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): July 1, 2004
Fred's, Inc.
(Exact name of registrant as specified in its charter)
Tennessee 00-19288 62-0634010
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4300 New Getwell Road, Memphis, TN 38118
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (901) 365-8880
Item 4. Changes in Registrant's Certifying Accountants.
In its Proxy Statement dated May 21, 2004, the Company asked its stockholders to
approve the appointment of Ernst & Young, LLP ("E&Y") as its auditors for the
fiscal year ending January 29, 2005 ("fiscal 2004"), but reserved discretion for
its Audit Committee to select a different auditing firm "at any time during the
year if it determines that such a change would be in the best interests of the
Company and its stockholders, including economic considerations" (emphasis
added). Since April 30, 2004, Fred's has been disputing certain additional audit
fees for fiscal 2003 that E&Y submitted to the Company after the filing of our
Annual Report on 10-K. On June 11, 2004, E&Y submitted to the Company an
engagement letter proposing fiscal 2004 auditing fees which were significantly
higher than anticipated by the Company. Therefore, the Company's Audit Committee
initiated the process of seeking 2004 quotes from other auditors, and instructed
management to attempt to resolve the unanticipated year-end 2003 fee under
dispute with E&Y before making a decision on which auditing firm to use for
fiscal 2004. On July 1, 2004, E&Y notified the Company that it would review the
Company's second quarter 2004 results, but would not act as the Company's
independent auditor after that review and the filing of the related quarterly
report on Form 10-Q. The Company's Audit Committee has accepted E&Y's
withdrawal, effective after E&Y's completion of the second quarter review and
that quarterly filing.
The audit reports of E&Y on the consolidated financial statements of the Company
for the years in the two-year period ended January 31, 2004 did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles.
During the two year period ended January 31, 2004, and the subsequent interim
period ended May 1, 2004, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
E&Y, would have caused them to make reference to the subject matter of the
disagreement in their reports on the consolidated financial statements for such
years.
During the past two fiscal years and through the date of this Report, E&Y has
not advised the Company of any reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934), other
than E&Y reported to the Company that, in conducting its audit of the 2003
financial statements, it noted weaknesses in certain internal controls. The
weaknesses related to (1) the number and qualifications of corporate accounting
personnel, (2) procedures related to accounting for consideration received from
vendors, and (3) the financial statement closing process. At the direction of
its Audit Committee, the Company had taken steps to address the concerns
expressed by E&Y during its work for the Company. Specifically, the Company has
enhanced its internal controls by (i) hiring additional skilled accounting
staff, including a certified public accountant (who reports directly to the
Audit Committee) to oversee internal controls and the Sarbanes-Oxley Act ("SOA")
compliance process and engaging a third-party accounting firm experienced in SOA
compliance to assist the Company in achieving timely and complete compliance on
a timeline suggested by E&Y, (ii) focused additional personnel and reviews upon
accounting for consideration received from vendors, and (iii) instituted more
testing of results in the closing process before public reporting of quarterly
and fiscal year end results.
The Company provided E&Y with a copy of this Form 8-K. Attached, as Exhibit 16.1
is a copy of E&Y's letter to the Securities and Exchange Commission, dated July
9, 2004.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit No Description
16.1 Letter of E&Y LLP dated July 9, 2004
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.
By: /s/ Jerry A. Shore
---------------------------------
Its: Executive Vice President and
Chief Financial Officer
Date: July 9, 2004
INDEX TO EXHIBITS
Exhibit
No. Description
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16.1 Letter of E&Y LLP dated July 9, 2004 regarding change in certifying
accountant.