McCrory Corp – ‘10-Q’ for 11/2/95

As of:  Monday, 12/18/95   ·   For:  11/2/95   ·   Accession #:  63801-95-7   ·   File #:  1-02759   ·   Correction:  This Filing’s “Filed as of” Date was Corrected and “Changed as of” 1/5/96 by the SEC on 1/5/96. ®

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Quarterly Report   —   Form 10-Q
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FORM 10-Q SECURITIES AND EXCHANGE COMMISSION
   Washington, DC  20549

[Mark One]                                                                      

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF                         
THE                                                                             
SECURITIES EXCHANGE ACT OF 1934                                                 
For the quarterly period ended          NOVEMBER 2, 1995                        

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                        
SECURITIES EXCHANGE ACT OF 1934                                                 
For the transition period from               to                                 

Commission File Number 1-2759                                                   

McCRORY CORPORATION                           
(Exact name of registrant as specified in its charter)                          

Delaware                                                            
13-5580679                                                            
(State or other jurisdiction of(I.R.S. Employer                                 
incorporation or organization)Identification No.)                             

667 Madison Avenue, New York, New York          10021                         
(Address of principal executive offices)       (Zip Code)                       

Registrant's telephone number, including area code (212) 735-9500               

Indicate by check mark whether 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 registrant      
was required to file such reports), and (2) has been subject to such filing     
requirements for the past 90 days.                                              
Yes   X       No                                                                

        At December 1, 1995, there were outstanding 11,111,111
shares of                                                                       
common stock, par value $.50 per share, all of which were owned by              
affiliates                                                                      
of the registrant.                                                              
Applicable only to Issuers Involved                                             
In Bankruptcy Proceedings During                                                
the Preceding Five Years                                                        

Indicate by check mark whether the registrant has filed all documents and       
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities     
Exchange Act of 1934 subsequent to the distribution of securities under a       
plan confirmed by a court.                                                      

Not Applicable  X Yes    No                                                     

FORM 10-Q                                                                       
McCRORY CORPORATION AND SUBSIDIARIES                                            
(DEBTORS-IN-POSSESSION)                                                         

FORM 10-Q                                                                       
McCRORY CORPORATION AND SUBSIDIARIES                                            
(DEBTORS-IN-POSSESSION)                                                         

PART I.  FINANCIAL INFORMATION                                                  

Item 1.  FINANCIAL STATEMENTS                                                   

                                                                [Download Table]
UNAUDITED STATEMENTS OF CONSOLIDATED OPERATIONS                                 

                                  13 Weeks Ended           39 Weeks Ended       
                            November 2,   November 3,  November 2,  November 3, 
                              1995          1994         1995         1994      
                                                                                
                                              (In Thousands)                    

Revenues:                                                                       
   Net sales .             $131,669       $187,927     $428,590     $581,229    

   Other - net .              5,419          3,141       17,113        9,932    
      Total revenues        137,088        191,068      445,703      591,161    

Cost and Expenses:                                                              
   Cost of goods sold        92,779        133,240      298,286      416,110    
   Selling, general and                                                         
    administrative expenses  44,855         58,156      139,527      172,918    
   Depreciation and                                                             
     amortization..           3,231          4,935       10,613       15,829    
   Interest and debt expense                                                    
      (excludes contractual interest expense of $5,197,000                      
        and $15,779,000 for the 13 and 39 weeks ended                           
        November 2, 1995, respectively, and $4,986,000 and                      
        $14,774,000 for the 13 and 39 weeks ended                               
      November 3, 1994,                                                         
        respectively) .       2,849          1,995        6,451        4,271    
   Restructuring charges ... 21,844            -         26,600          -      
      Total costs and                                                           
         expenses ...       165,558        198,326      481,477      609,128    

Loss from Operations Before                                                     
  Reorganization Items and                                                      
  Provision for Income                                                          
     Taxes ...              (28,470)        (7,258)     (35,774)     (17,967    

Reorganization Items -                                                          
  Professional fees and other                                                   
     expenses directly related                                                  
to the bankruptcy ......      2,500          3,000        8,800       11,000    

Loss from Operations Before                                                     
  Provision for Income                                                          
     Taxes ....             (30,970)       (10,258)     (44,574)     (28,967)   

Provision for Income                                                            
     Taxes ......                62             62          186          185    

Net Loss .......           $(31,032)      $(10,320)    $(44,760)    $(29,152)   

                               See Notes to Consolidated Financial Statements.  

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FORM 10-Q                                                                       
McCRORY CORPORATION AND SUBSIDIARIES                                            
(DEBTORS-IN-POSSESSION)                                                         

                                         CONSOLIDATED BALANCE SHEETS            

                                   November 2,                                  
                                     1995          February 2,                  
                                  (Unaudited)         1995                      
                                                                                
ASSETS                                (In  Thousands)                           
CURRENT ASSETS:                                                                 
  Cash and cash equivalents .      $ 7,302          $  8,573                    
  Receivables:                                                                  
    Customers' accounts              6,675             3,143                    
    Affiliates ..............          175               175                    
    Sundry ..................        6,540             3,500                    
    Allowances for doubtful                                                     
      accounts ..............         (303)             (257)                   
  Merchandise inventories (at lower of cost or                                  
    market, principally FIFO)      219,852           189,308                    
  Self-insurance funds on deposit    8,304             8,304                    
  Prepaid expenses ..........        9,698             5,309                    

    Total current assets ....      258,243           218,055                    

PROPERTY AND EQUIPMENT:                                                         
  Property and equipment -                                                      
     at cost ................      134,645           157,464                    
  Less accumulated depreciation                                                 
    and amortization ...            81,460            95,526                    

                                    53,185            61,938                    
  Capital leases, less accumulated                                              
    amortization ....                1,608             3,352                    

    Property and equipment - net    54,793            65,290                    

OTHER ASSETS:                                                                   
  Excess of cost of investments over related                                    
    equities - net .............    31,171            34,721                    
  Lease acquisition costs - net     10,904            14,050                    
  Self-insurance funds on deposit   31,022            31,022                    
  Sundry .......................     2,754             2,871                    

    Total other assets .........    75,851            82,664                    

      TOTAL ....................  $388,887          $366,009                    

See Notes to Consolidated Financial Statements.                                 

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FORM 10-Q                                                                       
                             McCRORY CORPORATION AND SUBSIDIARIES               
(DEBTORS-IN-POSSESSION)                                                         

                                              CONSOLIDATED BALANCE SHEETS       

                                                 November 2,                    
                                                    1995          February 2,   
                                                 (Unaudited)        1995        
                                                                                

LIABILITIES AND STOCKHOLDERS' DEFICIENCY           (In Thousands)               

CURRENT LIABILITIES                                                             
      Post-Petition Revolving Credit Agreement  $  75,834        $  14,396      
  Accrued expenses and sundry ................     53,044           53,246      
  Accounts payable ...........................     45,490           37,409      
  Note payable to K and K, L.P. ..............     20,000           20,000      
  Due to Astrum International Corp. ..........     14,000           14,000      
  Reserves for store closings ................      2,495            3,707      
  Capital lease obligations ..................        213              398      
  Current maturities of long-term debt .......         18               48      

    Total current liabilities ................    211,094          143,204      

LIABILITIES SUBJECT TO SETTLEMENT UNDER                                         
  REORGANIZATION PROCEEDINGS .................    408,038          403,291      

LONG-TERM DEBT, LESS CURRENT MATURITIES ......        120              239      

OTHER NONCURRENT LIABILITIES:                                                   
  Reserve for self-insurance .................     15,048           17,447      
  Capital lease obligations ..................      1,292            4,003      
  Retirement benefits ........................     33,824           33,820      
  Reserves for store closings ................       -                 168      
  Sundry .....................................      7,477            7,583      

    Total other noncurrent liabilities .......     57,641           63,021      

REDEEMABLE PREFERENCE STOCK SUBJECT TO                                          
  SETTLEMENT UNDER REORGANIZATION PROCEEDINGS       3,445            3,445      

STOCKHOLDERS' DEFICIENCY:                                                       
  Capital stock:                                                                
     Preference stocks .......................     15,598           15,598      
     Common stock - $.50 par value; authorized                                  
       11,200,000 shares; outstanding                                           
       11,111,111 shares .....................      5,556            5,556      
  Additional paid-in capital .................    358,117          358,117      
  Deficit ....................................   (670,782)        (626,462)     
  Unrealized gain on available-for-sale                                         
    securities..                                       60             -         

      Total stockholders' deficiency .........   (291,451)        (247,191)     

         TOTAL ...............................  $ 388,887        $ 366,009      

See Notes to Consolidated Financial Statements.                                 

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FORM 10-Q                                                                       
                             McCRORY CORPORATION AND SUBSIDIARIES               
(DEBTORS-IN-POSSESSION)                                                         

                                    UNAUDITED STATEMENT OF                      
                                    STOCKHOLDERS' DEFICIENCY                    

                            FOR THE 39 WEEKS ENDED NOVEMBER 2, 1995             

                             Additional                    Available -          
Preference    Common           Paid-In                     For-Sale             
Stocks *       Stock           Capital    Deficit         Securities            
                                                                                
                            (In Thousands)                                      

Balance, February 3, 1995 ......                                                

$15,598        $5,556         $358,117   $(626,462)        $ -                  

Net loss........................                                                

                                           (44,760)                             
Unrealized gain on available-                                                   
  for-sale securities...........                                                

                                                               60               
Amortization of capital charge                                                  
  related to the December 1990                                                  
  acquisition of a leasehold                                                    
  interest .....................                                                
                                                440                             

Balance, November 2, 1995.......                                                

$15,598           $5,556     $358,117    $(670,782)          $ 60               

*    Had McCrory not filed for protection under Chapter 11 of the               
Bankruptcy Code                                                                 
preferred                                                                       
     dividend payments would have been approximately $729,000, including        
$96,000                                                                         
of dividend                                                                     
     payments on preference stock of subsidiary, for the 39 weeks ended         
November                                                                        
2, 1995.                                                                        

                                             See Notes to Consolidated Financial
Statements.                                                                     

FORM 10-Q                                                                       
                                      McCRORY CORPORATION AND                   
SUBSIDIARIES                                                                    
(DEBTORS-IN-POSSESSION)                                                         

                                             UNAUDITED STATEMENTS OF            
CONSOLIDATED CASH FLOWS                                                         

                                             For the  39 Weeks Ended            
                                          November 2,        November 3,        
                                            1995                1994            
                                                                                
                                                 (In Thousands)                 

Cash Flows from Operating Activities:                                           
  Loss from operations after income taxes before                                
    reorganization items .               $(35,960)            $(18,152)         

  Adjustments to reconcile loss from operations after income                    
    taxes before reorganization items to net cash used in                       
    operating activities:                                                       
      Depreciation and amortization (including intangibles)..                   

                                           10,613               15,829          
      Gain on sales of property, equipment,                                     
        leaseholds and artwork.......     (11,977)              (3,111)         
      Restructuring charges....            26,600                  -            
      Other non-cash charges to operating                                       
        activities .......................  2,149                4,070          

      Changes in operating assets and liabilities:                              
        (Increase) decrease in receivables - net                                

                                           (5,630)               5,423          

        Increase in merchandise inventories (41,942)             (54,755)       
        Increase in prepaid expenses ...     (4,403)                (205)       
        Increase in accounts payable and accrued expenses                       
          and sundry ......................     496                1,088        
        Payments for charges to reserves for store closings .                   
                                             (3,954)              (6,456)       
        Payments for retirement benefits     (2,231)              (1,351)       
        Other - net ......                      (49)                (263)       

          Total adjustments ...             (30,328)             (39,731)       

          Net cash used in operating activities before                          
            reorganization items .....      (66,288)             (57,883)       

  Operating cash flows used for reorganization items:                           
      Professional fees paid for services rendered in                           
        connection with the Chapter 11                                          
        proceedings ..........               (4,061)              (6,031)       
      Loan fees paid in connection with the Post-Petition                       
        Credit Agreement ..................  (1,135)              (2,764)       

          Net cash used in reorganization                                       
           items .............               (5,196)              (8,795)       

Net Cash Used in Operating Activities      $(71,484)            $(66,678)       

See Notes to Consolidated Financial Statements.                                 

FORM 10-Q                                                                       
                                      McCRORY CORPORATION AND                   
SUBSIDIARIES                                                                    
(DEBTORS-IN-POSSESSION)                                                         

UNAUDITED STATEMENTS OF CONSOLIDATED CASH FLOWS                                 
                                                  (Concluded)                   

                                              For the 39 Weeks Ended            
                                         November 2,           November 3,      
                                            1995                   1994         

                                                  (In Thousands)                

Cash Flows from Investing Activities:                                           
  Proceeds from sales of property, equipment,                                   
    leaseholds and artwork....                  $14,345           $ 4,053       
  Proceeds from sale of Newberry Canada            -                1,943       
  Purchases of property and equipment .          (5,278)           (3,489)      

Net Cash Provided by Investing Activities         9,067             2,507       

Cash Flows from Financing Activities:                                           
  Proceeds from Post-Petition Credit Agreement  530,494           588,016       
  Payments of Post-Petition Credit Agreement   (469,056)         (539,487)      
  Proceeds from note issued to K and K, L.P...     -               20,000       
  Payment to Astrum International Corp. ......     -              (14,000)      
  Payments of other long-term debt .............    (17)              (52)      
  Principal payments under capital lease                                        
    obligations                                    (275)             (468)      

Net Cash Provided by Financing Activities ..     61,146            54,009       

Net Decrease in Cash and Cash Equivalents .      (1,271)          (10,162)      

Cash and Cash Equivalents at Beginning of Period  8,573            18,099       

Cash and Cash Equivalents at End of Period     $  7,302          $  7,937       

Cash Paid During the Period for:                                                

  Interest ................................... $  5,407         $  3,527        
  Income taxes ..............................  $     82         $    132        

                       See Notes to Consolidated Financial Statements.          

McCRORY CORPORATION AND SUBSIDIARIES                                            
(DEBTORS-IN-POSSESSION)                                                         

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(A)                                                                             
On February 26, 1992 (the "Petition Date"), McCrory Corporation,              
("McCrory") and 27 of its subsidiaries, including all of its principal          
subsidiaries (collectively, the "Debtors") except for J.J. Newberry Canadian,   
Ltd. ("Newberry Canada"), McCrory's then owned Canadian subsidiary, and         
York Insurance Company of Vermont ("York Insurance"), McCrory's captive         
reinsurance subsidiary, and certain inactive subsidiaries, filed voluntary      
petitions for relief under chapter 11 title 11 of the United States Code    (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern       
District of New York (the "Bankruptcy Court").  The cases have been             
assigned numbers 92-B-41133 through 92-B-41160 (CB).  The separate              
chapter 11 cases of the Debtors have been consolidated for procedural           
purposes and are being jointly administered pursuant to an order of the         
Bankruptcy Court (collectively, the "Chapter 11 Case").                         

The Chapter 11 Case was commenced by the Debtors because of a                   
combination of three factors:  (i) the necessity of restructuring the           
$74,980,000 principal amount of McCrory Senior Subordinated Exchangeable        
Variable Rate Notes originally due July 15, 1994 that were "put" to McCrory     
for payment in July 1992, thereby accelerating their maturity by two years,     
and for which McCrory was unable, under then existing credit market             
conditions, to obtain refinancing; (ii) the inability of the Debtors to obtain  
trade credit on normal terms in the months leading up to the filing caused by   
uncertainties related to the "put" described above and the significant number   
of bankruptcy filings by retail chains, which resulted in increased reluctance  
on the part of trade creditors to provide credit in uncertain retail situations;
and (iii) a need to reduce the costs associated with the Debtors' efforts to    
effect restructurings through the elimination of a large number of              
unprofitable stores and warehouses and relay facilities. It was more            
difficult for the Debtors to address these factors because of the               
depression in the nation's retail markets caused by the recession and           
associated low levels of consumer confidence and spending, which caused         
numerous other bankruptcy filings by major retailers.                           

On February 15, 1992, McCrory did not make the required payment at    
maturity of $3,369,000 principal amount or pay the interest on their 6-1/2%     
Convertible Subordinated Debentures.  These factors, coupled with the           
withholding by their vendors of normal credit terms and the difficult retail    
environment, enhanced the desirability of seeking court protection.  On         
February 25, 1992, management concluded that the sources of liquidity and       
other financing alternatives necessary to enable McCrory to meet both           
itsshort-term and long-term cash requirements would not be available absent     
the protection afforded post-petition lenders and creditors under the           
Bankruptcy Code.  On February 26, 1992, the Debtors commenced the               
Chapter 11 Case.                                                                
    Since the Petition Date, the Debtors have continued in possession of their
respective properties and are operating and managing their business as          
debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy      
Code.  The Debtors have sought, obtained, and are in the process of applying    
for various orders from the Bankruptcy Court intended to stabilize their        
business and minimize the disruption caused by the Chapter 11 Case,             
including (i) authorizing the Debtors to pay certain pre-petition liabilities,  
wages and other employee obligations; (ii) authorizing the Debtors to operate   
their cash management systems substantially as they were operated prior to      
the Chapter 11 Case; (iii) approving $120,000,000 of post-petition working      
capital financings, as amended (as more fully described in Note H); (iv)        
rejecting numerous nonresidential real property leases; (v) settling the        
claims asserted against the Debtors by, among others, Astrum International      
Corp. ("Astrum"), formerly E-II Holdings Inc., and its subsidiaries and         
McCrory Parent Corp. ("MPC"); (vi) obtaining an order granting the Debtors      
the exclusive right to obtain acceptances to its plan of reorganization         
through January 31, 1996, subject to the right of any party in interest to      
move to terminate exclusivity pursuant to the Bankruptcy Code; and (vii)        
other orders necessary to preserve the value of its assets and operate its      
business efficiently and effectively.                                           

Shortly after the Petition Date, the United States Trustee for the Southern     
District of New York appointed the members of the Official Committee of         
Unsecured Creditors ("Creditors' Committee") for the Chapter 11 Case. The       
role of the Creditors' Committee includes, among other things:  (a)             
consultation with the Debtors concerning the administration of the Chapter      
11 Case; (b) investigation of the acts, conduct, assets, liabilities,           
financial condition and operations of the Debtors, and the desirability of      
the continuation of its business and other relevant matters; and (c)            
participation in the formulation of a plan of reorganization.  In discharging   
these responsibilities, the Creditors' Committee has standing to raise issues   
with the Bankruptcy Court relating to the business of the Debtors and the       
conduct and course of the Chapter 11 Case.  The Debtors are required to pay     
certain expenses of the Creditors' Committee, including professional fees,      
to the extent allowed by the Bankruptcy Court.  For other information           
concerning the bankruptcy process, see Note F and Part II "Other                
Information," - Item 1 - "Legal Proceedings."                                   

On December 7, 1992, the Debtors filed a joint plan of reorganization (as       
amended, the "Plan"), which  was subsequently amended concurrent with the       
filing on February 19, 1993 of the disclosure statement for the Plan with the   
Bankruptcy Court.    On October 19, 1995, the Debtors filed a second            
amended joint plan of reorganization (the "Amended Plan") and a disclosure      
statement (the "Disclosure Statement") with the Bankruptcy Court.  The          
Amended Plan reflects an agreement between the Creditors' Committee             
regarding the terms of the proposed restructuring of the Debtors.  The          
Amended Plan provides that Meshulam Riklis, Chairman and Chief Executive        
Officer of McCrory ("Riklis") and certain of his children and grandchildren,    
to be determined prior to the Amended Plan effective date, and/or entities      
that are beneficially owned 100% by any one or more of the foregoing (the       
"Riklis Family Group") will cause $50,000,000 to be contributed to              
reorganized McCrory in exchange for 69% of the new common stock, a              
$20,000,000 junior subordinated note, and 500,000 stock appreciation rights.    
In full, complete satisfaction, release and discharge of existing creditor      
claims: (i) McCrory's general unsecured creditors will receive 16.74% of        
their allowed claims in 11% McCrory Senior Subordinated Notes which are         
payable 20% of the original principal amount on each of December 31, 1996,      
December 31, 1997, December 31, 1998, December 31, 1999 and December            
31, 2000, with accrued interest from August 29, 1995 to the Amended Plan        
effective date.  Holders of Allowed Insured Claims as defined in the            
Amended Plan) will be entitled to receive the lesser of (a) 16.74% of such      
holder's Allowed Insured Claim and (b) $83,700 in cash, with interest           
payable at 11% per annum, payable as follows:  20% of such amount on            
each of the first, second, third, fourth and fifth anniversary of the later of  
(A) December 31, 1995 and (B) the date a Disputed Insured Claim becomes and     
Ultimately Allowed Insured Claim and to the extent such holder's Allowed        
Insured Claim exceeds $500,000, the legal, equitable and contractual rights,    
if any, to which the Allowed Insured Claim entitles the holder of such claim    
against an insurance company under McCrory's general liability insurance        
program, if any, shall remain unaltered; (ii) holders of McCrory's Senior       
Subordinated Exchangeable Variable Rate Notes (as defined in the Amended        
Plan) will receive their pro rata share of $38,156,394 in cash together with    
interest on that amount accrued at 11% from August 29, 1995 to the              
Amended Plan effective date and 12% of the new common stock to be issued        
by reorganized McCrory; (iii) holders of McCrory's Subordinated Debentures      
(as defined in the Amended Plan) will receive their pro rata share of 19% of    
the new common stock to be issued by reorganized McCrory; and (iv)              
McCrory's equity holders will receive no recovery and all existing equity       
securities will be extinguished.  Pursuant to Section 1125 of the Bankruptcy    
Code, a hearing on the adequacy of the Disclosure Statement for the             
Amended Plan has been scheduled for January 23, 1996 by the Bankruptcy          
Court.     Consummation of a plan of reorganization is subject to the review    
and approval by the Bankruptcy Court, satisfaction of certain conditions        
precedent to confirmation, including, but not limited to, a release of Riklis   
by the Astrum Settlement Trust (as defined in the Amended Plan and see          
Note K), obtaining adequate post-confirmation financing and satisfaction of     
confirmation requirements contained in the Bankruptcy Code.  By notice        
dated October 20, 1995, the Bankruptcy Court set December 13, 1995 as the       
date for a hearing to consider approval of the Disclosure Statement.  The       
hearing was subsequently adjourned until January 23, 1996.                      
On October 20, 1995, the Bankruptcy Court signed a consent order      
pursuant to which the Debtors' exclusive right to solicit acceptances of their  
Amended Plan was extended to January 31, 1996.  The consent order further       
provides that, if the Amended Plan is not consummated on or before January      
31, 1996, the Debtors shall have the sole and exclusive right to automatically  
further extend the solicitation period through March 31, 1996.  In addition,    
if the solicitation period is so extended, and the Amended Plan is not          
consummated on or before March 31, 1996, the solicitation period will           
automatically further extend through and including June 30, 1996;  provided     
however, that, from and after March 31, 1996, the Creditors' Committee          
may file a plan in the Chapter 11 Case.                                         

(B) The consolidated financial statements have been prepared on a going       
concern basis, which contemplates continuity of operations, realization of      
assets and liquidation of liabilities in the ordinary course of business.       
However, as a result of the Chapter 11 Case and the uncertainties inherent      
in that process, realization of assets and liquidation of liabilities are       
subject to significant uncertainty.  Under the protection of the Bankruptcy     
Court, the Debtors may sell or otherwise dispose of assets, and liquidate or    
settle liabilities and redeemable preference stock for amounts different from   
those reflected in the consolidated financial statements.  Further, a plan of   
reorganization could materially change the amounts reported in the              
consolidated financial statements, which do not reflect any adjustments to the  
carrying value of assets or amountsof liabilities or redeemable preference      
stock that might be necessary as a consequence of a plan of reorganization.     
Accordingly, realization of the Debtors' assets and liquidation of their        
liabilities in the ordinary course of business is dependent upon, among other   
things, the Debtors' ability to (i) obtain approval of the creditors,           
shareholders, and other interested parties and confirmation by the Bankruptcy   
Court of a plan of reorganization; (ii)  maintain continuance of and            
compliance with the Post-Petition Revolving Credit Agreement dated as of        
February 24, 1992, as amended (the "Post-Petition Credit Agreement"), see       
Note H and (iii) achieve satisfactory levels of future operating profit and cash
flow that will support a plan of reorganization and necessary                   
post-confirmation financing. As a result of the Chapter 11 Case, the            
realization of the benefits associated with downsizing the chain and the        
elimination of the uncertainties involving the ability of McCrory to obtain     
trade credit on a timely basis, among other matters, management views the       
time operating as debtors-in-possession as a transitional period. Management    
of McCrory plans to operate the chain as a going concern (although as part      
of its ongoing review of operations, management may elect to close additional   
stores) and seeks to grow the chain through adding stores in existing and new   
markets, where McCrory can successfully compete. Management believes            
that both discretionary and nondiscretionary spending will remain at            
acceptable levels and management is continuing to work with vendors to          
buildinventory levels and develop an inventory mix that is responsive to        
current consumer spending habits and McCrory's merchandising plans.             
Management believes that its fiscal 1995 merchandising plans will generate      
sufficient sales and cash flow for the Debtors to continue to operate as a      
going concern under the protection of the Bankruptcy Code.  However,            
consumer spending patterns and other economic factors, including closing of     
stores by competition, that can significantly affect the retailing business and 
management's fiscal 1995 merchandising plans cannot be projected with any       
certainty.  Management believes that reorganization under chapter 11 results    
in the most favorable treatment of creditors, shareholders and other interested 
parties. If the Amended Plan  is accepted by creditors and confirmed by the     
Bankruptcy Court, McCrory anticipates that it will emerge from the Chapter      
11 Case during fiscal 1996. As discussed above, for financial reporting         
purposes the consolidated financial statements have been prepared on a going    
concern basis.  In addition, the Debtors have applied the provisions of the     
American Institute of Certified Public Accountants Statement of Position        
90-7, "Financial Reporting by Entities in Reorganization Under the              
Bankruptcy Code" ("SOP 90-7").  Substantially all of the Debtors'               
obligations, except for obligations under the Post-Petition Credit Agreement    
and the subordinated financing from K and K (see Note H), were in default       
in accordance with the terms of the applicable loan agreements,                 
notes, debentures and indentures.  In accordance with SOP 90-7, those           
liabilities and obligations whose disposition is dependent upon the outcome     
of the Chapter 11 Case have been segregated and classified as "Liabilities      
Subject to Settlement Under Reorganization Proceedings" in the consolidated     
balance sheets at November 2, 1995 and February 2, 1995 (see Note F).           
Likewise, the redeemable preference stock of the Debtors whose disposition      
is also dependent upon the outcome of the Chapter 11 Case has been              
segregated and classified as "Redeemable Preference Stock Subject to            
Settlement Under Reorganization Proceedings" (see Note F).  The Debtors         
discontinued accruing interest and amortizing original issue discount on their  
pre-petition debt obligations as of February 26, 1992.  The ultimate adequacy   
of security for any collateralized pre-petition debt obligations cannot be      
determined until a plan of reorganization is confirmed.                         

(C)                                                                             
In the opinion of the management of McCrory, the unaudited consolidated         
financial statements for the 13 and 39 weeks ended November 2, 1995 and         
November 3, 1994 include all adjustments, which comprise only normal            
recurring accruals, necessary for a fair presentation of the results for such   
periods.  To facilitate comparison with the current period, certain amounts     
in the prior period have been reclassified.  It is suggested that these         
unaudited consolidated financial statements be read in conjunction with the     
consolidated financial statements and the notes thereto, Item 3 - "Legal        
Proceedings," Item 5 - "Market for McCrory's Common Stock and Related           
Stockholder Matters" and Item 13 - "Certain Relationships and Related           
Transactions," all included in McCrory's Annual Report                          
on Form 10-K (the "Form 10-K") for the year ended February 2, 1995,             
which has been filed with the Securities and Exchange Commission.               

(D)                                                                             
Since McCrory's business is seasonal in nature, the operating results for the   
13 and 39 weeks ended November 2, 1995 and November 3, 1994 are not             
necessarily indicative of the operating results which may normally be           
expected for the full year.  McCrory historically achieves its best operating   
results during the Christmas selling season, which begins in November.          

(E)                                                                             
Eggregate proceeds received by McCrory from sales of property,                  
equipment,leaseholds and artwork were approximately $14,345,000 and             
$4,053,000 and gains of approximately $11,977,000 and $3,111,000 were           
recorded in other revenues for the 39 weeks ended November 2, 1995 and          
November 3, 1994, respectively.                                                 

(F)                                                                             
Petition Date liabilities that are expected to be settled as part of a plan of  
reorganization are separately classified in the consolidated balance sheets and 
include the following (all or a portion of which may be disputed by the         
Debtors):                                                                       

                                                                [Download Table]

                                                   1995           
                                          November 2,  February 2,

                                              (In Thousands)      
                                                                  
Accrued expenses and sundry . . . . . . . . .$  6,204   $  6,204  
Accounts payable  . . . . . . . . . . . . .    97,504     97,673  
Accrued Federal income taxes  . .. .  . . .     6,486      6,486  
Debt  . . . . . . . . . . . . . . . . . . .   180,084    179,952  
Reserve for self-insurance. . . . . . . . .    21,895     21,895  
Reserves for store closings (see Note G). .    73,499     68,617  
Deferred compensation and benefits  . . . .     7,971      8,069  
Sundry  . . . . . . . . . . . . . . . . . . .  14,395     14,395  
  Total . . . . . . . . . . . . . . . . .    $408,038   $403,291  

Redeemable preference stock, representing minority interest in Newberry, is     
expected to be settled as part of a plan of reorganization and is separately    
classified in the consolidated balance sheets.                                  

Liabilities subject to settlement under reorganization proceedings include      
McCrory's present estimates of substantially all liabilities as of the          
Petition Date.  As discussed above, payment of these liabilities, including     
the maturity of debt obligations, are stayed while the Debtors continue to      
operate their business as debtors-in-possession.  The Debtors notified all      
known or potential claimants for the purpose of identifying all pre-petition    
claims against the Debtors.  Additional bankruptcy claims and pre-petition      
liabilities may arise by termination of contractual obligations, Bankruptcy     
Court determination of allowed claims, and as certain contingent and/or         
potentially disputed bankruptcy claims are settled for amounts which may        
differ from those shown in the consolidated balance sheets.                     

The Bankruptcy Court entered an order, dated August 20, 1992, setting           
September 28, 1992 as the last day for filing proofs of claim in the Chapter    
11 Case (an earlier bar date of August 15, 1992 applied to pre-Petition Date    
tort claims).  Creditors who failed to file proofs of claim in respect of       
pre-Petition Date claims before that date are barred from thereafter            
asserting such claims against the Debtors, except for proofs of claim arising   
from the rejection of executory contracts or unexpired leases after August      
20, 1992 (which proofs of claim must have been or be filed before the later     
of September 28, 1992 or the date set forth in the order of the Bankruptcy      
Court authorizing such rejection).  Creditors whose claims were listed in any   
of the schedules filed by the Debtors in an amount and/or classification with   
which such creditors agreed, and which claims were not listed in the            
schedules as disputed, contingent or unliquidated, were not required to file    
proofs of claim.                                                                

The Debtors are in the process of reconciling creditors' proofs of claim        
filed with the Bankruptcy Court that differ in amount from the Debtors'         
records.  Certain creditors have filed claims substantially in excess of        
amounts reflected in the Debtors' records.  Based on ongoing analyses of        
claims filed, the nature of such differences has been identified as being       
attributable to duplicate claims for the same obligation filed with several,    
and in certain cases all the Debtors; damages sought in legal suits, certain    
of which, in the opinion of management, are of dubious merit; certain           
contingent liabilities arising from contracts and other claims filed against    
the Debtors; creditors claiming compensation and/or damages for completed       
and                                                                             
partially completed contracts and purchase orders; damages arising out of the   
rejection of non-residential real property leases substantially in excess of    
the maximum claim allowed under Section 502 (b)(6) of  the  Bankruptcy          
Code                                                                            
and other disputed items.  In addition, claims have been filed which do not     
state a specific claim amount or as to which a specific claim amount is not     
readily determinable.                                                           

After completion of reconciliations, any remaining differences may be           
resolved by negotiated agreement between the Debtors and the claimant or        
by                                                                              
the Bankruptcy Court as part of the Chapter 11 Case.  Consequently, the         
amounts included in the consolidated balance sheets at November 2, 1995 and     
February 2, 1995 as liabilities and redeemable preference stock subject to      
settlement under reorganization proceedings may be subject to adjustment.       
The Debtors have made appropriate provision for all claims of creditors it      
believes are valid; however, at this time, the Debtors cannot make a            
prediction as to the aggregate amount of claims allowed or the ultimate         
treatment of such allowed claims under a plan of reorganization.                

(G)                                                                             
In the last four fiscal years, management instituted programs to close 640      
stores, two relay facilities and two warehouse facilities. In July and          
October 1995, as part of management's ongoing review of store locations and     
in connection with the Debtors' business reorganization plan, 19 and 118        
additional store closings were indentified (the "Closing Stores") and,          
accordingly, $4,756,000 and $21,844,000 pre-tax provisions were recorded        
as restructuring charges, respectively.  This provision includes costs          
associated with closing stores, reductions in personnel and the write-off of    
certain intangible assets.  Twenty-five of the Closing Stores are to be sold    
and 24 have leases which expire with no further option periods.  The lease      
obligations and related reserve for store closings have been reflected at the   
estimated amount of the eventually allowed claims of the lessors in the         
Chapter 11 Case as prescribed by Section 502 of the Bankruptcy Code for         
rejection of leases.  The lease obligations and related reserves for store      
closings include numerous nonresidential real property leases rejected and      
to be rejected and amounts for other executory contracts that have been         
identified for rejection pursuant to Section 365 of the Bankruptcy Code (see    
Note F).   Sales of all stores that were closed were $19,536,000 and            
$62,492,000, and $81,224,000 and $207,053,000 for the 13 and 39 weeks           
ended                                                                           
November 2, 1995 and November 3, 1994, respectively.                            

On November 6, 1995, the Bankruptcy Court approved the Debtors'                 
application to conduct going-out-of-business sales at the Closing Stores for    
a period of approximately ninety days commencing on November 1, 1995 and        
ending on or about January 31, 1996.                                            

(H)                                                                             
On the Petition Date, the Bankruptcy Court entered an interim order             
approving the availability of $40,000,000 under the Post-Petition Credit        
Agreement, among McCrory, as borrower, The CIT Group/Business Credit,           
Inc. ("CIT"), as lender, and the subsidiaries of McCrory included in the        
Chapter 11 Case, as guarantors.  On March 17, 1992, the Bankruptcy Court        
entered an order approving the remaining $60,000,000 of the Post-Petition       
Credit Agreement.  The Post-Petition Credit Agreement was amended and           
restated as of March 31, 1992 to allow CIT to assign portions of any loans      
made thereunder to certain other lenders (collectively with CIT, the            
"Lenders"), for which CIT now acts as agent.  The Post-Petition Credit          
Agreement enables McCrory to finance general working capital requirements       
including purchases of inventory and other expenditures permitted thereunder    
generally through the earlier of February 28, 1996, or the date of the          
substantial consummation of a plan of reorganization for McCrory that has       
been confirmed by an order of the Bankruptcy Court.  The Lenders'               
commitment under the Post-Petition Credit Agreement is to make revolving        
loans and issue letters of credit up to an amount determined by a formula,      
which is principally based on the retail value of McCrory's inventory, but in   
any event not to exceed $100,000,000 with a $30,000,000 sublimit for            
documentary letters of credit, and a $5,000,000 sublimit for standby letters    
of  credit.  At November 2, 1995 and February 2, 1995, the availability         
determined by such formula under the Post-Petition Credit Agreement was         
approximately $87,004,000 and $62,000,000, respectively.  At November 2,        
1995, there were direct borrowings of approximately $75,834,000, letters of     
credit of $3,163,000, and standby letters of credit of $2,048,000 outstanding   
under the facility.  At February 2, 1995, there were direct borrowings of       
$14,396,000, letters of credit of $9,084,000 and standby letters of credit of   
$168,000 outstanding under the facility. Obligations under the Post-Petition    
Credit Agreement have super priority administrative expense claim status in     
the Chapter 11 Case (subject to certain limited exceptions) and are secured     
by liens on and security interests in all assets and property of the Debtors,   
other than inventory and the stock of York Insurance.  Such liens and           
security interests are junior to any liens existing on the Petition Date.  The  
Post-Petition Credit Agreement provides that outstanding loans shall bear       
interest at the rate of 1-1/2% over the Reference Rate publicly announced by    
Chemical Bank in New York, New York, 10.25% and 10.5% at November               
2, 1995 and February 2, 1995, respectively, which is payable monthly in         
arrears.  On March 17, 1994, the Bankruptcy Court approved an amendment         
which provided, among other matters, that the Debtors could, if no default      
existed as of December 31, 1994, extend the termination date of the facility    
until August 31, 1995.  In addition, all prior defaults were waived and         
covenants were established for the year ending February 2, 1995.  In            
connection therewith, McCrory paid to the lenders a $2,000,000                  
non-refundable fee.  In April 1994, for the year ending February 2, 1995,       
certain covenants were adjusted to reflect the closing of approximately 23      
stores.  On February 16, 1995, the Bankruptcy Court approved a further          
amendment which provided for the waiver of any covenant defaults for 1994,      
permitted the closing of stores and liquidation of inventory at these stores,   
which has been completed, extended the termination of the facility until        
August 31, 1995, and established covenants for the period ending August 31,     
1995. In connection with this amendment, McCrory paid the Lenders a             
$500,000 non-refundable fee.  On August 15, 1995 the Bankruptcy Court           
approved a further amendment which extended the termination date of the         
facility until February 28, 1996, and established covenants for the             
period ending February 28, 1996.  In connection with this amendment,            
McCrory paid the Lenders a $250,000 non-refundable fee.  The Post-Petition      
Credit Aggreement, as amended, includes restrictions on capital expenditures,   
liens, indebtedness, payments of pre-Petition Date obligations,                 
dividends, transactions with affiliates and the disposition of assets, as well  
ascovenant requirements relating to maintaining, on a cumulative monthly        
basis, a minimum level of cash flow (as defined) and authorization to open      
a limited number of new stores.  In addition, the Post-Petition Credit          
Agreement requires a 22-day period of no direct borrowings (as defined in       
the Post-Petition Credit Agreement) commencing no later than December 29,       
1995 (the "Mandatory Clean-Up").  Based upon results of current operations,     
the Debtors do not expect that they will be in compliance with the Mandatory    
Clean-Up provision.  However, after discussions with the Lenders, the           
Debtors anticipate that the failure to comply with the Mandatory Clean-Up       
provision will not result in a default under the Post-Petition Credit           
Agreement.                                                                      

In connection with the March 17, 1994 amendment, the Lenders required that      
the Debtors obtain additional subordinated financing of $20,000,000.  K and     
K provided such funds in the form of a subordinated term loan.   The            
$20,000,000 loan is subordinated to the Lenders, has super                      
priority administrative expense claim status in the Chapter 11 Case (subject    
to certain limited exceptions) and is secured by liens on and security interests
in all assets and property of the Debtors, other than inventory and the stock   
of York Insurance, subject to the prior lien of the Lenders.  The agreement     
provides that the amounts outstanding bear interest, at the rate of 3% over the 
Reference Rate publicly announced by Chemical Bank in New York, New             
York, aggregating 11.75% and 12% at November 2, 1995 and February 2,            
1995, respectively, which is payable monthly in arrears.  This agreement has    
the same covenant requirements and term as the Post-Petition Credit             
Agreement and is amended or modified as necessary and appropriate  to           
reflect any amendments or modifications in the Post-Petition Credit             
Agreement.  The loan can only be repaid after all obligations under the         
Post-Petition Credit Agreement are repaid.  Additionally, the Lenders           
required that $5,000,000 be deposited with them as additional security for      
payment or performance of the Debtors' obligations under the Post-Petition      
Credit Agreement.  K and K provided that deposit which is guaranteed by the     
Debtors.  This agreement provides that, in consideration for such additional    
support provided by K and K, the Debtors will pay an annual fee to K and        
K of 6%, payable monthly in arrears.  This additional financing was             
approved by the Bankruptcy Court in connection with the March 17, 1994          
amendment to the Post-Petition Credit Agreement.                                

(I)                                                                             
McCrory and its domestic subsidiaries are included in the Riklis Family         
Corporation ("RFC") consolidated Federal income tax return and in certain       
of the RFC state income tax returns.                                            

(J)                                                                             
McCrory and its affiliates have agreements with B-R Fund Corporation ("B-R      
Fund"), R-E Adjusting Corp. ("R-E Adjusting") and Riklis Holding Corp.          
("RHC") to provide for the processing, adjusting and payment of self-insured    
casualty claims.  McCrory and its affiliates also have agreements with Old      
Republic Insurance Company ("Old Republic") to provide for the                  
processing, adjusting and payment of certain casualty claims which are          
reinsured with York Insurance.   As of November 2, 1995 and February 2,         
1995, the estimated reserve for future payment of such casualty liabilities of  
McCrory (representing the present value, discounted at 7%, of the projected     
future casualty liability payments of McCrory) and related overhead             
amounted to approximately $39,326,000.  The assets available to discharge       
such casualty liabilities amounted to approximately $52,406,000 and             
$51,058,000 as of November 2, 1995 and February 2, 1995, respectively, as       
follows:                                                                        

                                                                [Download Table]
                                November 2,1995           February 2, 1995      
                                                                                
 B-R Fund  . . . . . . . . . . .  $28,673,000*             $   574,000          
 York Insurance  . . . . . . . .   23,733,000               22,184,000          
 RHC . . . . . . . . . . . . . .       -                    28,300,000*         

Total . . . . . . . . . . . . .   $52,406,000              $51,058,000          

   *Includes World Wide Financial notes (the "World Wide                        
Notes") in the amount of approximately $6,590,000, notes of unaffiliated parties
 of approximately $9,810,000 and                                                
McCrory's publicly-traded subordinated debentures  in the amount of             
approximately                                                                   
 $11,900,000 which is equal                                                     
to                                                                              
McCrory's carrying value as of November 2, 1995                                 
                   and February 2, 1995.  At November 2, 1995 and February      
2, 1995,                                                                        
the estimated fair value of such debentures                                     
                   was approximately $837,000 and $1,166,000, respectively,     
based on                                                                        
quoted market prices.  The World Wide                                           
                   Notes are secured by a McCrory promissory note dated June    
17,                                                                             
1994 in the principal amount of $7,000,000                                      
                   issued to K and K.  The World Wide Notes were previously     
secured by works of art owned by Riklis, which art is now consigned for sale    
with Christie, Manson & Woods International, Inc.; however, if the works of art 
are returned, RHC had agreed to again accept the art as collateral              
for the World Wide Notes and to return the aforesaid McCrory promissory note to 
K and K.  RHC and B-R Fund                                                      
are in discussions regarding a similar arrangement. These assets were           
included in RHC as of February 2, 1995.  Securities previously held by RHC on   
behalf of B-R Fund have been transferred to B-R Fund. Investments held by       
York Insurance at November 2, 1995 and February  2, 1995  primarily  represent  
government   securities  and corporate  bonds,  generally  with  original       
maturities of  less  than  one to three years; such investments are classified  
as available-for-sale securities and are reported at fair value.  As of         
November 2, 1995 gross unrealized gains were approximately $69,000 and gross    
unrealized losses were approximately $9,000.                                    

During the 39 weeks ended November 2, 1995, payments were made by B-R           
Fund of approximately $3,827,000 for adjustments and settlement of claims       
and expenses in connection therewith.  McCrory  reimburses  B-R Fund            
monthly for adjustments, settlement of claims and expenses.                     

Because of the stay imposed by Section 362(a) of the Bankruptcy Code,           
substantially all pre-petition casualty claims (other than workers'             
compensation claims) against the Debtors are now stayed.  Pre-petition          
workers' compensation claims continue to be administered, adjusted and paid     
by Old Republic.                                                                

By order of the Bankruptcy Court entered on July 7, 1992, all holders of pre-   
petition tort claims against the Debtors (other than holders of workers'        
compensation claims) were required to file a proof of claim in the Chapter      
11 Case on or before August 15, 1992.  Persons who failed to file a proof       
of claim in respect of a pre-Petition Date tort claim before this date are      
barred from asserting such claim against the Debtors.  In addition, on August   
19, 1992, the Debtors obtained an order (the "Settlement Order") of the         
Bankruptcy Court authorizing B-R Fund and R-E Adjusting (collectively, the      
"Adjustors") to enter into self-executing settlements of pre-Petition Date      
tort claims against the Debtors.  Pursuant to such settlements, pre-Petition    
Date tort claims may be allowed as pre-Petition Date unsecured claims in the    
amount of $10,000 or less or released and discharged in exchange for a          
contemporaneous cash payment of up to $1,000 provided, however, that no         
more than $200,000 may be disbursed during the Chapter 11 Case for such         
purpose.                                                                        

The Settlement Order also authorized the Adjustors to enter into self-          
executing settlements of post-Petition Date tort claims against the Debtors     
in exchange for immediate cash payments of up to $10,000, provided,             
however, that no more than $400,000 of payments may be made in any              
12-month period to release and discharge post-Petition Date tort claims.        
Settlements of pre- and post-Petition Date tort claims are funded from the      
amounts on deposit at B-R Fund.                                                 

(K)                                                                             
A compromise and settlement agreement (the "Settlement Agreement")              
between and among the Debtors, Astrum, MPC (which was liquidated and            
dissolved by January 31, 1995) and their respective related entities, was       
reached and approved by the Bankruptcy Court on May 24, 1993.  See Part         
II -"Other Information," Item 1 - "Legal Proceedings - Astrum/MPC               
Settlement" and Item 3 - "Legal Proceedings" of Form 10-K.                      

(L)                                                                             
McCrory and certain of its present and former affiliates are defendants in      
various actions relating to the 1990 Restructuring.  See Item 3 - "Legal        
Proceedings - The 1990 Restructuring" of Form 10-K.  The actions purported      
to allege, among other things, that the 1990 Restructuring constituted          
fraudulent transfers and common law fraud and violated defendants'              
purported contractual duties of good faith and fair dealing.  McCrory intends   
to vigorously defend such actions and management of McCrory believes,           
after discussion with counsel, that defenses are available to McCrory.  If the  
defenses of McCrory are upheld by the Bankruptcy Court, then the plaintiffs'    
claims would be severely prejudiced and, in the opinion of management of        
McCrory, would not have a material adverse effect on McCrory's                  
consolidated financial position or its ability to formulate and consummate a    
plan of reorganization.  Additionally, it is the position of McCrory that these 
actions are derivative in nature and were fully and finally settled and         
released pursuant to the Settlement Agreement among McCrory, Astrum and         
MPC.                                                                            

By virtue of the automatic stay imposed by Section 362 of the Bankruptcy        
Code, substantially all pending pre-petition litigations are stayed as          
against the Debtors.                                                            

McCrory and certain of its subsidiaries are defendants in various other         
actions commenced by former stockholders, vendors, customers, present and       
former employees, alleged competitors, and others.  However, these cases        
have been stayed pursuant to Section 362 of the Bankruptcy Code and will        
be dealt with as part of the claims resolution process (see Note F).  Similarly 
situated persons have asserted claims against McCrory and its subsidiaries      
but have not made those claims the subject of litigation.  McCrory and its      
subsidiaries intend to defend vigorously such actions and claims.               
Management of McCrory believes, based upon its assessment of the actions        
and claims outstanding against McCrory and its subsidiaries and further based   
upon the experience of McCrory in successfully defending or making              
favorable disposition of comparable actions commenced or comparable claims      
asserted against McCrory and its subsidiaries, that the ultimate outcome of     
such other actions and claims pending against McCrory and its subsidiaries      
will not have a material adverse effect on its consolidated financial position. 
Various other legal proceedings are pending against or otherwise relate to      
McCrory and its subsidiaries, involving a variety of causes of action arising   
from the operations of its business.  Management does not consider any of       
these other proceedings to materialize and does not expect such proceedings     
to have a significant impact on the Debtors' business or the Debtors' ability   
to formulate a consensual plan of reorganization.                               

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Item 2.                                                                         
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                               
CONDITION AND                                                                   
UNAUDITED RESULTS OF OPERATIONS                                                 

Results of Operations                                                           

Net sales decreased approximately $56,258,000 and $152,639,000 for the 13       
and 39 weeks ended November 2, 1995, respectively.  This decrease was           
primarily attributable to store closings (130 stores closed in March 1995 and   
39 stores closed in April 1994 offset in part by 8, 14, 19 and 10 stores        
opened in the fourth quarter of 1994, first quarter, second quarter and third   
quarter of 1995, respectively), and a generally weak retail environment.        
Other revenues increased approximately $2,278,000 and $7,181,000 for the        
13 weeks and 39 weeks ended November 2, 1995, respectively, primarily due       
to sales of leaseholds and artwork.   Merchandise gross profit (net sales less  
cost of goods sold) which includes occupancy costs decreased approximately      
$15,797,000 and $34,815,000 for the 13 and 39 weeks ended November 2,           
1995, respectively.  This was primarily attributable to the sales decrease;     
however, as a percent of sales, gross profit improved 0.4% to 29.5% from        
19.1% and 2.0% to 30.4% from 28.4% for the 13 and 39 weeks ended                
November 2, 1995 over the prior year, respectively. This percentage increase    
was primarily due to increasing the percentage of basic, rather than            
promotional products in the merchandise mix, purchasing more imported           
merchandise with a higher margin percentage than comparably produced            
domestic products, and retail price increases in selected markets.  Selling,    
general and administrative expenses decreased approximately $13,301,000         
and $33,391,000 for the 13 and 39 weeks ended November 2, 1995,                 
respectively, primarily due to store closings and reductions in work force      
in the field and home office made during the fourth quarter of 1994 and the     
first and third quarters of 1995.                                               

Depreciation and amortization expenses decreased approximately $1,704,000       
and $5,216,000  for the 13 and 39 weeks ended November 2, 1995,                 
respectively, primarily due to closing of stores and the write-off of certain   
intangibles during the fourth quarter of 1994.                                  

Interest and debt expense increased approximately $854,000 and $2,180,000       
for the 13 and 39 weeks ended November 2, 1995, respectively, primarily         
due to higher borrowings, increased interest rates and accrued interest from    
February 3, 1995 on the Astrum settlement payable, which was due January        
10, 1995. In July and October 1995, as part of management's ongoing review      
of store locations, 19 and 118 additional store closings were identified and    
accordingly, provisions of $4,756,000 and $21,844,000 were recorded as          
restructuring charges, respectively.                                            

The Company's net loss increased approximately $20,712,000 and                  
$15,608,000for the 13 and 39 weeks ended November 2, 1995, respectively.        
The increase in net loss was primarily due to restructuring charges (recorded   
in the second and third quarters of 1995) offset by gains on sales of           
leaseholds and artwork that were recorded in the first and third quarters of    
1995.                                                                           

Liquidity and Capital Resources                                                 

During the 39 weeks ended November 2, 1995, McCrory and its subsidiaries        
have funded working capital requirements, debt repayments, additions to         
property and equipment and store revitalization costs through depreciation      
and amortization of property and other assets, borrowings under the             
Post-Petition Credit Agreement and sales of assets.  See Notes E and H to       
Consolidated Financial Statements.                                              

As a result of the Chapter 11 Case, the realization of the benefits associated  
with downsizing the chain and the elimination of the uncertainties involving    
the ability of McCrory to obtain trade credit on a timely basis, among other    
matters, management views the time operating as debtors-in-possession as a      
transitional period. Management of McCrory plans to operate the chain as a      
going concern (although as part of its ongoing review of operations,            
management may elect to close additional stores) and seeks to grow the chain    
through adding stores in existing and new markets, where McCrory can            
successfully compete.   Management believes that both discretionary and         
non-discretionary spending will remain at acceptable levels and management      
is continuing to work with vendors to build inventory levels and develop an     
inventory mix that is responsive to current consumer spending habits and with   
McCrory's merchandising plans.  Management believes its fiscal 1995             
merchandising plans will generate sufficient sales and cash flow for the        
Debtors to continue to operate as a going concern under the protection of the   
Bankruptcy Code.  However, consumer spending patterns and other economic        
factors, including the closing of stores by competitors, that can significantly 
affect the retailing business and management's fiscal 1995 merchandising        
plans cannot be projected with any certainty.  Management believes that         
reorganization under chapter 11 results in the most favorable treatment of      
creditors, shareholders and other interested parties.  If the Amended Plan is   
accepted by creditors and  confirmed by the Bankruptcy Court, McCrory           
anticipates that it will emerge from the Chapter 11 Case during fiscal 1996.    

Based upon results of current operations, the Debtors do not expect that they   
will be in compliance with the Mandatory Clean-Up provision.  However,          
after discussions with the Lenders, the Debtors anticipate that the failure to  
comply with the Mandatory Clean-Up provision will not result in a default       
under the Post-Petition Credit Agreement.                                       

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Item 1.  LEGAL PROCEEDINGS                                                      

Commencement of Chapter 11 Proceedings                                          

General                                                                         

As discussed in Note A to the Unaudited Consolidated Financial Statements,      
on February 26, 1992 the Debtors filed for relief under the Bankruptcy Code.    

The following discussion sets forth certain aspects of the Chapter 11 Case.     

Chapter 11 Reorganization Under the Bankruptcy Code                             

Pursuant to Section 362 of the Bankruptcy Code, the commencement of the         
Chapter 11 Case imposed 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 Debtors    
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 Debtors or their       
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 
Debtors or to exercise control over property of the Debtors; (iv) the creation, 
perfection or enforcement of any lien against the property of the Debtors'      
bankruptcy estates; (v) any act to create, perfect or enforce against           
property of the Debtors 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 Debtors that arose before         
commencement of the Chapter 11 Case; (vii) the setoff of any debt owing         
to the Debtors that arose prior to commencement of the Chapter 11 Case          
against any claim against the Debtors; or (viii) the commencement or            
continuation of a proceeding before the United States Tax Court concerning      
any of the Debtors.  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.  Numerous persons have applied to the Bankruptcy        
Court for a modification of the automatic stay to allow their litigations       
against the Debtors to go forward and, in a limited number of instances, the    
Bankruptcy Court has agreed to modify the automatic stay to allow such          
litigants to continue discovery and/or liquidate their claims against the       
Debtors; however, enforcement of judgments entered on these claims, if any,     
is expressly prohibited without further Bankruptcy Court approval.              

The Debtors are authorized to operate their business as               
debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy      
Code. Although the Debtors are authorized to operate their business as          
debtors-in-possession, they may not engage in transactions outside of the       
ordinary course of business without first complying with the notice and         
hearing provisions of the Bankruptcy Code and obtaining Bankruptcy Court        
approval where necessary.                                                       

Plan of Reorganization - Procedures                                             

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.  Subject to the        
Bankruptcy Court's discretion, 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 fails      
to obtain acceptance of such plan from impaired classes of creditors and        
equity security holders during the 180-day exclusive solicitation period, any   
party in interest, including the debtor, a creditors' committee, any equity     
security holders' committee, a creditor 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.                                                    

On request of a party in interest made within the 120-day or 180-day period,    
as applicable, and after notice and a hearing, the Bankruptcy Court may         
change the above described 120-day and 180-day periods.                         

After a disclosure statement describing a plan is approved by the Bankruptcy    
Court, following a hearing by the Bankruptcy Court, a disclosure statement      
and a plan will be sent to all creditors of the Debtors.  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 a 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    
of the Debtors on such date or (b) has accepted a plan, (ii) with respect to    
each class of claims or equity security holders, that such class has accepted   
a plan or such class is not impaired under a plan and (iii) confirmation of     
a plan is not likely to be followed by the liquidation or need for further      
financial reorganization of the Debtors or any successors unless such           
liquidation or reorganization is proposed in a plan.  The term "impaired" has   
a specific meaning under the Bankruptcy Code.                                   

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 a 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 a plan by an impaired class of            
creditors or equity security holders, if certain requirements of the Bankruptcy 
Code are met, including that (i) a plan does not discriminate unfairly and (ii) 
a plan is fair and equitable with respect to each class of claims or interests  
that is impaired thereunder, and has not accepted, a plan.  The terms           
"discriminate unfairly" and "fair and equitable" have specific meanings under   
the Bankruptcy Code.                                                            

Other Legal Matters                                                             

As set forth in more detail in McCrory's Form 10-K, various legal               
proceedings are pending relating to transactions in which McCrory or its        
subsidiaries have been involved.  These proceedings have been brought           
against various defendants, including McCrory, its subsidiaries, and certain    
of their respective officers, directors and affiliates.                         

Astrum/MPC Settlement                                                           

As more fully described in McCrory's Form 10-K, McCrory, Astrum and             
MPC were engaged in numerous disputes, and each filed substantial claims        
in the other's bankruptcy cases.  With respect to all of the disputes between   
and among the Debtors, Astrum, MPC and their respective related entities,       
a compromise and settlement agreement (the "Settlement Agreement") was          
reached and approved by the Bankruptcy Court on May 24, 1993.                   

Pursuant to and as is more fully described in the Settlement Agreement, the     
Debtors:                                                                        

(i) transferred their interests in their warehouse in Clinton, South Carolina   
to a designee of Astrum;                                                        

(ii) transferred the McGregor Preferred Shares and the segregated interest-     
bearing account in the name of McCrory, MPC and Rapid-American                  
Corporation, a privately-held Delaware corporation ("Rapid"), to the            
settlement escrow established pursuant to the Settlement Agreement;             

(iii) transferred approximately $59 million principal amount of MPC bonds       
owned by McCrory to the settlement escrow; and                                  
(iv) granted Astrum an allowed administrative expense claim, with the           
consent of the lenders, in the Chapter 11 Case in the amount of $28 million     
(to be paid to the settlement escrow), payable $14 million on January 10,       
1994 (which was paid on March 17, 1994 with interest per annum of 3.25%)        
and $14 million on the earlier of January 10, 1995 or the McCrory Effective     
Date (as defined in the Settlement Agreement). Under the terms of the           
Post-Petition Credit Agreement, as amended, the Debtors are prohibited from     
making the 1995 settlement payment and have not done so.  However,              
McCrory, with the consent of the Lenders, has agreed to pay interest on the     
unpaid $14 million at an annual rate equal to 3.5% in excess of the 90-day      
treasury bill rate.  The proceeds of the settlement escrow will be distributed  
to the MPC liquidating trust and a settlement trust created under the Astrum    
plan of reorganization on the McCrory Effective Date (as defined in the         
Settlement Agreement).                                                          

Department of Labor                                                             

On June 21, 1991, the U.S. Department of Labor, Pension and Welfare             
Benefits Administration (the "DOL") commenced an investigation in               
connectio with the purchase by McCrory of a group annuity contract from         
Executive Life Insurance Company ("Executive Life").  Effective October         
1985, McCrory's prior defined benefit pension plan (the "Stores Pension         
Plan") was terminated and, in December 1985, the Stores Pension Plan paid       
approximately $76,000,000 to Executive Life, which committed itself to pay      
the benefits due to pensioners under the Stores Pension Plan.                   

As a result of financial difficulties affecting Executive Life, from May 1991   
through April 1992 McCrory's pensioners received only 70% of their              
monthly annuities from Executive Life pursuant to an order of                   
conservatorship.                                                                

During this period McCrory paid a portion of such shortfall to those of its     
pensioners who so requested.  Due to supplemental funds provided by certain     
State Insurance Guaranty Associations, in general, since May 1992               
substantially all of McCrory's pensioners, other than pensioners who are        
residents of the District of Columbia, Colorado, Louisiana or foreign           
countries (who continue to receive 70% of their monthly annuities) or           
pensioners whose annuity contract value exceeds their particular State's        
guaranteed amount (who continue to receive a pro rata portion of the            
supplemental funds provided by their State's Insurance Guaranty Association)    
have been receiving 100% of their monthly annuities.                            

During 1993, Aurora National Life Assurance Company ("Aurora"),                 
successor to Executive Life, made retroactive payments to each of certain       
McCrory pensioners in a maximum amount equal to that portion of such            
pensioner's annuity that he or she did not receive from Executive Life or       
McCrory during the period from May 1991 through April 1992.  McCrory            
was also reimbursed for certain shortfall payments it had made to each of its   
pensioners during such period.                                                  

In September 1993, all legal obstacles to the implementation of the Plan of     
Rehabilitation for Executive Life (the "Plan of Rehabilitation") were removed   
by the California courts.  McCrory understands that under the Plan of           
Rehabilitation, each pensioner was given the opportunity to elect, prior to     
February 12, 1994, to opt out of the Plan of Rehabilitation and receive a       
lump sum benefit based on the value of his or her annuity under the Plan of     
Rehabilitation (excluding the value of the supplemental funds which would       
have been provided by the pensioner's applicable State Insurance Guaranty       
Association over the course of the pensioner's life).  Each pensioner who did   
not opt out of the Plan of Rehabilitation by the February deadline will         
continue to receive his or her annuity benefit from Aurora (including the       
portion of the annuity funded by the pensioner's applicable State Insurance     
Guaranty Association).  McCrory understands that under the Plan of              
Rehabilitation substantially all of its pensioners will continue to receive     
the full amount of their monthly annuities from Aurora, provided they did not   
elect to opt out of the Plan of Rehabilitation.                                 

The DOL has filed a proof of Claim (the "DOL Proof of Claim") in the            
Chapter 11 Case pursuant to the Employee Retirement Income Security Act         
of 1974 ("ERISA") for various forms of equitable relief, including restitution, 
purchase of a back-up annuity product (the  "ELIC Annuity Contracts") and       
other injunctive relief.  The DOL asserts that McCrory's pensioners have        
suffered losses of approximately $2,550,000 and, assuming that Executive        
Life pays at least 70% of the future amounts owing to such pensioners, will     
continue to suffer future losses actuarially estimated at approximately         
$37,390,000.  Therefore, the DOL Proof of Claim seeks the total cost            
(estimated by the DOL to be approximately $39,940,000) of restitution and       
other equitable relief (e.g., the purchase of a back-up annuity) necessary      
to make the former pension plan and its participants whole.  The basis for      
this liability is asserted to be the Debtors' alleged breach of certain         
fiduciary duties and other statutory restrictions imposed by ERISA.             
McCrory believes it followed all necessary procedures and satisfied all legal   
requirements in terminating its prior pension plan and purchasing the annuity   
contract from Executive Life.  The Debtors also believe that, because           
substantially all of McCrory's pensioners are currently (and since May 1992     
have been) receiving the full amount of their pensions (as described above),    
the amounts sought in the DOL Proof of Claim are greatly exaggerated.           

In connection with the DOL investigation, since on or about November 18,        
1991, McCrory, MPC, Rapid, Riklis and others entered into several               
agreements with the DOL that tolled the applicable statute of limitations.      

On or about November 13, 1995, McCrory entered into a settlement                
agreement the "DOL Settlement Agreement") with Robert B. Reich,                 
Secretary of Labor, (the "Secretary"), the DOL and certain former fiduciaries   
(the "Fiduciaries") of the Stores Pension Plan.  Under the terms of the DOL     
Settlement Agreement, the Secretary and DOL will release and forever            
discharge, among others: (i) the Stores Pension Plan, (ii) McCrory's current    
and former officers, directors and employees, (iii) the Fiduciaries and (iv)    
McCrory and its divisions and subsidiaries from any and all claims the          
Secretary and the DOL have against them in connection with the termination      
of the Stores Pension Plan and the purchase of the ELIC Annuity Contracts.      
In exchange for the release, McCrory will purchase an annuity contract (the     
"Shortfall Annuity") and make certain direct payments (the Shortfall Annuity    
and direct payments collectively totalling approximately $250,000) to provide   
for the payment of the shortfall in coverage between the amounts that were      
scheduled to be paid under the ELIC Annuity Contracts and the sum of the        
payments under the Plan of Rehabilitation, payments from applicable State       
Insurance Guaranty Associations and payments from the conservatorship of        
Executive Life.  The above summary of the DOL Settlement Agreement is           
qualified in its entirety by reference to such agreement which is attached      
hereto as Exhibit 10(r) and incorporated herein.  By order entered December     
13, 1995, the Bankruptcy Court approved the DOL Settlement Agreement.           

Pension Plan Claims                                                             

The PBGC filed proofs of claim against each Debtor in the Chapter 11 Case       
with respect to the McCrory Pension Plan, the Schenley Pension Plan and the     
Samsonite Corporation (a subsidiary of Astrum) Luggage Division Hourly          
Pension Plan.  The PBGC filed a claim against each Debtor with respect to       
each plan in an unliquidated amount (a) for unpaid premiums, interest and       
penalties for plan years unknown, and (b) on behalf of each plan, for unpaid    
minimum contributions through the unspecified future termination date of        
each plan.                                                                      

The PBGC also filed contingent claims against each Debtor with respect to       
the unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA)   
of each of the plans which would be payable to the PBGC if the plans were       
terminated by the PBGC.                                                         

The PBGC had expressed concern about its future liability with respect to the   
McCrory Pension Plan and the Schenley Pension Plan because upon the             
consummation of the Astrum Plan, Astrum and its subsidiaries would no           
longer be members of the relevant "controlled group" (as defined in Sections    
414(b) and (c) of the Code) and would no longer be jointly and severally        
liable, along with the Debtors and others, for the payment of required          
contributions to such plans under Code Section 412 and ERISA Section 302,       
premiums due to the PBGC under ERISA Section 4007 with respect to such          
plans and any unfunded benefit liabilities in the event such plans are          
terminated.  The PBGC asserted that it was considering seeking court            
approval to terminate the McCrory Pension Plan and the Schenley Pension         
Plan prior to the effective date of the Astrum Plan in order to preserve its    
ability to impose liability against Astrum and its subsidiaries.  Termination   
of the McCrory Pension Plan and the Schenley Pension Plan by the PBGC           
would have exposed the Debtors to significant liabilities.  As a result, on     
April 6, 1993, McCrory filed a motion in the Bankruptcy Court,  seeking an      
order setting the liability of Astrum and its subsidiaries in the event of any  
future termination of the McCrory Pension Plan and/or Schenley Pension          
Plan by the PBGC.  As a result of the approval by the Bankruptcy Court of       
the Settlement Agreement, this motion was withdrawn on May 24, 1993,            
without prejudice.  See "Astrum/MPC Settlement."                                

McCrory anticipates entering into a settlement agreement with the PBGC and      
Astrum with respect to these claims. The Settlement Agreement provides that     
Astrum and its subsidiaries are liable for certain contributions required to be 
made to the Schenley Pension Plan. The Debtors are in the process of            
documenting its agreement with the PBGC to reflect its undertaking under the    
Settlement Agreement.                                                           

The Settlement Agreement calls for McCrory and its subsidiaries to satisfy      
all of their obligations to the McCrory Pension Plan and the Schenley Pension   
Plan in accordance with Section 412 of the Tax Code after the McCrory           
Effective Date, while reserving their rights against other members of the       
controlled group.  See "Astrum/MPC Settlement."  As of February 2, 1995,        
all contributions required to have been made under Section 412 of the Tax       
Code to the McCrory Pension Plan and to the Schenley Pension Plan have          
been made.                                                                      

IRS Proof of Claim                                                              

The Internal Revenue Service (the "IRS") filed proofs of claim against          
McCrory and twenty-one of the other Debtors in the Chapter 11 Case.  The        
claims against McCrory and six of the other Debtors are each for                
approximately $35,000,000.  These claims are for taxes asserted to be owed      
from the tax periods ended November 30, 1977 and January 31, 1979 and           
1986 and, in each case, interest.  The claim relating to 1986 ($17,400,000,     
including interest) is for an amount of taxes paid in 1986 that was refunded    
to the consolidated group of which McCrory was a member (the "Tax               
Group") as a result of the carryback of a loss sustained in a subsequent year   
which was still open for audit.  The balance of the claims are for tax          
deficiencies determined with respect to audits that have been settled, plus     
interest (the computation of which may be disputed by McCrory).  The IRS        
has asserted that a portion of each of the claims is secured (approximately     
$11,500,000) to the extent the IRS has the right to offset over-assessments     
against the amounts claimed.                                                    

The IRS claims against the other fifteen Debtors were for approximately         
$17,400,000 each and included only the 1986 claim described above, since        
the 1977 and 1979 claims derive from years prior to the time that these         
fifteen Debtors joined the Tax Group.  After filing these claims, the IRS       
reviewed and approved the 1986 refunds, and, consequently, the claims           
against these fifteen Debtors have been withdrawn.  For the same reason, it     
is expected that the IRS will amend the proofs of claim against McCrory and     
the other six Debtors mentioned above to withdraw the portion of those          
claims that relates to the 1986 claim and the 1979 claim, which have also       
been resolved.                                                                  

On December 13, 1993, the IRS allowed the carryback of losses and refund        
claims with the result that the Tax Group became entitled to refunds of         
$10,566,000 including interest of $5,386,000.  Also, in December 1993, the      
IRS agreed to pay additional previously approved refunds due to the Tax         
Group which the IRS had been holding as security for its claims.  Such          
refunds total $10,434,000 including interest of $7,299,000.  The IRS agreed     
to apply refunds owed to one member of the Tax Group, against certain of        
its claims and refund the balance of the refund claims (a total of              
approximately $17,894,000 including interest), which were received in           
January, March, April and May 1994. The balance of the IRS claim which          
the Company believes will not exceed approximately $4,563,000 is expected       
to be paid in equal monthly installments beginning at the time the Debtors      
emerge from the Chapter 11 Case and ending in mid-1997.  Any such               
resolution would be subject to the execution of final documents and             
Bankruptcy Court approval.                                                      

Walt Whitman Mall Fire                                                          

The Debtors have been sued for damages arising from a May 16, 1991 fire         
that occurred at a McCrory store located in the Walt Whitman Mall shopping      
complex in Huntington, New York.  Approximately 17 suits were filed             
before the Petition Date by adjacent store owners and/or as subrogation         
actions against McCrory and various other defendants in connection with the     
fire.  Several additional suits were filed after the Petition Date and proofs of
claim have been submitted on behalf of a number of claimants (collectively      
with the pre- and post-Petition Date actions, the "Walt Whitman Fire            
Litigations").  The majority of claimants seek recovery for property damage,    
although two of the pre-Petition Date suits are wrongful death actions relating 
to the two deaths caused by the fire.  In the aggregate, the claimants in the   
Walt Whitman Fire Litigations seek damages of in excess of $140,000,000,        
much of which will be covered by insurance.  On or about February 2, 1993,      
Charles Trapani, who was employed as a McCrory security guard at the time       
of the fire, admitted to starting the fire and pled guilty to arson.  Each of   
the Walt Whitman Fire                                                           

Litigations is currently stayed by virtue of the automatic stay and an order    
of the Bankruptcy Court, dated May 29, 1992, staying lawsuits against the       
Debtors' landlords and employees, however,  the Bankruptcy Court has            
permitted certain discovery to proceed in the Walt Whitman Fire Litigations.    

Logan Valley Mall Fire                                                          

On or about July 31, 1995, G.C. Murphy Company ("Murphy"), a                    
wholly-owned subsidiary of Mack Realty Company, which is a wholly-owned         
subsidiary of McCrory, was served with a complaint naming Murphy as a           
defendant in a civil action  brought by thirty plaintiffs in the Court of       
Common Pleas in Blair County, Pennsylvania.  The action arises out of a fire    
at the Logan Valley Mall located in Logan Township, Pennsylvania that           
allegedly started on or about December 15 or 16, 1994 at a Murphy store         
located in the mall, which fire allegedly damaged the plaintiffs' businesses.   
The landlord and owner of the mall are also named as defendants.  An            
answer to the complaint has not yet been filed by Murphy.                       

Additional Litigation, Etc.                                                     

Various other legal proceedings are pending against or otherwise relate to      
McCrory and its subsidiaries, involving a variety of causes of action arising   
from the operation of its business.  Substantially all of these actions are     
stayed pursuant to Section 362 of the Bankruptcy Code.  Management does         
not consider any of these other proceedings to be material and does not         
expect such proceedings to have a significant impact on the Debtors' ability    
to formulate a consensual plan of reorganization.                               

As a debtor-in-possession under chapter 11 of the Bankruptcy Code, the          
Debtors are subject to the jurisdiction of the Bankruptcy Court and are         
continually subject to various proceedings under the Bankruptcy Code.  It is    
not practicable for McCrory to describe or refer to all such proceedings or     
to predict the impact thereof on the Debtors or their efforts to formulate      
a consensual plan of reorganization.                                            

Item 3.  DEFAULTS UPON SENIOR SECURITIES                                        

(a)  The filing by McCrory on February 26, 1992 of a petition for               
reorganization under chapter 11 constituted a default under the terms of        
substantially all of the Company's loan agreements, notes, debentures, and      
indentures.  The amount of interest and principal unpaid as of November 2,      
1995 is $71,762,000 and $108,537,000, respectively.  McCrory has also not       
paid any dividends on its outstanding preferred stocks since the Petition       
Date.  As of November 2, 1995 the aggregate amount of dividends in arrears      
is $3,647,000.                                                                  

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K                                       

(a)  Exhibits: 10(r) Settlement Agreement dated as of November 13, 1995,        
by and among McCrory Corporation, Robert B. Reich, Secretary of Labor,          
the Department of Labor and certain former fiduciaries of the McCrory           
Stores Pension Plan.                                                            

(b)  Form 8-K, dated October 19, 1995, filed with the Securities
and Exchange Commission on November 2, 1995.                                    

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FORM 10-Q                                                                       

    McCRORY CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)                                                         

                            SIGNATURES

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

                                                                     McCRORY
CORPORATION                                                                     

(Registrant)                                          

Date:  December 18, 1995                                                        
                                                          /S/          ]
PAUL WEINER                                                                 
Paul Weiner                                                               
Senior Vice President and Treasurer                                       
(Principal Financial and Accounting Officer)                                

FORM 10-Q                                                                       

    McCRORY CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)                                                         

                            SIGNATURES

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

McCRORY CORPORATION     
(Registrant)    

Date:  December 18, 1995                                                        

                           Paul Weiner
                               Senior Vice President and Treasurer
                                (Principal Financial and Accounting Officer)
                          SETTLEMENT AGREEMENT

                This settlement agreement (the "Agreement") by and between
McCrory Corporation ("McCrory"), Robert B. Reich, the Secretary of Labor        
of the United States (the "Secretary"), by his duly authorized representative,  
and Michael Magenheim, Seymour Greene, Saul Kagan, Amos Kaminski,               
Arthur F. McGinness, Jr., Donald L. Miller, Stephen Pistner, Karl Margolis,     
Meshulam Riklis, Harold S. Divine, Samuel Levy, Peter Thorner, David Helman,    
Loren Schockley, Theresa Hopkins and the estate of Leonard Lane (the            
"Fiduciaries") is made as of this 13th day of November, 1995.                   

                            WITNESSETH

                WHEREAS, McCrory sponsored the McCrory Stores Pension Plan
(the "Plan"), a defined benefit plan, which was terminated effective October    
11, 1985; and                                                                   
              WHEREAS, retirement annuity contracts (the "ELIC Annuity
Contracts") were purchased on behalf of certain employees and former            
employees of McCrory (or its affiliates and former affiliates) (collectively,   
and together with any beneficiaries thereof under the ELIC Annuity              
Contracts, the "Annuity Holders") from Executive Life Insurance Company ("ELIC")
to satisfy all benefit obligations under the Plan; and                          

    WHEREAS, on April 11, 1991, ELIC was placed in
conservatorship by the Insurance Commissioner of California; and                

    WHEREAS, as a result of the restructuring (the
"Rehabilitation") of ELIC pursuant to a plan of rehabilitation (the             
"Rehabilitation Plan"), the ELIC Annuity Contracts of those Annuity Holders     
who did not elect to "opt out" of the Rehabilitation Plan (the "Participating   
Holders") were converted into annuity contracts ("Aurora Annuity Contracts")    
issued by Aurora National Life Assurance Company ("Aurora"), successor to       
ELIC; and                                                                       

                  WHEREAS, pursuant to the Rehabilitation Plan, certain of the
Participating Holders are entitled to receive payments from applicable State    
Guaranty Associations (the "Guaranty Associations"); and                        

              WHEREAS, the amounts that the Participating Holders were
entitled to receive under the terms of their ELIC Annuity Contracts may in      
some cases exceed the sum of the payments that they are entitled to receive     
(i) from the Aurora Annuity Contracts as scheduled under the Rehabilitation     
Plan (or if greater, the amounts actually received), (ii) from the Guaranty     
Associations, and (iii) to the extent not included in the foregoing clauses     
(i) and (ii), from Aurora, ELIC or John Garamendi, Commissioner of the          
California Department of Insurance solely in his capacity as conservator,       
rehabilitator, liquidator and as otherwise appointed pursuant to certain        
insurance proceedings of ELIC and in his capacity as the Holdback Trustee       
(or any successor to Mr. Garamendi, including Chuck Quackenbush) (the           
"Rehabilitator") in connection with the Rehabilitation (the total such          
difference is hereinafter referred to as the "Participating Holders             
Shortfall"); and                                                                

         WHEREAS, the amounts that those Annuity Holders who
elected to "opt out" of the Rehabilitation Plan (the "Non-Participating         
Holders") were entitled to receive under the terms of their ELIC Annuity        
Contracts may in some cases exceed the sum of the payments that they would have 
been entitled to receive, had they not elected to "opt out" of the              
Rehabilitation Plan, (i) from the Aurora Annuity Contracts as scheduled under   
the Rehabilitation Plan (or if greater, the amounts they actually would have    
received had they not opted out), (ii) from the Guaranty Associations, and      
(iii) to the extent not included in the foregoing clauses (i) and (ii), from    
Aurora, ELIC or the Rehabilitator in connection with the Rehabilitation (the    
total such difference in the "Non-Participating Holders Shortfall"; and         
together with the Participating Holders Shortfall is the "Shortfall"); and      

        WHEREAS, on February 26 1992, McCrory Corporation,
along with twenty-seven of its subsidiaries (the "Debtors"), filed separate,    
voluntary petitions for relief under chapter 11 of title 11 of the United       
States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for   
the Southern District of New York (the "Bankruptcy Court"), which cases have    
been consolidated for procedural purposes and are being jointly administered    
pursuant to an order of the Bankruptcy Court (collectively, the "Chapter 11     
Case"); and                                                                     
          WHEREAS, the Secretary filed a proof of claim in the
amount of $39,940,000 (the "DOL Proof of Claim") in the Chapter 11 Case pursuant
to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"),    
29 U.S.C. 1001 et seq., alleging that McCrory breached certain fiduciary duties 
and other statutory restrictions imposed by ERISA in connection with the        
termination of the Plan and the purchase of the ELIC Annuity Contracts, and     
asserted that the DOL Proof of Claim was valued on the basis of a then          
anticipated thirty percent shortfall in payments under the ELIC Annuity         
Contracts; and                                                                  

           WHEREAS, the Fiduciaries filed proofs of claim in the
Chapter 11 Case seeking indemnification from McCrory in the event they were     
obligated to make any payments to the Secretary in connection with the          
termination of the Plan and the purchase of the ELIC Annuity Contracts; and     

               WHEREAS, the Secretary filed a proof of claim against the
McCrory Parent Corporation ("MPC") in the case styled In re McCrory             
Parent Corporation,  Case No. 91-B-15367 (CB), which proof of claim was settled 
by MPC and the Secretary under terms whereby MPC agreed that the Secretary      
would have an allowed claim against its estate in the amount of $1,000,000 (the 
"MPC Claim"); and                                                               

              WHEREAS, the Secretary is willing to release and forever
discharge the Plan; McCrory's current and former officers, directors,           
employees, consultants, attorneys and agents, their heirs, executors,           
administrators, personal representatives, attorneys, successors and assigns     
(collectively, the "Released Persons"); the Fiduciaries, their heirs,           
executors, administrators, personal representatives, attorneys, successors      
ad assigns (collectively, the "Fiduciary Entities", and together with the       
Released Persons the "Released Parties"); and McCrory, its divisions,           
subsidiaries, affiliates, legal representatives, successors and assigns         
(collectively, the "McCrory Entities") from any and all liability, if any,      
to the Secretary in connection with the termination of the Plan and the         
purchase of the ELIC Annuity Contracts; and                                     

               WHEREAS, it is the Secretary's position that a creditor's
claim against a nondebtor, such as the Secretary's claims against McCrory's     
officers, cannot be released in bankruptcy absent the creditor's consent; and   

               WHEREAS, it is McCrory's position that a creditor's claim
against a nondebtor, such as the Secretary's claims against McCrory's           
officers, can be released in bankruptcy even absent the creditor's consent;     
and                                                                             

            WHEREAS, the Fiduciaries desire to release and forever
discharge the McCrory Entities and the Released Persons from any and all        
liability, if any, in connection with the termination of the Plan and the       
purchase of the ELIC Annuity Contracts; and                                     

        WHEREAS, McCrory desires to compensate the Annuity
Holders by providing for the payment of the Shortfall; and                      

                   WHEREAS, it is the desire of the parties hereto to settle and
compromise all of their existing disputes on the terms and conditions set       
forth herein; and                                                               

          WHEREAS, the restructuring of ELIC has substantially
reduced the amount of the anticipated shortfall in payments under the ELIC      
Annuity Contracts, and the Secretary, after having investigated the facts       
relating to the above circumstances, is satisfied that this Agreement adequately
safeguards the interests of the Annuity Holders and the public;                 

            NOW THEREFORE, in consideration of the mutual promises
and agreements herein, and other good and valuable consideration, the receipt   
and sufficiency of which is hereby acknowledged, it is hereby agreed as follows:
               1.     a.    Within thirty (30) days after the "Effective
Date" (as defined in paragraph 11 hereof), McCrory agrees to purchase an annuity
contract or similar insurance product (the "Shortfall Annuity") to provide      
for the payment of the Participating Holders Shortfall from an insurance        
carrier mutually agreed upon by the Secretary and McCrory.  The Shortfall       
Annuity shall include a provision for the payment of a single lump sum          
payment to each Participating Holder who is in pay status on the date of the    
commencement of annuity payments under the Shortfall Annuity (the               
"Shortfall Annuity Commencement Date") of his or her pro-rata portion of that   
portion of the Participating Holders Shortfall which related to periods prior   
to the Shortfall Annuity Commencement Date calculated using the interest rates  
required under the Rehabilitation Plan with respect thereto.                    

                     b.    Within thirty (30) days after the Effective
Date, McCrory agrees to make a single lump sum payment to each of the Non-      
Participating Holders (such lump sums collectively, the "Direct Payment")       
which shall include payment to each Non-Participating Holder of his or her      
pro-rata portion of the present value as of the Effective Date of the Non-      
Participating Holders Shortfall calculated using an interest rate of 7.2% for   
that portion of the Non-Participating Holders Shortfall due before or on the    
Effective Date and a discount rate of 7.2% for the present value for that       
portion of the Non-Participating Holders Shortfall due after the Effective      
Date.                                                                           

               2.     Upon the purchase of the Shortfall Annuity and the
making of the Direct Payment in conformity with the terms of this Agreement, the
Secretary will terminate its investigation concerning the termination of the    
Plan and the acquisition of the ELIC Annuity Contracts and no action will be    
taken nor claim asserted by the Secretary in connection therewith against the   
McCrory Entities or the Released Parties.                                       

                 3.     a.    Upon the purchase of the Shortfall Annuity and
the making of the Direct Payment in conformity with the terms of this           
Agreement, the Secretary hereby releases and forever discharges the Plan, the   
McCrory Entities and the Released Parties from any and all obligations, claims, 
proofs of claim, including, but not limited to the DOL Proof of Claim,          
rights, causes of action and liabilities of every kind and nature, whether      
known or unknown, suspected or unsuspected, by statute, including, but not      
limited to, Title I of ERISA, at law or in equity, the Secretary has ever had   
or now has against the Plan, the McCrory Entities or the Released Parties       
with respect to the termination of the Plan, the purchase of the ELIC Annuity   
Contracts, and the selection of the insurance carrier to provide the            
Shortfall Annuity.                                                              

                        b.    Upon the purchase of the Shortfall Annuity and
the making of the Direct Payment in conformity with the terms of this           
Agreement, the Fiduciaries hereby release and forever discharge the Plan, the   
McCrory Entities, and the Released Persons from any and all obligations, claims,
proofs of claim, rights, causes of action and liabilities of every kind and     
nature, whether known or unknown, suspected or unsuspected, by statute at       
law or in equity, the Fiduciaries have ever had or now have against the Plan,   
the McCrory Entities, or the Released Persons with respect to the termination of
the Plan, the purchase of the ELIC Annuity Contracts, and the selection of      
the insurance carrier to provide the Shortfall Annuity.                         

                      c.    It is understood and agreed that none of the
parties, entities or persons hereby released, has admitted any liability, all   
such liability being expressly denied.                                          

                     d.    Nothing in this Agreement is binding on any
governmental agency other than the United States Department of Labor.           

               4.     Upon the purchase of the Shortfall Annuity and the
making of the Direct Payment in conformity with the terms of this Agreement, (i)
McCrory and the Secretary agree that the Secretary will not be considered a     
"creditor" (as such term is defined in the Bankruptcy Code) of the Debtors      
and will not be entitled to vote on any plan of  reorganization of the          
Debtors in the Chapter 11 Case, and (ii) the Secretary hereby assigns all of    
his interest in the MPC Claim to McCrory.                                       

     5.     In the event that in connection with the
Rehabilitation, Aurora, the Guaranty Associations, ELIC and/or the Rehabilitator
agreed to pay more to the Annuity Holders than the amounts they are entitled to 
receive from the Aurora Annuity Contracts as scheduled under Rehabilitation Plan
(this difference is the "Excess"), the Secretary agrees to not object to any    
agreement between McCrory, Aurora, the Guaranty Associations, ELIC, the         
Rehabilitator, and/or any other party or parties which would allow McCrory      
to recover the Excess to the extent that such Excess were it to be received     
by the Annuity Holders, together with the sum of the amounts from the           
Aurora Annuity Contracts as scheduled under the Rehabilitation Plan, the amounts
from the Guaranty Associations, the amounts from the Shortfall Annuity and      
the amounts from the Direct Payment  would allow the Annuity Holders to         
receive more than they were entitled to receive under the ELIC Annuity          
Contracts.                                                                      

                  6.     This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their successors, agents and assigns.            

                  7.     This Agreement constitutes the entire agreement among
the parties with respect to its subject matter and supersedes any prior         
agreement or understanding, whether oral or in writing, that any party may claim
exists.                                                                         

          8.     This Agreement may not be amended or modified
except by a writing signed by all parties hereto and, to the extent such        
modification or amendment is material, approved by final order of the           
Bankruptcy Court; however, no amendment or modification shall require the       
consent of any other person, including, without limitation, any Annuity Holder. 

               9.     Any person signing this Agreement on behalf of any
party expressly acknowledges and represents thereby that he or she has the      
authority to sign for and legally bind such party.                              

            10.    This Agreement may be executed in counterparts.

               11.    This Agreement (except this Paragraph, which shall
become effective when this Agreement has been executed and delivered by the     
parties hereto) shall be of no force or effect whatsoever until and shall only  
become effective if and when (i) McCrory files and appropriate motion (the      
"Motion") in the Chapter 11 Case seeking approval of this Agreement which the   
Bankruptcy Court grants, and (ii) the order approving this Agreement has        
become final and non-appealable (the date upon which such order become          
final and non-appealable being referred to herein as the "Effective Date").     
McCrory will promptly seek such approval.                                       

              12.    The Bankruptcy Court shall retain jurisdiction to
enforce compliance with the terms of this Agreement.  The Secretary of the      
United States Department of Labor shall have the right and standing under this  
Agreement to enforce its terms in theBankruptcy Court or any other court with   
jurisdiction to enforce its terms.                                              

            IN WITNESS WHEREOF, the parties hereto have subscribed
their names on the dates indicated by their respective signatures.              

For the Secretary of Labor                                                      

By:                                                              Date:          

Timothy D. Hauser                             
Senior Trial Attorney                         

For McCrory Corporation                                                         

By:                                                               Date:         

Paul Weiner                                   
Vice-President and Treasurer                                          

By:                                                               Date:         

Michael Magenheim                                                     

By:                                                               Date:         

Seymore Greene                                                        

By:                                                              Date:          

Saul Kagan                                                            

By:                                                               Date:         

Amos Kaminski                                                         

By:                                                              Date:          

Arthur F. McGinness, Jr.                                              

By:                                                              Date:          

Donald L. Miller                                                      

By:                                                               Date:         

Stephen Pistner                               

By:                                                               Date:         

Karl Margolis                                 

By:                                                               Date:         

Meshulam Riklis                                                       

By:                                                              Date:          

Harold S. Divine                                                      

By:                                                              Date:          

Samuel Levy                                                           

By:                                                              Date:          

Peter Thorner                                 

By:                                                              Date:          

David Helman                                                          

By:                                                             Date:           

Loren Schockley                                                       

By:                                                             Date:           

Theresa Hopkins                                                       

For the estate of Leonard Lane                                                  

By:                                            Date:                            

[name & title]                                                        

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                 SECURITIES AND EXCHANGE
COMMISSION                                                                      

                             Washington, DC  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):
                            October 19, 1995

                           McCRORY CORPORATION

            (Exact name of Registrant as Specified in its charter)

Delaware                         1-2759                     13-5580679
(State or other                 (Commission                  (I.R.S. Employer   
jurisdiction of                 File Number)              Identification No.)   
incorporation)                                                                  

                 667 Madison Avenue, New York,  New York
10021                                                                           
                  (Address of principal executive Offices)    (Zip Code)

               Registrant's telephone number, including area code:

                       (212)  735-9500
ITEM 5.        OTHER EVENTS                                                     

       On February 26, 1992, the McCrory Corporation ("McCrory")
and                                                                             
twenty-seven of its subsidiaries (collectively, the "Debtors") filed            
voluntary petitions for relief under chapter 11 title 11 of the United States   
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for        
the                                                                             
Southern District of New York (the "Bankruptcy Court").                         

           On October 19, 1995, the Debtors filed a Second Amended Joint
Plan of Reorganization (the "Amended Plan") with the Bankruptcy Court.  The     
Amended Plan reflects an agreement between the Debtors and the Official         
Committee of Unsecured Creditors ("Creditors' Committee") regarding the         
terms of the proposed restructuring of the Debtors.  The Amended Plan provides  
that Meshulam Riklis, Chairman of the Board and Chief Executive Officer of      
McCrory ("Riklis"), will cause $50,000,000 to be contributed to reorganized     
McCrory in exchange for 69% of the new common stock, a $20,000,000 junior       
subordinated note, and 500,000 stock appreciation rights. In full, complete     
satisfaction, release and discharge of existing creditor claims: (i)            
McCrory's general unsecured creditors will receive 16.74% of their allowed      
claims in 11% McCrory Senior Subordinated Notes which are payable 20%           
on each of December 31, 1996, December 31, 1997, December 31, 1998, December    
31, 1999 and December 31, 2000, with accrued interest from August 29, 1995 to   
the Amended Plan effective date.  Holders of Allowed Insured Claims (as defined 
in the Amended Plan) will be entitled to receive the lesser of (a) 16.74% of    
such holder's Allowed Insured Claim and (b) $83,700 in cash, with interest      
payable at 11% per annum, payable as follows:  20% of such amount on            
each of the first, second, third, fourth and fifth anniversary of the later of  
(A) December 31, 1995 and (B) the date a Disputed Insured Claim becomes an      
Ultimately Allowed Insured Claim and to the extent such holder's Allowed        
Insured Claim exceeds $500,000, the legal, equitable and contractual rights,    
if any, to which the Allowed Insured Claim entitles the holder of such claim    
against an insurance company under McCrory's general liability insurance        
program, if any, shall remain unaltered; (ii) holders of McCrory's Senior       
Subordinated Exchangeable Variable Rate Notes (as defined in the Amended        
Plan) will receive their pro rata share of $38,156,394 in cash together with    
interest on that amount accrued at 11% from August 29, 1995 to the              
Amended Plan effective date and 12% of the new common stock to be issued by     
reorganized McCrory; (iii) holders of McCrory's Subordinated Debentures         
(as defined in the Amended Plan) will receive their pro rata share of 19% of the
new common stock to be issued by reorganized McCrory; and (iv)                  
McCrory's equity holders will receive no recovery and all existing equity       
securities will be extinguished.                                                

        Consummation of a plan of reorganization is subject to the
review and approval by the Bankruptcy Court, satisfaction of certain conditions 
precedent to confirmation, including, but not limited to, a release of Riklis   
by the Astrum Settlement Trust (as defined in the Amended Plan), obtaining      
adequate post-confirmation financing and satisfaction of confirmation           
requirements contained in the Bankruptcy Code.                                  

          On October 20th, the Bankruptcy Court signed a consent order
pursuant to which the Debtors' exclusive right to solicit acceptances of        
their Amended Plan was extended to January 31, 1996.  The consent order         
further provides that, if the Amended Plan is not consummated on or before      
January 31, 1996, the Debtors shall have the sole and exclusive right to        
automatically further extend the solicitation period through March 31, 1996.    
In addition, if the solicitation period is so extended, and the Amended Plan    
is not consummated on or before March 31, 1996, the solicitation period will    
automatically further extend through and including June 30, 1996; provided      
however, that, from and after March 31, 1996, the Creditors' Committee          
may file a plan in the chapter 11 cases.                                        

        In October 1995, as part of management's ongoing review of
store locations and in connection with the Debtor's business reorganization     
plan, 118 additional store closings were identified (the "Closing Stores") and  
accordingly, a provision of approximately $22,000,000 has been recorded as      
a restructuring charge.  This provision includes costs associated with          
closing stores, reductions in personnel and the write-off of certain            
intangible assets.                                                              

            On or about October 23, 1995, the Debtors filed an application
seeking authorization of the Bankruptcy Court to conduct going-out-of-          
business sales of the Closing Stores for a period of approximately ninety       
days commencing on November 1, 1995 and ending on or about January 31,          
1996.                                                                           

As of the date hereof, an order has not been entered by the Bankruptcy Court    
approving such sales.  The Debtors anticipate that an order will be entered     
in the near term.                                                               

ITEM 7.        EXHIBITS                                                         

              Included as an exhibit to this filing is the Registrant's Second
Amended Joint Plan of Reorganization dated October 19, 1995.                    

                             SIGNATURE

                 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 thereunto duly authorized.                                   

   McCRORY CORPORATION

Date:  November 2, 1995                     By: Paul Weiner                     

                       Senior Vice President and Treasurer

Dates Referenced Herein

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