 1992, and $8,703 in 1991.
The Company made $1,127 of payments on long-term debt in
1993, and $12,000 in 1992. In 1991,
the Company reduced its short-term debt by $5,000 through a
reduction of inventory levels.
The Board of Directors has suspended dividend payments until
future operating profits warrant
reinstatement. The Company's debt agreements include a
restriction on the payment of cash
dividends and the repurchase of stock.
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS
See Consolidated Financial Statements contained elsewhere herein.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is furnished with respect to each of the
members of the Board of Directors of the Registrant as of January 29, 1994:
First Year
Principal Occupation During Last Five Years, Elected A
Name and Age Directorships in Public Registrants Director
Bruce G. Allbright (65) Retired since 1990; President and Director of Dayton 1990
Hudson Corporation (department stores), 1987 until
1990; Chairman and Chief Executive Officer of
Target Stores (discount stores), 1984 to 1987. He
is a director of TCF Financial, G & K Services,
Hannaford Brothers Company, Player's Club
International, Shopko and Sportstown, Inc.
Sam Ayoub (75) Retired since 1985; Senior Executive Vice President 1982
and Chief Financial Officer of the Coca-Cola
Company, 1981 to 1985. Mr. Ayoub is a director of
Cousins Properties, Inc., and of numerous business,
industrial and international trade associations.
Hon. George D. Busbee Retired since 1992; Partner, King & Spaulding (law 1987
(66) firm), Atlanta, GA., 1983-1992. Mr. Busbee was
Governor of the State of Georgia for two consecutive
terms (1975-1983) and Chairman of the National
Governors' Association (1981-1982). He has been a
member of the President's Export Council (1979-
1985) and is a director of Union Camp Corporation
and Delta Air Lines.
Marion J. Church (49) Retired since 1992; Legislative Clerk for North 1994
Carolina General Assembly from 1990 to 1992;
Executive Director of North Carolina Society to
Prevent Blindness from 1990 until 1992.
John T. Church, Sr. (76) Chairman of the Board, Emeritus. Mr. Church was 1946
Chairman of the Board from 1972 to 1984.
Frank A. Daniels, Jr. President and Publisher of The News and Observer 1992
(62) Publishing Company (newspapers and other
publications), Raleigh, NC. He is Vice
Chairman/Chairman Elect of the Associated Press
and a director and trustee of certain publishing
and educational institutions and associations.
George M. Harvin (47) Managing Director, The Rosemyr Corporation, 1984
Emrose Corporation and H.H.C. Co. (real estate
leasing corporations); Vice President of Rose's
Stores, Inc., from 1990 to 1993; Secretary from 1987
to 1993; District Manager from 1990 to 1992; Vice
President Expansion and Real Estate from 1986 to 1990.
Lucius H. Harvin, III Chairman of the Board since 1984; Chief Executive 1969
(55) Officer from 1980 to 1991.
George L. Jones (43) President and Chief Executive Officer since 1991. 1991
Mr. Jones was Executive Vice President, Store
Operations, of Target Stores, Division of Dayton
Hudson Corporation from 1988 to 1991;
Chairman/CEO, Monica Scott, Inc. (speciality stores)
from 1987 to November, 1988(a); Senior Vice
President, General Merchandise Manager, Target
Stores from 1986 to 1987; Vice President Ready to
Wear, Target Stores from 1985 to 1986.
James Maynard (54) Chairman of the Board of Directors of Golden 1989
Corral Corporation (restaurants); Chairman and
Chief Executive Officer of Investors Management
Corporation (diversified holding company). Mr.
Maynard is also a director of BB&T Financial
Corporation.
Robert K. Montgomery Partner, Gibson, Dunn and Crutcher (law firm), 1992
(55) Los Angeles, California. He is a director of
Sizzler International, Inc.
Albert N. Whiting (76) Retired since 1983; Chancellor of North Carolina 1981
Central University, Durham, NC, from 1967 to 1983.
__________________
(a) Monica Scott, Inc., which had remained current in
payment of liabilities during his tenure as CEO, later
filed for protection under the provisions of Chapter 11,
U.S. Bankruptcy Code.
Mr. Lucius H. Harvin, III (Chairman of the Board) is
the brother of George M. Harvin (a
Director); and they are nephews of Marion J. Church (a
Director) and John T. Church. Sr.
(Chairman of the Board Emeritus and a Director). Mr. and
Mrs. Church are husband and wife.
The following information is furnished with respect to
each of the executive officers of the Registrant as of January 29, 1994:
Name, Age, Position Business Experience During Past Five Years
Lucius H. Harvin, III (55) Chairman of the Board since March 12, 1984.
Chairman of the Board Chief Executive Officer from January 1, 1980 to
July 25, 1991. He is Chairman of the Executive
Committee and of the Nominating Committee and a
member of the Advisory Committee of the Profit
Sharing Plan and the Variable Investment Plan.
George L. Jones (43) Elected President and Chief Executive Officer
President and Chief July 26, 1991; He is a member of the
Executive Officer Company's Executive Committee. Executive Vice
President, Store Operations, of Target
Stores, Division of Dayton Hudson Corporation
from 1988 to 1991. Chairman and Chief
Executive Officer, Monica Scott, Inc. from
1987 to 1988.
R. Edward Anderson (44) Appointed Executive Vice President October
Executive Vice President, 19, 1992; Appointed Chief Financial Officer
Chief Financial Officer January 12, 1990; Senior Vice President,
Systems and Accounting since May 28, 1986.
Kevin Freeman (43) Appointed Executive Vice President October
Executive Vice President, 19, 1992; Senior Vice President Store
Store Operations Operations September 16, 1991 to October 18,
1992; Regional Senior Vice President, Target
Stores from 1989 to 1991; Regional Vice
President, Merchandise Manager, Target
Stores, from 1985 to 1989.
Rob Gruen (44) Appointed November 25, 1992; Vice President
Senior Vice President, General Merchandise Manager November 18, 1991
Merchandising to November 24, 1992; Merchandise Manager,
Dayton Hudson, Target Stores Division, 1982
to 1989; Division Merchandise Manager,
Department Stores Division of Dayton Hudson,
Childrens Apparel and Toys from 1989 to
November 1991.
George T. Blackburn, II (43) Elected Secretary February 17, 1993;
Vice President, Appointed Vice President, General Counsel
General Counsel and April 19, 1991; formerly Partner of Perry,
Secretary Kittrell, Blackburn & Blackburn law
firm for the relevant period preceding April
19, 1991.
John Freise (48) Appointed January 9, 1992; Operations
Zone Vice President, Special Assignment from November 26, 1991 to
Operations January 22, 1992; Target Stores District
(Held position until Manager from June 1983 to November 1991.
April 19, 1994)
Barry L. Gouge (47) Appointed July 12, 1993; Vice President,
Vice President, Marketing from January 3, 1992 to July 11,
General Merchandise 1993; McCrory Stores, York, PA; Senior
Manager - Hardlines B Vice President Marketing from August 1987 to
December 1991.
M. Jane Hill (41) Appointed November 9, 1992; Senior Manager,
Vice President, Merchandise Presentation, March 1991 through
Merchandise Planning November 1992; Senior Project Manager,
and Control Merchandise, Accounting and Replenishment
(Held position until Systems (M.A.R.S. Project), August 1990
April 7, 1994) through March 1991; Project Manager,
Merchandise Administration and Replenishment
Systems, June 1987 through August 1990.
Kathy M. Hurley (47) Appointed November 30, 1992; D & L Venture
Vice President, Corp., Divisional Merchandise Manager,
General Merchandise Sportswear, May 1991 through November 1992;
Manager - Softlines Lane Bryant, Divisional Merchandise Manager,
Intimate Apparel, May 1990 through March
1991; Hecks, Inc., Executive Vice President,
General Merchandise Manager, August 1987
through March 1990; Service Merchandise,
Inc., Senior Vice President General
Merchandise Manager, Apparel, April 1986
through July 1987.
Shelia R. Moffitt (44) Appointed August 13, 1993; Marketing Director
Vice President, from November 1992 to August 1993; Vice
Marketing President Advertising of a subsidiary of
Fishers Big Wheel, Inc. from July 1991 to
November 1992; Vice President Advertising and
Sales Promotion of a subsidiary of Amcena
Corporation from February 1987 to January
1991.
Robert Morgan (34) Appointed December 15, 1993; Vice President
Vice President, of Organizational Development and Associate
Human Resources Relations, February 8, 1993; Director,
(Resigned March 4, 1994) Organizational Development and Human
Resources 1992 through February 1993; Senior
Manager, Training and Development, 1990
through 1992; Senior Manager, Compensation,
1989 through 1990; Labor and Relations
Manager, 1985 through 1989.
D. L. Overby (43) Appointed September 16, 1991; Senior Vice
Vice President, President Operations from January 1,
Operations Administration 1991 to September 1991; Regional Vice
President Operations from January 30, 1989 to
December 1990. (Appointed Vice President,
Distribution on April 4, 1994)
Howard Parge (47) Appointed March 9, 1992; Target Stores,
Zone Vice President, District Manager, 1989 through 1991; Regional
Operations Merchandiser, 1988 through 1989.
Jeanette R. Peters (38) Appointed April 24, 1991; Senior Manager
Vice President and Financial Analysis for the relevant period
Controller preceding April 24, 1991.
Len Priode (50) Appointed May 23, 1988; Operating Vice
Vice President, President, Caldor (a Division of May
Information Services Department Stores) from September 14, 1985 to
(Resigned March 4, 1994) May 21, 1988.
D. Carey Pylant (44) Appointed May 17, 1993; Regional Asset
Vice President, Protection Director of Target Stores from
Assets Protection June 1987 to May 1993.
Bob Sasser (42) Appointed January 12, 1990; Vice President
Vice President, General Merchandise Manager of Home General
General Merchandise Furnishings and Housewares from May 15, 1988
Manager - Hardlines A to January 12, 1990.
(Resigned March 4, 1994)
J. Michael Shuster (41) Appointed April 24, 1991; Vice President and
Vice President, Controller from May 23, 1990 to April 24,
Distribution 1991; Controller from August 28, 1986 to May
(Resigned March 11, 1994) 23, 1990.
William E. Triplett, III (40) Appointed May 23, 1990; Assistant
Treasurer Treasurer from January 30, 1987 to May 23,
1990.
Roger C. Trivette (55) Appointed November 7, 1988; Director of
Vice President, Design and Construction from March 6,
Construction and 1986 through November 7, 1988.
Maintenance
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
Section 16 of the Securities Exchange Act of 1934,
filed all reports required to
be filed during fiscal year 1993 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
Cash And Other Compensation
The following table sets forth all the cash
compensation paid or to be paid by the Registrant, as well as
certain other compensation paid or accrued, during the fiscal years
indicated, to the Chairman of the Board, the Chief Executive
Officer, and the three other highest paid executive officers of the
Registrant for fiscal year 1993 in all capacities in
which they served:
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All Other
Name and Annual Restricted Options/ LTIP Compen-
Principal Salary Bonus Compen- Stock SARs Payouts sation
Position Year ($)(1) ($) sation (2) Awards ($) (#) ($) ($)(3)
George L. 1993 700,000 833,333(4) 4,487 - - - 7,570
Jones 1992 716,181 833,333(4) 4,081 - - - 9,313
President and 1991 355,385(6) 416,666(4) 165 - - - 2,384
Chief Executive
Officer
Lucius H. 1993 350,000 - 3,142 - - 62,952 7,570
Harvin, III 1992 356,850 - 844 - 40,000 - 17,621
Chairman of 1991 275,000 - 4,505 - - 25,785 30,449
the Board
Kevin Freeman 1993 267,462 - 11,173 - 23,750 - 6,900
Executive Vice 1992 264,129 75,000(5) 1,969 - 40,000 - 16,591
President of 1991 91,346(6) 91,375(5) 221 - 50,000 - 1,276
Store Operations
R. Edward 1993 265,923 - 7,383 - 12,750 29,806 6,900
Anderson 1992 251,168 29,000 1,296 - 40,000 - 16,591
Executive Vice 1991 177,865 73,861 3,511 - 50,000 11,310 10,617
President and
Chief Financial
Officer
Robert P. 1993 220,462 - 9,783 - 10,000 - 6,897
Gruen 1992 165,655 17,000 3,852 - 40,000 - 8,776
Senior Vice 1991 26,923(6) 2,423 - - - - -
President of
Merchandising
_____________
(1) 1993 Salary represents 52 weeks of base salary.
1992 Salary represents 53 weeks of base salary. 1991 Salary
represents 52 weeks of base salary.
(2) "Other Annual Compensation" consists of tax gross-
ups on medical expense reimbursements, and in 1991 also
included earnings on LTIP compensation.
(3) "All Other Compensation" includes payments by
the Registrant for the following:
Name Automobile Allowance Profit Sharing Plan
Jones $6,198 $1,372
Harvin $6,198 $1,372
Freeman $5,528 $1,372
Anderson $5,528 $1,372
Gruen $5,528 $1,369
(4) Bonus awards to George L. Jones represent prorated
amounts from bonus agreement
incident to initial employment with the Registrant and does
not represent bonus awards
determined during the fiscal year. Amounts shown are not
payable until 1994.
(5) Bonus awards to Kevin Freeman represent prorated
amounts from bonus agreement
incident to initial employment with the Registrant and does
not represent bonus awards
determined during the fiscal year.
(6) Messrs. Jones, Freeman, and Gruen joined the
Registrant in 1991.
Stock Options Granted During Fiscal Year
The following table sets forth information about the
stock options granted to the named executive officers of the
Registrant during fiscal year 1993. No stock appreciation rights
were granted to the named executive officers during fiscal
year 1993.
Option Grants In Last Fiscal Year
Individual Grants
% of Total Potential Realized
Options Value
Granted at Assumed
to Annual Rates
Employees of Stock Price
Options in Exercise or Appreciation for
Granted Fiscal Base Price Expiration Option
Name (#)(1) Year(2) ($/Sh) Date Term (3)
5% 10%
George L. Jones - - - - -
Lucius H. Harvin, III - - - - -
Kevin Freeman 10,000 3.9% $5.00 April 1, 2003 29,409 76,445
13,750 5.4% $5.00 June 1, 2003 34,838 96,196
R. Edward Anderson 10,000 3.9% $5.00 April 1, 2003 29,409 76,445
2,750 1.0% $5.00 June 1, 2003 6,968 19,239
Robert P. Gruen 10,000 3.9% $5.00 April 1, 2003 29,409 76,445
____________
(1) Options to purchase the above listed number of shares of the
Registrant's Non-Voting Class B Stock for $5.00 a share.
Options expiring on April 1, 2003 vest and become
receivable on April 1, 1995. Options expiring on
June 1, 2003 vest and become receivable on June 1, 1994.
(2) Options to acquire an aggregate of 256,250 shares of
Common Stock of the Registrant
were granted to all employees during fiscal year
1993. Options to acquire an
additional 50,000 shares of Common Stock were
granted to nonemployee directors of the
Registrant during fiscal year 1993.
(3) The potential realizable value of the options
reported above was calculated by assuming
5% and 10% annual rates or appreciation of the
Common Stock of the Company from the
date of grant of the options until the expiration of
the options. These assumed annual
rates of appreciation were used in compliance with
the rules of the Securities and
Exchange Commission and are not intended to forecast
future price appreciation of the
Common Stock of the Company. The Company chose not
to report the present value of the
options because the Company does not believe any
formula will determine with reasonable
accuracy a present value because of unknown or
volatile factors. The actual value
realized from the options could be substantially
higher or lower than the values
reported above, depending upon the future
appreciation or depreciation of the Common
Stock during the option period and the timing of
exercise of the options.
Stock Options Exercised During Fiscal Year and Year End Values of
Unexercised Options
The following table sets forth information about
unexercised stock options and stock
appreciation rights by the named executive officers of the
Registrant during fiscal year 1993.
No stock options or stock appreciation rights were exercised
by the named executive officers
during fiscal year 1993.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Shares Number of Unexercised Value of Unexercised
Acquired Options/SARs at In-the-Money Options
on Value FY-End(#) at FY-End($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable(1)
George L. Jones - - - /200,000 -
Lucius H. Harvin, III - - - /40,000 -
Kevin Freeman - - 50,000/63,750 -
R. Edward Anderson - - 50,000/52,750 -
Robert P. Gruen - - 27,500/62,500 -
____________
(1) All options were out of the money at fiscal year end.
Employment Contracts, Termination Of Employment And Change-In-Control
Arrangements
The Registrant has an employment contract with George
L. Jones which provides for his
active employment for three years, through July 24, 1994.
This contract was negotiated with
Mr. Jones prior to his initial employment by the Registrant
and became effective on July 25,
1991. All sums required to be paid under the contract are
shown on a prorated basis per year
in the summary compensation table above for the years to
date. The bonus amount, shown on a
prorated annual basis in column (d) of the summary
compensation table, is payable upon the
first to occur of (i) the third anniversary of the effective
date of the agreement, (ii) the
date on which the price of the Registrant's Non-Voting Class
B Stock is quoted at a price per
share of $15.50 on the NASDAQ system, or (iii) termination
of employment by reason of death,
permanent disability, discharge without cause, liquidation
of substantially all of the assets
of the Registrant, resignation resulting from default by the
Registrant in its covenants under
the agreement, or a change in control of the Registrant as
defined in the agreement. In lieu
of the bonus, or any part thereof, Mr. Jones has the option
under the employment agreement and
a Tandem Stock Option Agreement to purchase up to 200,000
shares of the Class B Non-Voting
Stock of the Registrant at a price of $3.00 per share
exercisable upon the first to occur of
the bonus vesting events listed above.
The Registrant maintains a severance program
authorized by the Bankruptcy Court on April
1, 1994, replacing prior individual agreements with each of
Messrs. Freeman, Anderson and Gruen
providing for the payment of certain benefits upon the
cessation of employment of each such
officer. Under this program, these officers would be
eligible to receive up to 18 months base
salary, up to one-half of such amount being paid in
installments which would cease upon re-
employment. Each such officer would also be entitled to (i)
reimbursement for reasonable
expenses incurred to obtain re-employment, not to exceed ten
thousand dollars ($10,000) and
(ii) continued medical, dental and disability coverage under
existing Company plans for a
period of three months following cessation of employment.
Benefits under the program would be
payable for cessation of employment by reason of:
elimination of the employee's position unless
offered a comparable or better position with the Company,
termination of employment other than
for misconduct as defined in the program, or constructive or
voluntary termination due to a
material reduction in salary or due to a material change in
job responsibilities, termination
on account of permanent disability, or termination due to
liquidation of the Company. As of
the date hereof no severance programs or agreements have
been authorized by the Bankruptcy
Court with respect to Messrs. Harvin or Jones.
Other senior vice presidents of the Company are
eligible for the same benefits as those
described for Messrs. Freeman, Anderson and Gruen. Other
executive officers of the Company are
eligible for up to twelve (12) months base salary, a maximum
of $7,500 for re-employment
expense reimbursement and three months continued coverage
under medical, dental and disability
plans.
Compensation of Directors
Directors who are officers of the Registrant receive no
additional compensation for
service on the Board of Directors or committees. Directors
who are not officers are paid
$8,000.00 per year as retainer, plus $1,000.00 for each
meeting of the Directors attended and
for each committee meeting held on a day other than the date
of a meeting of the Board of
Directors, and reimbursement for their actual travel
expenses. Directors who are not officers
are paid $500.00 a day for each committee meeting held on
the same day as a meeting of the
Board of Directors and $250.00 for each telephone conference
meeting. Committee members are
reimbursed for their actual travel expenses. In addition,
outside directors receive options to
purchase 5,000 shares of the Non-Voting Class B Stock of the
Registrant at a purchase price of
the greater fair market value on the date of award or $5.00
on award dates occurring every two
years up to a maximum of 15,000 shares per outside director.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Registrant during the
fiscal year ended January 29, 1994
was composed of Messrs. Busbee (Chairman), Allbright,
Maynard, and Montgomery. None of the
members of the Compensation Committee were officers or
employees of the Registrant during the
last fiscal year or in prior fiscal years. Mr. Maynard is
Chairman of the Golden Corral
Corporation ("Golden Corral"). Golden Corral leases certain
restaurant facilities from The
Rosemyr Corporation and from Emrose Corporation, two
corporations affiliated with certain
directors and executive officers of the Registrant. See
Item 13 "Certain Relationships and
Related Transactions" below. Golden Corral paid said
corporations a total of $234,832 under
these leases during the past fiscal year of the Registrant.
Until April 16, 1993, Lucius H. Harvin, III, Chairman
of the Board of the Registrant,
served as a director of Wachovia Corporation of North
Carolina and Wachovia Bank of North
Carolina, N.A. (collectively "Wachovia"). No executive
officer of Wachovia served on the
Compensation Committee or the Board of Directors of the
Registrant during the last fiscal year.
Except for Mr. Harvin's service as a director of Wachovia,
none of the executive officers of
the Registrant served as a member of the board of directors
or as a member of the compensation
committee of another entity during the last fiscal year.
Consequently, there are no
interlocking relationships between the Registrant and other
entities that might affect the
determination of the compensation of the Directors and
executive officers of the Registrant.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the only stockholders
known to the Registrant to be
the beneficial owners, as of January 29, 1994, of more than
five percent (5%) of the
Voting Common Stock of the Registrant:
Amount and Nature of
Beneficial Ownership
Name and Address (1) Percent of Class
Emma H. Currigan
P.O. Drawer 947 254,000 (D) 3.1%
Henderson, NC 27536 173,836 (B) 2.1%
George M. Harvin
P.O. Drawer 947 473,562 (D) 5.7%
Henderson, NC 27536 176,618 (B) 2.1%
Lucius H. Harvin, III
P.O. Drawer 947 437,224 (D) 5.3%
Henderson, NC 27536 174,324 (B) 2.1%
Rose Harvin
P.O. Drawer 947 279,784 (D) 3.4%
Henderson, NC 27536 173,836 (B) 2.1%
_____________________
Footnotes:
(D) Shares held by direct ownership
(B) Shares which may be deemed by the SEC to be beneficially owned
but as to which the listed person may have disclaimed beneficial ownership.
(1) Includes 695,344 (8.4%) shares of Voting Common Stock beneficially
attributed in the table to Emma H. Currigan, George M. Harvin, Lucius H.
Harvin, III and Rose Harvin (173,836 shares of Voting Common
Stock respectively to each person) who exercise sole
voting control and shared investment power to such shares,
but does not separately attribute such shares to Mrs. L. H. Harvin,
Jr. who shares investment power as to all such shares.
The table below gives the indicated information as to
both classes of equity
securities of the Registrant beneficially owned by each
director, nominee, the chief
executive officer and the four other most highly compensated
executive officers, and, as a
group, by such person and other executive officers:
Non-Voting
Voting Common Percent Class B Percent
Name Stock (a) of Class Stock (a) of Class
Bruce G. Allbright 5,500 * - *
Sam Ayoub 6,000 * - *
George D. Busbee 250 * - *
John T. Church, Sr 217,256 2.6% 33,547 *
Marion J. Church 500 * - *
Frank A. Daniels, Jr 3,000 * 10,000 *
George M. Harvin 650,180 7.9% 181,362 1.7%
Lucius H. Harvin, III 611,548 7.4% 453,536 4.3%
George L. Jones 10,000 * 5,000 *
James H. Maynard 3,000 * - *
Robert K. Montgomery - * - *
Albert N. Whiting 450 * - *
R. Edward Anderson 900 * 30,397 *
Kevin Freeman - * 5,000 *
Robert P. Gruen - * 10,000 *
All of the above and other
executive officers as a
group (31) persons 2,087,618 25.3% 1,401,558 13.4%
_______________________
Footnotes:
* Less than 1% of outstanding shares.
(a) The following shares are not included in the figures for beneficial
ownership by individual directors and executive officers but are included
in the total figure for all directors, nominees and executive officers
as a group: 229,626 shares of Non-Voting Class B Stock held in the
Registrant's Variable Investment Plan; the 579,024 shares of Voting
Common Stock shown in the table of principal holders of
voting securities of the Registrant which are beneficially attributed
as a group to John T. Church, Sr., Lucius H. Harvin, III and
George T. Blackburn, II, Trustees and 409,302 shares of Non-Voting
Class B Stock attributable to the same persons as trustees.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John T. Church, Sr. retired as a full-time employee of
the Registrant on December 31,
1982. The Registrant entered into a Consultation Agreement
with Mr. Church at that time.
Under an extension of the agreement, Mr. Church was paid
$52,500 during the fiscal year
which ended January 29, 1994.
Pursuant to existing leases, during the past fiscal
year the Registrant paid The
Rosemyr Corporation ("Rosemyr") $213,809 as rent for its
store building in Morganton
Shopping Center, Morganton, N.C.; $312,779 for its store
building in Newmarket Plaza
Shopping Center, Newport News, Va. (Rosemyr owns a 31.5%
interest); $4,838 in rent for
office space in Henderson, N.C.; and $11,700 for parking
facilities in Henderson, N.C.
The Registrant leases a store in Nags Head, N.C. (Rosemyr
owns a 95% interest). Rental
under the lease during the past fiscal year was $151,875.
The Registrant leased a store
in Tryon Hills Shopping Center, Raleigh, N.C. in which
Rosemyr owns a 36/60ths interest.
Rental under the lease during the past fiscal year was
$21,000. Eighty percent (80%) of
the stock of Rosemyr is owned by Mrs. L.H. Harvin, Jr. and
her children and by the Estate
and trusts of the late Emma Rose Church, whose beneficiaries
are Mr. John T. Church, Sr.
(Director of the Registrant), Mrs. E.C. Bacon and Mr. John
T. Church, Jr. During the past
fiscal year, the Registrant paid Emrose Corporation
("Emrose") under pre-existing leases
$24,828 in rent for office space in Henderson, N.C. and
$12,014 for lease of storage
facilities. Also during the past fiscal year, the
Registrant paid Arrowhead Plaza Limited
Partnership (a partnership in which Emrose owns a 51%
interest) $12,487 in rent for a
store in Arrowhead Plaza Shopping Center in Norfolk,
Virginia. Emrose is owned by Mrs.
L.H. Harvin, Jr. and Mr. John T. Church, Sr., Mrs. E.C.
Bacon and Mr. John T. Church, Jr.
Messrs. John T. Church, Sr. and George M. Harvin, who are
directors of the Registrant, are
executive officers of Rosemyr and Emrose. The Registrant
also paid H.H.C. Co., Inc.
("H.H.C.") $142,298 in rent during the past fiscal year for
a store building in High
Point, N.C. Mrs. L.H. Harvin, Jr. and Mr. John T. Church,
Sr. own 61% of the stock of
H.H.C. Golden Corral Corporation ("Golden Corral") leases
certain restaurant facilities
from Rosemyr and from Emrose. Golden Corral paid said
corporations a total of $234,832
under these leases. James H. Maynard (a Director of the
Corporation) is Chairman of
Golden Corral.
In the opinion of Management, all of the foregoing
leases and other transactions are
competitive, and the rents paid approximate the rate of rent
paid by the Registrant to
independent landlords under leases for comparable property
negotiated at comparable times,
and represent the fair market value for comparable
transactions.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Statements of Operations for the years
ended January 29, 1994; January 30, 1993 and
January 25, 1992
Consolidated Balance Sheets - January 29, 1994 and
January 30, 1993
Consolidated Statements of Stockholders' Equity for the
years ended January 29, 1994; January 30, 1993 and
January 25, 1992
Consolidated Statements of Cash Flows for the years ended
January 29, 1994; January 30, 1993 and January 25, 1992
Notes to the Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule X - Supplementary Income Statement Information
All other 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.
3. EXHIBITS
Exhibit
No. Page
10.1 The Registrant's Equity Compensation Plan Incorporated
(incorporated by reference to the identified by reference
exhibit under the Registrant's Quarterly
Report on Form 10-Q for its fiscal quarter
ended October 26, 1991)
10.2 First Amendment to Equity Compensation Plan Incorporated
(incorporated by reference to the identified by reference
exhibit under the Registrant's Annual Report
on Form 10-K for its fiscal year ended January 30,
1993)
10.3 Second Amendment to Equity Compensation Plan Incorporated
(incorporated by reference to the identified by reference
exhibit under the Registrant's Annual Report
on Form 10-K for its fiscal year ended January 30,
1993)
10.4 The Registrant's Variable Investment Plan P
(the "Plan"), as amended and restated
effective January 1, 1989.
10.5 The Registrant's Employment Agreement with Incorporated
George L. Jones (incorporated by reference by reference
to Exhibit 19 to Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended
October 26, 1991 dated December 9, 1991).
10.6 Loan Agreement dated September 20, 1993 Incorporated
between the Registrant and General by reference
Electric Capital Corporation
(Incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on
Form 10-K dated September 20, 1993).
10.7 The Registrant's Severance Program, as P
adopted effective March 24, 1994 pursuant
to order of the Bankruptcy Court presiding
over the Registrant's proceeding under chapter
11 of Title 11 of the United States Code (the
"Court")
10.8 The Registrant's obligations with respect to P
the compensation of its officers and directors
as specified in the following orders of the Court:
(a) Order Authorizing Compensation of Senior
Vice Presidents (dated November 18, 1993)
(b) Order Authorizing Compensation of
Executive Vice Presidents (dated November
18, 1993)
(c) Order Authorizing Compensation of Vice
Presidents and Treasurer (dated November
18, 1993)
(d) Order Authorizing Compensation of George
L. Jones (dated November 18, 1993)
(e) Order Continuing Compensation of Chairman
of the Board of Directors Pending Hearing
(dated November 18, 1993)
(f) Order Authorizing Payment of Compensation
to Directors (dated November 18, 1993)
23. Consent of Independent Certified Public Accountants P
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by registrant during the last
quarter of the period covered by this report.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Rose's Stores, Inc.:
Under date of April 4, 1994, we reported on the consolidated
balance sheets of Rose's
Stores, Inc., Debtor-in-Possession (the Company), as of
January 29, 1994 and January
30, 1993 and the related consolidated statements of
operations, stockholders' equity
and cash flows for each of the years in the three-year
period ended January 29, 1994,
contained elsewhere herein. Our report included an
explanatory paragraph discussing
the Company's voluntary filing for reorganization under
Chapter 11 of the United
States Bankruptcy Code. Our report also included an
additional explanatory paragraph
indicating that the Company adopted Statement of Financial
Accounting Standards No.
106 in 1992 and changed its method of determining retail
price indices used in the
valuation of LIFO inventories in 1991. In connection with
our audits of the
aforementioned consolidated financial statements, we also
have audited the related
financial statement schedule as listed in the accompanying
index. This financial
statement schedule is the responsibility of the Company's
management. Our
responsibility is to express an opinion on this financial
statement schedule based on
our audits.
In our opinion, such financial statement schedule, when
considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all
material respects, the information set forth therein.
Raleigh, North Carolina
KPMG Peat Marwick
April 4, 1994
ROSE'S STORES, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Column A Column B
Item Charged to Costs and Expenses, Years Ended:
1-29-94 1-30-93 1-25-92
Maintenance and Repairs $ 9,074,590 10,099,509 8,956,703
Taxes, Other than Payroll and
Income Taxes 5,995,125 6,149,938 6,235,483
Advertising Costs 30,870,842 32,022,144 34,084,177
MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
January 29, 1994
The consolidated 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
statements are prevented or would be
detected within a timely period by Company personnel in the
normal course of performing their
assigned functions. The concept of reasonable assurance is
based on the recognition that the
cost of controls should not exceed the expected benefits.
Management maintains an internal
audit function and an internal control function which are
responsible for evaluating 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, 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.
George L. Jones
President and
Chief Executive Officer
R. Edward Anderson
Executive Vice President,
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rose's Stores, Inc.:
We have audited the accompanying consolidated
balance sheets of Rose's Stores, Inc.,
Debtor-in-Possession (the Company), as of January 29, 1994
and January 30, 1993, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for each of
the years in the three-year period ended January 29, 1994.
These consolidated financial
statements are the responsibility of the Company's
management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the
consolidated 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 consolidated financial
statements referred to above present fairly, in
all material respects, the financial position of Rose's
Stores, Inc., Debtor-in-Possession, at
January 29, 1994 and January 30, 1993, and the results of
their operations and their cash flows
for each of the years in the three-year period ended January
29, 1994, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that the
Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial
statements, the Company filed a voluntary petition for
reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States
Bankruptcy Court (Bankruptcy Court) on
September 5, 1993. The Chapter 11 filing, the Company's
leveraged financial structure, and
recurring net losses resulting in the substantial
elimination of stockholders' equity, raise
substantial doubt about the Company's ability to continue as
a going concern. Additionally, as
discussed in Note 17 to the consolidated financial
statements, on April 4, 1994 the Company
announced a first quarter charge aggregating approximately
$55 million relating to its plans to
close approximately 58 stores during 1994. The Company is
currently operating its business as
debtor-in-possession under the jurisdiction of the
Bankruptcy Court. The continuation of the
Company as a going concern is contingent upon, among other
things, its ability to (1) formulate
a plan of reorganization that will be confirmed by the
Bankruptcy Court, (2) achieve
satisfactory levels of future profitable operations, (3)
maintain adequate financing, and (4)
generate sufficient cash from operations to meet future
obligations. The consolidated
financial statements as of and for the year ended January
29, 1994 do not include any
adjustments that might result from the outcome of this
uncertainty.
As discussed in Note 15 to the consolidated financial
statements, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in 1992. As
discussed in Note 4 to the
consolidated financial statements, the Company changed its
method of determining retail price
indices used in the valuation of LIFO inventories in 1991.
KPMG Peat Marwick
Raleigh, North Carolina
April 4, 1994
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share amounts)
Years Ended
January 29, January 30, January 25,
1994 1993 1992
Revenue:
Gross sales $ 1,245,697 1,404,302 1,423,345
Leased department sales 42,474 42,059 42,715
Net sales 1,203,223 1,362,243 1,380,630
Leased department income 8,707 9,816 10,198
Total revenue 1,211,930 1,372,059 1,390,828
Costs and Expenses:
Cost of sales (a) 932,238 1,103,160 1,029,837
Selling, general and administrative 281,723 300,866 314,971
Provisions for future store
closings and remerchandising (b) - - 33,891
Depreciation and amortization 12,984 13,661 16,730
Interest 12,054 13,881 13,924
Total costs and expenses 1,238,999 1,431,568 1,409,353
Loss Before Reorganization Expense,
Income Taxes, and Cumulative Effect of
Accounting Change (27,069) (59,509) (18,525)
Reorganization Expense (c) (39,138) - -
Loss Before Income Taxes and Cumulative
Effect of Accounting Change (66,207) (59,509) (18,525)
Income Taxes (Benefits)
Current - (7,599) (5,325)
Deferred - 6,650 10,104
Total - (949) 4,779
Loss Before Cumulative Effect of
Accounting Change (66,207) (58,560) (23,304)
Cumulative Effect of Adopting SFAS 106 (d) - (5,031) -
Net Loss $ (66,207) (63,591) (23,304)
Loss Per Share Before Cumulative Effect
of Accounting Change $ (3.53) (3.14) (1.25)
Cumulative Effect of Adopting
SFAS 106 (d) - (0.27) -
Loss Per Share $ (3.53) (3.41) (1.25)
(a) In 1991, the Company changed its method of accounting
for LIFO inventories from the use
of the inflation index provided by the Bureau of Labor
Statistics to an internally generated
price index to measure inflation in the retail prices of its
merchandise inventories. This
change decreased 1991 cost of sales by $21,428 (or $1.15 per
share). Net loss would have been
$44,732 in 1991 if the change in accounting method had not
been made.
(b) The 1991 provision for future store closings and
remerchandising represents the
anticipated costs of closing approximately 15 stores during
fiscal 1992 and costs incurred
during fiscal 1992 in the remerchandising of the remaining
stores.
(c) 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 consolidated
financial Statements contained herein
have been prepared in accordance with generally accepted
accounting principles applicable
to a going concern and do not purport to reflect or to
provide for all the consequences of
the ongoing Chapter 11 reorganization.
Included in the reorganization expense is a provision
of $39,500 for the costs of closing
43 stores in January 1994, as well as the DIP fee
amortization and expenses, professional fees
and other reorganization costs. Offsetting these expenses
is a reversal of prior reserves for
closings due to the anticipated rejection of closed store
leases.
(d) In 1992, the Company adopted SFAS 106 "Employers'
Accounting for Postretirement Benefits
Other Than Pensions," which requires 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.
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
Years Ended
January 29, January 30,
1994 1993
Assets
Current Assets
Cash and cash equivalents $ 11,955 19,101
Accounts receivable 15,057 13,284
Inventories 203,150 233,042
Prepaid merchandise 10,757 -
Other current assets 7,457 9,297
Total current assets 248,376 274,724
Property and Equipment, at cost,
Less accumulated depreciation and amortization 50,234 58,270
Deferred tax benefits 6,447 -
Other Assets 3,048 4,046
$ 308,105 337,040
Liabilities and Stockholders' Equity
Current Liabilities
Reclamation claims $ 4,000 -
Current installments of long-term debt - 16,600
Current maturities of capital lease obligations 2,374 2,402
Bank drafts outstanding - 3,128
Accounts payable 35,507 89,512
Federal and state income taxes - (6,558)
Accrued salaries and wages 12,295 14,182
Reserve for store closings and remerchandising - 6,000
Deferred tax liabilities 6,447 -
Other current liabilities 14,113 21,943
Total current liabilities 74,736 147,209
Liabilities Subject to Settlement Under
Reorganization Proceedings 207,456 -
Long-term Debt - 73,900
Capital Lease Obligations 1,907 4,237
Reserve for Future Store Closings - 20,743
Deferred Income 2,296 3,546
Accumulated Postretirement Benefit Obligation 5,614 5,296
Stockholders' Equity
Voting common stock
Authorized 30,000 shares; issued 10,800 shares 2,250 2,250
Non-voting Class B stock
Authorized 30,000 shares; issued 12,659 shares 18,795 19,017
Paid-in capital-stock warrants 2,700 2,700
Retained earnings 10,969 77,176
34,714 101,143
Less cost of stock held in treasury (18,618) (19,034)
Total stockholders' equity 16,096 82,109
$ 308,105 337,040
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
Voting Non-Voting Treasury Stock
Common Stock Class B Stock
Paid-In
Capital-Stock Retained
Shares Amount Shares Amount Warrants Earnings Shares Amount
Balance January 26, 1991 10,800 $2,250 12,659 $19,209 - $164,071 (4,859) $(19,562)
Net loss for fiscal year 1991 (23,304)
Other 70 (7) (14)
Balance January 25, 1992 10,800 2,250 12,659 19,279 - 140,767 (4,866) (19,576)
Net loss for fiscal year 1992 (63,591)
Issuance of stock warrants 2,700
Other (262) 91 542
Balance January 30, 1993 10,800 2,250 12,659 19,017 2,700 77,176 (4,775) (19,034)
Net loss for fiscal year 1993 (66,207)
Other (222) 74 416
Balance January 29, 1994 10,800 $2,250 12,659 $18,795 $2,700 $10,969 (4,701) $(18,618)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years Ended
January 29, January 30, January 25,
1994 1993 1992
Cash flows from operating activities:
Net loss $ (66,207) (63,591) (23,304)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,984 13,661 16,730
(Gain) loss on disposal of property and equipment 98 (243) 75
Deferred income taxes - 6,650 10,104
LIFO expense (credit) 179 186 (10,323)
Write off of deferred financing costs 4,528 - -
Provision for closed stores and remerchandising 26,474 - 33,891
Cumulative effect of adopting SFAS 106 - 5,031 -
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable (1,773) 1,554 (2,724)
(Increase) decrease in prepaid merchandise (10,757) - -
(Increase) decrease in inventories (13,948) 78,167 33,980
(Increase) decrease in other current and non-current
assets 859 (2,564) (2,345)
Increase (decrease) in accounts payable 35,051 19,555 (24,612)
Increase (decrease) in accrued expenses and
other liabilities 724 2,216 (1,549)
Increase (decrease) in federal and state income
taxes payable 8,005 (1,146) (4,230)
Increase (decrease) in reserve for future store
closings and remerchandising 13,088 (17,799) (7,941)
Increase (decrease) in deferred income (1,250) (1,882) (1,728)
Increase (decrease) in accumulated postretirement
benefit obligation 318 265 -
Other - 11 57
Net cash provided by operating activities 8,373 40,071 16,081
Cash flows from investing activities:
Purchases of property and equipment (9,109) (9,629) (3,102)
Proceeds from disposal of property and equipment 9 489 140
Net cash used in investing activities (9,100) (9,140) (2,962)
Cash flows from financing activities:
Net activity on lines of credit - - (5,000)
Payments on long-term debt (1,127) (12,000) -
Principal payments on capital lease obligations (2,358) (2,337) (3,446)
Increase (decrease) in bank drafts outstanding (3,128) (3,422) (257)
Other 194 269 -
Net cash (used in) financing activities (6,419) (17,490) (8,703)
Net increase (decrease) in cash and cash equivalents (7,146) 13,441 4,416
Cash and cash equivalents at beginning of year 19,101 5,660 1,244
Cash and cash equivalents at end of year $ 11,955 19,101 5,660
Supplemental disclosure of additional noncash investing
and financing activities:
Issuance of stock warrants $ - 2,700 -
Retirement of net book value of assets in reserve
for future store closings 4,054 1,888 3,046
Write-off of inventory in reserve for future
store closings 43,661 5,257 6,572
Capital lease obligations entered into for
new equipment - 418 2,340
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 29, 1994; January 30, 1993; and January 25, 1992
(Amounts in thousands except per share amounts)
1 PROCEEDINGS UNDER CHAPTER 11
On September 5, 1993 (the "Petition Date"), the
Company filed a voluntary petition for
Relief under Chapter 11, Title 11 of the United States
Bankruptcy Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the Eastern
District of North Carolina (the
Bankruptcy Court). The Company is in possession of its
property and is maintaining and
operating its property as a debtor-in-possession pursuant to
the provisions of Sections 1107 and
1108 of the Bankruptcy Code.
The accompanying consolidated financial statements
have been prepared on a going concern
basis assuming the realization of assets and liquidation of
liabilities in the ordinary course
of business. However, under Chapter 11, actions to enforce
certain claims against the Company
are stayed if such claims arose, or are based on events that
occurred, before the Petition Date.
The terms of the ultimate settlement of these liabilities
will be determined based upon a plan
of reorganization to be confirmed by the Bankruptcy Court.
Such liabilities are reflected in
the Consolidated Balance Sheets as liabilities subject to
settlement under reorganization
proceedings. Additional liabilities subject to settlement
may arise subsequent to the Petition
Date as a result of claims filed by parties affected by the
Company's rejection of executory
contracts, including leases, and from the Bankruptcy Court's
resolution of allowed rejection of
executory contracts, including leases, and from the
Bankruptcy Court's resolution of allowed
claims for contingencies and other disputed amounts. During
1993, the Company endeavored to
notify all known potential creditors of the filing for the
purpose of identifying all pre-
petition date claims. Generally, creditors had until the
January 13, 1994 "Bar Date" to file
claims. The Company is actively negotiating with creditors
to reconcile and resolve the balance
of disputed claims totaling approximately $150,000. A
significant portion of this amount is
comprised of disputed claims that, in the opinion of
management, will not result in additional
liability to the Company.
Under Section 1121 of the Bankruptcy Code, for 120
days after the date of the filing of a
voluntary petition for relief under Chapter 11, only the
debtor-in-possession has the right to
propose and file a plan of reorganization with the
Bankruptcy Court. If a debtor-in-possession
files a plan of reorganization during the 120-day
exclusivity period, no other party may file a
plan of reorganization until 180 days after the date of
filing of the Chapter 11 petition,
during which period the debtor-in-possession has the
exclusive right to solicit acceptances of
the plan. If a debtor-in-possession fails to file a plan
during the 120-day exclusivity period
or such additional period as may be ordered by the
Bankruptcy Court or, after such plan has been
filed, fails to obtain acceptance of such plan from impaired
classes of creditors and equity
security holders during the exclusive solicitation period,
any party in interest, including a
creditors' committee, an equity security holders' committee,
a creditor, an equity security
holder, or any indenture trustee may file a plan of
reorganization for such debtor.
Additionally, if the Bankruptcy Court were to appoint a
trustee, the exclusivity period, if not
previously terminated, would terminate.
The Company has not yet filed a plan of reorganization
with the Bankruptcy Court and has
obtained from the Bankruptcy Court an extension of the
exclusivity period to May 31, 1994. The
Company intends to file a plan of reorganization prior to
May 31, 1994.
After a plan of reorganization has been filed with the
Bankruptcy Court, it will be sent,
together with a disclosure statement approved by the
Bankruptcy Court following a hearing, to
members of all classes of impaired creditors and equity
security holders for acceptance or
rejection. Following acceptance or rejection of any plan by
impaired classes of creditors and
equity security holders, the Bankruptcy Court after notice
and a hearing would consider whether
to confirm the plan. Among other things, to confirm a plan
the Bankruptcy Court is required to
find (i) with respect to each impaired class of creditors
and equity security holders, that each
holder of a claim or interest of such class either (a) will,
pursuant to the plan, receive or
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
retain property of a value, as of the effective date of the
plan, that is at least as much as
such holder would have received in a liquidation on such
date of the Company, or (b) has
accepted the plan, (ii) with respect to each class of claims
or equity security holders, that
such class has accepted the plan or such class is not
impaired under the plan and (iii)
confirmation of the plan is not likely to be followed by the
liquidation or need for further
financial reorganization of the Company or any successors
unless such liquidation or
reorganization is proposed in the plan.
Under the Bankruptcy Code, the rights of stockholders
and pre-petition creditors may be
substantially altered by the plan of reorganization, either
voluntarily or by order of the
Bankruptcy Court. The Company's objective is a plan of
reorganization that will permit the
Company to fund its current operations and meet its
obligations to creditors (as they may be
restructured under the plan) out of the cash flow generated
by the Company after approval and
confirmation of the plan. The Company's objective is
subject to a number of factors, some of
which are within the ability of the Company to control and
others of which are not. At this
time it is not possible to predict whether the Company will
achieve its objective or the effect
of the plan of reorganization on the rights of creditors and
stockholders of the Company.
On confirmation of a plan of reorganization, the Company
expects to utilize "Fresh Start
Accounting" in accordance with the guidelines for accounting
for emergence from bankruptcy.
Fresh Start Accounting is expected to result in a
restatement of Company assets to reflect
current values.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern Basis The Company's consolidated
financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and the payment of liabilities
in the ordinary course of business, in accordance with the
American Institute of Certified
Public Accountants' Statement of Position 90-7, "Financial
Reporting by Entities Under the
Bankruptcy Code." Substantially all current and long-term
liabilities existing at the time the
petition for reorganization under Chapter 11 was filed have
been reclassified as liabilities
subject to settlement under reorganization proceedings. The
financial statements do not include
any adjustments or reclassifications that might be necessary
should the Company be unable to
continue in existence.
Consolidated Financial Statements The Company's
consolidated financial statements include
the accounts of a wholly-owned subsidiary. Intercompany
accounts and transactions are
eliminated.
Fiscal Year Fiscal years 1993, 1992 and 1991 ended on
January 29, 1994; January 30, 1993;
and January 25, 1992, respectively. Fiscal year 1993
contained 52 weeks; fiscal year 1992
contained 53 weeks and fiscal year 1991 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.
Interest-bearing cash equivalents
are carried at cost, which approximates market. Bank drafts
outstanding have been reported as a
current liability.
Inventories Substantially all merchandise inventories
are valued on a last-in, first-out
(LIFO) cost basis.
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 it 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and Amortization The provision for
depreciation and amortization 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.
Store Pre-Opening Expenses Pre-opening expenses
associated with the opening of new stores
are charged to expense as incurred.
Profit-Sharing Plan The Company has a noncontributory
trusteed profit-sharing plan for
eligible associates. The amount of the contribution is
determined by a formula plus additional
amounts authorized by the Board of Directors, but may not
exceed the maximum allowable deduction
for income tax purposes. The plan may be terminated at any
time, and if terminated, the Company
will not be required to make any further contributions to
the trust.
Income Taxes In February 1992, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Statement 109 requires a
change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset
and liability method of accounting for income taxes. Under
the asset and liability method of
Statement 109, deferred tax assets and liabilities are
recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the
years in which those temporary differences are expected to
be recovered or settled. Under
Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is
recognized in income in the period that includes the
enactment date.
Effective January 31, 1993, the Company adopted
Statement 109 and reported that the
cumulative effect of that change in the method of accounting
for income taxes in the 1993
consolidated statement of operations is immaterial.
Pursuant to the deferred method under APB Opinion 11,
which was applied in 1992 and prior
years, deferred income taxes are recognized for income and
expense items that are reported in
different years for financial reporting purposes and income
tax purposes using the tax rate
applicable for the year of the calculation. Under the
deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
Reclassifications Certain reclassifications were made
to 1992 balances to conform to the
1993 presentation. These reclassifications have no effect
on stockholders' equity as previously
reported.
Earnings (Loss) Per Share Earnings (loss) per share is
computed on the weighted average
number of shares outstanding during the year. The average
number of shares used to compute
earnings (loss) per share was 18,740 shares in 1993; 18,638
shares in 1992; and 18,593 shares in
1991. The exercise of outstanding stock options and
warrants would result in an anti-dilutive
effect on earnings (loss) per share and are excluded from
the calculation.
Postretirement Health Insurance Benefits The Company
provides health insurance benefits for
retirees who meet minimum age and service requirements and
are covered by the medical plan at
retirement. Beginning in 1992, the Company recognizes the
cost of retiree health insurance
benefits over the associates' period of service.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
3 ACCOUNTS RECEIVABLE
Accounts Receivable are comprised of layaway receivables
($3,262 and $4,574 in 1993 and
1992, respectively) and other receivables ($11,795 and
$8,710 in 1993 and 1992, respectively).
Other receivables consist primarily of amounts due from
vendors for returns, co-op advertising,
shoe department income, and coupons.
The Company does not provide for an allowance for
doubtful accounts for layaways because the
Company holds the merchandise or for other receivables
because the Company expects uncollectible
amounts to be immaterial as deductions can be taken against
future amounts due to vendors.
4 INVENTORIES
A summary of inventories as of January 29, 1994 and
January 30, 1993 is as follows:
Fiscal Years
1993 1992
Inventories valued at
FIFO cost $ 237,579 268,638
LIFO reserve (34,429) (35,596)
Inventories substantially
valued at LIFO cost $ 203,150 233,042
In the fourth quarter of 1991, the Company
changed its method of accounting for LIFO
inventories. Prior to 1991, the Company used the
inflation index provided by the Bureau of
Labor Statistics to measure inflation in retail
prices. In 1991, the Company developed and
used internal price indices to measure inflation
in the retail prices of its merchandise
inventories. The Company believes the use of
internal indices results in a more accurate
measurement of the impact of inflation in the
prices of merchandise sold in its stores.
This change resulted in a LIFO credit of $10,323
compared to a charge of $11,105 that would
have been recorded if the accounting change had
not been made; therefore, the accounting
change had the effect of decreasing cost of sales
by $21,428 (or $1.15 per share) in 1991.
During 1993 and 1992, inventories were
reduced, resulting in the liquidation of LIFO
inventory layers. The effect of this inventory
liquidation was a reduction in the costs
related to closed stores of approximately $1,347
in 1993, and an increase in cost of sales
by approximately $3,564 in 1992.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Fiscal Years
1993 1992
Land $ 641 641
Buildings 19,883 19,772
Furniture, fixtures, and equipment 107,540 118,710
Improvements to leased premises 18,896 19,897
Total 146,960 159,020
Less accumulated depreciation
and amortization (100,065) (106,280)
46,895 52,740
Capitalized leases 11,894 12,697
Less accumulated amortization (8,555) (7,167)
3,339 5,530
Net property and equipment $ 50,234 58,270
6 DEBT
Debt outstanding was as follows:
Fiscal Years
1993 1992
Senior notes, interest payable semi-
annually at 11.00% and principal payable
1993 to 1998 $ 70,583 72,500
Term note, interest payable monthly
at 11.00% and principal payable
1993 to 1998 10,000 14,000
Term note, interest payable monthly
at prime plus 3% and principal
payable 1993 to 1998 7,335 4,000
Borrowings under revolving credit facilities 3,646 -
Pre-petition interest 297 -
Total Debt 91,861 90,500
Less: Liabilities subject to settlement
under reorganization proceedings (91,861) -
Current portion (See Note 7) - (16,600)
Debt due after one year $ - 73,900
As a result of the Company's Chapter 11 filing on
September 5, 1993 (See Note 1), debt and
accrued interest at the time of filing totaling $91,861 have
been reclassified as "Liabilities
Subject to Settlement Under Reorganization Proceedings" (See
Note 7). The Company wrote-off
the unamortized balance of deferred financing costs of
$4,528 associated with the long-term
debt as it was determined no future benefit would be
realized from these costs. The write-off
is included in reorganization costs for the year ended
January 29, 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Generally, under the Bankruptcy Code, interest on pre-
petition claims ceases accruing upon
the filing of a petition; however, if the claims are
collateralized by an interest in property
with value (less the cost of preserving such property)
exceeding the amount of the debt, post-
petition interest may be payable. No determination has yet
been made regarding the value of
the property which allegedly collateralizes various
creditors' claims. While there can be no
certainty that post-petition interest will be payable or
paid, interest may be paid pursuant to
an order of the Bankruptcy Court. In the absence of such an
order, no principal or interest
payments will be made until a plan of reorganization
defining such repayment terms is
confirmed. The Bankruptcy Court has ordered the Company to
make adequate protection payments
to various creditors. Although payments have been made
without prejudice to any such future
determination of payment classification, certain monthly
payments made since September 5, 1993
have been booked as interest expense. Additional adequate
protection payments were made to
various creditors in January 1994 as described more fully
below.
On May 29, 1992 the Company signed an agreement with its
long-term lenders to restructure
the principal payments of its long-term debt. The agreement
resulted in a six and one-half
year amortization of the then outstanding long-term notes of
$102,500. The restructuring of
the term note required a fee payment. The agreement with
some of the long-term lenders granted
them warrants exercisable into the Company's Non-Voting
Class B stock at an option price of $5
per share. Also on May 29, 1992, the Company signed an
agreement with its banks to provide
revolving credit facilities through May 31, 1994, including
an amount designated for letters of
credit related to imports. The Company pledged inventories
located in approximately 50%
(currently 64% of remaining stores) of its stores and a
collateral pool of $26,500 to its long-
term lenders and banks. The $26,500 collateral pool
consisted of the Company's Distribution
Center and, to the extent necessary, the inventory located
in the Distribution Center. In
addition, all other property and equipment were pledged as
collateral. The Company also
pledged approximately $3,000 of inventory to a long-term
lender to collateralize the lender's
deferral of previously scheduled payments.
At the time of the Company's filing on September
5, 1993, debt and accrued interest
totaling $92,762 were outstanding under its long-term notes
and debt and accrued interest
totaling $15,617 were outstanding under its revolving credit
facilities. The Bankruptcy Court
ordered the Company to make certain adequate protection
payments relating to cash collateral
and proceeds resulting from the stores closed in January
1994 that were pledged to its lenders
and banks. In January 1994, the Company made adequate
protection payments totaling $16,518 to
its lenders in accordance with the related Bankruptcy Court
orders. Although the payments were
made without prejudice to any such future determination of
payment classification, the payments
were applied against debt and accrued interest outstanding
as of September 5, 1993, in
accordance with the applicable loan documents.
The Company entered into a Debtor-in-Possession
Revolving Credit Agreement dated as of
September 20, 1993, (the "DIP Facility") with G. E. Capital
Corporation, as lender, under which
the Company is allowed to borrow or issue letters of credit
up to $125,000 for general
corporate purposes, subject to certain restrictions defined
in the DIP Facility. The term of
the DIP Facility is for twenty-four months unless extended
by the lender and the Bankruptcy
Court upon request by the Company. On October 14, 1993, a
motion was entered in Bankruptcy
Court authorizing the Debtor-in-Possession to borrow funds
with priority over administrative
expenses and secured by liens on property of the Company,
subject to certain defined
restrictions as further amended on January 31, 1994. The
DIP Facility included limitations on
capital expenditures, limitations on the incurrence of
additional liens and indebtedness,
limitations on the sale of assets, limitations on adequate
protection payments, and a
prohibition on paying dividends. The DIP Facility also
includes financial covenants pertaining
to EBITDA (earnings before interest, taxes, depreciation,
and amortization) and net cash flows.
The DIP Lender has a super-priority claim against the
property of the Company, other than real
property.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The DIP Facility has a sub-limit of $35,000 for
the issuance of letters of credit. As of
January 29, 1994, approximately $19,316 in letters of credit
were outstanding.
At the Company's option, the Company may borrow
at an index rate, which is the highest
prime or base rates of interest quoted by specified banks or
the latest annualized yield on 90
day commercial paper, plus 1.25% or at the LIBOR rate plus
2.25%. Although there are no
compensating balance requirements, the Company is required
to pay a fee of .5% per annum of the
average unused portion of the DIP Facility.
At January 29, 1994, no borrowings were
outstanding under the DIP Facility. The average
borrowings amount under the facility was $27,781 with a
daily weighted average annual interest
rate of 5.9%. The maximum amount of borrowings outstanding
under the DIP Facility at any
period end was $33,930.
The average amount of short-term borrowings under
the Company's revolving credit facilities prior to September
5, 1993, was $6,767 with a daily weighted average annual
interest rate of
9.0%. The maximum amount of short-term borrowings at any
period-end under the Company's
revolving credit facilities prior to September 5, 1993,
was $15,500.
No short-term borrowings were outstanding at
January 30, 1993 and January 25, 1992. The
average amount of short-term debt outstanding was $10,849
for 1992 and $30,145 for 1991 with
daily weighted average interest rates of 9.3% and 8.9%,
respectively. The maximum amount of
short-term debt outstanding at any period-end was $40,500 in
1992 and $58,000 in 1991.
7 LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION
PROCEEDINGS
Liabilities subject to settlement under the reorganization
proceedings have been separately
classified and consist of the following:
Fiscal
1993
Pre-petition debt and interest $ 91,861
Accounts payable 85,057
Lease rejection claims 21,314
Accrued liabilities 9,224
$207,456
Included in current liabilities is $4,000 related to
estimated vendor reclamation claims
for merchandise received immediately prior to the filing
date. Under the terms of the
bankruptcy, once court approval is obtained, such claims may
be settled in full currently for
60% of their agreed upon value or partially with 42% being
paid currently and the remaining
portion settled with other administrative claims.
Actions to enforce liabilities subject to settlement
are stayed while the Company is under
the protection of the Bankruptcy Code. As part of the
Chapter 11 reorganization process, the
Company has endeavored to notify all known or potential
creditors of the Filing for the purpose
of identifying all pre-petition claims against the Company.
Generally, creditors whose claims
arose prior to the Petition Date had until the January 13,
1994 "Bar Date" to file claims or be
barred from asserting claims in the future, except in
instances of claims arising from the
subsequent rejection of executory contracts by the Company,
the Company's subsequent recovery
of property transferred to claimants prior to September 5,
1993, and for claims related to
certain other items including income taxes.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The Company is actively negotiating with creditors to
reconcile and resolve the balance of
disputed claims totaling approximately $150,000. A
significant portion of this amount is
comprised of disputed claims that, in the opinion of
management, will not result in additional
liability to the Company. The additional liability, if any,
relating to the remainder of
outstanding disputed claims is not subject to reasonable
estimation. As a result, no provision
has been recorded for these claims. The Company will
recognize the additional liability, if
any, as these amounts become subject to reasonable
estimation.
Additional bankruptcy claims and pre-petition
liabilities may arise from the termination of
other contractual obligations and the settlement of disputed
claims. Consequently, the amount
included in the consolidated balance sheet as liabilities
subject to settlement under
reorganization proceedings may be subject to further
adjustment.
8 INTEREST EXPENSE
Interest expense consisted of the following:
Fiscal Years
1993 1992 1991
Long-term debt $ 9,629 10,559 9,423
Short-term debt 917 1,004 2,647
Capital leases 579 794 1,100
Other 929 1,524 754
Interest expense $12,054 13,881 13,924
The Company paid interest of $10,747 in 1993, including
$299 related to the DIP facility
classified as reorganization expense, $17,235 in 1992 and
$15,325 in 1991.
9 RESERVE FOR FUTURE STORE CLOSINGS AND REMERCHANDISING
Negatively impacting the results of 1991 was a $33,891
provision for future store closings
and remerchandising. $24,891 of this charge provided for the
closing expenses of approximately
15 stores closed in 1992 including expected losses on
dispositions of related store fixtures
and the present value of anticipated future rental payments
on these stores. The remaining
$9,000 of the provision related to the payroll costs and
inventory reductions that were
incurred in 1992 in order to make a significant change in
the Company's merchandise mix.
The closed store reserve was increased by
$39,500 in 1993 to provide for the effect of 43
stores closed in January 1994. This expense was offset by
$13,026 relating to the rejection of
certain closed store leases during the reorganization
process. Included under liabilities
subject to settlement under reorganization proceedings is
$21,314 related to closed store lease
rejection claims.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The closed store reserve has decreased by $8,153
in 1993 and $24,944 in 1992. Following
are the cash and noncash items charged to the reserves in
1993 and 1992:
Fiscal Years
1993 1992
Noncash activity:
Reserve for additional store closings $(39,500) -
Closed store lease rejection benefit 13,026 -
Retirement of net book
value of assets 4,054 (1,888)
Write-off of inventory 43,661 (5,257)
Cash activity (13,088) (17,799)
Reduction of the closed store and
remerchandising reserve $ 8,153 24,944
The cash expenses include the operating results until
closing, rental payments and costs
of removing fixtures from closed stores, and the payroll
costs and inventory reductions
associated with the remerchandising.
10 STOCKHOLDERS' EQUITY
There are 30,000 shares (with no par value per share)
each of Voting Common and Non-Voting
Class B Stock authorized. The number of shares issued and
outstanding was as follows:
Fiscal Years
1993 1992
Voting Common Stock 8,262 8,262
Non-Voting Class B Stock 10,496 10,422
Total 18,758 18,684
On January 24, 1991, the Board of Directors adopted a
resolution suspending the payment of
dividends until future operating profits warrant
reinstatement. Among other things, the
Company's DIP Facility includes restrictions on the payment
of cash dividends and the
repurchase of stock. At January 29, 1994, such restrictions
preclude the payment of dividends
or the repurchase of stock. In addition, the Company is
precluded from paying dividends while
the Chapter 11 case is pending and the Registrant does not
believe it is likely that it will
pay dividends for the foreseeable future following
termination of the Chapter 11 case.
11 STOCK OPTIONS
The Company's Equity Compensation Plan, which was
approved by the stockholders on May 22,
1991, is designed to benefit 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 1,500
shares of Non-Voting Class B Stock.
One half of the options are exercisable one year after the
date of grant with the balance
exercisable two years after grant date. The option price
per share is equal to the fair market
value on the date of grant for all options granted prior to
June 1992. Effective June 1992,
the option price per share is equal to the greater of $5 or
the fair market value on the date
of grant.
On October 19, 1992, the Board of Directors
approved the Adjunct Stock Plan for officers of
the Company for issuance as of November 2, 1992, and
authorized 842 shares of the Non-Voting
Class B Stock currently held as treasury shares to be made
available for issuance under the
Equity Compensation Plan. This plan was approved by
stockholders on May 26, 1993. The stock
options granted to the officers are contingent on a stock
price of $15 being attained during
the three-year period beginning November 2, 1992 and the
stock price remaining above $12 for at
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
least 30 days thereafter. The option price is $5.
On May 26, 1993, the stockholders approved a
provision for nondiscretionary grants of stock
options to Outside Directors with an initial grant dated
January 1, 1993. The stock options
granted to Outside Directors consist of an option to
purchase 5 shares of Non-Voting Class B
Stock. Each Outside Director is entitled to receive a
maximum of three such awards. The
exercise price per share for each Outside Director is the
greater of the fair market value as
of each option grant date or $5. Each award of a
nondiscretionary stock option to Outside
Directors is fully vested and may be exercised in full or in
part. These options cease to be
exercisable three months after the optionee ceases to be an
Outside Director, unless
attributable to death or disability, in which case such
option expires one year thereafter.
The Company has granted 55 shares to Outside Directors year-
to-date at an exercise price of $5
per share.
Information regarding the Company's stock option plan
is summarized below:
Price Number of
Range Shares
Outstanding, January 25, 1992 $2.50 - 7.00 1,379
Granted 3.63 - 6.22 275
Exercised 2.50 - 3.88 (101)
Canceled 2.50 - 6.38 (212)
Outstanding, January 30, 1993 2.50 - 7.00 1,341
Granted 5.00 - 6.31 687
Exercised 2.50 - 4.75 (74)
Canceled 2.50 - 6.69 (224)
Outstanding, January 29, 1994 2.50 - 7.00 1,730
Exercisable, January 29, 1994 2.50 - 7.00 1,274
12 REORGANIZATION COSTS
Professional fees and expenditures directly
related to the filing have been segregated from
normal operations and are disclosed separately. The major
components of these costs for fiscal
1993 are as follows:
Closed store provision $ 39,500
Closed store lease rejections (13,026)
DIP financing fees and expense
amortization 1,238
Write-off of pre-petition debt
issue costs 4,528
Professional fees and other
bankruptcy related expenses 6,898
Total reorganization costs $ 39,138
The store closing provision covers both the costs
incurred in closing 43 stores in January,
1994, together with penalties to be incurred upon the
rejection of related building and
personal property leases. Offsetting these expenses is a
reversal of prior reserves for
closings due to the rejection of closed store leases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13 INCOME TAXES
Effective January 31, 1993, the Company changed its
method of accounting for income taxes
from the deferred method to the liability method required by
Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As
permitted under the new rule, prior
years' financial statements have not been restated. The
cumulative effect of adopting this
Statement as of January 31, 1993 was immaterial to net
earnings.
The components of income taxes (benefits) were as
follows:
Fiscal Years
1993 1992 1991
Taxes currently payable
(receivable):
Federal $ - (7,578) (4,930)
State - (21) (395)
- (7,599) (5,325)
Deferred:
Federal - 6,650 10,095
State - - 9
- 6,650 10,104
$ - (949) 4,779
A reconciliation of income taxes (benefits) from federal
statutory rates to actual tax rates follows:
Fiscal Years
1993 1992 1991 1993 1992 1991
Amount % of Pretax Earnings (Loss)
Income taxes (benefits) at
federal statutory rates $(22,510) (21,436) (6,299) 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefits (2,875) (21) (253) 4.3 - 1.4
Targeted jobs tax credits - - (247) - 1.3
Write-down deferred tax assets - - 8,970 - (48.4)
Alternative minimum tax - - 2,417 - (13.0)
Non-Deductible bankruptcy exp 1,649 - - (2.5) - -
Net operating loss carryforward 23,570 20,542 - (35.6) (32.6) -
Other 166 (34) 191 (0.2) 0.1 (1.1)
$ - (949) 4,779 - % 1.5% (25.8)%
As discussed above, the company changed its
method of accounting for income taxes from the
deferred method to the liability method. The objective of
the liability method is to establish
deferred tax assets and liabilities for the temporary
differences between the financial
reporting basis and the tax basis of the Company's assets
and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or
settled.
The significant components of deferred income tax
expense for the year ended January 29,
1994 are as follows:
Deferred tax expense (exclusive of the effects of other
components listed below) $(22,674)
Increase in beginning-of-the-year balance of the valuation
allowance for deferred tax assets 22,674
-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise
to significant portions of the
deferred tax assets and deferred tax liabilities at January
29, 1994 are presented below:
Deferred Deferred Tax
Tax Assets Liabilities
Depreciation $ - 2,579
Vacation pay accrual 1,300 -
Self insurance 2,454 -
Accrued store closing costs 17,131 2,295
LIFO - 6,444
Postretirement health insurance 2,395 -
Net operating loss carryovers 36,984 -
TJTC carryforwards 738 -
Altmin credit carryforwards 427 -
Other 3,441 560
64,870 11,878
Valuation allowance (52,992) -
Total $11,878 11,878
Deferred income taxes prior to January 31, 1994
generally resulted from timing differences
in the recognition of income and expense for tax and
financial statement purposes. Such timing
differences related primarily to closed stores,
depreciation, and the remerchandising reserve.
For 1991, $8,970 of deferred tax assets were written off as
having no realizable value. The
deferred tax assets that were written off represented the
deferred taxes primarily resulting
from the 1990 and 1991 accruals of closed store expenses.
The write-down of deferred tax
assets in 1991 was necessary because 1991 year-end deferred
tax assets would have exceeded the
potential Federal and State carrybacks that remained after
the carryback of the 1991 NOL.
Additional tax losses incurred during 1992 consumed the
remaining deferred tax assets with the
resulting NOL, thus eliminating the need for an additional
write-off.
For the years ended January 30, 1993 and January
25, 1992, deferred income tax expense of
$6,650 and $10,104, respectively, results from timing
differences in the recognition of income
and expense for income tax and financial reporting purposes.
The changes to deferred taxes were as follows:
Fiscal Years
1992 1991
Write-down of excess deferred tax assets $ - 8,970
LIFO (249) 8,850
Remerchandising reserve 2,383 (3 717)
Closed stores 3,998 (3,672)
Depreciation (551) (842)
Deferred income 372 533
Insurance 633 (357)
Compensation (31) (152)
Capitalized inventory costs 145 117
Other (50) 374
$6,650 10,104
The Company has federal net operating loss income
tax carryforwards totaling $108,776.
These carryforwards consist of $63,434 from 1992 and $45,342
from 1993 that expire in January,
2008 and 2009, respectively, and will be available to reduce
future federal income tax
liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14 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 may renegotiate or
reject leases that it may otherwise
have retained had no filing been made.
At January 29, 1994, minimum rental payments
due under the above leases are as follows:
Capital Operating
Leases Leases
1994 $ 2,701 38,066
1995 1,336 34,704
1996 342 32,798
1997 225 31,731
1998 145 28,173
Later Years 145 178,641
Total minimum lease payments 4,894 344,113
Imputed interest (rates
ranging from 7.6% to 11.3%) (613)
Present value of net minimum
lease payments 4,281
Less current maturities 2,374
Capital lease obligations $ 1,907
Executory costs, such as real estate taxes, insurance,
and maintenance, are generally
the
obligation of the lessor.
Amortization of capitalized leases was approximately
$2,191 in 1993, $2,345 in 1992,
and
$3,402 in 1991.
Total rental expense for the three
years ended January 29, 1994 was as follows:
Fiscal Years
1993 1992 1991
Operating Leases:
Minimum rentals $40,842 42,652 45,537
Contingent rentals 5,205 10,254 10,050
$46,047 52,906 55,587
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.
The Company is a guarantor on leases of property which
have been re-leased to other
parties. The amount of the outstanding minimum rentals over
the next one to five years
under
those leases was $3,637 at January 29, 1994.
Included in rent expense was $908 for 1993, $1,071 for
1992, and $974 for 1991, paid
to
lessors controlled by or affiliated with certain current
directors of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15 POSTRETIREMENT HEALTH INSURANCE BENEFITS
The Company provides health insurance benefits for
retirees who meet minimum age and
service requirements. In addition, the associate must be
covered under the active medical plan
at the time of retirement to be eligible for postretirement
benefits and must agree to
contribute a portion of the cost. The Company has the right
to modify or terminate these
benefits, including the retiree contribution. The plan is
not funded.
In 1992, the Company adopted Statement of Financial
Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other
Than Pensions," (SFAS 106),
retroactive to January 26, 1992. SFAS 106 requires the
Company to recognize the cost of
retiree health insurance benefits over the associates'
period of service. The cumulative
effect of adopting SFAS 106 was a one-time charge to net
earnings of $5,031.
The periodic postretirement benefit cost under SFAS 106
was as follows:
Net Periodic Postretirement Benefit Costs:
Fiscal Years
1993 1992
Service costs $ 203 181
Interest costs 451 426
Other 12 -
$ 666 607
The present value of accumulated postretirement benefit obligations
and the amount recognized in the consolidated balance sheets were as follows:
Accumulated Postretirement Benefit Obligations:
Fiscal Years
1993 1992
Retirees $1,730 1,710
Fully eligible active plan participants 1,577 1,251
Other active plan participants 3,738 3,054
7,045 6,015
Unrecognized Loss (1,431) (719)
Total accumulated postretirement
benefit obligations $5,614 5,296
The weighted average discount rate used in determining
the accumulated postretirement
benefit obligation was 7.0% for 1993 and 8.5% for 1992.
An increase in the cost of health insurance benefits of
9% was assumed for fiscal year
1994. The rate is assumed to decline gradually to 5% in
2001, and remain at that level
thereafter. A 1% increase in the health-care cost trend
rate would increase the
accumulated
postretirement benefit obligation at January 29, 1994, by
$605 and the 1993
annual expense by
$67.
16 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17 SUBSEQUENT EVENTS
On April 4, 1994, the Company announced plans to close
approximately 58 additional stores.
An additional reorganization expense of approximately
$55,000 will be included in the first
quarter of 1994 to provide for these closings. The
following reflects, on a proforma basis,
the impact of these store closings on the consolidated
balance sheet as of January 29, 1994:
Historical Proforma
Reserve for store closings and
remerchandising - current liability $ - $ 39,415
Liabilities subject to settlement
under reorganization proceedings 207,456 223,041
Total stockholders' equity (deficit) 16,096 (38,904)
18 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Following is a summary of the quarterly results of
operations during the years ended
January 29, 1994 and January 30, 1993:
Fiscal 1993
Quarters Ended
May 1, July 31, October 30, January 29,
1993 1993 1993 1994
Gross sales $288,046 301,831 276,301 379,519
Leased department sales 9,062 12,087 10,192 11,133
Leased department income 2,013 2,110 1,927 2,657
Cost of sales 208,230 225,816 206,152 292,040
Income (loss) before
reorganization expense 1,174 (11,616) (17,448) 821
Reorganization expense (a) - - (40,416) 1,278
Net income (loss) 1,174 (11,616) (57,864) 2,099
Income (loss) per share $ 0.06 (0.62) (3.08) .11
Fiscal 1992
Quarters Ended
April 25, July 25, October 24, January 30,
1992 1992 1992 1993
Gross sales $301,053 310,492 328,217 464,540
Leased department sales 9,703 10,528 10,449 11,379
Leased department income 2,103 2,171 2,295 3,247
Cost of sales 224,088 231,364 247,423 400,285
Loss before cumulative
effect of accounting
change (6,098) (5,742) (10,516) (36,204)
Cumulative effect of
adopting SFAS 106 (b) (5,031) - - -
Net loss (11,129) (5,742) (10,516) (36,204)
Loss per share before
cumulative effect of
accounting change $ (0.33) (0.31) (0.56) (1.94)
Cumulative effect of
adopting SFAS 106
per share (b) (0.27) - - -
Loss per share $ (0.60) (0.31) (0.56) (1.94)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Included in the fourth quarter of 1993 reorganization
cost is a $5,000 reduction of a
$44,500 third quarter charge taken for the estimated costs
of closing 43 stores in January
1994. Included in 1993 reorganization costs, in addition to
the costs of closing the 43
stores, are DIP fee amortization and expenses, professional
fees and other reorganization
costs. Offsetting these expenses is a reversal of prior
provisions for closings due to the
anticipated rejections of closed store leases.
(b) In 1992, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement
Benefits Other Than Pensions," which requires 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.