UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
OR
( ) 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 0-20269
DUCKWALL-ALCO STORES, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0201080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Cottage Street
Abilene, Kansas 67410-2832
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (785) 263-3350
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 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 [ ]
At March 16, 1999, there were 5,093,074 shares of Common Stock
outstanding, of which 3,517,476 shares were owned by affiliates.
Documents incorporated by reference: portions of the Registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders are incorporated by
reference in Part III hereof.
<PAGE 1>
PART I
ITEM 1. BUSINESS
History
Duckwall-ALCO Stores, Inc., (the "Company" or "Registrant"), was founded
as a general merchandising operation at the turn of the century in Abilene,
Kansas by A. L. Duckwall. From its founding until 1968, the Company
conducted its retail operations as small variety or "dime" stores. In 1968,
the Company followed an emerging trend to discount retailing when it opened
its first ALCO discount store. In 1991, the Company adopted its current
business strategy that focuses on under-served markets that have no direct
competition from another full-line discount retailer. This strategy includes
opening either an ALCO discount store or a Duckwall variety store, depending
upon the market size. As of May 1, 1999, the Company operates 263 retail
stores located in the central United States, consisting of 167 ALCO retail
discount stores and 96 Duckwall variety stores.
The Company was incorporated on July 2, 1915 under the laws of Kansas.
The Company's executive offices are located at 401 Cottage Avenue, Abilene,
Kansas 67410-2832, and its telephone number is (785) 263-3350.
General
The Company, which was established in 1901, is a regional retailer
operating 263 stores in 19 states in the central United States. The
Company's strategy is to target smaller markets not served by other regional
or national full-line retail discount chains and to provide the most
convenient access to retail shopping within each market. The Company's ALCO
discount stores offer a full line of merchandise consisting of approximately
35,000 items, including automotive, candy, crafts, domestics, electronics,
fabrics, furniture, hardware, health and beauty aids, housewares, jewelry,
ladies', men's and children's apparel and shoes, pre-recorded music and
video, sporting goods, seasonal items, stationery and toys. The Company's
smaller Duckwall variety stores offer a more limited selection of merchandise.
Of the Company's 167 ALCO discount stores, 121 stores are located in
communities that do not have another full-line discounter. The Company
intends to continue its strategy of opening ALCO stores in markets that do
not have other full-line discount retailers and where the opening of an ALCO
store is likely to be preemptive to the entry by other competitors in the
market. The ALCO discount stores account for 91% of the Company's net sales.
While the current ALCO stores average 21,700 square feet of selling space,
the Company's store expansion program is primarily directed toward stores
with a design prototype of approximately 18,000 square feet of selling space
("Class 18 Stores"), which, based on the Company's experience, has been a
design that maximizes return on investment for newly-constructed stores.
The Company's 96 Duckwall variety stores are primarily located in
communities of less than 2,500 residents and are designed to act as the
primary convenience retailer in these smaller communities. These stores,
which account for the remaining 9% of the Company's net sales, average
approximately 5,500 square feet of selling space and offer approximately
12,000 items. Operating Duckwall stores offers the Company the opportunity
to serve the needs of a community that would not support a full-line retail
discount store with a reduced investment per store and a higher return on
investment than the Company's average.
All of the Company's discount and variety stores are serviced by the
Company's 352,000 square foot distribution center in Abilene, Kansas.
Business Strategy
The Company believes that its improved operating performance and
financial condition over the last five fiscal years is the result of the
focused execution of a business strategy that includes the following key
components:
Markets: The Company intends to open ALCO stores in towns with
populations of typically less than 5,000 that are in trade areas with
populations of less than 16,000 where: (1) there is no direct
competition from national or regional full-line discount retailers;
(2) economic and demographic criteria indicate the market is able to
commercially support a discount retailer; and (3) the opening of an
ALCO store would significantly reduce the likelihood of the entry into
such market by another discount retailer. This key component of the
Company's strategy has guided the Company in both its opening of new
stores and in the closing of existing stores. Since 1991, the Company
has opened 105 ALCO discount stores (with an approximate average size
18,400 square feet of selling space) and 83 Duckwall variety stores.
Except for eight stores, each of the new ALCO and Duckwall stores was
opened in a primary market in which there was no direct competition
from a national or regional full-line discount retailer.
<PAGE 2>
Market Selection: The Company has a detailed process that it uses to
analyze under-served markets which includes examining factors such as
distance from competition, trade area, disposable income and retail
sales levels. Markets that are determined to be sizable enough to
support an ALCO or a Duckwall store, and that have no direct competition
from another discount retailer, are examined closely and eventually
selected or passed over by the Company's experienced management team.
Store Expansion: The Company's expansion program is designed around
the prototype Class 18 Store. This prototype details for each new store
plans for shelf space, merchandise presentation, store items to be
offered, parking, storage, as well as other store design considerations.
The 18,000 square feet of selling space is large enough to permit a full
line of the Company's merchandise, while minimizing capital expenditures,
required labor costs and general overhead costs. The Company will also
consider opportunities in acceptable markets to open ALCO stores in
available space in buildings already constructed. The Company's
expansion strategy for its Duckwall variety stores is based on
opportunities presented to the Company in and by smaller communities
where there is a need and where existing premises are available for
lease with a relatively low cost and which provide the Company with
limited exposure.
Technology. The Company is continually improving its management
information technologies to support the operation of the Company.
In fiscal 1999, the Company implemented a new system for merchandise
administration and distribution, and continued the roll-out of new
point-of-sale (POS) store software that has extended the life and
capabilities of its POS hardware. In conjunction with this, the stores
are receiving radio frequency hand held devices to allow for additional
operating efficiencies. The Company has also, as discussed separately,
devoted resources to identify and fix or replace software and hardware
that was not year 2000 compliant.
Advertising and Promotion: The Company utilizes full-color photography
advertising circulars of 8 to 28 pages distributed by insertion into
newspapers or by direct mail where newspaper service is inadequate.
During fiscal 1999, these circulars were distributed 43 times in ALCO
markets. In its Duckwall markets, the Company advertises approximately
13 times a year during seasonal promotions. The Company's marketing
program is designed to create an awareness, on the part of its
identified target customer base, of the Company's comprehensive selection
of merchandise and its competitive pricing. During fiscal 1999, the
Company began market research and planning for the initial roll-out in
fiscal 2000, of its new pricing strategy "New Low Prices Everyday" (NLPE).
This strategy will benefit customers by offering sharper prices everyday
on products that typically would have been subject to promotional pricing
and markdowns. NLPE will also reduce the Company's reliance on
advertising circulars and promotions to drive traffic in its stores.
During fiscal 2000, the Company will distribute approximately 33 circulars
in ALCO markets.
Store Environment: The Company's stores are open, clean, bright and
offer a pleasant atmosphere with disciplined product presentation,
attractive displays and efficient check-out procedures. The Company
endeavors to staff its stores with courteous, highly motivated,
knowledgeable store associates in order to provide a convenient,
friendly and enjoyable shopping experience.
Store Development
The Company plans to open at least 12 ALCO stores and 10 Duckwall stores
during fiscal year 2000, and a minimum of 12 ALCO stores and 10 Duckwall
stores during each of the fiscal years 2001 and 2002.
The Company's strategy regarding store development is to increase sales
and profitability at existing stores by continually refining the
merchandising mix and improving operating efficiencies, and through
new store openings in the Company's targeted base of under-served markets
in the central United States. Since fiscal 1995, the Company has opened
a total of 73 ALCO stores with an average selling area of approximately
18,600 square feet, and 63 Duckwall stores. The following table summarizes
the Company's growth during the past three fiscal years:
<TABLE>
<CAPTION>
Year-to-Date
1997 1998 1999 2000
ALCO DUCKWALL ALCO DUCKWALL ALCO DUCKWALL ALCO DUCKWALL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stores Opened 15 15 25 15 16 20 4 5
Stores Closed 1 0 0 0 2 2 3 0
Net New Stores 14 15 25 15 14 18 1 5
</TABLE>
<PAGE 3>
The Company intends to utilize the 18,000 square foot store profile for
new ALCO store openings. Currently, the Company owns 24 ALCO and 2 Duckwall
locations, and leases 143 ALCO and 94 Duckwall store locations. The Company's
present intention is to lease all new Duckwall stores. The Company may own
some of the ALCO locations, but will, in general try to lease those store
locations.
Before entering a new market with an ALCO store, the Company analyzes
available competitive, market, and demographic data to evaluate the
suitability and attractiveness of the potential market as part of a screening
process. The process involves an objective review of selection criteria
including, among other factors, distance and drive time to discount retail
competitors, demographics, retail sales levels, existence and stability of
major employers, location of county government and distance from the Company's
warehouse. The screening process also involves a visit by officers of the
Company to more subjectively evaluate the potential new site. There are
currently approximately 150 communities known by the Company to have met the
Company's market selection process. The Company is in the site selection
and/or procurement process in approximately 14 of those markets, each of
which has been approved by the Company for a new ALCO location. The Company
performs a similar site selection process with new Duckwall stores. However,
the process is condensed given the low opening and closing costs of a Duckwall
location.
The estimated investment to open a new Class 18 Store is approximately
$1.25 million for the land, building, equipment, inventory and pre-opening
costs.
Store Environment and Merchandising
The Company manages its stores to attractively and conveniently display
a full line of merchandise within the confines of the stores' available square
footage. Corporate merchandising direction is provided to each ALCO and
Duckwall store to ensure a consistent company-wide store presentation. To
facilitate long-term merchandising planning, the Company divides its
merchandise into three core categories driven by the Company's customer
profile: primary, secondary, and convenience. The primary core receives
management's primary focus, with a wide assortment of merchandise being
placed in the most accessible locations within the stores and receiving
significant promotional consideration. The secondary core consists of
categories of merchandise for which the Company maintains a strong assortment
that is easily and readily identifiable by its customers. The convenience
core consists of categories of merchandise for which ALCO will maintain
convenient, but limited, assortments, focusing on key items that are in
keeping with customers' expectations for a discount store. Secondary and
convenience cores include merchandise that the Company feels is important
to carry as the target customer expects to find them within a discount store
and they ensure a high level of customer traffic. The Company continually
evaluates and ranks all product lines, shifting product classifications when
necessary to reflect the changing demand for products.
Purchasing
Procurement and merchandising of products is directed by the Company's
Vice President - Merchandise, who reports to the Company's President. The
Vice President - Merchandise is supported by a staff of four divisional
merchandise managers who are each responsible for specific product categories.
The Company employs 23 merchandise buyers and one assistant buyer who each
report to a divisional merchandise manager. Buyers are assisted by a
management information system that provides them with current price and
volume information by SKU, thus allowing them to react quickly with buying
and pricing adjustments dictated by customer buying patterns.
The Company purchases its merchandise from approximately 2,250 suppliers.
The Company does not utilize long-term supply contracts. No single supplier
accounted for more than 4% of the Company's total purchases in fiscal 1999
and competing brand name and private label products are available from other
suppliers at competitive prices. The Company believes that its relationships
with its suppliers are good and that the loss of any one or more of its
suppliers would not have a material adverse effect on the Company.
Pricing
Merchandise pricing is done at the corporate level and is essentially
the same for all of the ALCO stores, regardless of the level of local
competition. This pricing strategy, with its promotional activities, is
designed to bring consistent value to the customer. In fiscal 2000,
promotions on various items will be offered approximately 33 times through
advertising circulars. Even though the same general pricing and advertising
activities are carried out for all ALCO stores, the impact of such activities
is significantly different depending upon the level of competition in the
market.
<PAGE 4>
Distribution and Transportation
The Company operates a 352,000 square foot distribution center in Abilene,
Kansas, from which it services each of the 167 ALCO discount stores and 96
Duckwall variety stores. This distribution center is responsible for
distributing approximately 80% of the Company's merchandise, with the balance
being delivered directly to the Company's stores by its vendors. This
distribution center ships to each of the Company's stores once a week
through its wholly owned subsidiary, SPD Truck Line, Inc. (the "Subsidiary")
as well as through irregular route common carriers. The distribution center
is fully integrated into the Company's management information system, allowing
the Company to utilize such cost cutting efficiencies as perpetual inventories,
safety programs, and employee productivity software.
The Subsidiary acts as a contract carrier for the Company in transporting
goods to and from its stores. The Subsidiary leases and uses five tractors
and 24 trailers for such deliveries.
Management Information Systems
Commencing in fiscal 1989, the Company committed significant resources
to the purchase and application of available computer hardware and software
to its discount retailing operations with the intent to lower costs, improve
customer service and enhance general business planning.
In general, the Company's merchandising systems are designed to integrate
the key retailing functions of seasonal merchandise planning, purchase order
management, merchandise distribution, sales information and inventory
maintenance and replenishment. All of the Company's discount stores have
point-of-sale computer terminals that record certain sales data in a format
that can be transmitted nightly to the Company's data processing facility
where it is used to produce daily and weekly management reports. In fiscal
1999, the Company implemented a new system for merchandise administration and
distribution, and continued the roll-out of new point-of-sale (POS) store
software that has extended the life and capabilities of its POS hardware.
In conjunction with this, the stores are receiving radio frequency hand held
devices to allow for additional operating efficiencies.
Approximately 800 of the Company's merchandise suppliers currently
participate in the Company's electronic data interchanges ("EDI") system,
which makes it possible for the Company to place purchase orders
electronically. When fully implemented, EDI will permit these and
additional vendors to transmit advance shipment notices to the Company and
receive sales history from the Company.
Store Locations
As of May 1, 1999, the Company operated 167 ALCO stores in 19 states
located in smaller communities in the central United States. Of the ALCO
stores, 24 are owned and 143 are operated under real estate leases. The
ALCO stores average approximately 21,300 square feet of selling space, with
an additional 5,000 square feet utilized for merchandise processing, temporary
storage and administration. The Company also operates 96 Duckwall stores in
11 states, two of which are owned, and 94 are leased. The geographic
distribution of the Company's stores is as follows:
<TABLE>
<CAPTION>
Duckwall Stores (96)
<C> <C> <C> <C> <C> <C>
Arkansas (1) Colorado (5) Iowa (6) Kansas (40) Missouri (1) Nebraska (8)
New Mexico (1) North Dakota (1) Oklahoma (10) South Dakota (2) Texas (21)
</TABLE>
<TABLE>
<CAPTION>
ALCO Stores (167)
<C> <C> <C> <C> <C> <C>
Arizona (4) Arkansas (6) Colorado (8) Idaho (1) Illinois (8) Indiana (16)
Iowa (10) Kansas (24) Minnesota (6) Missouri (2) Nebraska (17) New Mexico (8)
North Dakota (7) Oklahoma (8) Ohio (6) South Dakota (8) Texas (23) Utah (2)
Wyoming (3)
</TABLE>
<PAGE 5>
Competition
While the discount retail business in general is highly competitive, the
Company's business strategy is to locate its ALCO discount stores in smaller
markets where there is no direct competition with larger national or regional
full-line discount chains, and where it is believed no such competition is
likely to develop. Accordingly, the Company's primary method of competing
is to offer its customers a conveniently located store with a wide range of
merchandise at discount prices in a primary trade area population under 16,000
that does not have a large national or regional full-line discount store.
The Company believes that trade area size is a significant deterrent to
larger national and regional full-line discount chains. Duckwall variety
stores, being located in very small markets, face limited competition and,
like the ALCO stores, emphasize the convenience of location to the primary
customer base.
In the discount retail business in general, price, merchandise
selection, merchandise quality, advertising and customer service are all
important aspects of competing. The Company encounters direct competition
with national full-line discount stores in 32 of its ALCO markets, and
another 14 ALCO stores are in direct competition with regional full-line
discount stores. Of the last 119 ALCO stores opened, only nine are in
direct competition with a national or regional full-line discount retailer.
The competing regional and national full-line discount retailers are
generally larger than the Company and the stores of such competitors in the
Company's markets are substantially larger, have a somewhat wider selection
of merchandise and are very price competitive in some lines of merchandise.
Where there are no discount retail stores directly competing with the
Company's ALCO stores, the Company's customers nevertheless shop at retail
discount stores and other retailers located in regional trade centers, and to
that extent the Company competes with such discount stores and retailers.
The Company also competes for retail sales with mail order companies,
specialty retailers, mass merchandisers, manufacturers outlets, and the
internet. The Company has experienced only one instance of new direct
competition from a national or regional full-line discount retailer in
the 110 Class 18 markets in which it has opened a store.
Employees
As of April 1, 1999, the Company employed approximately 5,150 people,
of whom approximately 480 were employed in the general office and
distribution center in Abilene, 4,050 in the ALCO stores and 620 in the
Duckwall stores. Approximately 3,000 additional employees are hired on a
seasonal basis, most of whom are sales personnel. No labor organization
is the collective bargaining agent for any of the Company's employees.
The Company considers its relations with its employees to be excellent.
ITEM 2. PROPERTIES.
The Company's facilities in Abilene, Kansas consist of a general office
(approximately 35,000 square feet), the Distribution Center (approximately
352,000 square feet) and additional warehouse space adjacent to the general
office.
The Company owns the general office and leases the Distribution Center
under the terms of a lease that was entered into with the City of Abilene,
Kansas in connection with the issuance of certain industrial revenue bonds
issued by the City. Rental payments are required under the lease in such
amounts and at such times as are sufficient to pay the principal and interest
becoming due on the bonds. The Company has an option to purchase the
facility for a nominal amount upon the payment in full of the bonds. See
Note 3 of Notes to Consolidated Financial Statements.
Twenty-four of the ALCO stores and two of the Duckwall stores operate
in buildings owned by the Company. The remainder of the stores operate in
leased properties. Such ALCO leases expire as follows: approximately 148,992
square feet (3.4%) expire between May 1, 1999 and January 31, 2000;
approximately 410,137 square feet (9.3%) expire between February 1, 2000 and
January 31, 2001; and approximately 490,950 square feet (11.2%) expire
between February 1, 2001 and January 31, 2002. The remainder expire through
2018. All Duckwall store leases have terms of six years or less.
<PAGE 6>
ITEM 3. LEGAL PROCEEDINGS.
The Company has been a party to various legal proceedings which have been
reported in this Item 3 of Form 10-K for certain prior fiscal years. The
Company's legal proceedings have been resolved sufficiently to render
outstanding matters immaterial for purposes of disclosure pursuant to this
Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended anuary 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The following table sets forth the names, ages, positions and certain
other information regarding the executive officers of the Company as of May 1,
1999.
Name Age Position
____________________ ___ _____________________________________
Glen L. Shank 54 Chairman of the Board and President
James E. Schoenbeck 55 Vice President-Operations
and Advertising
James R. Fennema 48 Vice President-Merchandise
Richard A. Mansfield 43 Vice President-Finance and Treasurer
Charles E. Bogan 63 Vice President, Secretary
and General Counsel
__________
Except as set forth below, all of the executive officers have been associated
with the Company in their present position or other capacity for more than the
past five years. There are no family relationships among the executive
officers of the Company.
Glen L. Shank has served as President of the Company since June 1988 and
as Chairman of the Board since May 1991. Between 1982 and 1988, Mr. Shank
served as Vice President of Merchandising of the Company. Prior to 1982,
Mr. Shank served as a Buyer and as a Merchandise Manager for the Company.
Mr. Shank has approximately 32 years of experience in the retail industry.
James E. Schoenbeck has served as Vice President of Store Operations and
Advertising since 1988. From 1979 to 1988, Mr.Schoenbeck served as the Vice
President of Administration. Mr. Schoenbeck has approximately 25 years of
experience in the retail industry.
James R. Fennema has served as Vice President-Merchandise of the Company
since March 1993. For the four years prior to that he served as Vice
President and a divisional merchandise manager with Caldor, Inc., a chain of
regional discount stores in New England and the mid-Atlantic states of the
United States. For more than the four years prior to that he served as a
divisional merchandise manager of Fishers Big Wheel, a regional chain
discount retailer. Mr. Fennema has approximately 26 years of experience in
the retail industry.
Richard A. Mansfield has served as Vice President-Finance and Treasurer
of the Company since May 1997. For the two years prior to that he served as
Chief Financial Officer of Country General Stores, Inc., a regional chain of
specialty farm and ranch stores located in the midwest. For the three years
prior to that he served as Chief Financial Officer of American Laminates, Inc.
and Relco, Inc. Mr. Mansfield has approximately 18 years of experience in
the retail industry.
Charles E. Bogan has been the Secretary of the Company since 1972. He
has served as Vice President and General Counsel since 1984, and was
Secretary and a member of the Board of Directors during the period from
1972 to 1985. Prior to becoming Duckwall-ALCO's General Counsel, he served
as a partner in private practice with the law firm of Bogan & Johnson,
beginning in 1970.
<PAGE 7>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "DUCK." The following table sets forth the range of high
and low bid information for the Company's Common Stock for each quarter of
fiscal 1999, 1998, 1997 and 1996 and for the fourth quarter of fiscal 1995,
(the only full quarter period during that fiscal year for which the Common
Stock was so quoted).
<TABLE>
High Low
_____________ _______________ _______ ______
<C> <C> <C> <C>
Fiscal 1995 Fourth quarter $ 9.75 $ 9.00
Fiscal 1996 First quarter $ 9.75 $ 8.75
Second quarter 10.75 8.75
Third quarter 11.88 10.38
Fourth quarter 11.25 9.50
Fiscal 1997 First quarter $ 11.63 $ 8.75
Second quarter 15.50 12.88
Third quarter 14.50 12.25
Fourth quarter 16.75 12.25
Fiscal 1998 First quarter $ 14.50 $ 13.00
Second quarter 13.88 11.50
Third quarter 17.50 12.75
Fourth quarter 15.88 14.50
Fiscal 1999 First quarter $ 18.50 $ 13.25
Second quarter 19.38 16.75
Third quarter 17.88 10.13
Fourth quarter 13.75 11.25
</TABLE>
As of April 3, 1999, there were approximately 1,339 holders of record of
the Common Stock of the Company. The Company has not paid cash dividends on
its Common Stock during the last four fiscal years, and is currently
prohibited from paying such dividends by the terms of the Third Amended and
Restated Loan Agreement dated as of December 31, 1998, among the Company,
BA Business Credit, Inc., and Transamerica Business Credit Corporation.
<PAGE 8>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share and store data)
The selected consolidated financial data presented below for, and as of
the end of, each of the last five fiscal years under the captions Statements
of Operations Data and Balance Sheet Data have been derived from the audited
consolidated financial statements of the Company. This data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (Item 7) and the consolidated financial
statements, related notes, and other financial information included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------------
January 31, February 1, February 2, January 28, January 29,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data
Net sales $ 363,509 $ 323,254 $ 278,819 $ 256,454 $ 242,144
Cost of sales 239,442 212,982 186,531 173,296 163,180
Gross margin 124,067 110,272 92,288 83,158 78,964
Selling, general and administrative
expenses 102,357 89,661 75,630 69,018 65,477
Depreciation and amortization 5,974 4,805 3,773 3,093 3,280
Income from operations 15,736 15,806 12,885 11,047 10,207
Interest expense 4,234 3,525 3,033 2,958 3,390
Other expense, net 0 0 0 (185) 156
Earnings before income taxes 11,502 12,281 9,852 8,274 6,661
Income tax expense 4,287 4,790 3,794 3,144 2,531
Earnings before cumulative effect
of accounting change 7,215 7,491 6,058 5,130 4,130
Cumulative effect of accounting
change, net of income
tax benefit of $611(1) (956) 0 0 0 0
Net earnings $ 6,259 $ 7,491 $ 6,058 $ 5,130 $ 4,130
Per Share Information:
Earnings per share - basic:(2)
Earnings before cumulative
effect of accounting change $ 1.41 $ 1.47 $ 1.41 $ 1.28 $ 1.56
Cumulative effect of
accounting change (0.19) 0.00 0.00 0.00 0.00
Net earnings $ 1.22 $ 1.47 $ 1.41 $ 1.28 $ 1.56
Earnings per share - diluted:(2)
Earnings before cumulative
effect of accounting change $ 1.40 $ 1.46 $ 1.40 $ 1.28 $ 1.54
Cumulative effect of accounting
change (0.19) 0.00 0.00 0.00 0.00
Net earnings $ 1.21 $ 1.46 $ 1.40 $ 1.28 $ 1.54
Weighted average shares
outstanding:(2)
Basic 5,111,461 5,096,322 4,299,502 3,999,488 2,648,246
Diluted 5,154,860 5,148,818 4,399,822 4,014,351 2,680,216
Operating Data
Stores open at year-end 257 225 185 156 138
Stores in non-competitive markets
at year-end (3) 206 176 137 110 91
Percentage of total stores in
non-competitive markets (3) 80.20% 78.20% 74.10% 70.50% 65.90%
Net sales of stores in
non-competitive markets (3) $ 259,524 $ 224,117 $ 177,939 $ 151,733 $ 132,743
Percentage of net sales
from stores in
non-competitive markets (3) 71.40% 69.30% 63.80% 59.20% 54.80%
Comparable store sales
for all stores (4) 0.90% 0.60% -2.90% -3.20% 1.10%
Comparable store sales
for stores in
non-competitive markets (3)(4) 1.40% 1.60% -1.30% -1.00% 2.70%
Balance Sheet Data
Total assets $ 172,474 $ 158,114 $ 132,808 $ 107,723 $ 92,202
Total debt (includes capital
lease obligation and current
maturities) 45,608 39,718 26,285 24,551 16,805
Stockholders' equity 86,426 80,394 72,825 53,061 47,100
</TABLE>
(1) Effective November 1, 1998, the Company adopted AICPA Statement of
Position 98-5, Reporting on the Costs of Start up Activities,
retroactive to the beginning of the year. Under the new method, the
Company expenses store preopening costs as incurred rather than over
the initial 12-months of a store's operation.
<PAGE 9>
(2) The Company has adopted SFAS No. 128, Earnings Per Share which requires
a dual presentation of basic earnings per share (based on the weighted
average number of common shares outstanding) and diluted earnings per
share which reflects the potential dilution that could occur if
contracts to issue securities (such as stock options) were exercised.
(3) "Non-competitive" markets refer to those markets where there is not a
national or regional full-line discount store located in the primary
market served by the Company. The Company's stores in such non-
competitive markets nevertheless face competition from various sources.
See Item 1 "Business-Competition."
(4) Percentages, as adjusted to a comparable 52 week year, reflect the
increase or decrease based upon a comparison of the applicable fiscal
year with the immediately preceding fiscal year for stores open during
the entirety of both years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS MADE
IN THIS REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS, FINANCIAL CONDITION OR
BUSINESS COULD DIFFER MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL
CONDITION OR BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
Reference is hereby made to the description of the Company's business
appearing in Item 1.
The Company's fiscal year ends on the Sunday closest to January 31.
Fiscal 1999 and 1998 consisted of 52 weeks, and fiscal 1997 consisted of
53 weeks.
As used below, the term "competitive market" refers to any market in
which there is one or more national or regional full-line discount stores
located in the primary market served by the Company. The term "non-
competitive market" refers to any market in which there is no national or
regional full-line discount store located in the primary market served by
the Company. Even in a non-competitive market, the Company faces competition
from a variety of sources. See Item 1.
Results of Operations
The following table sets forth, for the fiscal years indicated, the
components of the Company's consolidated statements of operations expressed
as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
_______________________________________
January 31, February 1, February 2,
1999 1998 1997
____________________________________________ ___________ ___________ ___________
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 65.9 65.9 66.9
Gross margin.............................. 34.1 34.1 33.1
Selling, general and
administrative expenses................. 28.2 27.7 27.1
Depreciation and amortization............. 1.6 1.5 1.4
Total operating expenses.................. 29.8 29.2 28.5
Income from operations.................... 4.3 4.9 4.6
Interest expense.......................... 1.1 1.1 1.1
Earnings before income taxes.............. 3.2 3.8 3.5
Income tax expense........................ 1.2 1.5 1.3
Earnings before cumulative effect
of accounting change.................... 2.0 2.3 2.2
Cumulative effect of accounting change,
net of tax.............................. .3 .0 .0
Net earnings.............................. 1.7% 2.3% 2.2%
</TABLE>
<PAGE 10>
Fiscal 1999 Compared to Fiscal 1998
Net sales for fiscal 1999 increased $40.3 million or 12.5% to $363.5
million compared to $323.3 million for fiscal 1998. During fiscal 1999, the
Company opened 36 stores, 34 of which were in new non-competitive markets.
Four stores were closed, resulting in a year end total of 257 stores.
Substantially all of the increase in net sales was due to new stores opened
over the last two fiscal years. Net sales for all stores open the full year
in both fiscal 1999 and 1998 (comparable stores), increased by $2.5 million
or .9% in fiscal 1999 compared to fiscal 1998. Sales in non-competitive ALCO
stores increased $2.1 million, or 1.3% and the Duckwall variety stores
produced an increase of $418,000, or 2.3%.
Gross margin for fiscal 1999 increased $13.8 million or 12.5% to $124.1
million compared to $110.3 million in fiscal 1998. As a percentage of net
sales, gross margin remained the same at 34.1% in both fiscal years.
Although initial markon on purchases was higher in fiscal 1999, this was
offset by higher markdowns (primarily in the fourth quarter). The gross
margin percentage was also favorably impacted in fiscal 1999 by a larger
LIFO income than in fiscal 1998. The Company anticipates that pre-LIFO
gross margin as a percentage of net sales should improve in future periods
as the new stores opened in non-competitive markets contribute an increasing
percentage of total sales. This improvement should occur because stores in
non-competitive markets have a higher gross margin percentage (due to a
lower percentage of net sales at promotional pricing and with a lower
promotional markdown rate), than the average of all stores (including
those stores in competitive markets), and because the Company expects to
continue to focus its store expansion in additional non-competitive markets.
Management does not anticipate LIFO income to be a general trend for future
years, in as much as there is a general expectation for moderate inflation
in the cost of merchandise, a factor that generally yields LIFO expense.
Selling, general and administrative expenses increased $12.7 million or
14.2% to $102.4 million in fiscal 1999 compared to $89.7 million in fiscal
1998, primarily due to the increase in total stores. As a percentage of net
sales, selling, general and administrative expenses increased to 28.2% in
fiscal 1999 from 27.7% in fiscal 1998. The increase in the percentage was
due to operating expenses rising faster than the overall same store sales
growth. Expense increases included the partial year impact of the minimum
wage increase that went into effect September 1, 1997.
Income from operations decreased $70,000, or .4% to $15.7 million in
fiscal 1999 compared to $15.8 million in fiscal 1998. Income from operations
as a percentage of net sales decreased to 4.3% in fiscal 1999 from 4.9% in
fiscal 1998.
Interest expense increased $709,000 or 20.1% in fiscal 1999 compared to
fiscal 1998. The increase results from higher borrowing levels to fund the
purchases of merchandise, fixtures, and owned store buildings for the store
expansion program.
Income taxes were $4.3 million in fiscal 1999 compared to $4.8 million
in fiscal 1998. The Company's effective tax rate was 37.3% in fiscal 1999,
and 39.0% in fiscal 1998.
Earnings before the cumulative effect of the accounting change for
fiscal 1999 decreased by $276,000 or 3.7% to $7.2 million compared to $7.5
million in fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
Net sales for fiscal 1998 increased $44.4 million or 15.9% to $323.3
million compared to $278.8 million for fiscal 1997. During fiscal 1998, the
Company opened 40 stores, 38 of which were in new non-competitive markets,
resulting in a year end total of 225 stores. Substantially all of the
increase in net sales was due to new stores opened over the last two
fiscal years. Net sales for all stores open the full year in both fiscal
1998 and 1997 (comparable stores), as adjusted to a comparable 52 week year,
increased by $1.6 million or .6% in fiscal 1998 compared to fiscal 1997.
Sales in non-competitive ALCO stores increased $2.2 million, or 1.5% and
the Duckwall variety stores produced an increase of $538,000, or 3.2%.
Gross margin for fiscal 1998 increased $18.0 million or 19.5% to $110.3
million compared to $92.3 million in fiscal 1997. As a percentage of net
sales, gross margin increased 1.0% to 34.1% in fiscal 1998 from 33.1% in
fiscal 1997. The increase was a result of higher initial markons on purchases
in fiscal 1998, as well as LIFO income of $1.0 million, compared to fiscal
1997.
Selling, general and administrative expenses increased $14.0 million or
18.6% to $89.6 million in fiscal 1998 compared to $75.6 million in fiscal
1997, primarily due to the increase in total stores. As a percentage of
net sales, selling, general and administrative expenses increased to 27.7%
in fiscal 1998 from 27.1% in fiscal 1997. The increase was due to store
opening costs associated with the 40 stores opened.
Income from operations increased $2.9 million, or 22.7% to $15.8 million
in fiscal 1998 compared to $12.9 million in fiscal 1997. Income from
operations as a percentage of net sales increased to 4.9% in fiscal 1998
from 4.6% in fiscal 1997.
<PAGE 11>
Interest expense increased $492,000 or 16.2% in fiscal 1998 compared to
fiscal 1997. The increase results from higher borrowing levels to fund the
purchases of merchandise, fixtures, and owned store buildings for the store
expansion program.
Income taxes were $4.8 million in fiscal 1998 compared to $3.8 million
in fiscal 1997. The Company's effective tax rate was 39% in fiscal 1998, and
38.5% in fiscal 1997.
Net earnings for fiscal 1998 increased by $1.4 million or 23.7% to $7.5
million compared to $6.1 million in fiscal 1997.
Seasonality and Quarterly Results
The following table sets forth the Company's net sales, gross margin,
income from operations, and net earnings during each quarter of fiscal 1997,
1998, and 1999.
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(dollars in millions)
<CAPTION>
- -------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal 1997
Net Sales $ 59.3 $ 68.4 $ 64.9 $ 86.2
Gross Margin 19.6 22.3 21.7 28.7
Income from operations 1.8 2.9 2.1 6.1
Net Earnings 0.7 1.2 0.7 3.5
Fiscal 1998
Net Sales $ 69.3 $ 80.5 $ 76.2 $ 97.3
Gross Margin 23.7 26.7 26.7 33.2
Income from operations 2.1 3.3 2.5 7.9
Net Earnings 0.9 1.5 0.9 4.2
Fiscal 1999
Net Sales $ 81.1 $ 90.4 $ 85.3 $ 106.8
Gross Margin 28.2 30.6 29.3 36.0
Income from operations 2.6 3.6 2.9 6.6
Net Earnings (1) 1.0 1.8 1.1 3.3
</TABLE>
(1) Represents earnings before the cumulative effect of accounting change
The Company's business is subject to seasonal fluctuations. The Company's
highest sales levels occur in the fourth quarter of its fiscal year which
includes the holiday selling season. The Company's results of operations
in any one quarter are not necessarily indicative of the results of
operations that can be expected for any other quarter or for the full
fiscal year.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of net sales contributed by new
stores and the integration of the new stores into the operations of the
Company, as well as other factors. The addition of a large number of new
stores can, therefore, significantly affect the quarterly results of
operations.
Inflation
Management does not believe that its operations have been materially
affected by inflation over the past few years. The Company will continue to
monitor costs, take advantage of vendor incentive programs, selectively buy
from competitive vendors and adjust merchandise prices based on market
conditions. In 1996, Congress enacted The Small Business Job Protection
Act of 1996 ("the Act"), raising the hourly minimum wage from $4.25 to $4.75
effective as of October 1, 1996 and to $5.15 effective as of September 1,
1997. The majority of the Company's store employees were paid hourly wages
below these increased minimum wage rates. As a result, the Act has increased
the Company's payroll expense.
Liquidity and Capital Resources
At the end of fiscal 1999, working capital (defined as current assets
less current liabilities) was $90.1 million compared to $76.0 million at the
end of fiscal 1998 and $60.4 million at the end of fiscal 1997.
<PAGE 12>
The Company's primary sources of funds are cash flow from operations,
borrowings under its revolving loan credit facility, vendor trade credit
financing and lease financing. In fiscal 1999, the Company completed a
sale-leaseback of ten of its owned stores. The proceeds from this
transaction amounted to $6.2 million. The Company sold 1.089 million
shares of its common stock to the public, primarily in the third quarter
of fiscal 1997, generating net proceeds to the Company of $13.1 million.
The purpose of the offering was to fund store expansion. The funds were
used to pay down temporarily the revolving credit facility, pending the
investment of the funds in new stores.
Cash provided by (used in) operating activities aggregated $6.6 million,
($6.8) million and $4.2 million in fiscal 1999, 1998 and 1997, respectively.
The increase in cash provided in fiscal 1999 relative to fiscal 1998 resulted
primarily from a smaller increase in inventory, due to a smaller number of
stores opened. The decrease in cash provided in fiscal 1998 relative to
fiscal 1997 resulted primarily from an increase in inventory needed to support
the 40 new store openings.
The Company uses its revolving loan credit facility and vendor trade
credit financing to fund the build up of inventories periodically during the
year for its peak selling periods and to meet other short-term cash
requirements. The revolving loan credit facility, which provides up to $85
million of financing in the form of notes payable and letters of credit, was
executed in April, 1998 and will expire in April 2001. The Company had
borrowings available at January 31, 1999 under the revolving loan credit
facility amounting to $41,260. Short-term trade credit represents a
significant source of financing for inventory to the Company. Trade credit
arises from the willingness of the Company's vendors to grant payment terms
for inventory purchases.
In fiscal 1999, the Company made net cash borrowings against its
revolving credit facility of $5.0 million, incurred $2.8 million of new long
term debt, and made cash payments of $1.9 million to reduce its long-term
debt and capital lease obligations. In fiscal 1998 and 1997, the Company
made net cash borrowings of $13.4 million and net cash payments of $1.7
million, respectively, to reduce its long-term debt and capital lease
obligations. The Company executed operating leases for 98 additional stores
during the three year period ending in fiscal 1999. The Company's long-range
plan assumes growth in the number of stores in smaller markets where there
is less competition, and, in accordance with this plan, 36 new stores were
opened in fiscal 1999 and at least 22 new stores are scheduled to be opened
in fiscal 2000. The Company believes that with the $85 million line of
credit, sufficient capital is available to fund the Company's planned
expansion.
Cash used for acquisition of property and equipment in fiscal 1999, 1998
and 1997 totaled $10.3 million, $11.7 million, and $11.6 million,
respectively. Anticipated cash payments for acquisition of property and
equipment in fiscal 2000, principally for store buildings and fixtures, are
$11.0 million.
During fiscal 1999, the Company's Board of Directors approved a plan to
repurchase up to 411,000 shares of the Company's Common Stock (the "Stock
Repurchase Program"). Purchases pursuant to the Stock Repurchase Program
are to be made from time to time in the open market or directly from
stockholders at prevailing market prices. The Stock Repurchase Program is
anticipated to be funded with internally generated cash and borrowing under
the Credit Facility. As of January 31, 1999, the Company had purchased
60,000 shares of Common Stock for $669,000.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS,
FINANCIAL CONDITION OR BUSINESS
In order to take advantage of the safe harbor provisions for forward-
looking statements contained in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
added to those Acts by the Private Securities Litigation Reform Act of 1995,
the Company is hereby identifying important risks and uncertainties that could
affect the Company's actual results of operations, financial condition or
business and could cause the Company's actual results of operations,
financial condition or business to differ materially from its historical
results of operations, financial condition or business, or the results of
operations, financial condition or business contemplated by forward-looking
statements made herein or elsewhere orally or in writing, by, or on behalf
of, the Company. Factors that could cause or contribute to such differences
include, but are not limited to, those factors described below.
Expansion Plans
The continued growth of the Company is dependent, in large part, upon
the Company's ability to open and operate new stores on a timely and
profitable basis. The Company plans to open approximately 22 stores in the
current fiscal year and at least 22 stores in both fiscal 2001 and 2002.
While the Company believes that adequate sites are currently available, the
rate of new store openings is subject to various contingencies, many of
which are beyond the Company's control. These contingencies include the
availability of acceptable communities for store locations, the Company's
ability to secure suitable store sites on a timely basis and on satisfactory
terms, the Company's ability to hire, train and retain qualified personnel,
the availability of adequate capital resources and the successful
integration of new stores into existing operations. There can be no
assurance that the Company will be able to continue to successfully identify
and obtain new store sites or that once obtained, the new stores will
achieve satisfactory sales or profitability.
<PAGE 13>
Competition
The Company's strategy is to locate its ALCO stores in smaller retail
markets where there is no competing full-line discount retail store within
the primary trade area and where the Company believes the opening of a store
would significantly reduce the likelihood of such a competitor entering the
market. No assurance can be given, however, that competition will not
emerge in such markets which, if developed, could seriously reduce the
prospect of a profitable store in such market. In those markets in which
the Company has direct competition, it often competes with national or
regional full-line discount stores which often have substantially greater
financial and other resources than the Company.
Government Regulation
The Company is subject to numerous federal, state and local government
laws and regulations, including those relating to the development,
construction and operation of the Company's stores. The Company is also
subject to laws governing its relationship with employees, including minimum
wage requirements, laws and regulations relating to overtime, working and
safety conditions, and citizenship requirements. Material increases in the
cost of compliance with any applicable law or regulation and similar matters
could materially and adversely affect the Company.
In 1996, Congress enacted The Small Business Job Protection Act of 1996
(the "Act"), raising the hourly minimum wage from $4.25 to $4.75 effective as
of October 1, 1996 and to $5.15 effective as of September 1, 1997. The
majority of the Company's store employees were paid hourly wages below these
increased minimum wage rates. As a result, the Act will increase the
Company's payroll expense. The Company intends to continue to offset this
increase in expense through the implementation of measures, including, but
not limited to, reducing employee hours and increasing gross margins (through
increased prices and reduced costs). If these measures are not successful,
the higher minimum wage could materially and adversely affect the Company.
Control by Significant Stockholder
Kansas Public Employees Retirement System ("KPERS") is a principal
stockholder of the Company, beneficially owning approximately 13% of the
outstanding shares of Common Stock of the Company as of March 19, 1999.
Quarterly Fluctuations
Quarterly results of operations have historically fluctuated as a result
of retail consumers' purchasing patterns, with the highest quarter in terms
of sales and profitability being the fourth quarter. Quarterly results of
operations will likely continue to fluctuate significantly as a result of
such patterns and may fluctuate due to the timing of new store openings.
Economic Conditions
Similar to other retail businesses, the Company's operations may be
affected adversely by general economic conditions and events which result
in reduced consumer spending in the markets served by it stores. Also,
smaller communities where the Company's stores are located may be dependent
upon a few large employers or may be significantly affected by economic
conditions in the industry upon which the community relies for its economic
viability, such as the agricultural industry. This may make the Company's
stores more vulnerable to a downturn in a particular segment of the economy
than the Company's competitors, which operate in markets which are larger
metropolitan areas where the local economy is more diverse.
Dependence on Officers
The development of the Company's business has been largely dependent on
the efforts of its current management team headed by Glen L. Shank and
fourteen other officers. The loss of the services of one or more of these
officers could have a material adverse effect on the Company.
No Recent Dividend Payments; Restrictions on Payment of Dividends
The Company has not paid a cash dividend on the Common Stock for more
than five years, and it has no plans to commence paying cash dividends on
the Common Stock. The Company's current revolving loan credit facility
prohibits the payment of dividends.
The Year 2000 Issue
The information in this Year 2000 section is a Year 2000 Readiness
Disclosure under the Year 2000 Information Readiness and Disclosure Act.
<PAGE 14>
Internal Considerations
The Company has been evaluating and adjusting all of its known date-
sensitive systems and equipment for Year 2000 readiness. The assessment
phase of the Year 2000 project is substantially complete and mission critical
systems have been or are in the process of being remediated or replaced.
The assessment phase of the project included information technology systems
as well as non-information technology equipment. Over 70% of the required
coding conversions on information technology have occurred to-date. The
Company anticipates completing all known remaining coding conversions during
the first half of fiscal 2000. All code conversions dealing with fiscal
2000 (which began on February 1, 1999) have been completed and returned
to production prior to February 1, 1999. Virtually all of the Company's
remediation efforts have been and will continue to be performed by Company
associates and a limited number of selected software and hardware providers.
As systems have been replaced or remediated, system testing has been
conducted prior to return to production. However, upon completion of the
remediation phase, the Company will conduct additional system testing as
deemed necessary. This testing is anticipated to occur during the second
and third quarters of fiscal 2000.
Previously reported problems with Store Point-of-Sales systems have been
successfully resolved, and roll-outs have resumed to all ALCO stores.
Completion of this rollout is currently scheduled for the end of June, 1999.
At this point the Company believes the Store systems being rolled out to be
Year 2000 ready, however, significant testing and monitoring will continue
throughout 1999.
Costs Related to Year 2000
The total estimated cost of the Company's Year 2000 project is $1,000,000.
To-date the Company has spent approximately $346,000 on hardware and
software upgrades, and expects to spend as much as an additional $354,000.
Additionally the Company will incur as much as $300,000 in internal and
external programming costs, with maximum expenditures estimated at $1,000,000.
Internal programming resources have been adequate to provide some enhancements
to proprietary systems, as well as provide Year 2000 ready systems. The
hardware replacements have also provided quicker, more reliable systems to
the Company. All expenditures related to the Company's Year 2000 readiness
initiatives have or will be funded by cash flow from operations, borrowing
under the Company's line of credit, or other financing sources, and have or
will be capitalized or expensed depending on the classification of the
expenditure according to generally accepted accounting principles.
External Considerations
In addition to internal Year 2000 activities, the Company is
communicating with other companies with which our systems interface or rely
upon. Conversion, testing and implementation of Year 2000 ready EDI
transactions are expected to begin in May 1999. This will include EDI
trading partners and other external dependencies. Completion of this
testing and conversion is expected to be substantially complete by September
1999.
There can be no assurance that there will not be adverse effects on the
Company if third parties, such as utility companies or merchandise suppliers,
do not convert their systems in a timely manner and in a way that is
compatible with the Company's systems. However, management believes that
ongoing communications with and assessment of these third parties will
minimize these risks.
The Company recognizes the risks and anticipates minimal business
disruption will occur as a result of Year 2000 issues. Possible consequences
include, but are not limited to, loss of basic utilities within certain
locations, inability to process transactions, send or transmit purchase
orders, or engage in similar normal business activities. Additionally,
due to the lack of a uniform definition of Year 2000 compliance, the Company
recognizes the potential of an increase in sales returns of merchandise
that contain embedded chips, or hardware or software components. Due to
the Company's product mix, and the anticipated cooperation from the Company's
suppliers, if returns of merchandise increase, such returns are not expected
to be material to the Company's financial condition.
Contingency Plans
The contingency planning phase of the Year 2000 project is scheduled to
begin in late April 1999. To-date initial analysis has begun and where
needed the Company will establish contingency plans based on actual testing
and production experience. External dependency contingency planning will be
based on ongoing communications with the Company's suppliers and service
providers. The Company anticipates the majority of its contingency plans
to be in place by the end of September 1999, in addition the Company
intends, during the fourth quarter of 1999 to conduct training with
associates on the execution of contingency plans should the need arise.
Summary
The Company believes its IT systems will be ready for the Year 2000.
Should incidences of non-compliance occur the Company will dedicate both
internal and external resources to resolve any problems. Although the
Company is taking the steps it deems reasonable to mitigate external Year
2000 issues, many elements of these risks, and the ability to definitively
mitigate them, are outside the control of the Company. Given the importance
of certain key vendors and service providers, the inability of these
business partners to provide their goods or services to the Company on a
timely basis could have a material adverse effect on the Company's operations
and financial results. The cost of the conversions and the completion dates
are based on management's best estimates and may be updated as additional
information becomes available.
<PAGE 15>
Impact of change in Accounting Principle
Effective November 1, 1998, the Company adopted AICPA Statement of
Position 98-5, Reporting on the Costs of Start up Activities (SOP 98-5),
retroactive to the beginning of the year. Previously, the Company initially
capitalized and then amortized preopening costs over the initial 12-months
of a store's operation. Under the new method, the Company expenses such
store preopening costs as incurred. The effect of adopting the accounting
change on earnings before cumulative effect of accounting change, net
earnings, and net earnings per share for fiscal 1999 is to increase (decrease)
such amounts $529, ($427), and ($0.8), respectively. The change is
considered a cumulative effect-type accounting change and, accordingly, the
cumulative effect as of February 1, 1998 has been reported in the
accompanying audited financial statements. Financial statements for fiscal
1998 and prior periods have not been restated but net earnings and earnings
per share computed on a pro forma basis have been reflected in the
accompanying audited financial statements for all periods presented as if
the accounting change had been applied consistently during all periods
affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company does not invest in any market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
Independent Auditors' Report............................... 17
Financial Statements:
Consolidated Balance Sheets --
January 31, 1999 and February 1, 1998.................. 18
Consolidated Statements of Operations--
Fiscal Years Ended January 31, 1999,
February 1, 1998, and February 2, 1997............... 20
Consolidated Statements of Stockholders'
Equity --Fiscal Years Ended January 31, 1999,
February 1, 1998, and February 2, 1997............... 22
Consolidated Statements of Cash Flows --
Fiscal Years Ended January 31, 1999,
February 1, 1998, and February 2, 1997............... 23
Notes to Consolidated Financial Statements............... 25
Financial Statement Schedules:
No financial statement schedules are included as they are
not applicable to the Company.
<PAGE 16>
Independent Auditors' Report
The Board of Directors and Stockholders
Duckwall-ALCO Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Duckwall-ALCO
Stores, Inc. and subsidiaries as of January 31, 1999 and February 1, 1998,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended
January 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Duckwall-ALCO Stores, Inc. and subsidiaries as of January 31, 1999 and
February 1, 1998, and the results of their operations and their cash flows
for each of the years in the three-year period ended January 31, 1999, in
conformity with generally accepted accounting principles.
As discussed in note 1 of notes to consolidated financial statements, the
Company changed its method of accounting for store preopening costs in the
year ended January 31, 1999.
/s/KPMG LLP
KPMG LLP
Wichita, Kansas
March 19, 1999
<PAGE 17>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Balance Sheets
<CAPTION>
January 31, 1999 and February 1, 1998
(Dollars in thousands)
Assets 1999 1998
__________ ___________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,423 2,555
Receivables (note 3) 3,557 3,158
Inventories (notes 2 and 3) 113,225 103,445
Prepaid expenses 359 2,131
Total current assets 127,564 111,289
Property and equipment, at cost (note 3):
Land and land improvements 2,847 2,961
Buildings and building improvements 21,130 25,041
Furniture, fixtures and equipment 37,879 34,430
Transportation equipment 2,197 1,731
Leasehold improvements 8,672 6,115
Construction work in progress 1,242 496
Total property and equipment 73,967 70,774
Less accumulated depreciation and amortization 35,340 30,627
Net property and equipment 38,627 40,147
Property under capital leases (note 5) 20,407 20,407
Less accumulated amortization 14,428 13,811
Net property under capital leases 5,979 6,596
Debt financing costs 304 82
$ 172,474 158,114
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 18>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Balance Sheets
<CAPTION>
January 31, 1999 and February 1, 1998
(Dollars in thousands)
Liabilities and Stockholders Equity 1999 1998
__________ ___________
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 3) $ 1,556 1,333
Current maturities of capital lease obligations (note 5) 540 518
Accounts payable 20,488 19,009
Income taxes payable 1,780 2,272
Accrued salaries and commissions 4,705 4,884
Accrued taxes other than income 3,520 3,159
Other current liabilities 2,643 1,804
Deferred income taxes (note 6) 2,256 2,324
Total current liabilities 37,488 35,303
Notes payable under revolving loan credit facility (note 3) 30,598 25,591
Long-term debt, less current maturities (note 3) 4,825 3,646
Capital lease obligations, less current maturities (note 5) 8,089 8,630
Other noncurrent liabilities 1,484 782
Deferred revenue 1,075 1,272
Deferred income taxes (note 6) 2,489 2,496
Total liabilities 86,048 77,720
Stockholders equity (notes 4, 7 and 8):
Common stock, $.0001 par value, authorized 20,000,000 shares in
1999 and 1998; issued and outstanding 5,092,324 and 5,098,761
shares in 1999 and 1998, respectively 1 1
Additional paid-in capital 54,247 54,474
Retained earnings since June 2, 1991 32,178 25,919
Total stockholders equity 86,426 80,394
Commitments (note 5)
$ 172,474 158,114
</TABLE>
<PAGE 19>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Operations
<CAPTION>
Fiscal years ended January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
1999 1998 1997
__________ ___________ ___________
<S> <C> <C> <C>
Net sales $ 363,509 323,254 278,819
Cost of sales 239,442 212,982 186,531
Gross margin 124,067 110,272 92,288
Selling, general and administrative (notes 4 and 5) 102,357 89,661 75,630
Depreciation and amortization 5,974 4,805 3,773
Total operating expenses 108,331 94,466 79,403
Income from operations 15,736 15,806 12,885
Interest expense (notes 3 and 5) 4,234 3,525 3,033
Earnings before income taxes and cumulative
effect of accounting change 11,502 12,281 9,852
Income tax expense (note 6) 4,287 4,790 3,794
Earnings before cumulative effect of accounting
change 7,215 7,491 6,058
Cumulative effect of accounting change, net of income
tax benefit of $611 (note 1) (956) --- ---
Net earnings $ 6,259 7,491 6,058
Earnings per share - basic (note 9):
Earnings before cumulative effect of accounting change $ 1.41 1.47 1.41
Cumulative effect of accounting change (0.19) --- ---
Net earnings $ 1.22 1.47 1.41
Earnings per share - diluted (note 9):
Earnings before cumulative effect of accounting change $ 1.40 1.46 1.40
Cumulative effect of accounting change (0.19) --- ---
Net earnings $ 1.21 1.46 1.40
(Continued)
<PAGE 20>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
</TABLE>
<TABLE>
Consolidated Statements of Operations
<CAPTION>
Fiscal years ended January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
1999 1998 1997
__________ ___________ ___________
<S> <C> <C> <C>
Pro forma amounts for effect of change in accounting
principle:
Net earnings $ 7,215 7,190 5,935
Basic earnings per share $ 1.41 1.41 1.38
Diluted earnings per share $ 1.40 1.40 1.37
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 21>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
Fiscal years ended January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands)
Retained
earnings Total
Additional since stock-
Common paid-in June 2, holders'
stock capital 1991 equity
__________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Balance, January 28, 1996 $ 1 40,690 12,370 53,061
Net earnings for the year ended February 2, 1997 --- --- 6,058 6,058
Tax benefit from net operating loss carry-
forward (note 6) --- 626 --- 626
Issuance of 1,089,000 common shares in
secondary public offering (note 8) --- 13,068 --- 13,068
Exercise of outstanding options to pur-
chase 1,313 common shares --- 12 --- 12
Balance, February 2, 1997 1 54,396 18,428 72,825
Net earnings for the year ended February 1, 1998 --- --- 7,491 7,491
Exercise of outstanding options to purchase
8,938 common shares --- 78 --- 78
Balance, February 1, 1998 1 54,474 25,919 80,394
Net earnings for the year ended January 31, 1999 --- --- 6,259 6,259
Exercise of outstanding options to purchase
53,563 common shares --- 442 --- 442
Repurchase of 60,000 common shares --- (669) --- (669)
Balance, January 31, 1999 $ 1 54,247 32,178 86,426
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 22>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Fiscal years ended January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands)
1999 1998 1997
__________ ___________ ___________
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,259 7,491 6,058
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Cumulative effect of accounting change, net of
income tax benefit 956 --- ---
Depreciation and amortization 5,974 4,805 3,773
Amortization of debt financing costs 137 43 40
Deferred income taxes (75) (138) 162
Loss (gain) on sale or disposition of property
and equipment 680 --- (37)
LIFO expense (income) (2,449) (950) 55
Decrease (increase) in receivables (399) 2 (615)
Increase in inventories (7,331) (22,136) (8,779)
Decrease (increase) in prepaid expenses 205 (346) (537)
Increase in accounts payable 1,479 1,882 792
Increase (decrease) in income taxes payable 119 (73) 2,151
Increase (decrease) in accrued salaries and commissions (179) 1,008 262
Increase in accrued taxes other than income 361 230 726
Increase in other liabilities 1,052 123 120
Increase (decrease) in deferred revenue (197) 1,272 ---
Net cash provided by (used in) operating activities 6,592 (6,787) 4,171
Cash flows from investing activities:
Proceeds from sale of property and equipment 6,232 --- 48
Acquisition of:
Buildings (1,616) (4,112) (4,124)
Fixtures, equipment, and leasehold improvements (8,644) (7,550) (7,538)
Net cash used in investing activities (4,028) (11,662) (11,614)
</TABLE>
(Continued)
<PAGE 23>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Cash Flows, Continued
<CAPTION>
Fiscal years ended January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands)
1999 1998 1997
__________ ___________ ___________
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in notes payable under revolving loan credit facility $ 5,007 13,496 80
Proceeds from stock issuance --- --- 13,068
Proceeds from exercise of outstanding stock options 442 78 12
Repurchase of stock (669) --- ---
Proceeds from issuance of long-term debt 2,760 1,870 3,110
Principal payments on long-term debt (1,358) (1,326) (819)
Principal payments under capital lease obligations (519) (607) (637)
Debt financing costs (359) (45) (10)
Net cash provided by financing activities 5,304 13,466 14,804
Net increase (decrease) in cash and cash equivalents 7,868 (4,983) 7,361
Cash and cash equivalents at beginning of year 2,555 7,538 177
Cash and cash equivalents at end of year $ 10,423 2,555 7,538
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE 24>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
(a) Nature of Business
Duckwall-ALCO Stores, Inc. and subsidiaries (the Company) is engaged
in the business of retailing general merchandise throughout the
midwestern and south central regions of the United States through
discount department and variety store outlets. Merchandise is
purchased for resale from many vendors, and transactions with
individual vendors and customers do not represent a significant
portion of total purchases and sales.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany account balances have been eliminated in consolidation.
(c) Basis of Presentation
The Company's fiscal year ends on the Sunday nearest to January 31.
Fiscal 1999 and 1998 consist of 52 weeks, 1997 consists of 53 weeks.
(d) Inventories
Store inventories are stated at the lower of cost or net realizable
value as estimated by the retail inventory method. Warehouse
inventories are stated at the lower of cost or net realizable value.
The Company utilizes the last-in, first-out (LIFO) method of
determining cost of store and warehouse inventories.
(e) Property and Equipment
Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets. Amortization of capital leases is
computed on a straight-line basis over the terms of the lease
agreements. Leasehold improvements are amortized on a straight-line
basis over the lesser of the remaining lease term, or ten years.
Estimated useful lives are as follows:
Buildings 25 years
Building improvements 10 years
Furniture, fixtures and equipment 3-7 years
Transportation equipment 3 years
Leasehold improvements 5-10 years
Major improvements are capitalized while maintenance and repairs,
which do not extend the useful life of the asset, are charged to
expense as incurred.
(Continued)
<PAGE 25>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(f) Income Taxes
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(g) Net Sales
Sales are recorded in the period of sale. Sales returns, which are
not material, are recorded in the period of return as a reduction
of sales.
(h) Change in Accounting Principle
Effective November 1, 1998, the Company adopted AICPA Statement of
Position 98-5, Reporting on the Costs of Start up Activities
(SOP 98-5), retroactive to the beginning of the year. Previously,
the Company initially capitalized and then amortized preopening costs
over the initial 12-months of a store's operation. Under the new
method, the Company expenses such store preopening costs as incurred.
The effect of adopting the accounting change on earnings before
cumulative effect of accounting change, net earnings, and net
earnings per share for fiscal 1999 is to increase (decrease) such
amounts $529, ($427), and ($.08), respectively. The change is
considered a cumulative effect-type accounting change and,
accordingly, the cumulative effect as of February 1, 1998 has been
reported in the accompanying financial statements. Financial
statements for fiscal 1998 and prior periods have not been restated
but net earnings and earnings per share computed on a pro forma basis
have been reflected in the accompanying financial statements for all
periods presented as if the accounting change had been applied
consistently during all periods affected.
(i) Net Earnings Per Share
Basic net earnings per share is computed by dividing net earnings
by the weighted average number of shares outstanding. Diluted net
earnings per share reflects the potential dilution that could occur
if contracts to issue securities (such as stock options) were
exercised. See note 9.
(Continued)
<PAGE 26>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(j) Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the
Company considers cash and cash equivalents to include currency on
hand and money market funds.
During fiscal 1999, 1998, and 1997, the following amounts were
paid for interest and income taxes:
1999 1998 1997
Interest, excluding
interest on capital
lease obligations and
amortization of debt
financing costs
(net of capitalized
interest of $46 in
fiscal 1999, $72 in
fiscal 1998, and $269
in fiscal 1997) $ 3,116 2,431 2,083
Income taxes 4,383 5,001 1,481
Noncash financing and investing activities for fiscal 1999,
1998, and 1997 consisted of:
Tax benefit from net operating loss carryforward of $626 which
increases additional paid-in capital in fiscal 1997 (note 6).
(k) Use of Estimates
Management of the Company has made certain estimates and
assumptions in the reporting of assets and liabilities to prepare
these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(l) Long-lived Assets
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated future
net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. For purposes of
determining impairment, the Company groups assets at the store
level. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(Continued)
<PAGE 27>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(m) Stock-based Compensation
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. As such, compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price.
In addition, SFAS No. 123, Accounting for Stock-Based Compensation,
requires that pro forma net earnings and pro forma earnings per
share disclosures be provided for employee stock option grants made
in fiscal year 1996 and subsequent years as if the fair value-based
cost measurement method defined in SFAS No. 123 had been applied.
(2) Inventories
Inventories at January 31, 1999 and February 1, 1998 are stated at
the lower of cost or net realizable value as determined under the
LIFO method of accounting. Inventories at January 31, 1999 and
February 1, 1998 are summarized as follows:
1999 1998
FIFO cost $ 113,820 106,489
Less LIFO reserve (595) (3,044)
LIFO cost $ 113,225 103,445
Earnings before income taxes for fiscal 1999, 1998, and 1997 would
have decreased by $2,449 and $950, and increased by $55,
respectively, if the FIFO method of valuing inventories had been
utilized.
(3) Credit Arrangements, Notes Payable and Long-term Debt
The Company's loan agreement with its lenders provides a revolving
loan credit facility of up to $85,000 of long-term financing. The
amount advanced (through a note or letters of credit) to the
Company bears interest at the prime rate on the Revolving Rate Loan
and LIBOR plus 1.50% on the LIBOR Rate Loan and is generally
limited to 65% of eligible inventory, as defined. Advances are
secured by a security interest in the Company's inventory, accounts
receivable and intangible assets. The loan agreement contains
various restrictions including limitations on additional
indebtedness, sales of assets, and financial covenants related to
the ratio of earnings to fixed charges and tangible net worth, all
as defined. The loan agreement prohibits the payment of dividends.
The loan agreement expires in April 2001 and automatically renews
for successive one-year terms thereafter unless terminated by the
lenders or the Company.
Under this agreement, the Company converted $30,000 from the
Revolving Rate Loan to a 7.23% Fixed Rate Loan on April 15, 1998
which is due in April 2001.
(Continued)
<PAGE 28>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
Notes payable outstanding at January 31, 1999 and February 1, 1998 under the
revolving loan credit facility aggregated $30,598 and $25,591, respectively.
The lender had also issued letters of credit aggregating $2,261 and $2,692,
respectively, at such dates on behalf of the Company. The interest rate on
outstanding borrowings at January 31, 1999 was 7.75% on the Revolving Rate
Loan payable monthly. There were no borrowings outstanding under the LIBOR
Rate Loan at January 31, 1999 or February 1, 1998. The Company had additional
borrowings available at January 31, 1999 under the revolving loan credit
facility amounting to $41,260.
Long-term debt, exclusive of notes payable under the revolving loan credit
facility as described above, at January 31, 1999 and February 1, 1998
consisted of the following:
1999 1998
7.15% obligations for Industrial Revenue Bonds,
interest payable semiannually with principal
payments due annually until final
maturity in 1999 $ 175 600
9.875% mortgage note payable due in monthly
installments, including interest, through
September 2001 310 408
8.41% note payable due in monthly installments,
including interest, through March 2001,
secured by airplane 468 681
8.77% note payable due in monthly installments,
including interest, through September 2000,
secured by certain equipment 839 1,287
8.27% note payable due in monthly installments,
including interest, through December 2000,
secured by certain equipment 148 216
9.2% note payable due in monthly installments,
including interest, through March 2009, secured
by buildings 1,700 1,787
6.4% note payable due in monthly installments,
including interest, through January 2005,
secured by equipment 2,741 ---
6,381 4,979
Less current maturities 1,556 1,333
Long-term debt, less current maturities $ 4,825 3,646
The Industrial Revenue Bonds were issued by a municipality to finance
warehouse facilities of the Company. The facilities are leased by the Company
and the Company has the option to purchase the facilities for a nominal sum
at the expiration of the leases.
Interest expense on notes payable and long-term debt in fiscal 1999, 1998,
and 1997 aggregated $3,193, $2,418, and $1,853, respectively.
(Continued)
<PAGE 29>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
Maturities of long-term debt, including the notes payable under the revolving
loan credit facility, in each of the next five years and thereafter in the
aggregate as of January 31, 1999 are as follows:
Fiscal year
2000 $ 1,556
2001 31,904
2002 676
2003 611
2004 656
Thereafter 1,576
$ 36,979
(4) Employee Benefits
The Company has a trusteed Profit Sharing Plan (Plan) for the
benefit of eligible employees. The Plan provides for an annual
contribution of not more than 20% of earnings for the year before
the profit sharing contribution and Federal and state income taxes,
limited to 15% of the annual compensation of the participants in
the Plan. Contributions by the Company vest with the participants
over a seven-year period. The Company reserves the right to
discontinue its contributions at any time. The Company made profit
sharing contributions for fiscal 1999, 1998, and 1997 of $775, $800,
and $700, respectively.
At January 31, 1999 and February 1, 1998, the Plan owned 79,053
shares of the Company's common stock.
(5) Leases
The Company is lessee under long-term capital leases expiring at
various dates. The components of property under capital leases in
the accompanying consolidated balance sheets at January 31, 1999
and February 1, 1998 are as follows:
1999 1998
Buildings $ 16,624 16,624
Fixtures 3,783 3,783
20,407 20,407
Less accumulated amortization 14,428 13,811
Net property under capital leases $ 5,979 6,596
The Company also has noncancelable operating leases, primarily for buildings
and transportation equipment, that expire at various dates.
(Continued)
<PAGE 30>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
Future minimum lease payments under all noncancelable leases together with
the present value of the net minimum lease payments pursuant to capital
leases as of January 31, 1999 are as follows:
Fiscal Year: Capital Operating
2000 $ 1,521 7,612
2001 1,521 7,222
2002 1,521 6,135
2003 1,457 5,262
2004 1,384 4,929
Later years 7,972 27,977
Total minimum
lease payments 15,376 $ 59,137
Less amount
representing
interest 6,747
Present value of
net minimum
lease payments 8,629
Less current
maturities 540
Capital lease
obligations,
less current
maturities $ 8,089
Minimum payments have not been reduced by minimum sublease rentals of $120
under operating leases due in the future under noncancelable subleases. They
also do not include contingent rentals which may be paid under certain store
leases on the basis of percentage of sales in excess of stipulated amounts.
Contingent rentals applicable to capital leases amounted to $53, $59, and
$39 for fiscal 1999, 1998, and 1997, respectively.
Interest on capital lease obligations in fiscal 1999, 1998, and 1997
aggregated $1,041, $1,107, and $1,180, respectively.
The following schedule presents the composition of total rent expense for
all operating leases for fiscal 1999, 1998, and 1997:
1999 1998 1997
Minimum rentals $ 8,216 7,545 5,221
Contingent rentals 415 316 361
Less sublease rentals (109) (104) (124)
$ 8,522 7,757 5,458
(Continued)
<PAGE 31>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
Sale-Leaseback Transaction
The Company entered into an agreement to sell and leaseback ten
stores (land and buildings) in December 1998. The proceeds from the
sale-leaseback transaction amounted to $6.2 million and the
leaseback term is 20 years. As a result of the sale-leaseback
transaction, the Company incurred a gain of $489 which has been
deferred for financial reporting purposes and is included within
other noncurrent liabilities and is being amortized over the term
of the related leases. The Company will use the proceeds to fund
the Company's continued store development.
(6) Income Taxes
Total income tax expense (benefit) for fiscal 1999, 1998, and 1997
was allocated as follows:
1999 1998 1997
Operations $ 4,287 4,790 3,794
Additional paid-in
capital for the tax
benefit from
utilization of net
operating loss
carryforwards --- --- (626)
Total income
tax expense $ 4,287 4,790 3,168
Income tax expense (benefit) attributable to operations for fiscal
1999, 1998, and 1997 consists of:
Current Deferred Total
1999:
Federal $ 3,669 (63) 3,606
State 693 (12) 681
$ 4,362 (75) 4,287
1998:
Federal $ 4,163 (116) 4,047
State 765 (22) 743
$ 4,928 (138) 4,790
1997:
Federal $ 3,061 136 3,197
State 571 26 597
$ 3,632 162 3,794
(Continued)
<PAGE 32>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
The significant components of deferred income tax expense (benefit)
attributable to operations for fiscal 1999, 1998, and 1997 are as
follows:
1999 1998 1997
Deferred tax expense
(exclusive of the
effects of the
following item) $ (75) (138) 788
Decrease in beginning
of the year balance
of the valuation
allowance for
deferred tax assets --- --- (626)
$ (75) (138) 162
Income tax expense attributable to operations was $4,287, $4,790,
and $3,794 for fiscal 1999, 1998, and 1997, respectively, and
differs from the amounts computed by applying the Federal income
tax rate of 35% in 1999 and 1998, and 34% in 1997 as a result of
the following:
1999 1998 1997
Computed "expected"
tax expense $ 4,026 4,298 3,350
Reduction in income
taxes resulting from:
State income taxes,
net of the Federal
income tax benefit 501 483 394
Other, net (240) 9 50
$ 4,287 4,790 3,794
(Continued)
<PAGE 33>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities at
January 31, 1999 and February 1, 1998 are presented below:
1999 1998
Deferred tax assets:
Capital leases $ 1,018 969
Other assets 244 38
Other liabilities 920 579
Net operating loss and
tax credit carryforwards 43 85
Total gross deferred
tax assets 2,225 1,671
Less - valuation allowance (43) (85)
Net deferred tax assets 2,182 1,586
Deferred tax liabilities:
Inventories, principally
due to differences in
the LIFO reserve arising
from a prior business
combination accounted for
as a purchase 2,911 2,998
Property and equipment, due
to differences in deprecia-
tion and a prior business
combination accounted for
as a purchase 4,016 3,408
Total gross deferred
tax liabilities 6,927 6,406
Net deferred tax
liability $ 4,745 4,820
At January 31, 1999, the Company has net operating loss carryforwards
for state income tax purposes in various states aggregating $1,657
which are available to offset future state taxable income in those
states, if any, expiring at various dates through fiscal 2005.
The valuation allowance relates to the net operating loss (NOL) and
tax credit carryforwards. Income tax benefits in fiscal 1997 from
the utilization of NOL carryforwards have been recorded as an
increase to additional paid-in capital because such income tax
benefits are attributable to the loss periods prior to the
reorganization in June 1991.
(Continued)
<PAGE 34>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(7) Stock Option Plan
During fiscal 1994, the Company adopted a stock option plan under
which options to purchase 125,000 shares of common stock may be
granted to key employees. The stock option plan was amended in
June 1994 to increase the number of options which may be granted
under the plan to 200,000, and was further amended in March 1997
to increase to 450,000. The plan provides that the option price
shall not be less than the fair market value of the shares on the
date of grant and that unexercised options expire five years from
that date. The options become exercisable in equal amounts over a
four-year period from the grant date. Information regarding
options which were outstanding at January 31, 1999, February 1,
1998, and February 2, 1997 is presented below:
<TABLE>
<CAPTION>
Weighted
average
Number of exercise
shares price
<S> <C> <C>
Options outstanding, January 28, 1996 158,325 $ 9.41
Issued 37,150 $ 12.875
Exercised (1,313) $ 9.41
Canceled (6,637) $ 10.49
Options outstanding, February 2, 1997 187,525 $ 10.06
Issued 82,750 $ 12.75
Exercised (8,938) $ 8.73
Canceled (14,262) $ 10.79
Options outstanding, February 1, 1998 247,075 $ 10.97
Issued 45,250 $ 18.50
Exercised (53,563) $ 8.25
Canceled (3,200) $ 12.84
Options outstanding, January 31, 1999 235,562 $ 13.00
</TABLE>
(Continued)
<PAGE 35>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
The Company has chosen to account for stock-based compensation
using the intrinsic value method prescribed in APB 25 and related
interpretations. Accordingly, compensation cost for stock options
is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. If the Company had elected
to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by Statement 123, net
earnings and net earnings per share would have been decreased to
the pro forma amounts indicated in the table below:
1999 1998
Net earnings, as reported $ 7,215 7,491
Net earnings, pro forma 7,087 7,412
Net earnings per share,
as reported:
Basic 1.41 1.47
Diluted 1.40 1.46
Net earnings per share,
pro forma:
Basic 1.39 1.45
Diluted 1.38 1.44
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions:
1999 1998
Expected dividend yield 0% 0%
Expected stock price volatility 34.6% 33.0%
Risk-free interest rate 5.6% 6.5%
Expected life of options 5 years 5 years
The weighted average grant date fair value of options granted
during 1999 and 1998 is $7.42 and $5.19 per share, respectively.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
________________________________________ ________________________
Number Weighted Number
Range outstanding average Weighted exercisable Weighted
of at remaining average at average
exercise January 31, contractual exercise January 31, exercise
price 1999 life price 1999 price
_________________ ____________ ____________ ____________ ____________ ___________
<S> <C> <C> <C> <C> <C>
$9.20 to $12.75 190,462 2.12 $ 11.71 105,806 $ 10.97
$18.50 45,100 4.33 $ 18.50 --- $ ---
$9.20 to $18.50 235,562 105,806
</TABLE>
(Continued)
<PAGE 36>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(8) Stockholders' Equity
During 1998, the Company's Board of Directors approved a plan to
repurchase up to 411,000 shares of the Company's Common Stock (the
"Stock Repurchase Program"). Purchases pursuant to the Stock
Repurchase Program are to be made from time to time in the open
market or directly from stockholders at prevailing market prices.
The Stock Repurchase Program is anticipated to be funded with
internally generated cash and borrowings under the Credit Facility.
As of January 31, 1999, the Company had purchased 60,000 shares of
Common Stock for $669.
The Company completed a secondary public offering of 900,000 shares
of its common stock on October 15, 1996 and the Company's
underwriters exercised their option to purchase an additional
189,000 common shares on November 15, 1996. The Company received
net proceeds from the sale of its common stock (after deducting
issuance costs) of $13,068. The net proceeds of the offering were
used to fund the opening of new stores. Pending such use, the net
proceeds were used to repay outstanding balances under the Company's
revolving loan credit facility.
The Company has accounted for the confirmation of its plan of
reorganization under Chapter 11 of the Federal bankruptcy laws which
was confirmed by the Bankruptcy Court on May 17, 1991 as a
quasi-reorganization. Accordingly, the accumulated deficit at June 2,
1991 was charged to additional paid-in capital and a new retained
earnings account was established effective the same date. No
adjustment was made to the carrying values of the Company's assets
and liabilities because such amounts were not in excess of estimated
fair values.
(9) Earnings Per Share
The following is a reconciliation of the outstanding shares
utilized in the computation of earnings per share:
1999 1998 1997
Outstanding shares:
Weighted average shares
outstanding (basic) 5,111,461 5,096,322 4,299,502
Effect of dilutive
options to purchase
common stock 43,399 52,496 40,320
As adjusted for
diluted
calculation 5,154,860 5,148,818 4,339,822
Net earnings -
basic and diluted $ 7,215 7,491 6,058
Earnings per share amounts have been computed on the absolute amount
of net earnings whereas the above net earnings amounts have been
rounded to the nearest thousand.
(Continued)
<PAGE 37>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(10) Quarterly Financial Information (Unaudited)
<TABLE>
Financial results by quarter are as follows:
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter
_____________________________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
1999:
Net sales $ 81,052 90,360 85,308 106,789
Gross margin (a) 28,150 30,610 29,290 36,017
Earnings before cumulative
effect of accounting
change (d) 954 1,833 1,119 3,309
Cumulative effect of
accounting change (d) (956) --- --- ---
Net earnings (d) (2) 1,833 1,119 3,309
Net earnings per share
before cumulative effect of
accounting change (b), (c)
and (d):
Basic .19 .36 .22 .65
Diluted .18 .35 .22 .65
1998:
Net sales $ 69,272 80,463 76,163 97,356
Gross margin (a) 23,735 26,668 26,714 33,155
Net earnings 849 1,535 903 4,204
Net earnings per share:
Basic .17 .30 .18 .82
Diluted .17 .30 .18 .81
</TABLE>
(a) The pretax LIFO inventory provision for the fiscal year ended
January 31, 1999 was estimated to be expense of $-0- in each
of the first three quarters. The annual provision amounted to
$2,449 income resulting in a credit of $2,449 in the fourth
quarter.
The pretax LIFO inventory provision for the fiscal year ended
February 1, 1998 was estimated to be expense of $0, $110 and
$60 in each of the first three quarters, respectively. The
annual provision amounted to $950 income resulting in a credit
of $1,120 in the fourth quarter.
(b) Earnings per share amounts are computed independently for
each of the quarters presented. Therefore, the sum of the
quarterly earnings per share in fiscal 1999 does not equal
the total computed for the year.
(c) The cumulative effect of adopting the accounting change for
store preopening costs was (.19) in the first quarter of
fiscal 1999.
(Continued)
<PAGE 38>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
(d) Amounts for the first and second quarter of fiscal 1999 have
been restated to reflect adoption of the accounting change
for store preopening cost discussed in note 1(h). The
effect of the restatement was to increase (decrease) the
amounts originally reported in the Company's quarterly
reports for such quarters as follows:
First Second
quarter quarter
___________ ___________
Earnings before cumulative
effect of accounting
change $ (52) 244
Cumulative effect of
accounting change (956) ---
Net earnings (1,008) 244
Net earnings per share:
basic and diluted (.20) .05
(11) Fair Value of Financial Instruments
The Company has determined the fair value of its financial
instruments in accordance with Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of Financial
Instruments. For long-term debt, the fair value is estimated by
discounting the future cash flows at rates currently available for
similar types of debt instruments. Such fair value approximated the
carrying value of long-term debt at January 31, 1999 and February 1,
1998. For notes payable under revolving loan credit facility, fair
value approximates the carrying value due to the variable interest
rate.
For all other financial instruments including cash, receivables,
accounts payable, and accrued expenses, the carrying amounts
approximate fair value due to the short maturity of those
instruments.
(12) Related Party Transactions
Lease payments to related parties amounted to approximately $585 in
fiscal 1999, 1998, and 1997.
During fiscal 1999 and 1997, the Company paid a computer consulting
firm, whose president or chairman is a director of the Company,
$260 and $957, respectively, for point-of-sale software and related
services.
(13) Business Operations and Segment Information
The Company's business activities include operation of ALCO discount
stores in towns with populations which are typically less than 5,000
not served by other regional or national retail discount chains and
Duckwall variety stores that offer a more limited selection of
merchandise which are primarily located in communities of less than
2,500 residents.
For financial reporting purposes, the Company has established two
operating segments: "ALCO Discount Stores", and "All Other", which
includes the Duckwall variety stores and other business activities,
such as general office, warehouse and distribution activities.
(Continued)
<PAGE 39>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
<TABLE>
Segment Information
<CAPTION>
1999 1998 1997
__________ ___________ ___________
<S> <C> <C> <C>
Net Sales:
ALCO Discount Stores $ 330,705 302,040 261,710
All Other:
External 32,804 21,214 17,109
Intercompany 200,465 189,330 155,067
$ 563,974 512,584 433,886
Depreciation and Amortization:
ALCO Discount Stores $ 3,300 2,554 1,785
All Other 2,674 2,251 1,988
$ 5,974 4,805 3,773
Income (expense) from Operations:
ALCO Discount Stores $ 29,241 28,086 26,195
All Other (16,771) (14,037) (13,806)
$ 12,470 14,049 12,389
Capital Expenditures:
ALCO Discount Stores $ 8,203 10,081 10,531
All Other 2,057 1,581 1,131
$ 10,260 11,662 11,662
Identifiable Assets:
ALCO Discount Stores $ 128,078 122,263 98,326
All Other 43,733 33,638 32,617
$ 171,811 155,901 130,943
</TABLE>
(Continued)
<PAGE 40>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
Income from operations as reflected in the above segment information has
been determined differently than income from operations in the
accompanying consolidated statements of operations as follows:
Intercompany Sales
Intercompany sales represent transfers of merchandise from the
warehouse to ALCO discount stores and Duckwall variety stores.
Intercompany Expense Allocations
General and administrative expenses incurred at the general office
have not been allocated to the ALCO Discount Stores for purposes of
determining income from operations for the segment information.
Warehousing and distribution costs including freight applicable to
merchandise purchases, have been allocated to the ALCO Discount
Stores segment based on the Company's customary method of allocation
for such costs (primarily as a stipulated percentage of merchandise
purchases).
Inventories
Inventories are based on the FIFO method for segment information
purposes and on the LIFO method for the consolidated statements of
operations.
Property Costs
For ALCO stores for which the Company owns the store building, rent
expense is charged to, and the applicable depreciation expense is
excluded from, income from operations for purposes of determining
the segment information for the ALCO Discount Stores.
Leases
All leases are accounted for as operating leases for purposes of
determining income from operations for purposes of determining the
segment information for the ALCO Discount Stores whereas capital
leases are accounted for as such in the consolidated statements of
operations.
Identifiable assets as reflected in the above segment information
include cash and cash equivalents, receivables, inventory, property and
equipment, and property under capital leases.
(Continued)
<PAGE 41>
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1999, February 1, 1998, and February 2, 1997
(Dollars in thousands, except per share amounts)
A reconciliation of the segment information to the amounts reported in
the consolidated financial statements is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
_______________________________________ ___________ ___________ ___________
<S> <C> <C> <C>
Net sales per above segment information $ 563,974 512,584 433,886
Intercompany elimination (200,465) (189,330) (155,067)
Net sales per consolidated
statements of operations $ 363,509 323,254 278,819
Income from operations per above
segment information $ 12,470 14,049 12,389
Inventory method 2,449 950 (55)
Property costs 916 911 744
Leases (99) (104) (193)
Income from operations per
consolidated statements of
operations $ 15,736 15,806 12,885
</TABLE>
<PAGE 42>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on May 27, 1999,
contains under the caption "Election of Directors" certain
information required by Item 10 of Form 10-K, and such information
is incorporated herein by this reference. The information required
by Item 10 of Form 10-K as to executive officers is set forth in
Item 4A of Part I hereof.
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on May 27, 1999,
contains under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" certain information required by
Item 10 of Form 10-K, and such information is incorporated herein
by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 27, 1999, contains
under the caption "Executive Compensation and Other Information"
the information required by Item 11 of Form 10-K, and such
information is incorporated herein by this reference (except that
the information set forth under the following subcaptions is
expressly excluded from such incorporation: "Compensation Committee
Report" and "Company Performance").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 27, 1999, contains
under the caption "Ownership of Duckwall Common Stock" the
information required by Item 12 of Form 10-K and such information
is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant's Proxy Statement to be used in connection with the
Annual Meeting of Stockholders to be held on May 27, 1999, contains
under the caption "Insider Participation" the information required
by Item 13 of Form 10-K and such information is incorporated herein
by this reference.
<PAGE 43>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules, and Exhibits
(1) Consolidated Financial Statements
The financial statements are listed in the index for Item 8
of this Form 10-K.
(2) Financial Statement Schedules
No financial statement schedules are included as they are
not applicable to the Company.
(3) Exhibits
The exhibits filed with or incorporated by reference in this
report are listed below:
Number Description
______ _________________________________________________________
3(a) Amended and Restated Articles of Incorporation (filed
as Exhibit 3(a) to Registrant's Registration Statement
on Form 10 and hereby incorporated herein by reference).
3(b) Certificate of Amendment to the Articles of Incorporation
(filed as Exhibit 3(b) to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 29, 1995, and
incorporated herein by reference) (filed as Exhibit 3(b)
to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 29, 1995, and incorporated herein by
reference).
3(c) Bylaws (filed as Exhibit 3(b) to Registrant's Registration
Statement on Form 10 and hereby incorporated herein by
reference).
4(a) Specimen Common Stock Certificates (filed as Exhibit 4.1
to Registrant's Registration Statement on Form S-1 and
incorporated herein by reference).
4(b) Reference is made to the Amended and Restated Articles
of Incorporation and Bylaws described above under 3(a)
and 3(c), respectively (filed as Exhibit 4(a) to
Registrant's Registration Statement on Form 10 and
hereby incorporated herein by reference).
4(c) Reference is made to the Certificate of Amendment to the
Articles of Incorporation described above under 3(b)
(filed as Exhibit 3(b) to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 29, 1995,
and incorporated herein by reference).
4(d) Form of 10% Subordinated Notes (filed as Exhibit 4(c)
to Registrant's Registration Statement on Form 10 and
hereby incorporated herein by reference).
9(a) Voting Agreement and Irrevocable Proxy, dated as of
May 29, 1991, among General Electric Capital Corporation,
certain stockholders of the Registrant and the Registrant
(filed as Exhibit 9 to Registrant's Registration
Statement on Form 10 and hereby incorporated herein
by reference).
9(b) Assignment, dated as of February 11, 1993, among General
<PAGE 44>
Electric Credit Corporation, BA Business Credit, Inc. and
Transamerica Business Credit Corporation (filed as Exhibit
9(b) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 and hereby incorporated
herein by reference).
10(a) Assignment, dated as of February 11, 1993, among General
Electric Credit Corporation, BA Business Credit, Inc. and
Transamerica Business Credit Corporation (filed as Exhibit
9(b) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 and hereby incorporated
herein by reference).
10(b) Amended and Restated Loan Agreement, dated as of
February 11, 1993 among the Registrant, BA Business Credit,
Inc. and Transamerica Business Credit Corporation (filed as
Exhibit 10(e) to Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1993 and hereby
incorporated herein by reference.)
10(c) First Amendment to Security Agreement, dated as of
February 11, 1993 among the Registrant, BA Business Credit,
Inc. and Transamerica Business Credit Corporation (filed as
Exhibit 10(f) to Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1993 and hereby
incorporated herein by reference.)
10(d) Amendment No. 1, dated as of June 10, 1994, to the Amended
and Restated Loan Agreement, dated as of February 11, 1993,
among the Registrant, BA Business Credit, Inc. and
Transamerica Business Credit Corporation.
10(e) Stock Pledge Agreement, dated as of February 11, 1993 among
the Registrant, BA Business Credit, Inc. and Transamerica
Business Credit Corporation (filed as Exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993 and hereby incorporated herein
by reference.)
10(f) Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 among the Registrant,
BA Business Credit, Inc. and Transamerica Business Credit
Corporation (filed as Exhibit 10(h) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1993 and hereby incorporated herein by reference.)
10(g) Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 among the Registrant,
BA Business Credit, Inc. and Transamerica Business Credit
Corporation (filed as Exhibit 10(i) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1993 and hereby incorporated herein by reference.)
10(h) Mortgage, Security Agreement, and Assignment of Leases and
Rents, dated as of February 11, 1993 among the Registrant,
BA Business Credit, Inc. and Transamerica Business Credit
Corporation (filed as Exhibit 10(j) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1993 and hereby incorporated herein by reference.)
10(i) Deed of Trust, Security Agreement, and Assignment of
Leases and Rents, dated as of February 11, 1993 by the
Registrant in favor of The Public Trustee for Morgan
County, Colorado (filed as Exhibit 10(k) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1993 and hereby incorporated herein by
reference.)
10(j) Deed of Trust, Security Agreement, and Assignment of
<PAGE 45>
Leases and Rents, dated as of February 11, 1993 by the
Registrant in favor of The Public Trustee for Fremont
County, Colorado (filed as Exhibit 10(l) to Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 31, 1993 and hereby incorporated herein by
reference.)
10(k) Lease dated July 1, 1979 between the Registrant and the
City of Abilene (filed as Exhibit 10(d) to Registrant's
Registration Statement on Form 10 and hereby incorporated
herein by reference).
10(l) Lease dated July 1, 1979 between the Registrant and the
City of Abilene (filed as Exhibit 10(e) to Registrant's
Registration Statement on Form 10 and hereby incorporated
herein by reference).
10(m) Lease dated July 1, 1979 between the Registrant and the
City of Abilene (filed as Exhibit 10(f) to Registrant's
Registration Statement on Form 10 and hereby incorporated
herein by reference).
10(n) Employment Agreement, dated March 18, 1993 between the
Registrant and Glen L. Shank (filed as Exhibit 10(o) to
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993 and hereby incorporated
herein by reference.).*
10(o) Second Amended and Restated Loan Agreement, dated as of
October 18, 1995, by and among the Registrant, BankAmerica
Business Credit, Inc. and Transamerica Business Credit
Corporation.
11 Computation of Company's Earnings Per Share
22 Subsidiaries of the Registrant.
23 Consent of Independent Auditors
27 Financial Data Schedule
______________________
* Management contracts or compensation plans or arrangements
required to be identified by Item 14(a)(3).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by Registrant during the
fourth quarter of the fiscal year ended January 31, 1999.
(c) Exhibits
The exhibits filed with this report are identified above
under Item 14(a)(3)
(d) Financial Statement Schedules.
No financial statement schedules are included as they are
not applicable to the Company.
<PAGE 46>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DUCKWALL-ALCO STORES, INC.
by /s/ Glen L. Shank
Glen L. Shank
Chairman of the Board
and President
Dated: April 30, 1999
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature and Title Date
______________________________________________ _______________
/s/ Glen L. Shank April 30, 1999
Glen L. Shank
Chairman of the Board
and President
(Principal Executive Officer)
/s/ Richard A. Mansfield April 30, 1999
Richard A. Mansfield
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
/s/ Dennis A. Mullin April 30, 1999
Dennis A. Mullin
Director
/s/ Robert L. Barcum April 30, 1999
Robert L. Barcum
Director
/s/ Lolan C. Mackey April 30, 1999
Lolan C. Mackey
Director
/s/ Jeffrey Macke April 30, 1999
Jeffrey Macke
Director
/s/ Robert L. Woodard April 30, 1999
Robert L. Woodard
Director
</PAGE 47>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Duckwall-ALCO Stores, Inc.:
We consent to incorporation by reference in the registration statement on
Form S-8 of Duckwall-ALCO Stores, Inc. of our report dated March 19, 1999,
relating to the consolidated balance sheets of Duckwall-ALCO Stores, Inc.
as of January 31, 1999, and February 1, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of
the years in the three-year period ended January 31, 1999, which report
appears in the January 31, 1999 annual report on Form 10-K of Duckwall-
ALCO Stores, Inc.
/s/ KPMG LLP
KPMG LLP
Wichita, Kansas
April 28, 1999
<PAGE 48>
</PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-2-1998
<PERIOD-END> JAN-31-1999
<CASH> 10,423
<SECURITIES> 0
<RECEIVABLES> 3,557
<ALLOWANCES> 0
<INVENTORY> 113,225
<CURRENT-ASSETS> 127,564
<PP&E> 73,967
<DEPRECIATION> (35,340)
<TOTAL-ASSETS> 172,474
<CURRENT-LIABILITIES> 37,488
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 86,425
<TOTAL-LIABILITY-AND-EQUITY> 172,474
<SALES> 363,509
<TOTAL-REVENUES> 363,509
<CGS> 239,442
<TOTAL-COSTS> 239,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,234
<INCOME-PRETAX> 11,502
<INCOME-TAX> 4,287
<INCOME-CONTINUING> 7,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (956)
<NET-INCOME> 6,259
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.21
</TABLE>
