8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 11, 2020 (March 5, 2020)

FRED’S, INC.

(Exact Name of Registrant as Specified in Charter)

Commission File Number 001-14565

Tennessee	62-0634010
(State or other Jurisdiction of Incorporation)	(IRS Employer Identification No.)

6625 Lenox Park, Suite 200, Memphis, Tennessee 38115

(Address of principal executive offices) (Zip Code)

(901) 365-8880

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None (1)	N/A (1)	N/A (1)

(1) On September 18, 2019, the NASDAQ Stock Market (“NASDAQ”) suspended trading of Fred’s, Inc. Class A common stock (“common stock”). NASDAQ filed a Form 25 with the U.S. Securities and Exchange Commission on October 11, 2019, to delist the common stock from the NASDAQ Global Select Market. The delisting was effective 10 days after the filing of the Form 25. The deregistration of the common stock under Section 12(b) of the Securities Exchange Act of 1934 was effective 90 days after the filing of the Form 25.

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financing accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 7.01. Regulation FD Disclosure

On March 5, 2020, the Company and certain of its subsidiaries (collectively with the Company, the “Debtors”) filed with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) their monthly operating report for the period beginning January 5, 2020 and ending February 1, 2020 (the “Monthly Operating Report”). The Monthly Operating Report is attached hereto as Exhibit 99.1, and is incorporated herein by reference. This Current Report on Form 8-K (including the exhibits hereto) (this “Form 8-K”) will not be deemed an admission as to the materiality of any information disclosed in this Item 7.01. The Monthly Operating Report and other filings with the Bankruptcy Court related to the voluntary petitions under Chapter 11 of Title 11 of the United States Code (the “Chapter 11 Cases”) may be available electronically at https://dm.epiq11.com/Freds. Documents and other information available on such website are not part of this Form 8-K and shall not be deemed incorporated by reference in this Form 8-K.

The information contained in this Item 7.01, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing.

Cautionary Statement Regarding the Monthly Operating Report

The Company cautions investors and potential investors not to place undue reliance upon the information contained in the Monthly Operating Report, which was not prepared for the purpose of providing the basis for an investment decision relating to any of the securities of the Company. The Monthly Operating Report is limited in scope, covers a limited time period and has been prepared solely for the purpose of complying with the monthly reporting requirements of the Bankruptcy Court. The Monthly Operating Report was not audited or reviewed by independent accountants, was not prepared in accordance with generally accepted accounting principles in the United States, is in a format prescribed by applicable bankruptcy laws or rules, and is subject to future adjustment and reconciliation. There can be no assurance that, from the perspective of an investor or potential investor in the Company’s securities, the Monthly Operating Report is complete. Results set forth in the Monthly Operating Report should not be viewed as indicative of future results.

As previously reported in a Form 12b-25 filed on September 13, 2019 and a Form 12b-25 filed on December 12, 2019, the Company does not currently intend to file a Quarterly Report on Form 10-Q for the quarters ended August 3, 2019 and November 2, 2019 or any other reports on Forms 10-Q or 10-K for subsequent periods. Instead, the Company will file Current Reports on Form 8-K containing (i) disclosure of all material events in the Chapter 11 Cases and any other information required by the instructions to Form 8-K and (ii) as exhibits, the operating reports and any other documents that include unaudited financial information that are filed by the Company with the Bankruptcy Court.

Forward Looking Statements

Comments in this Current Report on Form 8-K and the Monthly Operating Report that are not historical facts are forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. A reader can identify forward-looking statements because they are not limited to historical facts or they use such words as “outlook,” “guidance,” “may,” “should,” “could,” “believe,” “anticipate,” “project,” “plan,” “expect,” “estimate,” “objective,” “forecast,” “goal,” “intend,” “committed,” “continue,” or “will” and similar expressions that concern the Company’s strategy, plans, intentions or beliefs about future occurrences or results. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Forward-looking statements include, but are not limited to, statements about future financial and operating results, the Company’s plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, demand for products, strategic initiatives, including those relating

to store closures and dispositions by the Company and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts. Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct. A wide variety of potential risks, uncertainties and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to risks and uncertainties associated with: (i) the competitive nature of the industries in which we operate; (ii) our store closures and the related sales of inventory and real estate issues; (iii) our divestitures; (iv) utilizing our stores and the extent of our pharmacy department presence in stores; (v) conditions affecting the retail sector as a whole; (vi) our reliance on a single supplier of pharmaceutical products; (vii) our pharmaceutical drug pricing; (viii) reimbursement rates and the terms of our agreements with pharmacy benefit management companies; (ix) consolidation in the healthcare industry; (x) our private brands; (xi) the seasonality of our business and the impact of adverse weather conditions; (xii) operational, supply chain and distribution difficulties; (xiii) merchandise supply and pricing; (xiv) consumer demand and product mix; (xv) our employees; (xvi) risks relating to payment processing; (xvii) our computer systems, and the processes supported by our information technology infrastructure; (xviii) our ability to protect the personal information of our customers and employees; (xix) cyber-attacks; (xx) changes in governmental regulations; (xxi) the outcome of legal proceedings, including claims of product liability; (xxii) insurance costs; (xxiii) tax assessments and unclaimed property audits; (xxiv) current economic conditions; (xxv) the terms of our existing and future indebtedness, including the covenants set forth in the documents governing such indebtedness; (xxvi) our ability to remediate the material weaknesses in our internal controls over financial reporting and otherwise maintain effective internal controls over financial reporting; (xxvii) our largest stockholder holding a significant percentage of our outstanding equity; (xxviii) our ability to attract and retain talented executives; (xxix) any strategic alternatives that we decide to pursue, if any; (xxx) risks related to the trading of the Company’s common stock on the OTC Pink Market; (xxxi) the risks and uncertainties relating to the Company’s Chapter 11 Cases, including but not limited to, our ability to obtain Bankruptcy Court approval with respect to motions in the Chapter 11 Cases, the effects of the Chapter 11 Cases on our Company and on the interests of various constituents, Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the length of time we will operate under the Chapter 11 Cases, risks associated with third-party motions in the Chapter 11 Cases, the potential adverse effects of the Chapter 11 Cases on our liquidity or results of operations and increased legal and other professional costs in connection with the Chapter 11 Cases; (xxxii) the conditions to which our debtor-in-possession financing is subject and the risk that these conditions may not be satisfied for various reasons, including for reasons outside our control; and (xxxiii) the factors listed under Item 1A: “Risk Factors” in our Annual Report on Form 10-K, filed on May 3, 2019, with the Securities and Exchange Commission, under Part II, Item 1A: “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended May 4, 2019 and in any subsequent quarterly filings on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made. The Company undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1 Monthly Operating Report for the period ended February 1, 2020, filed with the United States Bankruptcy Court for the District of Delaware.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	FRED’S, INC.
Date: March 11, 2020	By:	/s/ Mark Renzi
	Name:	Mark Renzi
	Title:	Chief Restructuring Officer

EX-99.1

Exhibit 99.1

UNITED STATES BANKRUPTCY COURT

DISTRICT OF DELAWARE

In re: FRED’S, INC., et al.	Case No. 19-11984 (CSS)
	Reporting Period: January 5, 2020 to February 1, 2020

MONTHLY OPERATING REPORT

File with Court and submit copy to United States Trustee within 20 days after end of month

Submit copy of report to any official committee appointed in the case.

REQUIRED DOCUMENTS	Form No.	Document Attached	Explanation Attached	Affidavit/Supplement Attached
Schedule of Cash Receipts and Disbursements	MOR-1	✓
Bank Reconciliation (or copies of debtor’s bank reconciliations)	MOR-1a	✓
Schedule of Professional Fees Paid	MOR-1b	✓
Copies of bank statements
Cash disbursements journals
Statement of Operations	MOR-2	✓
Balance Sheet	MOR-3	✓
Status of Postpetition Taxes	MOR-4	✓
Copies of IRS Form 6123 or payment receipt
Copies of tax returns filed during reporting period
Summary of Unpaid Postpetition Debts	MOR-4	✓
Listing of aged accounts payable	MOR-4	✓
Accounts Receivable Reconciliation and Aging	MOR-5	✓
Debtor Questionnaire	MOR-5	✓

I declare under penalty of perjury (28 U.S.C. Section 1746) that this report and the attached documents are true and correct to the best of my knowledge and belief.

Signature of Debtor	Date
Signature of Joint Debtor	Date
/s/ Mark Renzi	3/5/2020
Signature of Authorized Individual*	Date
Mark Renzi	Chief Restructuring Officer
Printed Name of Authorized Individual	Title of Authorized Individual

* Authorized individual must be an officer, director or shareholder if debtor is a corporation; a partner if debtor is a partnership; a manager or member if debtor is a limited liability company.

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

SCHEDULE OF CASH RECEIPTS AND DISBURSEMENTS

For period from January 5, 2020 to February 1, 2020

($ in 000’s) Cash Flow Summary	Current Month			Cumulative
Receipts
FS Collections		—			28,296
Rx Collections (1)		2,458			34,470
Asset Sales		335			61,138
Other Collections		296			4,474
Total Cash Receipts		3,089			128,378
Disbursements
FS Merchandise		—			(856	)
RX Merchandise		—			(10,670	)
Payroll and Other Employee Obligations		(147	)		(12,327	)
Rent		(111	)		(2,269	)
Sales Tax		—			(3,971	)
Utilities		(52	)		(2,470	)
Other Operating Disbursements		(815	)		(11,739	)
Third Party Rx Reimbursement		(3,823	)		(10,062	)
Other Non-Operating Disbursements		(295	)		(27,892	)
Total Cash Disbursements		(5,243	)		(82,257	)
Net Cash Flow (2)		(2,154	)		46,121

(1) The Company collected pharmacy proceeds on behalf 3rd party buyers for sold pharmacies during this period; generally a one week delay from collecting to disbursing those proceeds.

(2) The Company was operating under cash collateral over the cumulative period and cash was used to pay down the DIP loan.

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

Total Disbursements by Filed Legal Entity (unaudited, in thousands)

For period from January 5, 2020 to February 1, 2020
Legal Entity	Case Number		Disbursements
Fred’s, Inc.		19-11984	$	5,132
Fred’s Stores of Tennessee, Inc.		19-11982	$	111
505 N. Main Opp, LLC		19-11983	$	—
National Equipment Management and Leasing, Inc.		19-11985	$	—
National Pharmaceutical Network, Inc.		19-11986	$	—
Summit Properties – Bridgeport, LLC		19-11987	$	—
Summit Properties – Jacksboro, LLC		19-11988	$	—
Reeves-Sain Drug Store, Inc.		19-11989	$	—

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

Bank Reconciliations (unaudited)

Values in $

Debtor Name	Name of Institution	Type of Account	Account Number (last 4 digits)		Account balance as of 2/1
Fred’s, Inc.	Regions Bank	Pharmacy Lockbox		7214		13,397
Fred’s, Inc.	Regions Bank	Payroll		5469		—
Fred’s, Inc.	Regions Bank	Master		5477		34,065
Fred’s, Inc.	Regions Bank	Master Funding		4352		117,848
Fred’s, Inc.	Regions Bank	Controlled Disbursement		3377		—
Fred’s, Inc.	Regions Bank	Sales Tax		2459		—
Fred’s, Inc.	Bank of America	EDI		4407		96,157
Fred’s, Inc.	MetaBank	Payroll Pay Cards		0011		16,752
Fred’s, Inc.	Regions Bank	Stub Rent Escrow Acct		5920		84,788
Fred’s, Inc.	Regions Bank	Utility Escrow Acct		5742		359,258
Fred’s, Inc.	Regions Bank	Asset Disposition		4585		30,626,465

NOTE: Account Balances provided as of 2/1/2020 or date of latest account activity

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

Total Disbursements to Retained Professionals (unaudited, in thousands)

For period from January 5, 2020 to February 1, 2020
Retained Professionals	Role		Current Month Disbursements		Cumulative Disbursements
Morris, Nichols, Arsht & Tunnell LLP		Debtor Counsel		47		438
Akin Gump Strauss		Debtor Counsel		—		512
Kasowitz Benson Torres LLP		Debtor Counsel		459		1,768
Berkeley Research Group		Debtor Financial Advisor		469		1,567
Epiq Corporate Restructuring LLC		Claims Agent		—		463
Alvarez & Marsal LLC		UCC Financial Advisor		120		445
Lowenstein Sandler LLP		UCC Counsel		—		735
Womble Bond Dickinson		UCC Counsel		—		42
Total			$	1,096	$	5,969

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

MOR 2 - CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands)

For period from January 5, 2020 to February 1, 2020
Net sales	8
Cost of goods sold (1)	17,857
Gross profit	(17,849	)
Depreciation and amortization	—
Selling, general and administrative expenses	6,221
Operating income (loss)	(24,070	)
Gain (loss) from disposal of assets/liabilities	—
Interest expense (income)	213
Income (loss) before income taxes	(24,283	)
Provision (benefit) for income taxes	—
Net income (loss) from continuing operations	(24,283	)
Net income (loss) from discontinued operations	—
Net income (loss)	(24,283	)

(1) Retail method of accounting used; inventory true-ups expensed to COGS as part of the year-end close process; no cash impact

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

MOR 3 - CONSOLIDATED BALANCE SHEETS (unaudited, in thousands)

	As of Feb. 1 2020
ASSETS
Current assets:
Cash and cash equivalents (1)		31,349
Inventories		—
Receivables, less allowance for doubtful accounts of $2,084		674
Other non-trade receivables (2)		9,085
Prepaid expenses and other current assets		855
Total current assets		41,964
Property and equipment, less accumulated depreciation and amortization		55
Goodwill		—
Intangible assets, net		—
Other noncurrent assets, net (3)		11,053
Total assets		53,072
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		71,184
Current portion of indebtedness		68
Accrued expenses and other		12,054
Total current liabilities		83,306
Long-term portion of indebtedness		14,388
Other noncurrent liabilities		5,005
Total liabilities		102,699
Shareholders’ equity:
Preferred stock, nonvoting, no par value		—
Preferred stock, Series A junior participating nonvoting, no par value		—
Preferred stock, Series C junior participating voting, no par value		—
Common stock, Class A voting, no par value		128,131
Common stock, Class B nonvoting, no par value		—
Treasury Stock, at cost		(10,826	)
Retained earnings		(167,487	)
Accumulated other comprehensive income		555
Total shareholders’ equity		(49,627	)
Total liabilities and shareholders’ equity		53,072

(1) Cash includes pharmacy proceeds the Company collected on behalf of 3rd party buyers for sold pharmacies that had not been disbursed as of 2/1/20; the Company generally holds 1-2 weeks of 3rd party pharmacy proceeds before disbursing funds

(2) Other Non-Trade Receivables include franchise receivables, scan-down receivables, pharmacy rebates, and other receivables; subject to adjustment due to collectability and other factors

(3) Other Non-Current Assets include outstanding letters of credit and utility deposits; subject to adjustment due to collectability and other factors

Note: This does not include potential lease rejection damages.

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

MOR - 4 Status of Post Petition Taxes

The Debtors continue to pay post-petition taxes as they become due and are current on those payments.

If payments become past due the Debtors will include a schedule in the MOR listing past due post-petition taxes.

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

Summary of Unpaid Post-Petition Debts (unaudited, in Thousands)

Post-Petition Debts Aging Amount	Total
Current		—
0 - 30 Days Old		68
31 - 60 Days Old		178
61 - 90 Days Old		112
91+ Days Old		446
Total Post-Petition Debts		804

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

Trade Receivable Aging (unaudited, in Thousands)

Trade Receivable Aging Amount	Credit Card		Pharmacy		Total		Allowance for Doubtful Accounts		Total, less Allowance for Doubtful Accounts
Current		—		—		—		—		—
0 - 30 Days Old		—		2,758		—		2,084		674
31 - 60 Days Old		—		—		—		—		—
61 - 90 Days Old		—		—		—		—		—
91+ Days Old		—		—		—		—		—
Total Trade Receivable		—		2,758		—		2,084		674

FRED’S, INC., et al.

DEBTORS AND DEBTORS IN POSSESSION

Questionnaire

				Yes	No
1. Have any assets been sold or transferred outside the normal course of business this reporting period? If yes, provide an explanation below. One owned store was sold to a third-party buyer during this period.				X
2. Have any funds been disbursed from any account other than a debtor in possession account this reporting period? If yes, provide an explanation below.					X
3. Have all post-petition tax returns been filed timely? If no, provide an explanation below.				X
4. Are workers compensation, general liability, and other necessary insurance coverages in effect? If no, provide an explanation below.				X
5. Has any bank account been opened during the reporting period? If yes, provide documentation identifying the opened account(s). If an investment has been opened provide the required documentation pursuant to the Delaware Local Rule 4001-3.					X
Account Name	Purpose	Business	Acct Number	Bank Name	Date