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VALUE MERCHANTS, INC. SEEKS TO AMEND 11 PERCENT SUBORDINATED NOTES AND OFFERS EXCHANGE FOR 9 PERCENT CONVERTIBLE SUBORDINATED NOTES; FIRST QUARTER RESULTS ANNOUNCED FOR PERIOD ENDED MAY 1, 1993

 MILWAUKEE, July 13 /PRNewswire/ -- Value Merchants, Inc. (NYSE: VMI), a national retailer of close-out merchandise and the nation's largest wholesaler of close-out toys, today announced that in connection with the company's attempt to obtain a $60 to $65 million line of credit to finance its current and Christmas season merchandise needs and provide the company with the working capital needed to continue its business, it is seeking the consent of the holders of the company's 11 percent Subordinated Notes due Aug. 1, 1999, to amend the indenture to reduce the minimum consolidated net worth that the company is required to maintain at the end of each quarter from $55.0 to $35.0 million. The company also is offering to exchange up to a majority in principal amount of the Subordinated Notes for its newly issued 9 percent Convertible Subordinated Notes due Aug. 1, 1999. These new notes are convertible into shares of the company's common stock at a conversion price of $4.25.


EXCHANGE OFFER AND CONSENT SOLICITATION
 In order to improve the company's current financial position, the company has developed a Refinancing Plan which, if implemented, provides for a $60 to $65 million working capital facility, the participation of the company's current bank group and others in the facility on terms which must be acceptable to all parties, substantial modifications of agreements with other lenders and the deferred payment of a substantial portion of trade payables, rents and other obligations until Dec. 31, 1993, reduction of operating expenses and consents to amend the minimum consolidated net worth requirement through the exchange offer.
 Noteholder consent is required by July 30, 1993. The Exchange offer expires at 5 p.m. Milwaukee, Wis., time on Aug. 9, 1993, unless extended.
 If the proposed amendment to the Subordinated Note Indenture is not approved, the company could be in violation of the net worth covenant as of the end of the second fiscal quarter of 1993. This could prevent the company from being able to refinance or extend the maturity of the existing senior indebtedness or consummate the new working capital credit facility. The company's new lenders may not agree to a Refinancing Plan if the Subordinated Notes are in default.
 Approval of the amendment to the indenture does not necessarily mean that the company's Refinancing Plan will be implemented or if implemented that it will be successful.
 Since fiscal 1992, the company has experienced significant liquidity constraints and increasing operating losses. In the absence of the consummation of the Refinancing Plan, the company may be forced to seek protection from creditors under federal bankruptcy laws.
 "We have determined that completion of the various elements of the Refinancing Plan is in the best interest of the company, its shareholders, noteholders and other creditors," according to Steven J. Appel, president and chief executive officer. "The Refinancing Plan is specifically designed to increase the company's cash position, replace capital absorbed by operating losses and enable the company to grow and compete effectively in its markets," he stated. "It would enable the company to restore the confidence of the company's suppliers and should permit management and employees to focus without distraction on the company's ongoing business and operations."
 The company previously reported that the Refinancing Plan has "already received extraordinarily gratifying initial support from a significant majority of our creditors," Appel said. "There can be no assurance, however, that all of the support we need to implement the new credit facility will be obtained or that the other conditions to the facility will be satisfied."
 The consent of a majority in principal amount of the outstanding Subordinated Notes is required to approve the proposed amendment to the indenture.


FIRST QUARTER RESULTS
 Value Merchants, Inc. also announced that for the first quarter ended May 1, 1993, the company had a loss of $9,944,000, or $1.34 per share on 7,396,000 weighted average common shares outstanding, compared with a loss of $3,654,000 or $0.49 per share on 7,411,000 weighted average common shares outstanding for the first quarter a year ago ended May 23, 1992. Sales for the period this year totaled $73,324,000, a gain of 9.8 percent from sales of $66,759,000 for the first quarter of fiscal 1992.
 The company has changed its reporting period to reflect the predominant retail reporting calendar. Accordingly, its first quarter of fiscal 1993 was 13 weeks long. The first quarter of fiscal 1992 was 16 weeks long.
 "The increase in the first quarter loss is attributable largely to an imbalance in the merchandise assortment of Everything's $1.00 stores resulting from working capital constraints," Appel stated. "Additionally, financial results reflect cautious consumer spending attitudes during the quarter," he said. Everything's $1.00 comparable store sales for the period declined 19.7 percent from a year ago and Toy Liquidators comparable store sales for the period were down 8.9 percent from a year ago.
 Following is a summary of results for the first quarters of fiscal 1993 and fiscal 1992:
 First Quarter Ended First Quarter Ended
 May 1, 1993 May 23, 1992
 Net sales:
 EAD variety $56,779,000 $46,440,000
 Toy operations 16,545,000 20,319,000
 Total net sales 73,324,000 66,759,000
 Net income (loss) ($9,944,000) ($3,654,000)
 Loss per share ($1.34) ($0.49)
 Weighted average shares 7,396,000 7,411,000
 Retail stores operating:
 EAD 420 275
 Toy 120 116
 Total Stores 540 391
 The company anticipates that it will incur substantial losses in the second and third fiscal quarters of 1993, and if the Refinancing Plan is consummated, earn a modest profit in the fourth quarter.
 VALUE MERCHANTS, INC. AND SUBSIDIARY
 CONDENSED CONSOLIDATED
 STATEMENTS OF OPERATIONS (UNAUDITED)
 FOR THE 13 WEEKS ENDED MAY 1, 1993
 AND THE 16 WEEKS ENDED MAY 23, 1992
 May 1, 1993 May 23, 1992
 NET SALES $73,324,000 $66,759,000
 COST OF SALES, INCLUDING
 WAREHOUSE EXPENSES 46,059,000 39,361,000
 Gross profit 27,265,000 27,398,000
 OPERATING EXPENSES:
 Selling and store expenses 31,648,000 24,130,000
 General and administrative
 expenses 5,842,000 6,650,000
 Structuring and store opening
 expenses 1,499,000 1,208,000
 Total operating expenses 38,989,000 31,988,000
 Loss from operations (11,724,000) (4,590,000)
 INTEREST EXPENSE, NET 2,482,000 1,485,000
 Loss before income tax benefit (14,206,000) (6,075,000)
 INCOME TAX BENEFIT (4,262,000) (2,421,000)
 Net loss ($9,944,000) ($3,654,000)
 Loss per common share ($1.34) ($0.49)
 Weighted average common shares
 outstanding 7,396,000 7,411,000
 VALUE MERCHANTS, INC. AND SUBSIDIARY
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 AS OF MAY 1, 1993; JAN. 30, 1993; AND MAY 23, 1992
 May 1, 1993 Jan. 30, 1993
 ASSETS
 CURRENT ASSETS:
 Cash and cash equivalents $ 5,222,000 $ 4,934,000
 Accounts receivable, less
 allowance for doubtful
 accounts of $567,000,
 and $662,000, respectively 6,670,000 6,379,000
 Inventories 106,919,000 109,718,000
 Prepaid expenses and other
 current assets 12,187,000 7,125,000
 Refundable income taxes 6,771,000 4,313,000
 Total current assets 137,769,000 132,469,000
 LEASEHOLD IMPROVEMENTS, FURNITURE
 AND EQUIPMENT:
 Leasehold improvements 36,141,000 33,783,000
 Furniture and equipment 51,138,000 50,077,000
 Costs for stores under
 construction 430,000 142,000
 Total 87,709,000 84,002,000
 Less: Accumulated depreciation
 and amortization 17,379,000 14,705,000
 Net leasehold improvements,
 furniture and equipment 70,330,000 69,297,000
 GOODWILL, net of accumulated
 amortization of $347,000, and
 $331,000 2,758,000 2,774,000
 OTHER ASSETS 3,812,000 2,006,000
 Total $214,669,000 $206,546,000
 LIABILITIES AND SHAREHOLDERS' INVESTMENT
 CURRENT LIABILITIES:
 Short-term borrowings $ 33,022,000 $ 14,893,000
 Accounts payable 46,062,000 43,687,000
 Accrued salaries and wages 2,428,000 2,809,000
 Accrued liabilities - other 5,887,000 7,316,000
 Short term deferred tax liability 631,000 ---
 Current maturities of long-term
 debt 38,329,000 39,328,000
 Total current liabilities 126,359,000 108,033,000
 LONG-TERM DEBT 19,386,000 19,631,000
 DEFERRED CREDITS 6,065,000 5,752,000
 DEFERRED INCOME TAXES --- 570,000
 SHAREHOLDERS' INVESTMENT:
 Cumulative preferred stock,
 par value $.10 per share,
 2,000,000 shares authorized,
 none issued --- ---
 Common stock, par value,
 $.01 per share, 15,000,000
 shares authorized, 7,418,149,
 and 7,378,202 shares issued
 and outstanding, respectively 74,000 74,000
 Additional paid-in-capital 51,158,000 50,946,000
 Retained earnings 12,131,000 22,075,000
 Unamortized value of restricted
 stock (504,000) (535,000)
 Total shareholders' investment 62,859,000 72,560,000
 Total $214,669,000 $206,546,000
 May 23, 1992
 ASSETS
 CURRENT ASSETS:
 Cash and cash equivalents $ 3,649,000
 Accounts receivable, less
 allowance for doubtful
 accounts $321,000 7,214,000
 Inventories 96,988,000
 Prepaid expenses and other
 current assets 7,016,000
 Refundable income taxes 3,705,000
 Total current assets 118,572,000
 LEASEHOLD IMPROVEMENTS, FURNITURE
 AND EQUIPMENT:
 Leasehold improvements 19,479,000
 Furniture and equipment 33,963,000
 Costs for stores under
 construction 1,506,000
 Total 54,948,000
 Less: Accumulated depreciation
 and amortization 8,943,000
 Net leasehold improvements,
 furniture and equipment 46,005,000
 GOODWILL, net of accumulated
 amortization of $244,000 2,861,000
 OTHER ASSETS 1,432,000
 Total $168,870,000
 LIABILITIES AND SHAREHOLDERS' INVESTMENT
 CURRENT LIABILITIES:
 Short-term borrowings $ 29,848,000
 Accounts payable 25,093,000
 Accrued salaries and wages 1,748,000
 Accrued liabilities - other 3,367,000
 Short term deferred tax liability ---
 Current maturities of long-term
 debt 4,218,000
 Total current liabilities 64,274,000
 LONG-TERM DEBT 27,059,000
 DEFERRED CREDITS ---
 DEFERRED INCOME TAXES 1,098,000
 SHAREHOLDERS' INVESTMENT:
 Cumulative preferred stock,
 par value $.10 per share,
 2,000,000 shares authorized,
 none issued ---
 Common stock, par value,
 $.01 per share, 15,000,000
 shares authorized, 7,291,729 shares
 issued and outstanding 73,000
 Additional paid-in-capital 49,988,000
 Retained earnings 26,378,000
 Unamortized value of restricted
 stock ---
 Total shareholders' investment 76,439,000
 Total $168,870,000
 -0- 7/13/93
 /CONTACT: Gary I. Kastel, director of communications for Value Merchants, Inc., 414-274-2976/
 (VMI)


CO: Value Merchants, Inc. ST: Wisconsin IN: REA SU: ERN RCN

KL -- CL021 -- 1102 07/13/93 17:49 EDT
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