UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended ....... July 30, 2000
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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 Avenue
Abilene, Kansas 67410-2832
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(785) 263-3350
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
4,430,699 shares of common stock, $.0001 par value (the issuer's
only class of common stock), were outstanding as of July 30, 2000.
<PAGE>
<TABLE>
PART I. Financial Information.
ITEM 1. Financial Statements.
Duckwall-ALCO Stores, Inc.
And Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<CAPTION>
July 30, January 30,
2000 2000
(Unaudited)
___________ __________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,688 $14,002
Receivables 2,285 2,370
Inventories 128,622 121,863
Prepaid expenses 584 467
Total current assets 138,179 138,702
Property and equipment 76,194 73,648
Less accumulated depreciation 42,365 39,729
Net property and equipment 33,829 33,919
Property under capital leases 20,407 20,407
Less accumulated amortization 15,327 15,028
Net property under capital leases 5,080 5,379
Other non-current assets 120 179
Total assets $177,208 $178,179
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Duckwall-ALCO Stores, Inc.
And Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<CAPTION>
July 30, January 30,
2000 2000
(unaudited)
___________ ____________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of:
Long term debt $ 834 $1,187
Capital lease obligations 607 607
Accounts payable 28,581 26,781
Income taxes payable 1,200 1,843
Accrued salaries and commissions 4,237 4,812
Accrued taxes other than income 4,128 4,022
Other current liabilities 1,535 1,907
Deferred income taxes 1,682 1,682
Total current liabilities 42,804 42,841
Notes payable under revolving loan 30,655 30,420
Long term debt
less current maturities 1,744 2,065
Capital lease obligations
less current maturities 7,178 7,482
Other noncurrent liabilities 2,084 2,143
Deferred revenue 725 852
Deferred income taxes 2,158 2,158
Total liabilities 87,348 87,961
Stockholders' equity:
Common stock, $.0001 par value, authorized
20,000,000 shares; issued and outstanding
4,430,699 shares and 4,772,299 shares
respectively 1 1
Additional paid-in capital 48,605 51,481
Retained earnings since June 2, 1991 41,254 38,736
Total stockholders' equity 89,860 90,218
Total liabilities and
stockholders' equity $177,208 $178,179
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Duckwall-ALCO Stores, Inc.
And Subsidiaries
Consolidated Statement of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Thirteen Week For the Twenty-Six Week
Periods Ended Periods Ended
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
___________ ___________ _________ ________
<C> <C> <C> <C>
Net sales ............................... $99,143 $94,144 $190,803 $181,172
Cost of sales ........................... 66,012 62,250 127,129 120,140
Gross margin .................. 33,131 31,894 63,674 61,032
Selling, general
and administrative ................. 27,836 26,391 54,890 51,916
Depreciation
and amortization ................... 1,559 1,583 3,108 3,160
Total operating expenses ...... 29,395 27,974 57,998 55,076
Income from operations .................. 3,736 3,920 5,676 5,956
Interest expense......................... 765 942 1,547 1,847
Earnings before income taxes ............ 2,971 2,978 4,129 4,109
Income tax ....... ...................... 1,158 1,133 1,611 1,563
Net earnings ............................ $1,813 $1,845 $2,518 $2,546
Earnings per share
Basic ................................... $ 0.41 $ 0.37 $ 0.55 $ 0.50
Diluted ................................. $ 0.40 $ 0.37 $ 0.55 $ 0.50
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Duckwall-ALCO Stores, Inc.
And Subsidiaries
Consolidated Statements of Cash Flow
(Dollars in Thousands)
(Unaudited)
<CAPTION>
For the Twenty-Six Week
Periods Ended
July 30, 2000 August 1, 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $2,518 $2,546
Adjustments to reconcile
net earnings to net cash
provided by operating activities
Amortization of debt financing costs 59 60
Depreciation and amortization 3,108 3,160
Loss on disposal and impairment of
assets 279 0
LIFO expense 175 374
Increase in inventories (6,934) (2,923)
Increase in accounts payable 1,800 3,735
Decrease in receivables 85 1,056
(Increase) decrease in other current
assets (117) 222
Increase in accrued taxes other than
income 106 569
(Decrease) in accrued salaries and
commissions (575) (960)
(Decrease) in income taxes payable (643) (1,772)
(Decrease) in other liabilities (558) (1,316)
Net cash (used in) provided by operating
activities (697) 4,751
Cash flow from investing activities:
Capital expenditures (2,998) (2,752)
Increase in other assets 0 (44)
Net cash used in investing activities (2,998) (2,796)
Cash flow from financing activities:
Increase (decrease) in revolving loan 235 (373)
Principal payments on long term notes (674) (825)
Principal payments on capital leases (304) (270)
Common stock redemption (2,876) (490)
Proceeds from exercise of outstanding
stock options 0 70
Net cash used in financing activities (3,619) (1,888)
Net (decrease) increase in cash (7,314) 67
Cash at beginning of period 14,002 10,423
Cash at end of period $6,688 $10,490
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Duckwall-ALCO Stores, Inc.
And Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The accompanying unaudited consolidated financial
statements are for interim periods and, consequently, do not
include all disclosures required by generally accepted
accounting principles for annual financial statements. It is
suggested that the accompanying unaudited consolidated
financial statements be read in conjunction with the
consolidated financial statements included in the Company's
fiscal 2000 Annual Report. In the opinion of management of
Duckwall-ALCO Stores, Inc., the accompanying unaudited
consolidated financial statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present
fairly the financial position of the Company and the results of
its operations and cash flows for the interim periods.
(2) Principles of Consolidation
The consolidated financial statements include the accounts
of Duckwall-ALCO Stores, Inc. and its wholly-owned subsidiaries.
All significant intercompany transactions and balances have
been eliminated in consolidation.
(3) 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.
The average number of shares used in computing earnings per share
was as follows:
Thirteen Weeks Ending Basic Diluted
July 30, 2000 4,444,186 4,480,956
August 1, 1999 5,049,199 5,049,199
Twenty-Six Weeks Ending
July 30, 2000 4,543,975 4,567,530
August 1, 1999 5,065,208 5,065,208
(4) Long-Term Debt
On September 1, 2000, the Company reached an agreement with the bank
to extend the due date of its revolving credit agreement until April
2002. The terms of the extension are substantially the same as the
original agreement. The effect of the extension of the due date of
the agreement has been reflected in the accompanying consolidated
balance sheet as of July 30, 2000.
<PAGE>
Duckwall-ALCO Stores, Inc.
And Subsidiaries
[CAPTION]
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands)
The thirteen weeks ended July 30, 2000 and August 1, 1999 are referred to
herein as the second quarter of fiscal 2001 and 2000, respectively.
As used below the term "competitive market" refers to any market wherein
there is one or more national or regional full-line discount stores located
in the market served by the Company. The term "non-competitive market"
refers to any market where there is no national or regional full-line discount
store located in the market served by the Company. Even in a non-competitive
market, the Company faces competition from a variety of sources.
RESULTS OF OPERATIONS
The Company continues to execute its basic strategy of opening stores
in under-served markets that have no competition from national or regional
full-line discount retailers. During the second quarter of fiscal 2001 the
Company opened 2 stores, both of which were in new, non-competitive markets,
resulting in a quarter end total of 268 stores. For the twenty-six week
period ending July 30, 2000, the Company opened 3 stores and closed 4 stores.
As of July 30, 2000, over 80% of the stores were located in non-competitive
markets.
Net sales for the second quarter of fiscal 2001 increased $4,999 or
5.3% to $99,143 compared to $94,144 for the second quarter of fiscal 2000.
Net sales for the prototype Class 18 ALCO stores open the full period in both
the second quarter of fiscal 2001 and fiscal 2000 (comparable stores) increased
$1,104 or 2.9%. The Duckwall variety stores produced an increase of $445 or
5.8% compared to the second quarter of the prior fiscal year. Net sales for
all stores open the full period increased $1,671 or 1.9% compared to the
second quarter of the prior fiscal year.
Net sales for the twenty-six week period ending July 30, 2000
increased $9,631 or 5.3% to $190,803 compared to $181,172 in the comparable
twenty-six week period of the prior fiscal year. Net sales of comparable
class 18 ALCO stores increased by $2,031 or 2.7% for the twenty-six week
period ending July 30, 2000 compared to the twenty-six week period of the
prior fiscal year. Net sales for all stores open the full period increased
$3,579 or 2.1% for the twenty-six week period ending July 30, 2000 compared
to the twenty-six week period of the prior fiscal year.
Gross margin for the second quarter of fiscal 2001 increased $1,237
or 3.9% to $33,131 compared to $31,894 in the second quarter of fiscal 2000.
Gross margin was negatively impacted by higher transportation costs, as well
as the mix of sales and higher markdowns in June due to the delayed arrival
of warm weather in the Company's markets. This was partially offset by
reduced LIFO expense in the second quarter of fiscal 2001 compared to the
second quarter of fiscal 2000. Gross margin as a percentage of sales was 33.4%
for the second quarter of fiscal 2001 compared to 33.9% in the second quarter
of fiscal 2000.
Gross margin for the twenty-six week period ended July 30, 2000 was
$63,674, which was $2,642 or 4.3% higher than last year's twenty-six week
gross margin of $61,032. As a percent of net sales, gross margin for the
twenty-six week period ended July 30, 2000 was 33.4% compared to 33.7% in
the twenty-six week period of the prior fiscal year. The reduction in gross
margin percentage was attributable to higher transportation costs, offset by
lower LIFO costs in the twenty-six week period ended July 30, 2000 as compared
to the twenty-six week period of the prior fiscal year.
Selling, general and administrative expense increased $1,445 or 5.5%
to $27,836 in the second quarter of fiscal 2001 compared to $26,391 in the
second quarter of fiscal 2000. As a percentage of net sales, selling, general
and administrative expenses in the second quarter of fiscal 2001 was 28.1%,
compared to 28.0% in the second quarter of fiscal 2000. The increase in the
selling, general and administrative expense was due to higher than normal
inflationary increases in wage rates and medical insurance costs as well as
store closing expenses and the sale leaseback of ten ALCO stores in
January 2000. The sale leaseback impacts selling, general and administrative
expense through higher store rent expense, with a corresponding reduction in
depreciation and interest expense. The Company is also investing heavily in
technology and merchandising initiatives in order to improve overall long-term
corporate performance.
Selling, general and administrative expenses increased $2,974 or 5.7%
to $54,890 for the twenty-six week period ended July 30, 2000 compared to
$51,916 for the comparable twenty-six week period of the prior fiscal year.
Selling, general and administrative expense as a percent of net sales was
28.8% for the twenty-six week period ending July 30, 2000, compared to 28.7%
for the twenty-six week period ended August 1, 1999.
Depreciation and amortization expense decreased $24 or 1.5% to $1,559
in the second quarter of fiscal 2001 compared to $1,583 in the second quarter
of fiscal 2000. The decrease is due to the sale leaseback described above
under selling, general, and administrative expense.
Income from operations decreased $184 or 4.7% to $3,736 in the second
quarter of fiscal 2001 compared to $3,920 in the second quarter of fiscal
2000. Income from operations as a percentage of net sales was 3.8% in the
second quarter of fiscal 2001 compared to 4.2% in the second quarter of fiscal
2000.
Income from operations decreased $280 or 4.7% to $5,676 for the
twenty-six week period ended July 30, 2000 compared to $5,956 in the
comparable twenty-six week period of the prior fiscal year.
Interest expense decreased $177 or 18.8% in the second quarter of
fiscal 2001 compared to the second quarter of fiscal 2000.
Net earnings for the second quarter of fiscal 2001 were $1,813, a
decrease of $32 or 1.7% over the net earnings of $1,845 for the second
quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are cash flow from operations,
borrowings under its revolving loan credit facility and vendor trade credit
financing (increases in accounts payable).
At July 30, 2000 working capital (defined as current assets less
current liabilities) was $95,375 compared to $95,861 at the end of fiscal
2000.
Operating activities in the twenty-six week period of fiscal 2001
used cash in the amount of $697 and generated cash in the amount of $4,751
in the twenty-six week period of fiscal 2000. The decrease in the amount of
cash generated by operating activities in the twenty-six week period of fiscal
2001 compared to the twenty-six week period of fiscal 2000 was primarily due
to a smaller increase in accounts payable compared to the corresponding
increase in inventory.
The Company used cash from financing activities in the twenty-six week
period of fiscal 2001 in the amount of $3,619 and $1,888 in the twenty-six
week period of fiscal 2000. Cash was used for stock redemption, as well as
to make principal payments on long term notes and capital leases.
Cash used for acquisition of property and equipment in the twenty-six
week period of fiscal 2001 and 2000 totaled $2,998 and $2,752 respectively.
Total anticipated cash payments for acquisition of property and equipment in
fiscal 2001, principally for store buildings and store and warehouse fixtures
and equipment, are $7,250.
On September 1, 2000, the Company reached an agreement with
BankAmerica Business Credit, Inc., to extend the due date of its revolving
credit agreement until April, 2002. The terms of the extension are
substantially the same as the original agreement.
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 full-line 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.
<TABLE>
<CAPTION
For The Thirteen Week For The Twenty-Six Week
Periods Ended Periods Ended
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
<S> <C> <C> <C>
Segment Information
Net Sales:
ALCO Discount Stores $90,224 $85,590 $173,497 $164,675
All Other
External 8,919 8,554 17,306 16,497
Intercompany 47,376 42,352 105,803 96,211
$146,519 $136,496 $296,606 $277,383
Depreciation and Amortization
ALCO Discount Stores $1,032 $982 $2,039 $1,972
All Other 527 601 1,069 1,188
$1,559 $1,583 $3,108 $3,160
Income (expense) from Operations:
ALCO Discount Stores $8,387 $8,751 $14,871 $15,062
All Other (4,653) (4,620) 9,024 (8,703)
$3,734 $4,131 $5,847 $6,359
Capital Expenditures:
ALCO Discount Stores $1,036 $898 $2,445 $1,813
All Other 404 241 553 939
$1,440 $1,139 $2,998 $2,752
Identifiable Assets:
ALCO Discount Stores $133,130 $132,058 $133,130 $132,058
All Other 43,374 41,330 43,374 41,330
$176,504 $173,388 $176,504 $173,388
</TABLE>
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.
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.
<TABLE>
<CAPTION>
For The Thirteen Week For The Twenty-Six Week
Periods Ended Periods Ended
July 30, August 31, July 30, August 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales per above segment information $146,519 $136,496 $296,606 $277,383
Intercompany elimination (47,376) (42,352) (105,803) (96,211)
Net sales per consolidated statements
of operations $99,143 $94,144 $190,803 $181,172
Income from operations per above segment
information $3,734 $4,131 $5,847 $6,359
Inventory method 0 (196) (175) (373)
Leases 2 (15) 4 (30)
Income from operations per consolidated $3,736 $3,920 $5,676 $5,956
statements of operations
</TABLE>
NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 - "Revenue Recognition in Financial Statements"
(SAB 101). This SAB deals with various revenue recognition issues. The
Company is currently evaluating the effects of the SAB on its method of
recognizing revenues related to layaway sales and will make any accounting
method changes necessary later this fiscal year.
<PAGE>
OTHER INFORMATION
PART II
Item 1. Legal Proceedings
No legal proceedings except those covered by insurance occurred
during the thirteen week period ended July 30, 2000.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) Reports on Form 8-K
No reports filed
<PAGE>
Duckwall-ALCO Stores, Inc.
And Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
DUCKWALL-ALCO STORES, INC.
(Registrant)
Date, September 13, 2000 /s/Richard A. Mansfield
Richard A. Mansfield
Vice President - Finance
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer
<PAGE>
