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 26, 1997
------------------------------------------
[ ] 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
----- -----
21,348,174 shares of Common Stock were outstanding on May 10, 1997.
Exhibit Index on page 11
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED APRIL 26, 1997
I N D E X
Page
Part I: Financial Information
Consolidated Condensed Statements of Operations 3
for the Thirteen Weeks Ended
April 26, 1997 and April 27, 1996
Consolidated Condensed Balance Sheets at 4
April 26, 1997, January 25, 1997, and
April 27, 1996
Consolidated Condensed Statements of Cash Flows 5
for the Thirteen Weeks Ended April 26, 1997
and April 27, 1996
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 26, April 27,
1997 1996
----------- ----------
TOTAL SALES $448,575 $455,677
Less: Leased department sales 15,974 17,010
------------ -----------
NET SALES 432,601 38,667
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 314,235 321,265
Selling, general and administrative expense 128,885 127,802
Leased department and other operating income (5,305) (5,774)
Depreciation and amortization expense 2,923 2,620
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (1,538) (1,538)
Interest and debt expense, net 2,392 4,239
------------ ----------
INCOME (LOSS) BEFORE INCOME TAXES (8,991) (9,947)
Income tax benefit 3,061 2,949
------------ ----------
NET INCOME (LOSS) ($5,930) ($6,998)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 20,912 20,472
============ ==========
NET INCOME (LOSS) PER SHARE ($0.28) ($0.34)
============= ==========
<FN>
(The accompanying notes are an integral part of these consolidated
condensed financial statements.)
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
April 26, January 25, April 27,
1997 1997 1996
ASSETS ------------------------------------
Current Assets:
Cash and short-term investments $ 17,214 $ 46,119 $ 18,851
Receivables 26,228 19,071 24,585
Merchandise inventories 461,796 391,076 477,960
Prepaid expenses and other current assets 14,259 12,169 20,081
------------------------------------
Total current assets 519,497 468,435 541,477
------------------------------------
Fixed Assets 103,451 96,114 84,965
Less - Accumulated depreciation and
amortization (34,931) (32,529) (22,547)
------------------------------------
Net fixed assets 68,520 63,585 62,418
------------------------------------
Other assets and deferred charges 7,271 4,773 5,806
------------------------------------
$595,288 $536,793 $609,701
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $154,153 $145,737 $171,586
Other 47,109 43,180 38,944
------------------------------------
Total accounts payable 201,262 188,917 210,530
Note payable - revolver 73,107 - 83,480
Current portion of long-term debt
and capital lease obligations 8,182 15,578 17,001
Self-insurance reserves 33,507 34,177 37,692
Accrued expenses and other current liabilities 61,659 66,356 51,384
Store closing reserve 19,560 24,438 22,224
------------------------------------
Total current liabilities 397,277 329,466 422,311
Long-term debt 9,192 11,134 13,962
Capital lease obligations 26,347 27,086 31,785
Other long-term liabilities 7,366 7,565 6,144
Unfavorable lease liability 16,668 17,029 18,252
Excess of revalued net assets over equity
under fresh-start reporting 34,789 36,327 40,942
Stockholders' Equity:
Common stock 213 205 205
Additional paid-in capital 89,726 88,341 80,759
Retained earnings (accumulated deficit) 13,710 19,640 (4,659)
-----------------------------------
Total stockholders' equity 103,649 108,186 76,305
------------------------------------
$595,288 $536,793 $609,701
====================================
<FN>
(The accompanying notes are an integral part of these consolidated condensed
financial statements.)
PAGE
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the Thirteen
Weeks Ended
April 26, April 27,
1997 1996
---------- -----------
Cash flows from operating activities:
Net income (loss) ($5,930) ($6,998)
Adjustments to reconcile net loss to net cash
used for operating activities:
Income tax benefit (3,061) (2,949)
Depreciation and amortization of fixed and other assets 3,064 2,738
Amort. of the excess of revalued net assets over equity (1,538) (1,538)
Increase in accounts receivable (7,157) (10,107)
Increase in merchandise inventories (70,720) (79,027)
Increase in accounts payable 12,345 54,212
Decrease in accrued expenses and other current liabs. (5,367) (4,870)
Decrease (increase) in other working capital & other, net 717 (3,935)
---------- -----------
Cash used for operations before store closing items (77,647) (52,474)
Payments of store closing costs (3,980) (3,040)
---------- -----------
Net cash used for operating activities (81,627) (55,514)
---------- -----------
Cash flows from investing activities:
Purchases of fixed assets (8,806) (5,634)
Purchase of leases (2,826) (2,638)
---------- -----------
Net cash used for investing activities (11,632) (8,272)
---------- -----------
Cash flows from financing activities:
Payments of debt and capital lease obligations (10,146) (10,744)
Short-term borrowings under the revolver, net 73,107 79,196
Proceeds from exercise of options and warrants 1,393 -
---------- -----------
Net cash provided by financing activities 64,354 68,452
---------- -----------
(Decrease) increase in cash and short-term investments (28,905) 4,666
Cash and short-term investments, beginning of period 46,119 14,185
---------- -----------
Cash and short-term investments, end of period $17,214 $18,851
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest and debt fees not capitalized $1,987 $3,218
Income taxes 2 1
<FN>
(The accompanying notes are an integral part of these consolidated condensed
financial statements.)
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 26, 1997 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 (the "SEC"). Certain prior year
amounts have been reclassified to conform to the presentation used
for the current year. The consolidated condensed balance sheet at
January 25, 1997 was taken from audited financial statements
previously filed with the SEC 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. 646,581 warrants and 158,750
options were exercised during the quarter ended April 26, 1997. No
warrants or options were exercised during last year's first
quarter. Common stock equivalents and fully diluted earnings per
share were excluded as their inclusion would have reduced the
reported loss per share.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). Under SFAS No. 128, the presentation of Primary
and Fully Diluted Earnings per Share will be replaced by Basic and
Diluted Earnings per Share. The Company will adopt the provisions of
SFAS No. 128 effective January 31, 1998, and restate all prior periods.
Adoption will not have any effect on the Company's financial condition,
results of operations or cash flows.
Had the Company reported earnings per share for the periods
presented as determined under SFAS No. 128, Basic Earnings per Share
would have been the same as Primary Earnings per Share and Diluted
Earnings per Share would have been anti-dilutive and not presented.
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 26, 1997,
January 25, 1997 and April 27, 1996.
4. DEBT:
-----
On December 27, 1996, 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 $320
million, with a sublimit of $100 million for letters of credit and
a $20 million term loan portion available for capital expenditures
(the "Credit Agreement").
Prior to this date, the Company had a $300 million secured
revolving credit facility (the "Prior Credit Agreement") in place
with the same financial institutions. The Prior Credit Agreement
terminated on the effective date of the Credit Agreement
The Credit Agreement is in effect until June 30, 2000, is
secured by substantially all of the assets of the Company, and
requires the Company to meet certain financial covenants. In
addition, each year outstanding borrowings under the Credit
Agreement may not exceed any balance due under the term loan
portion plus up to $20 million in revolver loans for a consecutive
30-day period between November 15th and February 15th of the
following year (the "clean-up" requirement). The Company is in
compliance with the financial covenants through the quarter ended
April 26, 1997.
As of April 26, 1997, borrowings of $73.1 million were
outstanding under the Credit Agreement. In addition, $21.6 and
$3.5 million of standby and trade letters of credit, respectively,
were outstanding under the Credit Agreement. The weighted average
interest rate on the borrowings was 8.1% for the thirteen weeks
ended April 26, 1997. The peak borrowing level through April 26,
1997 was $73.8 million.
The amount of borrowing under the Credit Agreement shall not
exceed the sum of (i) an amount equal to 60% 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. In addition, the Credit Agreement provides for the
potential establishment of other reserves contingent upon the
Company's financial performance. Each Agent, in addition, 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 for descriptions of the Company's other obligations not
discussed herein.
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 of applying FASB Statement No. 123 to the Company's net
income and loss per share would have been immaterial in both this
year's and last year's first quarter.
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 26, 1997 and April 27, 1996 to
compute non-cash income tax benefits of $3.1 and $2.9 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
26, 1997 and April 27, 1996.
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, except as follows.
Subsequent to the Court approval of the settlement of the Root matter,
Ms. Austin, the plaintiff in the Second Complaint, appealed the Court's
denial of her motion to intervene. The First Circuit Court of Appeals
dismissed the appeal for lack of jurisdiction. Ms. Austin's counsel then
filed a Motion to Disapprove the Settlement and Submit Objections on
behalf of a "Jane Doe." The Company will oppose the motion and believes
it is without merit.
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FISCAL QUARTER ENDED APRIL 26, 1997
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 26, January 25, April 27,
1997 1997 1996
---------- ------------ -----------
294 303 300
The following discussion and analysis is based on the results of operations
for the thirteen weeks ended April 26, 1997 and April 27, 1996. During the
quarter ended April 26, 1997, four stores were opened, twelve stores were
closed and the Company determined that it would not re-open a store
previously closed as a result of flooding. Ten stores were opened and
seventeen stores were closed during the quarter ended April 27, 1996.
The following table sets forth the operating results expressed as a
percentage of net sales for the periods indicated:
Thirteen
Weeks Ended
Apr. 26, Apr. 27,
1997 1996
------- --------
Net sales 100.0 % 100.0 %
Cost of merchandise sold 72.6 73.2
------- -------
Gross margin 27.4 26.8
Expenses and (income):
Selling, general and administrative expenses 29.8 29.1
Leased department and other operating income (1.2) (1.3)
Depreciation and amortization expense 0.7 0.6
Amortization of the excess of revalued net
assets over equity (0.4) (0.4)
Interest and debt expense, net 0.6 1.0
------- -------
Income (loss) before income taxes (2.1) (2.3)
Income tax benefit 0.7 0.7
------- -------
Net income (loss) (1.4)% (1.6)%
======= =======
Net sales for the thirteen weeks ended April 26, 1997 decreased
$6.1 million or 1.4% from the prior-year's first quarter due primarily
to the reduction in the number of stores in operation from 1996 to 1997.
Comparable-store sales increased by 0.1% for the quarter.
Gross margin for the first quarter increased $1.0 million, or 0.6%
as a percentage of net sales. The improvement in gross margin rate
during the first quarter was primarily attributable to higher purchase
markup.
Selling, general and administrative expenses increased $1.1
million, or 0.7% as a percentage of net sales, in the first quarter
compared to the same prior-year period. The Company experienced
increased store payroll, general liability and performance bonus
expenses partially offset by a reduction in advertising expenses during
the first quarter.
Depreciation and amortization expense increased by $0.3 million, or
0.1% of net sales, in the first quarter 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 $1.8
million, or 0.4% of net sales, in the first quarter. This decrease was
due primarily to a reduction in the amortization of deferred financing
costs, a reduction in short-term interest expense and lower outstanding
long-term debt balances. Short-term interest expense was lower as a
result of lower average outstanding balances (from $49.4 million in last
year's first quarter to $34.1 million in this year's first quarter) and
lower interest rates.
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 26, 1997 and April 27, 1996 to compute non-cash income tax
benefits of $3.1 and $2.9 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.
LIQUIDITY AND CAPITAL RESOURCES
On December 27, 1996, the Company entered into an agreement with
BankAmerica Business Credit, Inc., as agent, two financial institutions
as co-agents, and a syndicate consisting of five other banks and
financial institutions, for a secured revolving credit facility of up to
$320 million, with a sublimit of $100 million for letters of credit and
a $20 million term loan portion available for capital expenditures (the
"Credit Agreement").
Prior to this date, the Company had a $300 million secured
revolving credit facility (the "Prior Credit Agreement") in place with
the same financial institutions. The Prior Credit Agreement terminated
on the effective date of the Credit Agreement.
The Credit Agreement is in effect until June 30, 2000. The
Company was in compliance with the financial covenants of the Credit
Agreement through the quarter ended April 26, 1997. Reference can be
made to Note 4 of this Quarterly Report and the latest Form 10-K for
further descriptions of the Credit Agreement.
Merchandise inventories, valued on a LIFO basis, decreased $16.2
million from April 27, 1996 to April 26, 1997 due to the reduction in
the number of stores in operation and a planned reduction in apparel
inventories. The increase of $70.7 million in inventories from January
25, 1997 to April 26, 1997 was principally the result of a normal
seasonal build-up of inventories.
Trade accounts payable decreased $17.4 million from April 27, 1996
to April 26, 1997 due primarily to a decrease in merchandise purchases
during this year's fiscal April over last year's fiscal April. The
increase in trade accounts payable of $8.4 million from January 25, 1997
to April 26, 1997 was principally the result of the seasonal build-up of
merchandise inventories referenced above, partially offset by seasonal
dating in effect as of January 25, 1997.
Capital expenditures for the thirteen weeks ended April 26, 1997
totaled $8.8 million and for the balance of the year are estimated to be
approximately $32.0 million. The Company expects that capital
expenditures for the remainder of the year will be principally for new
and remodel stores and management information systems. 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 financial covenants in the Credit
Agreement are 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, except as set forth in Note 7 of this Quarterly Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On April 9, 1997, 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 21, 1997, 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 ratification and approval of the
appointment of Arthur Andersen LLP as the Company s independent
certified public accountants and auditors for the fiscal year
ended January 31, 1998; and (c) 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 26, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) INDEX TO EXHIBITS
-----------------
EXHIBIT NO. EXHIBIT PAGE NO.
----------- ------- --------
11 Schedule of computation of 13
primary earnings per share
(b) REPORTS ON FORM 8-K:
--------------------
The following reports on Form 8-K were filed with the
Securties and Exchange Commission during the first quarter:
DATE OF REPORT DATE OF FILING ITEM # DESCRIPTION
-------------- -------------- ------- -----------
February 27, 1997 February 27, 1997 5 Disclosure of
the fiscal 1997
summary
financial plan.
March 20, 1997 March 20, 1997 5 Disclosure of
fiscal January
& February 1997
results.
April 11, 1997 April 11, 1997 5 Disclosure of
fiscal March
1997 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 22, 1997 /s/ Joseph R. Ettore
--------------------------------------
Joseph R. Ettore, President, Director,
and Chief Executive Officer
Dated: May 22, 1997 /s/ John F. Burtelow
--------------------------------------
John F. Burtelow, Executive Vice
President and Chief Financial Officer
Dated: May 22, 1997 /s/ Gregory D. Lambert
--------------------------------------
Gregory D. Lambert
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 26, April 27,
1997 1996
------------ ------------
Primary net income (loss) ($5,930) ($6,998)
------------ ------------
Weighted average number of common shares
outstanding during the period 20,912 20,472
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 20,912 20,472
============ ============
Primary net income (loss) per share ($0.28) ($0.34)
============ ============
<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.