SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 27, 1996
-------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- -------------------
AMES DEPARTMENT STORES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2269444
- -------------------------------- --------------------------------------
(State or other jurisdiction of I.R.S. Employer Identification Number)
incorporation or organization)
2418 Main Street, Rocky Hill, Connecticut 06067
- ----------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (860) 257-2000
------------------------
None
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the 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 the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
----- -----
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.
YES X NO
----- -----
20,472,269 shares of Common Stock were outstanding on May 15, 1996.
Exhibit Index on page 11
Page 1 of 13 (including exhibits)
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED April 27, 1996
I N D E X
---------
Page
Part I: Financial Information
Consolidated Condensed Statements of Operations 3
for the Thirteen Weeks Ended April 27, 1996
and April 29, 1995
Consolidated Condensed Balance Sheets at 4
April 27, 1996, January 27, 1996, and
April 29, 1995
Consolidated Condensed Statements of Cash Flows 5
for the Thirteen Weeks Ended April 27, 1996
and April 29, 1995
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II: Other Information
Submission of Matters to a Vote of Security Holders 11
and Exhibits and Reports on Form 8-K
PART I
FINANCIAL INFORMATION
AMES DEPARTMENT STORES, INC. AND SUSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
For the Thirteen
Weeks Ended
April 27, April 29,
1996 1995
----------- -----------
TOTAL SALES $455,677 $457,068
Less: Leased department sales 17,010 18,756
----------- -----------
NET SALES 438,667 438,312
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 321,265 322,967
Selling, general and administrative expenses 127,802 133,041
Leased department and other operating income (5,774) (6,254)
Depreciation and amortization expense 2,620 1,941
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (1,538) (1,538)
Interest and debt expense, net 4,239 5,121
Gain on disposition of properties - (991)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (9,947) (15,975)
Income tax benefit 2,949 4,834
----------- -----------
NET INCOME (LOSS) (6,998) (11,141)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 20,472 20,127
=========== ===========
NET INCOME (LOSS) PER SHARE ($0.34) ($0.55)
=========== ===========
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
-3-
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
April 27, January 27, April 29,
1996 1996 1995
ASSETS ------------------------------------
Current Assets:
Cash and short-term investments 18,851 14,185 20,169
Receivables 24,585 14,478 25,121
Merchandise inventories 477,960 402,177 520,504
Prepaid expenses and other current assets 20,081 12,793 14,873
------------------------------------
Total current assets 541,477 443,633 580,667
------------------------------------
Fixed Assets 84,965 78,487 54,258
Less - Accumulated depreciation and amortization (22,547) (20,259) (9,628)
------------------------------------
Net fixed assets 62,418 58,228 44,630
------------------------------------
Other assets and deferred charges 5,806 3,965 5,022
------------------------------------
$609,701 $505,826 $630,319
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $171,586 $112,682 $150,888
Other 38,944 43,636 35,116
------------------------------------
Total accounts payable 210,530 156,318 186,004
Note payable - revolver 83,480 4,284 103,147
Current portion of long-term debt and capital lease obligations 17,001 17,347 19,429
Self-insurance reserves 37,692 39,003 45,393
Accrued expenses and other current liabilities 51,384 54,943 57,923
Restructuring reserves 22,224 30,623 2,551
------------------------------------
Total current liabilities 422,311 302,518 414,447
Long-term debt 13,962 23,159 29,581
Capital lease obligations 31,785 29,372 36,730
Other long-term liabilities 6,144 6,322 6,258
Unfavorable lease liability 18,252 18,672 22,432
Excess of revalued net assets over equity under fresh-start reporting 40,942 42,480 47,095
Stockholders' Equity:
Common stock 205 205 201
Additional paid-in capital 80,759 80,759 80,759
Retained earnings (accumulated deficit) (4,659) 2,339 (7,184)
------------------------------------
Total stockholders' equity 76,305 83,303 73,776
------------------------------------
$609,701 $505,826 $630,319
====================================
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
-4-
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the Thirteen
Weeks Ended
April 27, April 29,
1996 1995
---------- -----------
Cash flows from operating activities:
Net income (loss) ($6,998) ($11,141)
Adjustments to reconcile net loss to net cash
used for operating activities:
Income tax benefit (2,949) (4,834)
Gain on disposition of properties - (991)
Depreciation and amortization of fixed assets 2,724 2,014
Amort. of the excess of revalued net assets over equity (1,538) (1,538)
Increase in accounts receivable (10,107) (8,314)
Increase in merchandise inventories (75,783) (90,352)
Increase in accounts payable 54,212 21,473
Decrease in accrued expenses and other current liabs. (5,048) (3,403)
Increase in other working capital and other, net (1,628) (81)
---------- -----------
Cash used for operations before restructuring items (47,115) (97,167)
Payments of restructuring costs (8,399) (610)
---------- -----------
Net cash used for operating activities (55,514) (97,777)
---------- -----------
Cash flows from investing activities:
Proceeds from the sales of properties - 294
Purchases of fixed assets (5,634) (4,953)
Purchase of leases (2,638) -
Decrease in restricted cash - 2,047
---------- -----------
Net cash used for investing activities (8,272) (2,612)
---------- -----------
Cash flows from financing activities:
Payments of debt and capital lease obligations (10,744) (10,991)
Short-term borrowings under the revolver, net 79,196 103,147
---------- -----------
Net cash provided by financing activities 68,452 92,156
---------- -----------
Increase (decr.) in unrest. cash and short-term invest. 4,666 (8,233)
Unrestricted cash and short-term invest., beg. of period 14,185 28,402
---------- -----------
Unrestricted cash and short-term invest., end of period $18,851 $20,169
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest and debt fees not capitalized $3,218 $3,882
Income taxes 1 1
<FN>
(The accompanying notes are an integral part of these consolidated condensed
financial statements.)
- 5 -
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
---------------------
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements of Ames Department
Stores, Inc. (a Delaware Corporation) and subsidiaries
(collectively "Ames" or the "Company") contain all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation of such financial statements for the interim periods.
Due to the seasonality of the Company's operations, the results of
its operations for the interim period ended April 27, 1996 may not
be indicative of total results for the full year. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
the rules and regulations promulgated by the Securities and
Exchange Commission. Certain prior year amounts have been
reclassified to conform to the presentation used for the current
year. The consolidated condensed balance sheet at January 27, 1996
was taken from audited financial statements previously filed with
the Commission in the Company's latest Form 10-K. The accompanying
unaudited consolidated condensed financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's latest Form 10-K.
2. Earnings Per Common Share:
-------------------------
Earnings per share was determined using the weighted average
number of common shares outstanding. There were no exercises of
warrants during the quarter ended April 27, 1996. Common stock
equivalents and fully diluted earnings per share were excluded as
their inclusion would have reduced the reported loss per share.
3. Inventories:
-----------
Inventories are valued at the lower of cost or market. Cost is
determined by the retail last-in, first-out (LIFO) cost method for
all inventories. No LIFO reserve was necessary at April 27, 1996,
January 27, 1996 and April 29, 1995.
4. Debt:
-----
On April 28, 1994, the Company entered into an agreement with
BankAmerica Business Credit, Inc., as agent, two financial
institutions as co-agents (together with the agent, the "Agents"),
and a syndicate consisting of five other banks and financial
institutions, for a secured revolving credit facility of up to $300
million, with a sublimit of $100 million for letters of credit (the
"Credit Agreement"). The Credit Agreement is in effect until June
22, 1997, is secured by substantially all of the assets of the
Company and requires the Company to meet certain quarterly
financial covenants which were amended in January, 1996. In
addition, the Company must have no outstanding borrowings (other
than borrowings, not to exceed $20 million, related to certain
expenditures) under the Credit Agreement for a consecutive 30-day
period between November 15th and February 15th of the following
year. The Company is in compliance with the financial covenants
through the quarter ended April 27, 1996.
As of April 27, 1996, borrowings of $83.5 million were
outstanding under the Credit Agreement. In addition, $27.3 and
$3.2 million of standby and trade letters of credit, respectively,
were outstanding under the Credit Agreement. The weighted average
interest rate on the borrowings was 9.5% for the thirteen weeks
ended April 27, 1996. The peak borrowing level in the first
quarter this year was $83.5 million.
The amount of borrowing under the Credit Agreement generally
shall not exceed the sum of (i) an amount equal to 55% of inventory
not covered by any outstanding letter of credit plus (ii) an amount
equal to 50% of inventory covered by any outstanding letter of
credit less (iii) a reserve for reinstated debt ($4.8 million as of
April 27, 1996). In addition, the Credit Agreement provides for
potential establishment of other reserves contingent upon the
Company's financial performance. In addition, each Agent reserves
the right to adjust the total available to be borrowed by
establishing reserves, making determinations of eligible inventory,
revising standards of eligibility or decreasing from time to time
the percentages set forth above. Reference can be made to the
latest Form 10-K for further descriptions of the Credit Agreement
and the obligations summarized below, and for descriptions of the
Company's other obligations not discussed herein.
Deferred Cash Distributions
The Company's plan of reorganization, which was consummated on
December 30, 1992, provided that $46.5 million of cash
distributions in respect to several classes of claims would be paid
subsequent to the consummation date. On January 31, 1993, January
31, 1994, January 31, 1995, and January 31, 1996, $15.0, $8.0, $8.0
and $8.0 million, respectively, of these deferred cash
distributions were paid as scheduled. The remaining unsecured
amount of $7.5 million is due, with interest that began on February
1, 1994 at 5% per annum, on January 31, 1997.
5. Stock Options:
-------------
The Company has two stock option plans, the 1994 Management
Stock Plan and the 1994 Non-Employee Directors Stock Option Plan.
The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized. The impact
on the Company's net income and earnings per share of compensation
cost determined consistent with FASB Statement No. 123 would have
been immaterial for the periods presented.
6. Income Taxes:
------------
The Company's estimated annual effective income tax rate for
each year was applied to the loss incurred before income taxes for
the thirteen weeks ended April 27, 1996 and April 29, 1995 to
compute non-cash income tax benefits of $2.9 and $4.8 million,
respectively. The Company currently expects that, as a result of
the seasonality of the Company's business, this year's income tax
benefit will be offset by non-cash income tax expense in the
remaining interim periods. The income tax benefits are included in
other current assets in the accompanying balance sheet as of April
27, 1996 and April 29, 1995.
7. Litigation:
----------
Reference can be made to the latest Form 10-K (Note 12 to the
Consolidated Financial Statements) for various litigation involving
the Company, for which there were no material changes since the
filing date of the Form 10-K.
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FISCAL QUARTER ENDED APRIL 27, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the number of stores in operation as of the dates
indicated:
Number of Stores in Operation
April 27, January 27, April 29,
1996 1996 1995
--------- ----------- ----------
300 307 305
The following discussion and analysis is based on the historical results of
operations for the thirteen weeks ended April 27, 1996 and April 29, 1995. Ten stores
were opened and seventeen stores were closed during the quarter ended April 27, 1996.
One store was closed during the quarter ended April 29, 1995.
The following table sets forth the historical operating results expressed as a
percentage of net sales for the periods indicated:
Thirteen
Weeks Ended
Apr. 27, Apr. 29,
1996 1995
------- --------
Net sales 100.0 % 100.0 %
Cost of merchandise sold 73.2 73.7
------- -------
Gross margin 26.8 26.3
Expenses and (income):
Selling, general and administrative expenses 29.1 30.4
Leased department and other operating income (1.3) (1.4)
Depreciation and amortization expense 0.6 0.4
Amortization of the excess of revalued net
assets over equity (0.4) (0.4)
Interest and debt expense, net 1.0 1.2
Gain on disposition of properties - (0.2)
------- -------
Income (loss) before income taxes (2.3) (3.7)
Income tax benefit 0.7 1.1
------- -------
Net income (loss) (1.6)% (2.6)%
======= =======
- 8 -
Total sales (which include leased department sales) for the
thirteen weeks ended April 27, 1996 decreased $1.4 million or 0.3% from
the prior-year's first quarter due primarily to a decrease in leased
department sales of $1.8 million. Net sales for the same period
increased $0.4 million or 0.1% from the prior year. This increase was
primarily due to sales from twelve (12) new stores opened since last
year's first quarter, partially offset by a decrease of 1.7% in
comparable store sales on a 286-store base. The decrease in comparable
store sales was primarily due to additional new competition and a
continued weak apparel sales market. Net sales for last year have been
restated to reflect the effect of recording "55 Gold" senior citizen
discounts as markdowns, which conforms with the current year treatment.
Gross margin for the first quarter increased $2.1 million, or .5%
as a percentage of net sales. The improvement in gross margin rate
during the first quarter was primarily attributable to lower markdowns.
Selling, general and administrative expenses declined $5.2
million, or 1.3% as a percentage of net sales, in the thirteen weeks
ended April 27, 1996 compared to the same prior-year period. The
Company experienced reductions in store, home office and advertising
expenses during the first quarter.
Depreciation and amortization expense increased by $.7 million, or
.2% of net sales, in the thirteen weeks ended April 27, 1996 compared to
the same prior-year period. The adoption of fresh-start reporting as of
December 26, 1992 resulted in the write-off of all of the Company's non-
current assets at that date, and therefore depreciation and amortization
expense reflects capital additions after that date.
The amortization of the "excess of revalued net assets over equity
under fresh-start reporting" remained the same in the current periods
presented as compared to the prior year. The Company is amortizing this
amount over a ten-year period.
Interest and debt expense, net of interest income, declined by $.9
million, or .2% of net sales, in the thirteen weeks ended April 27,
1996. This decrease was due primarily to lower outstanding long-term
debt balances as well as a reduction in interest expense related to the
Credit Agreement (as defined below). The Credit Agreement interest
expense was lower as a result of lower average outstanding balances
(from $57.5 million in last year's first quarter to $49.4 million in
this year's first quarter) and lower interest rates.
The Company did not record any property gains during the quarter
ended April 27, 1996, but recognized $1.0 million of net property gains
during the thirteen weeks ended April 29, 1995. In last year's first
quarter, the property gain resulted from the assignment of a lease for a
warehouse which was not part of the Company's operations at the time of
the assignment.
The Company's estimated annual effective income tax rate for each
year was applied to the loss before income taxes for the thirteen weeks
ended April 27, 1996 and April 29, 1995 to compute non-cash income tax
benefits of $2.9 and $4.8 million, respectively. The Company currently
expects that, as a result of the seasonality of the Company's business,
this year's income tax benefit will be offset by non-cash income tax
expense in the remaining interim periods.
Compared with the projections for the first quarter of 1996
contained in the Form 8-K filed on February 21, 1996 (referred to herein
as the "Plan"), net sales were $7.2 million lower than Plan and EBITDA
(earnings (loss) before net interest expense, income taxes, LIFO
expense, extraordinary or non-recurring items (including certain pre-
opening expenses), depreciation, amortization and other non-cash charges
and gain or loss on the sale of properties after January 28, 1996) was
$2.4 million higher than Plan. The EBITDA improvement resulted
primarily from lower-than-planned expenses partially offset by lower-
than planned other income.
Liquidity and Capital Resources
On April 28, 1994, the Company entered into an agreement with
BankAmerica Business Credit, Inc., as agent, two financial institutions
as co-agents (together with the agent, the "Agents"), and a syndicate
consisting of five other banks and financial institutions, for a secured
revolving credit facility of up to $300 million, with a sublimit of $100
million for letters of credit (the "Credit Agreement"). The Company was
in compliance with the financial covenants of the Credit Agreement
through the quarter ended April 27, 1996.
Reference can be made to Note 4 of this Quarterly Report and the
latest Form 10-K for further descriptions of the Credit Agreement and
the Company's other obligations.
Merchandise inventories, valued on a LIFO basis, decreased $42.5
million from April 29, 1995 to April 27, 1996 due to a planned reduction
in apparel, jewelry and domestics inventories and the effect of closing
17 stores during this year's first quarter, partially offset by the
addition of twelve (12) new stores since last year's first quarter. The
increase of $75.8 million in inventories from January 27, 1996 to April
27, 1996 was the result of a normal seasonal build-up of inventories.
Trade accounts payable increased $20.7 million from April 29, 1995
to April 27, 1996 due primarily to an increase in merchandise purchases
during this year's fiscal April over last year's fiscal April. The
increase in trade accounts payable of $58.9 million from January 27,
1996 to April 27, 1996 was the result of the seasonal build-up of
merchandise inventories referenced above.
Capital expenditures for the thirteen weeks ended April 27, 1996
totaled $5.6 million and for the balance of the year are estimated to be
approximately $14 million. The Company adjusts its plans for making
such expenditures depending on the amount of internally generated funds.
The net operating loss carryovers remaining after fiscal year 1996,
subject to any limitations pursuant to Internal Revenue Code Sec. 382,
should offset income on which taxes would otherwise be payable in future
years.
The Company believes that available cash and expected cash flows
from the current fiscal year's operations and beyond, and the
availability of its financing facilities, will enable the Company to
fund its expected needs for working capital, capital expenditures and
debt service requirements. Achievement of expected cash flows from
operations and compliance with the EBITDA (as defined above) covenant in
the Credit Agreement is dependent upon the Company's attainment of
sales, gross profit, and expense levels that are reasonably consistent
with its financial projections.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Reference can be made to Note 12 to the Consolidated
Financial Statements included in the Company's most recent
Form 10-K for various litigation involving the Company, for
which there were no material changes since the filing date of
the Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On April 10, 1996, the Company sent a notice of the
annual meeting and a proxy statement to its stockholders.
The notice of meeting announced that the Annual Meeting of
Stockholders would be held Wednesday, May 22, 1996, to
consider and act upon the following matters: (a) the election
of seven (7) directors for a term of one year or until their
successor(s) have been elected and qualified; (b) the approval
of an Amended and Restated Certificate of Incorporation of the
Company to authorize a class of preferred stock commonly known
as "blank check" preferred stock and to make certain other
changes; (c) the ratification and approval of the appointment
of Arthur Andersen LLP as the Company's independent certified
public accountants and auditors for the fiscal year ending
January 25, 1997; (d) voting on a stockholder proposal to
limit the terms of office of its non-employee directors; and
(e) the transaction of such other business as may properly
come before the meeting or any adjournments thereof.
The results of the meeting will be reported in the
Quarterly Report for the Company's fiscal quarter ending
July 27, 1996.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Index to Exhibits
-----------------
Exhibit No. Exhibit Page No.
----------- ------- --------
11 Schedule of computation of primary 13
earnings per share
(b) Reports on Form 8-K:
-------------------
The following reports on Form 8-K were filed
with the Securities and Exchange Commission
during the first quarter:
Date of Report Date of Filing Item # Description
-------------- -------------- ------ -----------
February 21, 1996 February 21, 1996 5 Disclosure of
the fiscal
1996 summary
financial
plan.
March 28, 1996 March 28, 1996 5 Disclosure of
fiscal
January and
February 1996
results.
April 16, 1996 April 16, 1996 5 Disclosure of
fiscal March
1996 results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMES DEPARTMENT STORES, INC.
(Registrant)
Dated: May 28, 1996 /s/ Joseph R. Ettore
---------------------------------------
Joseph R. Ettore, President, Director,
and Chief Executive Officer
Dated: May 28, 1996 /s/ John F. Burtelow
---------------------------------------
John F. Burtelow, Executive Vice
President and Chief Financial Officer
Dated: May 28, 1996 /s/ William C. Najdecki
---------------------------------------
William C. Najdecki, Senior Vice
President Finance
EXHIBIT 11
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF PRIMARY EARNINGS PER SHARE
(Amounts in thousands except per share amounts)
For the Thirteen
Weeks Ended
April 27, April 29,
1996 1995
------------ ------------
Primary net income (loss) ($6,998) ($11,141)
------------ ------------
Weighted average number of common shares
outstanding during the period 20,472 20,127
Add: Common stock equivalent shares
represented by
- Series B Warrants (a) (a)
- Series C Warrants (a) (a)
- Options under 1994 Management Stock Option Plan (a) (a)
- Options under 1994 Non-Employee Directors
Stock Option Plan (a) (a)
------------ ------------
Weighted average number of common and
common equivalent shares used in the
calculation of primary earnings per share 20,472 20,127
============ ============
Primary net income (loss) per share ($0.34) ($0.55)
============ ============
<FN>
(a) Common stock equivalents have not been included because the effect would
be anti-dilutive.
Note: Fully diluted earnings per share has not been presented as the effect
would be anti-dilutive.
- 13 -