UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
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 1-14565 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. E&Y completed its services with respect to the first
quarter ended May 1, 2004, upon the filing of the related Quarterly Report on
Form 10-Q on June 10, 2004. 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. Therefor, 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, if the Company had
not engaged other principal accountants in the interim, E&Y 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 accepted E&Y's resignation on
the foregoing basis.
On July 30, 2004, the Company engaged BDO Seidman, LLP ("BDO") as its new
certifying accountants, at which time E&Y ceased to be the principal accountants
of the Company. The Company has not consulted with BDO during the two most
recent fiscal years and through July 30, 2004 regarding the application of
accounting principles to a proposed or completed specified transaction or the
type of audit opinion that might be rendered on the Company's consolidated
financial statements, where either a written report was provided or oral advice
was provided that BDO concluded was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or financial
reporting issue or as to any disagreement or reportable event as described in
Item 304(a)(1)(iv) and Item 304(a)(1)(v) of Regulation S-K.
Each of the audit reports of E&Y on the consolidated financial statements of the
Company for each of the years in which they acted as the Company's auditors 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 all periods in which E&Y acted as the Company's principal accountant
through July 30, 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), 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. E&Y has not informed the Company that those
weaknesses constitute "material weaknesses" as defined by the American Institute
of Certified Public Accountants. 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
30, 2004.
The Company requested that BDO review the disclosure provided in this Form 8-K
prior to its filing, and provided BDO with an opportunity to furnish the Company
with a letter addressed to the Securities and Exchange Commission in accordance
with Item 304(a)(2)(ii)(D) of Regulation S-K. BDO affirmed to the Company that
it had no new information or clarification of the Company's expression, and did
not disagree with any comments related to BDO in respect to this item.
Therefore, BDO had no need to furnish such a letter.
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 30, 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 30, 2004
INDEX TO EXHIBITS
Exhibit
No. Description
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16.1 Letter of E&Y LLP dated July 30, 2004 regarding change in
certifying accountant.