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, 1994_________________
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to ____________________
____________AMES DEPARTMENT STORES, INC.____________
(Exact name of registrant as specified in its charter)
____________Delaware____________ _________04-2269444____________
(State or other jurisdiction of (I.R.S. Employer Identification
Number)
incorporation or organization)
2418 Main Street, Rocky Hill, Connecticut _____________06067____________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: ____(203) 257-2000_________
_____________________________________None______________________________________
Former name, former address and former fiscal year if changed since last
report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES __X__ NO _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a court.
YES __X__ NO _____
17,860,376 shares of Common Stock and 2,266,893 shares of
Priority Common Stock were outstanding on September 1, 1994.
Exhibit Index on page 15
Page 1 of 29 (including exhibits)
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JULY 30, 1994
I N D E X
Page
Part I: Financial Information
Consolidated Condensed Statements of Operations 3
for the Thirteen and Twenty-six Weeks Ended
July 30, 1994 and July 31, 1993
Consolidated Condensed Balance Sheets at 4
July 30, 1994, January 29, 1994 and
July 31, 1993
Consolidated Condensed Statements of Cash Flows 5
for the Twenty-six Weeks Ended July 30, 1994
and July 31, 1993
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Part II: Other Information
Submission of Matters to a Vote of Security Holders 15
and Exhibits and Reports on Form 8-K
- 2 -
<PAGE>
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
AMES DEPARTMENT STORES, INC. AND SUSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Thirteen For the Twenty-six
Weeks Ended Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
TOTAL SALES $517,685 $525,106 $973,838 $980,098
Less: Leased department sales 26,385 28,256 46,783 48,487
----------- ----------- ------------ ------------
NET SALES 491,300 496,850 927,055 931,611
Cost of goods sold and transportation expenses 356,893 360,668 678,550 677,284
----------- ----------- ------------ ------------
GROSS PROFIT 134,407 136,182 248,505 254,327
Leased department income 4,749 5,086 8,421 8,728
Other operating income 3,022 3,539 5,572 5,932
----------- ----------- ------------ ------------
142,178 144,807 262,498 268,987
Selling, general and administrative expenses 139,796 149,762 276,707 286,763
Depreciation and amortization expense 1,082 400 2,021 518
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (1,538) (1,494) (3,076) (3,033)
----------- ----------- ------------ ------------
PROFIT (LOSS) FROM OPERATIONS 2,838 (3,861) (13,154) (15,261)
Interest and debt expense (7,176) (7,155) (13,574) (14,323)
Interest income 374 1,061 815 1,637
Nonrecurring gain - litigation settlement 12,001 - 12,001 -
Gain on disposition of properties 1,733 - 3,535 -
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 9,770 (9,955) (10,377) (27,947)
Income tax (provision) benefit (3,161) - 3,362 -
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 6,609 (9,955) (7,015) (27,947)
Extraordinary item - loss on early extinguishment
of debt (net of tax benefit of $727) - - (1,517) -
----------- ----------- ------------ ------------
NET INCOME (LOSS) $6,609 ($9,955) ($8,532) ($27,947)
=========== =========== ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 21,541 20,000 20,127 20,000
=========== =========== ============ ============
INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS $0.31 ($0.50) ($0.35) ($1.40)
EXTRAORDINARY LOSS - - (0.07) -
----------- ----------- ------------ ------------
NET INCOME (LOSS) PER SHARE $0.31 ($0.50) ($0.42) ($1.40)
=========== =========== ============ ============
<FN>
(The accompanying notes are an integral part of these condensed financial statements)
-3-
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
<CAPTION>
July 30, January 29, July 31,
1994 1994 1993
ASSETS ------------------------------------
<S> <C> <C> <C>
Current Assets:
Unrestricted cash and short-term investments $30,784 $16,465 $29,362
Restricted cash and short-term investments 969 55,980 66,382
------------------------------------
Total cash and short-term investments 31,753 72,445 95,744
Receivables 23,410 18,703 21,371
Merchandise inventories 484,357 442,198 509,708
Prepaid expenses and other current assets 15,793 10,130 8,854
Net assets held for disposition - - 1,627
------------------------------------
Total current assets 555,313 543,476 637,304
Fixed Assets 34,265 23,686 12,917
Less - Accumulated depreciation and amortization (4,218) (2,098) (542)
------------------------------------
Net fixed assets 30,047 21,588 12,375
Other assets and deferred charges 7,310 2,067 -
------------------------------------
$592,670 $567,131 $649,679
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $99,630 $74,091 $77,756
Other 42,779 36,045 41,957
------------------------------------
Total accounts payable 142,409 110,136 119,713
Note payable - revolver 106,369 15,360 98,719
Current portion of long-term debt and capital lease obligations 18,116 18,609 20,000
Long-term debt classified as current (Note 5) - 67,702 -
Self-insurance reserve 50,204 48,433 56,261
Accrued expenses and other current liabilities 55,409 62,268 77,640
------------------------------------
Total current liabilities 372,507 322,508 372,333
Long-term debt and capital lease obligations 81,752 93,309 166,585
Other long-term liabilities 10,873 11,046 10,273
Unfavorable lease liability 23,950 25,072 26,133
Excess of revalued net assets over equity under fresh-start reporting 51,710 54,786 56,194
Stockholders' Equity:
Priority common stock 23 38 48
Common stock 178 163 152
Additional paid-in capital 73,278 73,278 69,800
Accumulated deficit (21,601) (13,069) (51,839)
------------------------------------
Total stockholders' equity 51,878 60,410 18,161
------------------------------------
$592,670 $567,131 $649,679
====================================
(The accompanying notes are an integral part of these condensed balance sheets)
- 4 -
<PAGE>
<PAGE>
</TABLE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
For the
Twenty-six Weeks Ended
July 30, July 31,
1994 1993
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($8,532) ($27,947)
Adjustments to reconcile net loss to net cash
used for operating activities:
Extraordinary loss on early extinguishment of debt 1,517 -
Income tax benefit (3,362) -
Gain on disposition of properties (3,535) -
Depreciation and amortization of fixed assets 2,126 538
Amortization of deferred financing costs 1,176 25
Amort. of the excess of revalued net assets over equity (3,076) (3,033)
Amort. of debt discounts and unfavorable leases, net 465 1,732
(Increase) decrease in accounts receivable (5,218) 2,816
(Increase) in merchandise inventories (42,159) (45,152)
Increase in accounts payable 32,273 14,375
(Decrease) in accrued expenses and other current liabs. (2,235) (21,861)
(Increase) in other working capital and other, net (1,641) (1,692)
----------- ------------
Cash used for operations before restructuring items (32,201) (80,199)
Changes due to restructuring activities:
Payments of restructuring costs (2,916) (23,559)
----------- ------------
Net cash used for operating activities (35,117) (103,758)
----------- ------------
Cash flows from investing activities:
Proceeds from the sale of assets held for disposition 58 36,773
Proceeds from the disposition of properties 4,064 -
Purchases of fixed assets (10,740) (9,428)
Decrease in restricted cash and short-term investments 55,011 17,285
----------- ------------
Net cash provided by investing activities 48,393 44,630
----------- ------------
Cash flows from financing activities:
Payments of debt and capital lease obligations (82,420) (19,124)
Short-term borrowings under the revolver 101,644 93,402
Payments on the revolver (10,635) (17,643)
Increase in deferred financing costs (7,546) -
----------- ------------
Net cash provided by financing activities 1,043 56,635
----------- ------------
Increase (decr.) in unrest. cash and short-term invest. 14,319 (2,493)
Unrestricted cash and short-term invest., beg. of period 16,465 31,855
----------- ------------
Unrestricted cash and short-term invest., end of period $30,784 $29,362
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest and debt fees not capitalized $9,847 $10,397
Income taxes 7 18
<FN>
(The accompanying notes are an integral part of these condensed financial
statements.)
- 5 -
</TABLE>
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements of Ames Department Stores,
Inc. (a Delaware Corporation) and subsidiaries (collectively "Ames" or
the "Company") contain all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such financial
statements for the interim periods. Due to the seasonality of the
Company's operations, the results of its operations for the interim
periods ended July 30, 1994 may not be indicative of total results for
the full year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations promulgated by the Securities and
Exchange Commission. Certain prior year amounts have been
reclassified to conform to the presentation used for the current year.
The consolidated condensed balance sheet at January 29, 1994 was taken
from audited financial statements previously filed with the Commission
in the Company's latest Form 10-K. The accompanying unaudited
consolidated condensed financial statements should be read in
conjunction with the financial statements and notes thereto included
in the Company's latest Form 10-K.
2. Earnings Per Common Share:
Earnings per share was determined using the weighted average
number of common and common equivalent shares outstanding. There were
no exercises of warrants during the twenty-six weeks ended July 30,
1994. Common stock equivalents and fully diluted earnings per share
were excluded for the periods with net losses as their inclusion would
have reduced the reported loss per share. Fully diluted earnings per
share was equal to primary earnings per share for the quarter ended
July 30, 1994.
3. Cash and Short-Term Investments:
The New Facility (Note 5), which became effective in June, 1994,
does not require cash collateralization of letters of credit, except
in limited instances as described in the New Facility. As of January
29, 1994 and July 31, 1993, approximately $55.0 and $60.0 million,
respectively, was placed for collateral pledge and consignment with
Republic National Bank of New York as a condition precedent to the
issuance of letters of credit under the Letter of Credit Facility
(Note 5). This cash collateral was included in "Restricted cash and
short-term investments." The amounts of cash collateral changed as
the balances outstanding under the Letter of Credit Facility changed,
since the cash collateral had to equal 105% of the Company's
outstanding letters of credit, including expected future increases to
stand-by letters of credit to cover expected workers' compensation
claims. Ames earned interest on invested cash collateral.
- 6 -
<PAGE>
In addition, as of July 30, 1994, January 29, 1994, and July 31,
1993, Ames restricted approximately $1.0, $1.0 and $6.4 million of
cash and short-term investments, respectively, for expected payments
of certain remaining administrative and priority claims under the
Company's plan of reorganization. These amounts are also included in
"Restricted cash and short-term investments." Management believes
that the remaining segregated funds are adequate to cover all related
payments. Ames earns interest on invested segregated funds.
4. Inventories:
Substantially all inventories are valued at the lower of cost or
market. Cost is determined by the retail last-in, first-out (LIFO)
cost method for all merchandise inventories. If the first-in,
first-out (FIFO) cost method had been used, inventories would have
increased by $.5 and $1.5 million at July 30, 1994 and July 31, 1993,
respectively. No LIFO reserve was necessary at January 29, 1994.
5. Debt:
On April 28, 1994, the Company entered into an agreement with
BankAmerica Business Credit, Inc., as agent, two financial
institutions as co-agents (together with the agent, the "Agents"), and
a syndicate of five other banks and financial institutions, for a
secured revolving credit facility of up to $300 million, with a
sublimit of $100 million for letters of credit (the "New Facility").
Management believes that the New Facility contains terms, covenants
and interest rates that are generally more favorable than those in the
Credit Agreement (see below) and the $120 million Letter of Credit
Facility (see below). The New Facility is in effect until June 22,
1997, is secured by substantially all of the assets of the Company,
and requires the Company to meet certain quarterly financial
covenants. The Company is in compliance with these financial
covenants through the quarter ended July 30, 1994. In addition, the
Company must have no outstanding borrowings under the New Facility for
a consecutive 30-day period between November 15th and February 15th of
each year.
As of July 30, 1994, revolving credit borrowings of approximately
$106.4 million were outstanding under the New Facility. In addition,
approximately $30.1 and $18.6 million of standby and trade letters of
credit, respectively, were outstanding under the New Facility as of
July 30, 1994, including amounts necessary to back-up letters of
credit still outstanding under the Letter of Credit Facility. The
weighted average interest rate on all revolving credit borrowings,
including the prior borrowings under the Credit Agreement, was
approximately 9.4% and 9.1% for the thirteen and twenty-six weeks
ended July 30, 1994, respectively. The maximum amount of revolving
credit borrowings this year-to-date was $117.0 million.
In June, 1994, the Company utilized the funds that were no longer
restricted for the collateralization of letters of credit (Note 3),
and funds from the New Facility, to prepay its then outstanding Series
A, B and D Notes, the $1.2 million term note, and the outstanding
borrowings under the Credit Agreement. As a result of the refinancing
and associated commitment to prepay
- 7 -
<PAGE>
the above debt, Ames recorded a non-cash extraordinary charge of
approximately $1.5 million, net of tax benefit of approximately $.7
million, in the quarter ended April 30, 1994, primarily for the
write-off of deferred financing costs and debt discounts related to
the debt to be prepaid. As of January 29, 1994, approximately $67.7
million represented the portion of long-term debt that was to be
prepaid and was classified as "Long-term debt classified as current."
The amount of borrowing under the New Facility generally shall
not exceed the sum of (i) an amount equal to 55% of inventory not
covered by any outstanding letter of credit plus (ii) an amount equal
to 50% of inventory covered by any outstanding letter of credit less
(iii) a reserve for reinstated debt ($34,601 as of July 30, 1994). In
addition, the New Facility provides for potential establishment of
other reserves contingent upon the Company's financial performance.
In addition, each Agent reserves the right in good faith, based upon
such collateral consideration as such Agent may in its sole discretion
deem necessary or appropriate to adjust the Borrowing Base (as defined
in the New Facility) by establishing reserves, making determinations
of Eligible Inventory, revising standards of eligibility or decreasing
from time to time the percentages set forth above. Reference can be
made to the Company's latest Form 10-K for further descriptions of the
New Facility and the obligations summarized below, and for
descriptions of the Company's other obligations not discussed herein.
Credit Agreement
Citibank was the agent in the post-Chapter 11 credit agreement
(the "Credit Agreement") which combined a $175.9 million revolving
credit facility and a $1.2 million term note. The Credit Agreement
was between Ames, Citibank, and a syndicate consisting of other banks
and financial institutions. Approximately $15.4 and $98.7 million was
outstanding under the revolver portion of the Credit Agreement at
January 29, 1994 and July 31, 1993, respectively.
Letter of Credit Facility
The $120 million letter of credit facility with Republic National
Bank of New York (the "Letter of Credit Facility") had sublimits of
$60 million for trade letters of credit and $60 million for standby
letters of credit. As of July 30, 1994, January 29, 1994, and July
31, 1993, approximately $12.8, $11.3 and $22.2 million and $.6, $35.6
and $34.9 million was outstanding in trade and stand-by letters of
credit, respectively, under the Letter of Credit Facility. Before the
New Facility became effective, all letters of credit outstanding under
the Letter of Credit Facility had to be cash collateralized at 105%
from the date of issuance.
Deferred Cash Distributions
The plan of reorganization provided that approximately $46.5
million of cash distributions in respect to several classes of claims
would be paid subsequent to the consummation date. Approximately
$15.0 and $8.0 million of these deferred cash distributions were paid
as scheduled on January 31, 1993 and January 31, 1994, respectively,
and the remaining unsecured amounts are due as follows, with interest
beginning February 1, 1994 at 5% per annum: $8.0 million due at
January 31, 1995 and January 31, 1996; and $7.5 million due at January
31, 1997.
- 8 -
<PAGE>
6. Income Taxes:
The Company's estimated annual effective income tax rate was
applied to the loss incurred before income taxes and extraordinary
item for the twenty-six weeks ended July 30, 1994 to compute an income
tax benefit of approximately $3.4 million for the period. The same
method was used to compute an income tax benefit of approximately $.7
million for the extraordinary loss and an income tax provision of
approximately $3.2 million for the second quarter of this year. The
Company currently expects that, as a result of the seasonality of the
Company's business, the year-to-date income tax benefit will be offset
by non-cash income tax expense in the remaining interim periods. The
year-to-date income tax benefit has been reflected in other current
assets in the accompanying balance sheet. Reference can be made to
the Company's latest Form 10-K for discussion of other income tax
issues affecting Ames.
7. Litigation:
Reference can be made to the Company's latest Form 10-K (Note 12
to the Consolidated Financial Statements) for various litigation
involving the Company, for which there were no material changes since
the filing date of the Form 10-K. The closing on the Wertheim
Settlement Agreement took place in June, 1994 and the Company recorded
a nonrecurring gain for its $12 million portion of the settlement.
The Class AG-6A Trust received $7 million for its portion of the
settlement.
8. Restructuring:
As part of its restructuring prior to emergence from Chapter 11
Reorganization, the Company announced on October 30, 1992 that it
would close 60 discount stores and the three remaining freestanding
Crafts & More stores in early fiscal year 1994. All of these stores were
closed as planned in March, 1993. Certain distribution
centers/warehouses also were closed and office facilities were further
consolidated.
Restructuring costs represent losses from store operations from
the date of announcement until closing, employee payroll and severance
costs, losses on liquidation of inventories, and other related
restructuring costs. Net assets held for disposition are recorded net
of anticipated costs associated with the sale of such assets. Such
assets, other than merchandise inventories, are sold as market
conditions permit.
Prior to the start of fiscal year 1994, the Company entered into
an agreement (the "60-Store Agency Agreement") with an agent to assist
the Company with the merchandise inventory "Going-out-of-Business"
(GOB) sales at the 60 discount stores and three Crafts & More stores. The
GOB sales commenced following the physical inventories that were taken
in January 1993. The GOB sales were completed in March 1993 and the
Company realized approximately $46 million in cash for the merchandise
inventory after payment of all direct GOB expenses as defined in the
60-Store Agency Agreement. This represented approximately 52% of the
beginning GOB retail inventory value at the closed stores. Other cash
expenses (accrued prior to fiscal year 1994) were incurred from these
store closings and GOB sales.
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<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FISCAL QUARTER ENDED JULY 30, 1994
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<CAPTION>
Results of Operations
- - ---------------------
The following table sets forth the number of stores in operation as of the dates indicated:
Number of Stores in Operation
July 30, January 29, July 31,
1994 1994 1993
--------- ----------- -----------
305 308 309
The following discussion and analysis is based on the historical results of operations for the thirteen
and twenty-six weeks ended July 30, 1994 and July 31, 1993. Three stores were closed during this year's
first two quarters ended July 30, 1994. The Company's Mt. Pocono, PA store, which was destroyed by fire
on November 2, 1993, is being rebuilt by the landlord and is scheduled to be reopened by the Company in
November of this year.
The following table sets forth the historical operating results expressed as a percentage of net
sales for the periods indicated:
Thirteen Twenty-six
Weeks Ended Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold and transportation expenses 72.6 72.6 73.2 72.7
------- ------- ------- --------
Gross Profit 27.4 27.4 26.8 27.3
Leased department and other operating income 1.6 1.7 1.5 1.6
------- ------- ------- --------
29.0 29.1 28.3 28.9
Selling, general and administrative expenses 28.5 30.1 29.8 30.8
Depreciation and amortization expense 0.2 0.1 0.2 -
Amortization of the excess of revalued net
assets over equity (0.3) (0.3) (0.3) (0.3)
------- ------- ------- --------
Profit (Loss) from Operations 0.6 (0.8) (1.4) (1.6)
Interest and debt expense (1.5) (1.4) (1.5) (1.5)
Interest income 0.1 0.2 0.1 0.1
Nonrecurring gain - litigation settlement 2.4 - 1.3 -
Gain on disposition of properties 0.4 - 0.4 -
------- ------- ------- --------
Income (Loss) before Income Taxes and
Extraordinary Item 2.0 (2.0) (1.1) (3.0)
Income tax (provision) benefit (0.7) - 0.3 -
------- ------- ------- --------
Income (Loss) before Extraordinary Item 1.3 (2.0) (0.8) (3.0)
Extraordinary loss, net of tax benefit - - (0.1) -
------- ------- ------- --------
Net Income (Loss) 1.3 % (2.0)% (0.9)% (3.0)%
======= ======= ======= ========
- 10 -
</TABLE>
<PAGE>
Total sales (which include leased department sales) for the
thirteen weeks ended July 30, 1994 declined $7.4 million or 1.4% from
the prior year's second quarter. Net sales for the same period
decreased $5.5 million or 1.1% from the prior year. These declines
were due to a decrease of 0.2% in comparable store sales on a
305-store base, a decrease of 5.9% in comparable leased department
(shoe) sales, and the operation of four fewer stores during this
year's second quarter. The major causes for the small decline in
comparable store sales were increased discount store competition and
the Company's de-emphasis of several lower-margin hardline categories,
partially offset by sales increases in home and seasonal products, and
sales increases from remodeled stores and expansions of certain
specialty departments.
Total sales for the twenty-six weeks ended July 30, 1994 declined
$6.3 million or .6% from the same prior year period. Net sales for
the same period decreased $4.6 million or .5% from the prior year.
These declines were due to a decrease of 2.8% in leased department
comparable store sales and the operation of the four fewer stores this
year, partially offset by an increase of .2% in year-to-date
comparable store sales on a 305-store base. In addition to the
factors discussed above for the second quarter, year-to-date
comparable store sales were partially affected by certain merchandise
shortages due to the temporary closing of the Company's Leesport, PA
distribution center in February and March. The Leesport facility is
expected to be fully operational by October of this year.
Gross profit for the second quarter decreased $1.8 million, but
remained the same as a percentage of net sales, compared to the prior
year's second quarter. Gross profit for the twenty-six weeks declined
$5.8 million, or 0.5% as a percentage of net sales, compared to the
same prior year period. The second quarter's gross margin rate was
negatively impacted by higher clearance markdowns in apparel and a
decrease of $1.1 million in purchase discounts. The decrease in the
year-to-date gross profit was principally the result of higher
markdowns in apparel and a decrease of $2.6 million in purchase
discounts. These factors were partially offset by an improved mix of
sales, lower inventory shortage, and a decrease of $.5 and $1.0
million in the LIFO charge in the thirteen and twenty-six weeks,
respectively, compared to the same prior year periods.
Selling, general and administrative expenses declined
approximately $10.0 million, or 1.6% and 1.0% as a percentage of net
sales, in the thirteen and twenty-six weeks ended July 30, 1994,
respectively, compared to the same prior year periods. Reductions in
store non-payroll, advertising, home office and field support expenses
were partially offset by an increase in store payroll expense in both
periods.
Depreciation and amortization expense increased $.7 and $1.5
million, or 0.1% and 0.2% as a percentage of net sales, in the
thirteen and twenty-six weeks ended July 30, 1994, respectively,
compared to the same prior year periods. The adoption of fresh-start
reporting as of December 26, 1992 resulted in the write-off of all of
the Company's non-current assets at that date, and therefore
depreciation and amortization expense as presented is for capital
additions after that date.
- 11 -
<PAGE>
The amortization of the "excess of revalued net assets over
equity under fresh-start reporting" remained approximately the same in
the current periods presented as compared to the prior year. The
Company is amortizing this expense over a ten-year period.
Interest and debt expense also remained approximately the same as
a percentage of net sales in the current periods presented as compared
to the prior year. The Company had an average of $107.4 and $83.0
million in outstanding debt under its revolving credit facilities
during this year's second quarter and twenty-six weeks, respectively.
This compares to average borrowings of $98.2 and $78.5 million under
the prior revolving credit facility during the prior year's second
quarter and twenty-six weeks, respectively. As a result of the
partial roof collapse at the Leesport distribution center and the
temporary closing of the facility, the Company incurred incremental
borrowings of approximately $10 million during a portion of the
current year-to-date period to replace certain inventories. In June,
1994, the Company prepaid approximately $69 million of debt utilizing
a portion of the New Facility (see below) and the funds that were no
longer required to be restricted for the collateralization of letters
of credit. The favorable impact on interest expense from this
prepayment was offset in the second quarter by the higher average
borrowings under the revolving credit facilities, a higher average
interest rate on those borrowings, and beginning the amortization of
the financing costs associated with the New Facility. The
year-to-date interest expense incurred was lower than the same prior
year period due to a $.8 million usage fee paid under the Credit
Agreement (Note 5) and expensed in the prior year's first quarter.
Interest income declined $.7 and $.8 million for the thirteen and
twenty- six weeks, respectively, compared to the same prior year
periods. These declines were due to lower restricted cash balances.
The Company's only remaining restricted cash and short-term
investments relate to expected payments of certain remaining
administrative and priority claims under the Company's plan of
reorganization.
The closing on the Wertheim Settlement Agreement (Note 7) took
place in June, 1994 and the Company recognized a nonrecurring gain for
its $12 million portion of the settlement.
The Company recognized approximately $3.5 million of net property
gains during the twenty-six weeks ended July 30, 1994. During the
first quarter, the Company sold its interest in a store lease, which
was an operating property until closed in February, for approximately
$1.2 million in cash proceeds and recognized a gain of approximately
$1.1 million. Also during the first quarter, the Company received
approximately $1.2 million, representing the final payment for the
settlement of the inventory portion of its property insurance claim
for the Mt. Pocono store, and recognized a gain of approximately $.7
million. During this year's second quarter, the Company recorded a
net property gain of approximately $1.7 million, primarily related to
the sale of a shopping center property. This property was an
operating property and the Company has maintained ownership of its
store within the shopping center.
The Company's estimated annual effective income tax rate was
applied to the loss incurred before income taxes and extraordinary
item for the twenty-six weeks ended July 30, 1994 to compute an income
tax benefit of approximately $3.4 million. An income tax provision of
approximately $3.2 million was recorded for
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<PAGE>
this year's second quarter. The year-to-date income tax benefit was
recorded because the Company currently expects that there will be
offsetting non-cash income tax expense in the remaining interim
periods.
As a result of the debt refinancing and associated commitment to
prepay certain debt, the Company recorded a non-cash extraordinary
charge of approximately $1.5 million, net of tax benefit of
approximately $.7 million, in this year's first quarter. The charge
was primarily for the write-off of deferred financing costs and debt
discounts related to the debt to be prepaid.
Compared with the projections for the second quarter of fiscal
year 1995 contained in the Form 8-K filed on May 27, 1994 (referred to
herein as the "Plan"), sales for the second quarter were $11.7 million
less than Plan and EBITDA (earnings before interest, income taxes,
LIFO expense, stock appreciation rights accruals, extraordinary or
non-recurring items, depreciation and amortization, and other non-cash
charges) was $1.1 million worse than Plan. Year-to-date sales were
$12.1 million less than Plan; however, EBITDA was $.2 million better
than Plan. The favorable year-to-date EBITDA variance was due to
lower-than-planned expenses and higher-than-planned property gains,
partially offset by lower-than-planned gross margin.
Liquidity and Capital Resources
-------------------------------
On April 28, 1994, the Company entered into an agreement with
BankAmerica Business Credit, Inc., as agent, and a syndicate
consisting of seven other banks and financial institutions, for a
secured revolving credit facility of up to $300 million (the "New
Facility"). The New Facility has a sublimit of $100 million for
letters of credit. Management believes that the New Facility contains
terms, covenants and interest rates that are generally more favorable
than those in the prior Credit Agreement (Note 5) and Letter of Credit
Facility (Note 5). The New Facility is in effect until June 22, 1997.
Reference can be made to Note 5 of this Quarterly Report and the
Company's latest Form 10-K for further descriptions of the New
Facility and the Company's other obligations. In June, 1994, the
Company utilized the funds that were no longer restricted for the
collateralization of letters of credit, and funds from the New
Facility, to prepay the Series A, B and D Notes, the $1.2 million term
note, and the outstanding borrowings under the Credit Agreement.
Unrestricted cash and short-term investments increased $14.3
million during the twenty-six weeks ended July 30, 1994. This
increase was primarily due to the Company's $12 million portion of the
Wertheim Settlement Agreement, revolving credit borrowings, and an
increase in trade payables, partially offset by the seasonal build-up
of inventories, payments of debt, and purchases of fixed assets.
Notes 3 and 8 of the Notes to the Consolidated Condensed
Financial Statements discuss components of restricted cash and
short-term investments, restructuring activities, and cash flows from
the sale of assets held for disposition.
Prepaid expenses and other current assets at July 30, 1994
include $4.1 million for the income tax benefits recorded this year
(Note 6) and $2.6 million for expected insurance recoveries (not yet
received) recorded through July 30, 1994 in connection with the
partial roof collapse at the Leesport distribution
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<PAGE>
center. The Company currently anticipates that it will receive some
insurance recoveries in excess of those recorded or received through
July 30, 1994, but there can be no assurance of such reimbursement and
the Company has not yet completed its determination of the total
insurance claim. The Leesport recoveries and expected recoveries
relate primarily to incremental transportation, distribution center
and other expenses incurred, lost sales and profit, and damages to
inventory and equipment.
Merchandise inventories, valued on a LIFO basis, declined $25.4
million from July 31, 1993 to July 30, 1994 due primarily to tight
inventory controls and the closing of four stores. The increase in
inventories of $42.2 million from January 29, 1994 to July 30, 1994
was principally the result of a normal seasonal build-up of
inventories.
The increase in other assets and deferred charges was due to the
deferred financing costs associated with the New Facility. These
costs are being amortized over the three-year term of the New
Facility.
Accounts payable increased $22.7 million from July 31, 1993 to
July 30, 1994 due primarily to improved trade payment terms. The
increase in accounts payable of $32.3 million from January 29, 1994 to
July 30, 1994 was principally the result of the seasonal build-up of
inventories and improved trade payment terms.
Capital expenditures for the twenty-six weeks ended July 30, 1994
totalled $10.7 million and for the balance of this fiscal year are
estimated to be approximately $21.3 million. The increase in capital
expenditures from the prior year's first two quarters was primarily
due to the current year's expenditures for new apparel fixtures. The
Company expects to complete the purchase of the new apparel fixtures
and the remodeling of some of its stores during the remainder of this
fiscal year, along with expansions of certain specialty departments to
additional stores.
Management believes that the Company's available cash and
expected cash flows from the current fiscal year's operations and
beyond, and the availability of financing facilities, will enable Ames
to fund its expected needs for working capital, debt service
requirements, and capital expenditures.
The significant net operating loss carryovers remaining after
fiscal 1994, subject to any limitations pursuant to Internal Revenue
Code Sec. 382, should offset income on which taxes would otherwise be
payable in future years.
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<PAGE>
Part II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on
June 15, 1994, during the fiscal quarter to which this
Quarterly Report relates. The following matters were voted on
at the meeting: (a) the election of four directors to serve
until the Annual Meeting of Stockholders in 1995 or until their
successors are elected and qualify; (b) the appointment of
Arthur Andersen & Co. as the Company's independent certified public
accountants and auditors for the fiscal year ending January 28,
1995; and (c) the approval of the Company's 1994 Management
Stock Option Plan, which authorizes 1,700,000 shares of Common
Stock for issuance thereunder and providing that options
covering not more than 200,000 shares may be granted to any
participant.
Each nominee for director was elected as follows:
For Withheld
Francis X. Basile 16,419,061 602,987
Paul Buxbaum 14,761,354 2,260,694
Alan Cohen 14,236,926 2,785,122
Sidney S. Pearlman 14,767,472 2,254,576
The appointment of Arthur Andersen & Co. was approved by a vote of
16,969,775 shares in favor with 34,763 shares against and
17,510 shares abstaining. The Company's 1994 Management Stock
Option Plan was approved by a vote of 10,858,141 shares in
favor with 444,765 shares against, 48,812 shares abstaining,
and 5,670,330 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit No. Exhibit Page No.
10 Employment Agreement dated August 9, 18
1994 between Ames Department Stores,
Inc. and Denis Lemire.
11 Schedule of computation of primary 29
earnings per share
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<PAGE>
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed
with the Securities and Exchange Commission
during the second quarter:
Date of Report Date of Filing Item # Description
May 12, 1994 May 12, 1994 5 Filing of the New
Facility (see
Note 5).
May 27, 1994 May 27, 1994 5 Disclosure of the
revised fiscal
1995 summary
financial plan.
June 2, 1994 June 2, 1994 5 Disclosure of
fiscal April 1994
results.
June 10, 1994 June 10, 1994 5 Disclosure of
fiscal May 1994
results and
announcement of
CEO appointment.
June 21, 1994 June 21, 1994 5 Filing of the
employment
agreement between
Ames and
Joseph Ettore.
July 14, 1994 July 14, 1994 5 Disclosure of
fiscal June 1994
results.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMES DEPARTMENT STORES, INC.
(Registrant)
Dated: September 8, 1994 /s/ Joseph R. Ettore
---------------------------
Joseph R. Ettore, President,
Director,
and Chief Executive Officer
Dated: September 8, 1994 /s/ John F. Burtelow
----------------------------
John F. Burtelow, Executive Vice
President and Chief Financial Officer
Dated: September 8, 1994 /s/ William C. Najdecki
-----------------------------
William C. Najdecki, Senior Vice
President and Chief Accounting
Officer
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<PAGE>
Exhibit 10
EMPLOYMENT AGREEMENT
--------------------
Agreement, dated as of August 9, 1994, between AMES
DEPARTMENT STORES, INC., a Delaware corporation (the "Company"), and
DENIS LEMIRE, residing at Two Mendel Road, Cohasset, Massachusetts
02025 (the "Executive").
W I T N E S S E T H :
-------------------
WHEREAS, the Company is engaged in the business of operating
self-service retail discount department stores (the "Business"); and
WHEREAS, the Company desires to retain the services of the
Executive in the capacities of Executive Vice President-Merchandising
of the Company, and the Executive desires to provide such services in
such capacities to the Company, on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and obligations hereinafter set forth, the parties
hereto, intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs the
Executive, and the Executive hereby accepts employment by the Company,
in the capacities and on the terms and subject to the conditions set
forth herein, for the period commencing on August
22, 1994 and ending on August 21, 1997, unless terminated earlier as
provided herein (the "Term of Employment").
2. Duties. During the Term of Employment, the Executive
shall serve as the Company's Executive Vice President-Merchandising.
As such officer, the Executive shall report to the Company's President
and Chief Executive Officer and shall have such powers, duties and
responsibilities with respect to the business of the Company as are
customary to his offices and positions or as the President and Chief
Executive Officer or the Board of Directors of the Company may
reasonably request consistent therewith.
The Executive shall serve the Company faithfully and to the
best of his ability in such capacities, devoting substantially all of
his business time, attention, knowledge, energy and skills to such
employment.
The Executive shall reside during the business week and be
based at the Company's offices in Rocky Hill, Connecticut or in the
same geographic region, but the Executive shall travel as reasonably
required in connection with the performance of his duties hereunder.
If elected, the Executive also shall serve during any part of the Term
of Employment as any other officer of the Company or as an officer or
director of any of the Company's subsidiaries without any additional
compensation other than as specified in this Agreement.
3. Compensation and Benefits. As full and complete
compensation to the Executive for his execution and delivery of this
Agreement and performance of the services required hereunder, the
Company shall pay, grant or provide the Executive, and the Executive
agrees to accept, the following salary and other compensation and
benefits (all such amounts to be calculated in United States dollars):
(a) a base salary, payable in accordance with the Company's
standard payroll practices for senior executive officers, of $300,000
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per annum ("Base Salary");
(b) an annual bonus, payable with respect to each full
fiscal year of the Company during the Term of Employment, or pro rata
portion thereof, in each case based upon the performance of the
Company for each applicable full fiscal year of the Company and
otherwise in accordance with the Company's Annual Incentive
Compensation Plan, in effect from time to time, up to 40% of
Executive's Base Salary for each such fiscal year;
(c) a one-time, lump-sum cash payment of $50,000, which
shall be paid on the commencement of employment under Section 1, but
which Executive shall reimburse to the Company pro rata if he should
voluntarily terminate his employment with the Company during the Term
of Employment;
(d) on November 1 (or if November 1 is not a business day,
the next succeeding business day) of each year during the
term of Employment, an option (the "Option") to acquire up to 10,000
shares (the "Option Shares") of common stock, par value $.01 per
share, of the Company (the "Common Stock") in accordance with the
Company's 1994 Management Stock Option Plan and as more particularly
described in Schedule 3(d) hereto;
(e) the right to participate in any savings and stock
option plans or programs and in any medical, dental, disability,
retirement, insurance, savings, vacation, holiday, paid sick leave or
other plans as in effect from time to time generally available for the
benefit of the Company's senior executive officers;
(f) the right to participate in any long-term incentive
program as in effect from time to time and generally available for the
benefit of senior executive officers implemented by the Company or
any of its subsidiaries;
(g) an annual automobile allowance in an amount and payable
in accordance with the policies and procedures of the Company as in
effect from time to time for senior executive officers, but not less
than $15,200 per year;
(h) prompt reimbursement for all reasonable business-
related expenses incurred by the Executive, in accordance with the
policies and procedures of the Company as in effect from time to time
for senior executive officers;
(i) three (3) weeks paid vacation per year in accordance
with the policies and procedures of the Company as in effect from
time to time for senior executive officers; and
(j) a living allowance of $18,000 per year during the Term
of Employment, payable in equal monthly installments of $1,500.
4. Termination.
(a) Permanent Disability. In the event of the permanent
disability (as hereinafter defined) of the Executive during the Term
of Employment, the Company shall have the right, upon written notice
to the Executive, to terminate the Executive's employment hereunder,
effective upon the giving of such notice (or such later date as shall
be specified in such notice). Upon such termination, the Company
shall have no further obligations hereunder, except to pay the
Executive any amounts or provide the Executive any benefits to which
the Executive may otherwise have been entitled under the Company's
permanent disability insurance referred to in Section 3(e), and the
Executive shall continue to have the obligations provided for in Sec-
tions 6 and 7. For purposes of this paragraph, "permanent disability"
means any disability as defined under the Company's disability
insurance policy referred to Section 3(e).
(b) Death. In the event of the death of the Executive
during the Term of Employment, this Agreement shall automatically
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terminate and the Company shall have no further obligations hereunder,
except to pay the Executive's beneficiary or legal representative any
amounts or provide any benefits to which the Executive may otherwise
have been entitled prorated to the date of death.
(c) Cause. The Company shall have the right, upon written
notice to the Executive, to terminate the Executive's employment under
this Agreement for Cause (as hereinafter defined), effective upon the
giving of such notice (or such later date as shall be specified in
such notice), and the Company shall have no further obligations
hereunder, except to pay the Executive any amounts or provide the
Executive any benefits to which the Executive may otherwise have been
entitled prorated to the effective date of termination.
For purposes of this Agreement, "Cause" means:
(i) fraud or embezzlement on the part of the Executive
or material breach by the Executive of any of his obligations under
this Agreement;
(ii) Executive shall have committed any act of gross
negligence in the performance of his duties or obligations hereunder
or any material act of malfeasance, disloyalty, dishonesty or breach
of trust against the Company;
(iii) conviction of the Executive for any felony;
(iv) a material breach of, or the willful failure or
refusal by the Executive to perform and discharge, his duties, respon-
sibilities or obligations under this Agreement (other than under
Sections 6 and 7 hereof, which shall be governed by clause (i) above,
and other than by reason of permanent disability or death) that is not
corrected within 30 days of written notice thereof to the Executive by
the Company, such notice to state with specificity the nature of the
breach, failure or refusal; provided that if such breach, failure or
refusal cannot reasonably be corrected within 30 days of written
notice thereof, correction shall be commenced by the Executive within
such period and may be corrected within a reasonable period
thereafter; or
(v) any substantiated, willful act by the Executive
intended to result in substantial personal enrichment of the Executive
at the expense of the Company or any of its affiliates or which has a
material adverse impact on the business or reputation of the Company
or any of its affiliates.
(d) Without Cause. The Company shall have the right to
terminate the Executive's employment under this Agreement without
Cause and upon written notice, in which case the Executive's
employment under this Agreement shall terminate on the date specified
in such notice (except that the Executive shall continue to have the
obligations provided for in Sections 6 and 7(a)) and the Company shall
have no further obligations
hereunder, except (i) to pay the Executive, promptly following such
termination, an amount equal to (A) his Base Salary when it would
otherwise be payable and (B) the annual bonus payable to the Executive
under Section 3(b) prorated to the effective date of termination,
(ii) to cause the Option to vest in full as of the date of termination
and to remain exercisable until the end of the option period set forth in
the Option, and (iii) to maintain coverage of the Executive in the
Company's medical plan for a period of one (1) year after the date of
termination, as such plan is in effect during such period for the
benefit of the Company's senior executive officers, in lieu of any
other compensation, payment or other benefits to which the Executive
may otherwise be entitled under this Agreement. There shall be no
mitigation for any amounts payable by the Company pursuant to this
Section 4(d).
-20-
5. Resignation upon Termination. Upon the termination of
the Executive's employment hereunder for any reason the Executive
agrees that he shall be deemed to have resigned from all offices and
directorships held by him in the Company or any of its subsidiaries
immediately.
6. Confidentiality; Ownership. (a) During the Term of
Employment and thereafter, the Executive shall keep secret and retain
in strictest confidence and not divulge disclose, discuss, copy or
otherwise use or suffer to be used in any manner, except
in connection with the Business of the Company and the businesses of
any of its subsidiaries or affiliates, any Protected Information in
any Unauthorized manner or for any Unauthorized purpose (as such
terms are hereinafter defined).
(i) "Protected Information" means trade secrets,
confidential or proprietary information and all supplier and customer
lists, market research, databases, computer programs and software,
operating procedures, knowledge of the organization, products
(including prices, costs, sales or content), machinery, contracts,
financial information or measures, business plans, details of
consultant contracts, new personnel acquisition plans, business
acquisition plans, business relationships and other information owned,
developed or possessed by the Company or its subsidiaries or
affiliates, except as required in the course of performing duties
hereunder; provided that Protected Information shall not include
information (a) that is considered by law, custom or otherwise to be
generally known in the industry of the Company; (b) developed by the
Executive individually or jointly with others prior to the
commencement of employment under Section 2; and (c) that becomes
generally known to the public or the trade without violation of this
Section 6.
(ii) "Unauthorized" means: (A) in contravention of the
policies or procedures of the Company or any of its subsidiaries or
affiliates; (B) otherwise inconsistent with the
measures taken by the Company or any of its subsidiaries or affiliates
to protect their interests in any Protected Information; (C) in
contravention of any lawful instruction or directive, either written
or oral, of an employee of the Company or any of its subsidiaries or
affiliates empowered to issue such instruction or directive; or (D)
in contravention of any duty existing under law or contract.
Notwithstanding anything to the contrary contained in this Section 6,
the Executive may disclose any Protected Information to the extent
required by court order or decree or by the rules and regulations of
a governmental agency or as otherwise required by law; provided that
the Executive shall provide the Company with prompt notice of such
required disclosure in advance thereof so that the Company may seek
an appropriate protective order in respect of such required disclosure.
(b) The Executive acknowledges that all developments,
including, without limitation, inventions, patentable or otherwise,
discoveries, improvements, patents, trade secrets, designs, reports,
computer software, flow charts and diagrams, procedures, data,
documentation, ideas and writings and applications thereof relating
to the Business or planned business of the Company or any of its
subsidiaries or affiliates that, alone or jointly with others, the
Executive may conceive, create, make, develop, reduce to practice or
acquire during the Term of
Employment (collectively, the "Developments") are works made for hire
and shall remain the sole and exclusive property of the Company and
the Executive hereby assigns to the Company all of his right, title
and interest in and to all such Developments. The Executive shall
-21-
promptly and fully disclose all future material Developments to the
Board of Directors of the Company and, at any time upon request and at
the expense of the Company, shall execute, acknowledge and deliver to
the Company all instruments that the Company shall prepare, give
evidence and take all other actions that are necessary or desirable
in the reasonable opinion of the Company to enable the Company to file
and prosecute applications for and to acquire, maintain and enforce
all letters patent, trademark registrations or copyrights covering the
Developments in all countries in which the same are deemed necessary
by the Company. All memoranda, notes, lists, drawings, records,
files, computer tapes, programs, software, source and programming
narratives and other documentation (and all copies thereof) made or
compiled by the Executive or made available to the Executive
concerning the Developments or otherwise concerning the Business or
planned business of the Company or any of its subsidiaries or
affiliates shall be the property of the Company or such subsidiaries
or affiliates and shall be delivered to the Company or such
subsidiaries or
affiliates promptly upon the expiration or termination of the Term of
Employment.
(c) The provisions of this Section 6 shall, without any
limitation as to time, survive the expiration or termination of the
Executive's employment hereunder, irrespective of the reason for any
termination.
7. Covenant Not to Compete. Subject to the last sentence
of this Section 7, the Executive agrees that until August 21, 1997
the Executive shall not, directly or indirectly, without the prior
written consent of the Company:
(a) solicit, entice, persuade or induce any employee,
consultant, agent or independent contractor of the Company or of any
of its subsidiaries or affiliates to terminate his or her employment
with the Company or such subsidiary or affiliate, to become employed
by any person, firm or corporation other than the Company or such
subsidiary or affiliate or approach any such employee, consultant,
agent or independent contractor for any of the foregoing purposes, or
authorize or assist in the taking of any such actions by any third
party (for purposes of this Section 7(a), the terms "employee,"
"consultant," "agent" and "independent contractor" shall include any
persons with such status at any time during the six months preceding
any solicitation in question); or
(b) directly or indirectly engage, or participate, or make
any financial investment in, or become employed by or render
consulting, advisory or other services to or for any of the following
business enterprises (or their respective successors-in-interest,
including, without limitation, by change of name): K-Mart; Wal-Mart;
Hills; Rose's; Target; Caldor; Bradlee; and Jamesway; provided that
nothing in this Section 7(b) shall be construed to preclude the
Executive from making any investments in the securities of any such
business enterprise to the extent that such enterprise's securities
are actively traded on a national securities exchange or in the over-
the-counter market in the United States or on any foreign securities
exchange and represent, at the time of acquisition, not more than 3%
of the aggregate voting power of such business enterprise.
Notwithstanding the foregoing, the Executive shall not be
subject to the terms and provisions of paragraph (b) of this Section
7 in the case of a termination of employment of the Executive by the
Company without Cause.
8. Specific Performance. The Executive acknowledges that
-22-
the services to be rendered by the Executive are of a special, unique
and extraordinary character and, in connection with such services,
the Executive will have access to confidential information vital to the
Company's Business and the businesses of its subsidiaries and
affiliates. By reason of
this, the Executive consents and agrees that if the Executive violates
any of the provisions of Section 6 or 7 hereof, the Company and its
subsidiaries and affiliates would sustain irreparable injury and that
money damages will not provide adequate remedy to the Company and that
the Company shall be entitled to have Section 6 or 7 specifically
enforced by any court having equity jurisdiction. Nothing contained
herein shall be construed as prohibiting the Company or any of its
subsidiaries or affiliates from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of
damages from the Executive.
9. Indemnification. To the fullest extent permitted or
required by the laws of the State of Delaware, the Company shall
indemnify and hold harmless the Executive, in accordance with the
terms of such laws, if the Executive is made a party, or threatened to
be made a party, to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the Executive is or was an
officer or director of the Company or any subsidiary or affiliate of
the Company, in which capacity the Executive is or was serving at the
Company's request and in furtherance of the Company's best interests,
against expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, which
indemnification shall include the protection of the applicable
indemnification provisions of the Amended and Restated Certificate of
Incorporation and the Amended and Restated By-laws of the Company
from time to time in effect.
10. Deductions and Withholding; Expenses. The Executive
agrees that the Company or its subsidiaries or affiliates, as
applicable, shall withhold from any and all compensation paid to and
required to be paid to the Executive pursuant to this Agreement, all
Federal, state, local and/or other taxes which the Company determines
are required to be withheld in accordance with applicable statutes or
regulations from time to time in effect and all amounts required to be
deducted in respect of the Executive's coverage under applicable
employee benefit plans. For purposes of this Agreement and
calculations hereunder, all such deductions and withholdings shall be
deemed to have been paid to and received by the Executive.
11. Entire Agreement. This Agreement embodies the entire
agreement of the parties with respect to the Executive's employment
and supersedes any other prior oral or written agreements,
arrangements or understandings between the Executive and the Company.
This Agreement may not be changed or terminated
orally but only by an agreement in writing signed by the parties
hereto.
12. Waiver. The waiver by the Company of a breach of any
provision of this Agreement by the Executive shall not operate or be
construed as a waiver of any subsequent breach by him. The waiver by
the Executive of a breach of any provision of this Agreement by the
Company shall not operate or be construed as a waiver of any
subsequent breach by the Company.
-23-
13. Governing Law; Jurisdiction. (a) This Agreement
shall be subject to, and governed by, the laws of the State of New York
applicable to contracts made and to be performed therein.
(b) Any action to enforce any of the provisions of this
Agreement shall be brought in a court of the State of New York located
in the Borough of Manhattan of the City of New York or in a Federal
court located within the Southern District of New York. The parties
consent to the jurisdiction of such courts and to the service of
process in any manner provided by New York law. Each party
irrevocably waives any objection which it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding
brought in such court and any claim that such suit, action or proceeding
brought in such court has been brought in an inconvenient forum and
agrees that service of process in accordance with the foregoing
sentences shall be
deemed in every respect effective and valid personal service of
process upon such party.
14. Assignability. The obligations of the Executive may
not be delegated and, except with respect to the designation of
beneficiaries in connection with any of the benefits payable to the
Executive hereunder, the Executive may not, without the Company's
written consent thereto, assign, transfer, convey, pledge, encumber,
hypothecate or otherwise dispose of this Agreement or any interest
therein. Any such attempted delegation or disposition shall be null
and void and without effect. The Company and the Executive agree
that this Agreement and all of the Company's rights and obligations
hereunder may be assigned or transferred by the Company to and shall
be assumed by and binding upon any successor to the Company. The
term "successor" means, with respect to the Company or any of its
subsidiaries, any corporation or other business entity which, by
merger, consolidation, purchase of the assets or otherwise, including
after a Change in Control, acquires all or a material part of the
assets of the Company.
15. Severability. If any provision of this Agreement or
any part thereof, including, without limitation, Sections 6 and 7,
as applied to either party or to any circumstances shall be adjudged by
a court of competent jurisdiction to be void or unenforceable, the same
shall in no way affect any other
provision of this Agreement or remaining part thereof, which shall be
given full effect without regard to the invalid or unenforceable part
thereof, or the validity or enforceability of this Agreement.
If any court construes any of the provisions of Section 6 or
7, or any part thereof, to be unreasonable because of the duration of
such provision or the geographic scope thereof, such court may reduce
the duration or restrict or redefine the geographic scope of such
provision and enforce such provision as so reduced, restricted or
redefined.
16. Notices. All notices to the Company or the Executive
permitted or required hereunder shall be in writing and shall be
delivered personally, by telecopier or by courier service providing
for next-day delivery or sent by registered or certified mail, return
receipt requested, to the following addresses:
The Company:
Ames Department Stores, Inc.
-24-
2418 Main Street
Rocky Hill, Connecticut 06067
Tel: (203) 257-2000
Attn: Chairman of the Board of Directors
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Tel: (212) 310-8000
Fax: (212) 310-8007
Attn: Jeffrey J. Weinberg, Esq.
The Executive:
Denis Lemire
Two Mendel Road
Cohasset, Massachusetts 02025
Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party.
Any such notice shall be deemed given, if delivered personally, upon
receipt; if telecopied, when telecopied; if sent by courier service
providing for next-day delivery, the next business day following
deposit with such courier service; and if sent by certified or
registered mail, 3 days after deposit (postage prepaid) with the U.S.
mail service.
17. No Conflicts. The Executive hereby represents and
warrants to the Company that his execution, delivery and performance
of this Agreement and any other agreement to be delivered pursuant to
this Agreement will not (i) require the consent, approval or action of
any other person or (ii) violate, conflict with or result in the
breach of any of the terms of, or constitute (or with notice or lapse
of time or both, constitute) a default under, any agreement,
arrangement or understanding with respect to the Executive's
employment to which the Executive is a party or by which the Executive
is bound or subject. The Executive hereby agrees to indemnify and
hold harmless the Company, its directors, officers, employees, agents,
representatives and affiliates (and such affiliates' directors,
officers, employees, agents and representatives) from and against any
and all losses, liabilities or claims (including, interest, penalties
and reasonable attorneys' fees, disbursements and related charges)
based upon or arising out of the Executive's breach of any of the
foregoing representations and warranties.
18. Effective Date. This Agreement shall be effective as
of the date first written above.
19. Paragraph Headings. The paragraph headings contained
in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and
the same instrument.
21. Expenses. All attorneys' fees and expenses incurred
-25-
by the Executive in connection with the negotiation, execution and
delivery of this Agreement shall be borne by the Executive.
22. Attorneys' Fees. In the event any litigation or
controversy arises out of or in connection with this Agreement between
the parties hereto, the non-prevailing party in such litigation or
controversy shall be responsible for the attorneys' fees, expenses
and suit costs of both parties, including those associated with any
applicable or post-judgment collection proceedings.
23. Officers' and Directors' Insurance. During the Term
of Employment, the Company shall maintain customary directors' and
officers' liability insurance if such insurance is available to the
Company at reasonable costs.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first written above.
AMES DEPARTMENT STORES, INC.
By /s/ Joseph Ettore
------------------------------
Joseph Ettore
President and Chief Executive
Officer
/s/ Denis Lemire
------------------------------
Denis Lemire
-26-
SCHEDULE 3(d)
-------------
OPTION TERMS
------------
EXPIRATION DATE: Ten years from the date of issuance thereof (the
"Expiration Date"), unless terminated earlier as
provided below (the "Option Term").
EXERCISABILITY: Subject to the provisions on termination below,
each Option shall be exercisable on a cumulative
basis during the relevant Option Term at a rate
of 33-1/3% per annum, commencing on the first
anniversary of issuance thereof.
In no event may any Option be exercised for less
than one hundred Option Shares (unless the number
being purchased is the total balance).
TERMINATION: If the Executive's employment is terminated prior
to the Expiration Date, each Option shall, to the
extent not theretofore exercised, terminate and
become null and void, except to the extent
described below; provided that none of the events
<PAGE>
described below shall extend the period of
exercisability of each Option beyond the
Expiration Date:
(a) if the Executive dies while employed by the
Company and its subsidiaries or during
either the thirty (30) day or three (3) month
period, whichever is applicable, specified in
clauses (b), (c) and (d) below, each Option
shall be exercisable for all Option Shares
that the Executive is entitled to purchase at
the time of the Executive's death, at any
time up to and including one (1) year after
his death, by the Executive's legatee,
distributee, guardian or legal or personal
representative;
(b) if the Executive's employment with the
Company and its subsidiaries is terminated by
reason of "permanent disability" (as defined
in the
Employment Agreement), each Option shall be
exercisable for all Option Shares that the
Executive is entitled to purchase at the
effective date of termination of employment
by reason of permanent disability, at any
time up to and including thirty (30) days
after such effective date;
(c) if the Executive's employment with the
Company and its subsidiaries is terminated
-27-
by reason of voluntary retirement after
retirement age in accordance with the
Company's practices or by reason of the
expiration of the Employment Agreement, each
Option shall be exercisable for all
remaining Option Shares, whether or not then
exercisable for such Option Shares, at any
time up to and including three (3) months
after the effective date of termination of
employment;
(d) if the Executive's employment with the
Company and its subsidiaries is terminated
by the Company without Cause (as defined in the
Employment Agreement), each Option shall, to
the extent not theretofore exercised,
immediately become exercisable and shall
remain exercisable until expiration of the
Option Term; and
(e) if the Executive's employment with the
Company and its subsidiaries is terminated
for any reason other than as provided in
clauses (a), (b), (c) or (d) above, each
Option shall be exercisable for all Option
Shares that the Executive is entitled to
purchase at the effective date of termination
of employment, at any time up to and
including thirty (30) days after the
effective date of such termination.
OTHER
RESTRICTIONS: In order to comply with applicable securities
laws, the Option Shares, when issued, will bear
appropriate legends giving notice of applicable
restrictions on transfer under such laws.
NON-TRANSFERABLE: Each Option is not transferable, except by will or
the laws of descent and distribution, and may not
be pledged or hypothecated in any manner.
-28-
<PAGE>
<TABLE>
EXHIBIT 11
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF PRIMARY EARNINGS PER SHARE
(Amounts in thousands except per share amounts)
<CAPTION>
For the Thirteen For the Twenty-six
Weeks Ended Weeks Ended
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $6,609 ($9,955) ($7,015) ($27,947)
Extraordinary loss - - (1,517) - -
------------ ------------ ------------ ------------
Primary net income (loss) $6,609 ($9,955) ($8,532) ($27,947)
============ ============ ============ ============
Weighted average number of common shares
outstanding during the period 20,127 20,000 20,127 20,000
Add: Common stock equivalent shares
represented by the Series B Warrants (a) (b) (b) (b)
Common stock equivalent shares
represented by the Series C Warrants 1,414 (b) (b) (b)
Common stock equivalent shares represented
by management stock options granted on March
17, May 1, and June 9, 1994 (c) - (b) -
------------ ------------ ------------ ------------
Weighted average number of common and
common equivalent shares used in the
computation of primary earnings per share 21,541 20,000 20,127 20,000
============ ============ ============ ============
Primary earnings per share:
Primary income (loss) per share
before extraordinary item $0.31 ($0.50) ($0.35) ($1.40)
Extraordinary loss - - (0.07) -
------------ ------------ ------------ ------------
Primary net income (loss) per share $0.31 ($0.50) ($0.42) ($1.40)
============ ============ ============ ============
<FN>
(a) The Series B Warrants were not considered common stock equivalents because the exercise
price exceeded the market price of the common stock through-out the period.
(b) Common stock equivalents have not been included because the effect would be anti-dilutive.
(c) The management stock options were not considered common stock equivalents because the option
prices exceeded the market price of the common stock for most of the period.
Note: Fully diluted earnings per share has not been presented because it was equal to primary
earnings per share for the thirteen weeks ended July 30, 1994 and the effect would be
anti-dilutive for the other periods presented.
- 29 -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-1994
<PERIOD-START> JAN-30-1994
<PERIOD-END> JUL-30-1994
<CASH> 31753
<SECURITIES> 0
<RECEIVABLES> 23410
<ALLOWANCES> 0
<INVENTORY> 484357
<CURRENT-ASSETS> 555313
<PP&E> 34265
<DEPRECIATION> 4218
<TOTAL-ASSETS> 592670
<CURRENT-LIABILITIES> 372507
<BONDS> 81752
<COMMON> 201
0
0
<OTHER-SE> 51677
<TOTAL-LIABILITY-AND-EQUITY> 592670
<SALES> 927055
<TOTAL-REVENUES> 941048
<CGS> 678550
<TOTAL-COSTS> 678550
<OTHER-EXPENSES> 275652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13574
<INCOME-PRETAX> (10377)
<INCOME-TAX> (3362)
<INCOME-CONTINUING> (7015)
<DISCONTINUED> 0
<EXTRAORDINARY> (1517)
<CHANGES> 0
<NET-INCOME> (8532)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
