SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 27, 1996
-------------------------------------
OR
[ ] 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 Charter)
DELAWARE 04-2269444
- ------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2418 Main Street, Rocky Hill, Connecticut 06067
- ----------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (860) 257-2000
----------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange on Which
Title of Each Class Registered
- ------------------- ------------------------------
Common Stock, $.01 par value NASDAQ
Series B Warrants None
Series C Warrants NASDAQ
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
----- -----
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of March 1, 1996, the aggregate market value of voting stock
held by non-affiliates of the Registrant was $28,802,157 based on the
last reported sale price of the Registrant's Common Stock on the NASDAQ
National Market System.
APPLICABLE ONLY TO REGISTRANTS 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 Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
----- -----
20,472,269 shares of Common Stock were outstanding on March 1, 1996.
Documents Incorporated by Reference: Portions of the Registrant's
definitive proxy statement to be filed pursuant to Regulation 14A within
120 days after the end of the Registrant's fiscal year are incorporated
by reference in Part III.
Page 1 of 78 pages (including Exhibits) Exhibit Index on page 51
<PAGE>
PART I
Item 1. Description of Business.
(a) General.
Ames Department Stores, Inc. and its subsidiaries
(collectively, "Ames" or the "Company") are retail
merchandisers. As of March 1, 1996, Ames operated 308 discount
department stores under the Ames name in 14 states in the
Northeast, Middle Atlantic and Mid-West regions and the
District of Columbia. The Company's stores are located in
rural communities, some of which are not served by other large
retail stores, high-traffic suburban sites, small cities and
several major metropolitan areas. The stores largely serve
middle and lower-middle income customers.
Ames is a Delaware corporation organized in 1962 as a
successor to a business originally founded in 1958. Ames was
reorganized in December, 1992 under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). The principal executive
offices are located at 2418 Main Street, Rocky Hill,
Connecticut 06067, and the telephone number is (860) 257-2000.
Fiscal 1995
The Company took several steps in the fiscal year ended
January 27, 1996 ("Fiscal 1995") to improve operations and its
long-term competitive position:
- Cost-Reduction Initiatives to Pursue Growth Opportunities
In January, 1996, the Company announced a series of cost-
reduction initiatives including the closing of 17
underperforming stores and elimination of 71 positions at
the Company's headquarters. The Company's actions were
taken to position the Company for potential growth
opportunities and increased sales and profits. On
February 5, 1996, the Company announced that it
successfully bid on ten locations previously operated by
Jamesway Corporation. The Company was subsequently
successful in acquiring an eleventh location. The Company
expects to open nine of these locations by the end of
April, 1996.
- Advertising and Marketing Programs
Introduced in Fall, 1994, the Company's 55 Gold Savings
Card Program expanded to 1.2 million cardholders during
Fiscal 1995. This program offers a 10% discount each
Tuesday on all merchandise purchased by customers aged 55
or older. The 55 Gold Savings Program not only allows
Ames to better serve this important and growing customer
base, it also provides Ames with names and addresses for
future targeted marketing. Ames also introduced its new
marketing theme in Fiscal 1995: Bargains By The Bagful .
This theme will emphasize brand-name merchandise that can
be found at great prices in each of the Ames stores.
<PAGE>
- Remodeling and New Stores
The Company opened two new stores in September, 1995: Mt.
Olive, New Jersey and Dudley, Massachusetts. These stores
feature Ames' latest "customer-friendly" design format,
including "soft corners" that open up to highlight key
departments such as domestics, furniture and electronics;
an updated apparel presentation in the center of the
store; and customer service "call boxes" located
throughout the store to summon assistance. The Company
also completed the full remodel of 24 stores in Fiscal
1995 incorporating many of the latest design formats
featured in the new stores.
The Company believes its operating performance and the
availability of its financing facilities will provide
sufficient liquidity to allow the Company to meet its financial
obligations. The Company continually reviews the profitability
of its stores in the ordinary course of business and closes or
sells stores whose performance is thought to be inadequate.
The Company will consider relocating certain stores and opening
new stores, particularly in selected markets that would
reinforce marketing programs, enhance name recognition, and/or
achieve market penetration. Twelve (12) new stores are
expected to be opened by the Company in the fiscal year ending
January 25, 1997 ("Fiscal 1996"), including eleven stores
formerly operated by Jamesway Corporation.
(b) Financial Information about Industry Segments.
Ames operates self-service retail discount department
stores selling a broad range of merchandise. There are no
other reportable industry segments.
(c) Narrative Description of Business.
(i) Services, Markets and Distribution.
Ames sells primarily brand name general
merchandise, including the following items: family
apparel and accessories, shoes, housewares, home
furnishings, crafts, hardware and automotive
accessories, sporting goods, toys, small appliances
and consumer electronics, pre-recorded tapes and
compact discs, jewelry, health and beauty products,
household products, camera and photographic
supplies, pet products, party and paper products,
and school and office supplies. Although Ames
attempts to be competitive on everyday pricing, the
Company primarily employs a high/low promotional
pricing strategy with an emphasis on quality weekly
circular advertising. The Company will continue to
stress depth and breadth of products in selected
merchandise categories; clean, neat and
well-maintained facilities; appealing merchandise
presentation; and customer service.
Merchandise is purchased centrally for all
stores by Ames associates at the Rocky Hill, CT
headquarters and is shipped by vendors either
directly to individual stores or to Ames'
distribution centers/warehouses in Massachusetts and
Pennsylvania which then make deliveries to stores.
<PAGE>
For the last three fiscal years, women's apparel
has been the only class of product that exceeded 10%
of total sales, accounting for an average of
approximately 13% of total sales. An average of
approximately 23% of sales for the last three fiscal
years were made using third party credit cards and
the remainder were made by cash or check.
The table below sets forth the number of retail stores in
operation in each state at the end of each of the last three fiscal
years.
<TABLE>
<CAPTION>
Stores in Operation at Fiscal Year End
--------------------------------------
1995(a) 1994(b) 1993
------- ------- ----
<S> <C> <C> <C>
Connecticut 15 15 15
Delaware 4 4 4
District of Columbia 1 1 1
Maine 28 28 28
Maryland 25 25 25
Massachusetts 32 31 32
New Hampshire 18 18 19
New Jersey 6 5 5
New York 81 81 81
Ohio 11 11 11
Pennsylvania 53 54 54
Rhode Island 7 7 7
Vermont 13 13 13
Virginia 6 6 6
West Virginia 7 7 7
--- --- ---
Total 307 306 308
=== === ===
<FN>
(a) Includes seventeen (17) stores in the process of closing
at year-end: Maine (5), New York (11) and Pennsylvania (1);
and two (2) stores temporarily closed as a result of flooding
in January, 1996 and expected to re-open in Summer, 1996.
Excludes one store opened February, 1996.
(b) Includes one Pennsylvania store in the process of closing
at year-end.
</TABLE>
(ii) New Products.
The introduction of new products was not significant
to the business of the Company for Fiscal 1995.
(iii) Raw Materials.
The Company does not rely on any one or a few
suppliers for a material portion of its purchases,
and there is no current or anticipated problem with
respect to the availability of merchandise.
<PAGE>
(iv) Patents, Trademarks and Licenses.
The mark "Ames" is registered with the United States
Patent and Trademark Office. The Company considers
this mark and the associated name recognition to be
valuable to its business. The Company has a
significant number of other trademarks, trade names,
and service marks, some of which, such as "Crafts &
More," "Pawsitively Pets," and "Party Plaza," are
used in connection with certain of the Company's
specialty departments within the stores. Although
the Company considers these additional marks and its
patents and licenses to be valuable in the
aggregate, none of them individually is currently
considered to have a material impact on the
Company's business.
(v) Seasonality of Business.
The Company's sales are greater during the second
half of the fiscal year as a result of the
back-to-school and Christmas shopping seasons.
Sales are highest in the last fiscal quarter.
(vi) Working Capital.
As of January 27, 1996, the Company's current ratio
(current assets divided by current liabilities) was
1.5 to 1. See Item 7(b) - Management's Discussion
and Analysis - Liquidity and Capital Resources for
discussion of liquidity and plans to meet future
liquidity needs.
The demand for working capital is heaviest in April
and May, and from August through November, when
sufficient merchandise must be purchased for the
spring, back-to-school and Christmas seasons,
respectively.
(vii) Customers.
No material part of the Company's business is
dependent upon a single customer or a few customers.
During Fiscal 1995, Ames had no single customer or
affiliated group of customers to whom sales were
made in an amount which accounted for 10% or more of
the Company's total sales for such period.
As is customary in the discount store industry, the
Company's retail operations allow merchandise to be
returned by customers. In addition, the Company has
a program that allows for the matching of its sales
prices to the advertised sales prices of its local
competitors upon presentation of proper proof of the
competitor's advertised price on the same item.
Merchandise may also be purchased under the Ames'
layaway plan.
(viii) Backlog.
Backlog is not a significant factor in the Company's
business.
<PAGE>
(ix) Government Contracts.
Ames has no material contracts with any government
agency.
(x) Competition.
Ames operates in a highly competitive environment.
Ames competes with other stores, including large
national and regional chains, in the purchase and
sale of merchandise, as well as for store locations.
Ames currently anticipates a further increase in
competition from other national discount store
chains.
Many of the Company's stores are located in smaller
communities and are, in some cases, the largest
non-food retail store in their market area. They
compete, however, with many smaller stores offering
a similar range of products. The Company's stores
located in suburban sites and urban areas are in
direct competition with other discount stores,
including other large national and regional chains.
(xi) Research and Development.
Research and development activities are not a
material aspect of the Company's business.
(xii) Environmental Matters.
To date, compliance with federal, state and local
laws and regulations enacted to regulate the
discharge of materials into the environment has not
had, and is not expected to have, a material effect
upon the Company's business. See Note 12 to the
Consolidated Financial Statements included in this
Form 10-K for further discussion on environmental
matters.
(xiii) Employees.
At March 1, 1996, Ames employed approximately 22,000
people.
(d) Foreign and Domestic Operations and Export Sales.
The information called for by this item is not relevant to
the Company's business.
Item 2. Properties.
As of January 27, 1996, the Company's stores occupied a total
of approximately 18.7 million square feet, including approximately
1.0 million square feet in the 17 stores which were in the process of
closing. The average store size is approximately 61,000 square feet,
of which approximately 82% is selling area.
<PAGE>
The construction of one store, located in Monroeville, PA, was
financed with an industrial development bond. Ames has an option to
purchase this location at nominal cost at the expiration of the lease
term in May, 2003. The land and buildings for five store locations
are owned by Ames. The five owned locations (with operating stores)
are: Woodsville, NH; Irwin, Ellwood City and Grove City, PA; and
Lewiston, ME. The remainder of the Company's stores are leased, with
the leases expiring at various times between 1996 and 2018. The
leases generally have renewal options permitting extensions for at
least five years. In addition, the leases typically provide for
fixed annual rentals, payment of certain taxes, insurance and other
charges, and additional rentals based on a percentage of sales in
excess of certain fixed amounts. Except for certain point-of-sale
equipment that is leased, vendor-owned greeting card equipment and
leased department equipment, Ames owns the fixtures and equipment in
its stores, some of which are subject to various financing
arrangements.
The Company's warehouse and distribution facilities in
Leesport, PA, and Mansfield, MA are owned and occupy an aggregate of
approximately 1.7 million square feet. The Mansfield, MA facility is
subject to a mortgage. Two former distribution centers - in Clinton,
MA and in McKeesport, PA - were sold during Fiscal 1995.
Ames leases approximately 386,000 square feet of space in
Rochester, NY under a lease expiring on December 31, 1997, with three
ten-year renewal options. These premises have been subleased to an
unaffiliated tenant for the remainder of the lease term.
Ames owns and occupies its 217,000 square foot corporate office
in Rocky Hill, CT. The Company has a lease for 100,000 square feet
of storage and printing space in East Hartford, CT expiring in July,
1998, and, in February, 1996, entered into a lease for 33,000 square
feet in Rocky Hill, CT for an in-house photography studio and print
shop.
Item 3. Legal Proceedings.
Ames is involved in various litigation as detailed in Note 12
to the Consolidated Financial Statements included in this Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter of
Fiscal 1995 to a vote of security holders, through the solicitation
of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Matters Concerning Security Holders.
The Company's common stock is listed on the NASDAQ National
Market System ("NASDAQ"; symbol: AMES). As of March 1, 1996, Ames
had 6,457 stockholders of record. Certain restrictions had applied
to the purchase and trading of the common stock from the Company's
emergence from Chapter 11 protection through December, 1994. Low and
high prices of the Company's common stock for Fiscal 1995 and for the
fiscal year ended January 28, 1995 ("Fiscal 1994"), as reported on
NASDAQ, are shown in the table below:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
Low High Low High
------- ------- ------- --------
<S> <C> <C> <C> <C>
1st Quarter $2 5/16 $3 13/16 $2 3/8 $6 1/2
2nd Quarter 2 2 13/16 2 7/8 5 1/4
3rd Quarter 1 1/8 3 9/16 2 7/8 4 5/16
4th Quarter 1 5/32 2 1/8 2 1/4 3 5/8
</TABLE>
<PAGE>
There were no quarterly dividends paid by Ames to the holders
of its common stock during these periods. Dividends cannot be
declared under the terms of the Company's revolving credit facility.
On November 30, 1994, the Company adopted a Stock Purchase Rights
Agreement as described in Note 7 to the Consolidated Financial
Statements.
Item 6. Selected Financial Data.
The following selected financial data of Ames should be read in
conjunction with the Consolidated Financial Statements and related
Notes appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
(in thousands except per share data)
-------------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Five Weeks Forty-eight Fiscal Year
Ended Ended Ended Ended Weeks Ended Ended
Jan. 27, 1996 Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Dec. 26, 1992 Jan. 25, 1992
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,120,831 $2,142,827 $2,123,527 $142,349 | $2,284,026 $2,819,435
Net income (loss) ($1,618)(a) $17,026(b) $10,823(c) ($23,892) | $718,888(d) ($282,382)(e)
Net income (loss) |
per common sh. ($.08)(a) $.79(b) $.51(c) ($1.19) | - (d) ($7.87)(e)
Total assets $505,826 $533,388 $567,131 $638,046 $725,026 | 1,389,645
Long-term debt & |
capital leases $ 52,531 $77,095 $93,309 $176,239 $176,484 | $64,445
Liab.'s subject |
to settlement - - - - - | $1,776,634
<FN>
Note: In accordance with fresh-start reporting, the purchase method of
accounting was used to record the fair value of assets and assumed
liabilities as of the date the Company emerged from Chapter 11,
December 26, 1992. Accordingly, the selected financial data above for
January 1996, 1995, 1994, 1993, and December 1992 is not comparable in
certain material respects to such data for prior periods.
(a) Includes a restructuring charge of $20.9 million for the costs
associated with the closing of seventeen (17) stores, property gains
of $9.1 million, and an impairment loss of $3.4 million resulting from
the adoption of FASB Standard No. 121 (Note 20).
(b) Includes an extraordinary loss of $1.5 million for the early
extinguishment of debt; after-tax property gains of $5.7 million; an
after-tax charge of $.9 million for the costs associated with closing
the Clinton, MA distribution center; and an after-tax non-recurring
gain of $8.3 million for a litigation settlement.
(c) Includes an extraordinary gain of $0.9 million for the early
extinguishment of debt and after-tax property gains of $1.0 million.
<PAGE>
(d) Excludes the results of 60 stores after the date of their announced
closings (October 30, 1992), closed as part of the Company's final
restructuring prior to its emergence from Chapter 11. Includes an
extraordinary gain of approximately $1.25 billion on debt discharged
pursuant to the plan of reorganization; a charge for revaluation of
assets and liabilities under fresh-start reporting of $391.2 million;
restructuring charges of $88.5 million (for the costs of rejected
leases, closing costs associated with the 60 closed stores, costs for
discontinuance of private-label children's apparel, and certain home
office and field employee severance costs); and bankruptcy expenses of
$25.5 million. Net earnings per share was not presented for the
forty-eight week period ended December 26, 1992 because such
presentation would not be meaningful. The old common stock was
canceled under the plan of reorganization and the new common stock was
not issued until December 30, 1992.
(e) Excludes the results of 84 stores after the date of their announced
closings (January 26, 1991 for 7 stores and September 28, 1991 for 77
stores), closed as part of the Company's restructuring. Includes
bankruptcy expenses of $28.0 million and restructuring charges of
$147.2 million for the costs of rejected leases, closing 77 stores and
other facilities, and associated restructuring.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(a) Results of Operations.
The following table sets forth the number of stores in
operation during each fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------
January 27, 1996 January 28, 1995 January 29, 1994
----------------- ---------------- ----------------
<S> <C> <C> <C>
Stores, beginning of period 306 308 309
New stores 2 1 (c) -
Closed stores (1)(a) (3)(d) (1)(c)
---- ---- ----
Stores, end of period 307 (b) 306 308
==== === ===
<FN>
(a) Excludes (i) two (2) stores temporarily closed as a result of flooding
in January, 1996 and expected to re-open in Summer, 1996; and (ii)
seventeen (17) stores in the process of closing at year-end.
(b) Excludes one store opened February 29, 1996.
(c) Represents the Mt. Pocono, PA store that was destroyed by fire on
November 2, 1993, rebuilt by the landlord, and reopened by the Company
in November, 1994.
(d) Does not include one store in the process of closing at year-end.
/TABLE
<PAGE>
The following discussion and analysis is based on the results
of operations of the Company for Fiscal 1995 and 1994 and for the
fiscal year ended January 29, 1994 ("Fiscal 1993"). The financial
information set forth below should be read in conjunction with the
Consolidated Financial Statements of Ames Department Stores, Inc. and
its subsidiaries included elsewhere in this filing.
The Company's business is seasonal in nature, with a large
portion (32% in Fiscal 1995) of its net sales occurring in the fourth
quarter, which includes the Christmas selling season. Total sales,
including sales from leased departments, for the last three fiscal
years and the respective total sales percentage increases/decreases
and comparable store sales percentage increases/decreases over the
prior year for stores that have been open and operated by Ames for at
least the prior full fiscal year were:
<TABLE>
<CAPTION>
(000's omitted) Percentage Increases (Decreases)
--------------- -----------------------------------
Fiscal Year Ended Total Sales Total Sales Comparable Stores
- ------------------- --------------- ------------- -------------------
<S> <C> <C> <C>
January 27, 1996 $2,216,009 (1.2)% (1.0)%
January 28, 1995 $2,242,270 0.6% 1.7%
January 29, 1994 $2,228,135 (12.4)% (2.3)%
</TABLE>
The rate of inflation did not have a significant effect on
sales during these periods.
Results of Operations for Fiscal 1995 Compared to Fiscal 1994
Despite a decline in sales in Fiscal 1995, the Company recorded
an improvement in income before restructuring charges, property gains
and litigation settlements. The Company achieved this improvement
primarily by reducing its selling, general and administrative
expenses both in amount and as a percentage of net sales.
Total sales decreased 1.2% from Fiscal 1994 due to a decrease
of 1.0% in comparable store net sales and a 4.4% decline in leased
department (shoes) comparable store sales. The major causes for the
decline in sales were a weak holiday selling season in the retail
industry, additional new competition as well as a planned de-emphasis
in jewelry, partially offset by the senior citizens discount program
(the 55 Gold Savings Card program) and a continued improvement in
the in-stock inventory position.
<PAGE>
The following table sets forth the results of operations for
Fiscal 1995 and Fiscal 1994 in millions and as a percentage of net
sales:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
------------------- --------------------
$ mil. % of Sales $ mil. % of Sales
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Net sales $2,120.8 100.0% $2,142.8 100.0%
Costs, expenses and (income):
Cost of merchandise sold 1,557.3 73.4 1,571.2 73.3
Selling, general and
administrative expenses 552.7 26.1 569.6 26.6
Leased dept. and other
operating income (29.7) (1.4) (30.3) (1.4)
Depreciation and amort expense 12.4 0.6 5.3 0.2
Amort of the excess of revalued net assets
over equity (fresh-start reporting (6.2) (0.3) (6.1) (0.3)
Interest and debt expense, net 24.1 1.1 25.4 1.2
Gain on disposition of properties (9.1) (0.4) (8.3) (0.4)
Restructuring charge 20.9 1.0 -- --
Distribution center closing costs -- -- 1.3 0.1
Nonrecurring gain - litigation
settlement -- -- (12.0) (0.6)
------- ------ -------- ------
Income before income taxes
and extraordinary item (1.6) (0.1) 26.7 1.3
Income tax provision -- -- (8.2) (0.4)
------- ------ -------- ------
Income before extraordinary item (1.6) (0.1) 18.5 0.9
Extraordinary loss -- -- (1.5) (0.1)
------ ------ --------- ------
Net income ($1.6) (0.1)% $17.0 0.8%
====== ====== ========= ======
</TABLE>
Gross margin declined $8.1 million or 0.1% as a percentage of
net sales in Fiscal 1995 compared to Fiscal 1994. The gross margin
rate was negatively impacted by a lower markup on sales, reflecting a
strategy of lowering prices, and the impact of the discounts related
to the senior citizen discount program. These factors were partially
offset by lower advertising and clearance markdowns in Fiscal 1995
compared to Fiscal 1994.
Selling, general and administrative expenses decreased $16.9
million or 0.5% as a percentage of net sales in Fiscal 1995 compared
to Fiscal 1994. Reductions in advertising, home office, field
support and store non-payroll expenses were partially offset by an
increase in store payroll expense. The advertising expense decrease
reflected a reduction in the distribution expense for advertising
circulars resulting from more effective distribution and fewer
circulars. The decrease in home office expenses was principally a
reduction in home office payroll. The Company's insurance expense
was lower by $5.2 million in Fiscal 1995 compared to Fiscal 1994 as a
result of a reduction in the reserves for prior years' claims as well
as the continued improved experience in workers' compensation and
general liability claims, partially offset by an increase in health
claims.
Leased department and other operating income declined $.6
million and remained the same as a percentage of net sales in Fiscal
1995 compared to Fiscal 1994. This decline was due primarily to the
decline in leased department sales.
<PAGE>
Depreciation and amortization expense increased by $7.1 million
or 0.4% of net sales in Fiscal 1995 compared to Fiscal 1994. The
Company elected to adopt FASB No. 121 during the fourth quarter of
Fiscal 1995, resulting in the recording of an impairment loss of $3.4
million which was classified as part of depreciation and amortization
expense (Note 20). Depreciation and amortization expense includes
depreciation on capital additions subsequent to December 26, 1992,
the date on which the Company wrote-off all of the Company's non-
current assets in connection with the adoption of fresh-start
accounting. The amortization of the excess of revalued net assets
over equity under fresh-start reporting remained the same in Fiscal
1995 as in Fiscal 1994. The Company is amortizing this amount over a
ten-year period.
Interest and debt expense, net of interest income, declined
$1.3 million or 0.1% of net sales in Fiscal 1995 compared to Fiscal
1994. The favorable impact of lower outstanding long-term debt
balances was partially offset by an increase in short-term interest
expense and a reduction in interest income. In June, 1994, the
Company prepaid approximately $69 million of debt utilizing a portion
of the Credit Agreement (Note 5) and the funds that were no longer
required to be restricted for the collateralization of letters of
credit. From Fiscal 1994 to Fiscal 1995 the Company's average
monthly outstanding long-term debt balance decreased from $78.9
million to $41.5 million due to the June, 1994, prepayment, certain
other prepayments of debt made in connection with the sales of
properties in Fiscal 1995 and debt payments made in the normal course
of business. The increase in short-term interest expense reflected
an increase in short-term borrowings (from a weighted average balance
of $96.1 million in Fiscal 1994 to $101.7 million in Fiscal 1995) as
well as an increase in interest rates. The decrease in interest
income in Fiscal 1995 was the result of reduced restricted cash
balances.
During Fiscal 1995, the Company sold or assigned several
properties (Note 15) for a combined total of $11.6 million in
proceeds and recognized gains totaling $9.1 million.
In January 1996, the Company announced its decision to close
seventeen (17) underperforming stores and to eliminate 71 positions
at its corporate headquarters. The Company recorded a $20.9 million
restructuring charge to provide for the store closings and staff
reductions. The store closings, which began in January 1996, were
completed in March 1996.
Results of Operations for Fiscal 1994 Compared to Fiscal 1993
The Company reported improvements in Fiscal 1994 in sales and
net earnings. The sales improvement reflected, in part, the
beginning of the Company's efforts to generate customer excitement
and sales through opportunistic purchases, targeted advertising and
micro-marketing, remodeling, and maintaining an improved in-stock
inventory position.
Total sales increased 0.6% from Fiscal 1993 due to an increase
of 1.7% in comparable store sales, partially offset by the closing of
three stores during Fiscal 1994 and a 4.1% decline in leased
department (shoes) comparable store sales. The major causes for the
improvement in comparable store sales were an improved in-stock
inventory position, additional circular advertising, opportunistic
purchases, and a new senior citizen discount program, partially
offset by additional new discount store competition and a continued
weak apparel sales market.
<PAGE>
The following table sets forth the results of operations for
Fiscal 1994 and Fiscal 1993 in millions and as a percentage of net
sales:
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993
------------------- -------------------
$ mil. % of Sales $ mil. % of Sales
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Net sales $2,142.8 100.0% $2,123.5 100.0%
Costs, expenses and (income):
Cost of merchandise sold 1,571.2 73.3 1,537.4 72.4
Selling, general and
administrative expenses 569.6 26.6 586.3 27.6
Leased dept. and other
operating income (30.3) (1.4) (34.4) (1.6)
Depreciation and amort expense 5.3 0.2 2.1 0.1
Amort of the excess of revalued net assets
over equity (fresh-start reporting) (6.1) (0.3) (6.2) (0.3)
Interest and debt expense, net 25.4 1.2 26.4 1.3
Gain on disposition of properties (8.3) (0.4) (1.3) (0.1)
Distribution center closing costs 1.3 0.1 - -
Nonrecurring gain - litigation
settlement (12.0) (0.6) - -
--------- ------ --------- ------
Income before income taxes
and extraordinary item 26.7 1.3 13.2 0.6
Income tax provision (8.2) (0.4) (3.3) (0.1)
--------- ------ --------- --------
Income before extraordinary item 18.5 0.9 9.9 0.5
Extraordinary gain (loss) (1.5) (0.1) .9 0.0
--------- ------ --------- -------
Net income $17.0 0.8% $10.8 0.5%
========= ====== ========= =======
</TABLE>
Gross margin declined $14.5 million or 0.9% as a percentage of
net sales in Fiscal 1994 compared to Fiscal 1993. Sales of certain
higher-margin items, such as ladies apparel, accessories, and crafts,
declined; distribution center inventory shortage was higher; and
purchase discounts were significantly lower in Fiscal 1994. In
addition, advertising and clearance markdowns were both higher in
Fiscal 1994 compared to Fiscal 1993. These factors were partially
offset by strong performances in childrens apparel, domestics and
housewares in Fiscal 1994.
Selling, general and administrative expenses decreased $16.7
million or 1.0% as a percentage of net sales in Fiscal 1994 compared
to Fiscal 1993. Reductions in store non-payroll, advertising, home
office and field support expenses were partially offset by an
increase in store payroll expense in Fiscal 1994. This reflects the
Company's commitment to reduce expenses and invest in areas directly
affecting customer service. The Company's self-insurance expense was
lower in Fiscal 1994 compared to Fiscal 1993 due to a continued
improved trend in claims experience.
Leased department and other operating income declined $4.1
million or 0.2% as a percentage of net sales in Fiscal 1994 compared
to Fiscal 1993. This decline was due, in part, to the decline in
leased department sales.
Depreciation and amortization expense increased $3.2 million or
0.1% as a percentage of net sales in Fiscal 1994 compared to Fiscal
1993. The adoption of fresh-start reporting at December 26, 1992
resulted in the write-off of all of the Company's noncurrent assets
at that date, and therefore depreciation and amortization expense for
Fiscal 1994 was for capital additions subsequent to December 26,
1992. The amortization of the excess of revalued net assets over
equity under fresh-start reporting remained approximately the same.
The Company is using a ten-year life for the period of amortization.
<PAGE>
Interest and debt expense declined $1.0 million or 0.1% of net
sales in Fiscal 1994 compared to Fiscal 1993. The Company had a
daily weighted average of $96.1 million in outstanding debt under its
revolving credit facilities during Fiscal 1994 compared to $89.3
million in Fiscal 1993. In June, 1994, the Company prepaid
approximately $69 million of debt utilizing a portion of the Credit
Agreement (Note 5) 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 has been
partially offset by an increase in market interest rates and the
amortization of the financing costs associated with the Credit
Agreement.
During Fiscal 1994, the Company sold several properties (Note
15) for a combined total of $8.8 million in proceeds and recognized
gains totalling $8.3 million.
The closing on the Wertheim Settlement Agreement (Note 12)
occurred in June, 1994 and the Company recognized a nonrecurring gain
for its $12 million portion of the settlement.
During Fiscal 1994, the Company announced its decision to close
the Clinton, MA distribution center in June, 1995 and recorded a
provision of $1.3 million in Fiscal 1994 for the estimated costs
associated with the closing (Note 16). Transfer of the Clinton
operations to the Company's Leesport, PA distribution center was
completed in June, 1995. This consolidation was part of the
Company's continuing productivity enhancement and expense-reduction
efforts.
As a consequence of fresh-start reporting and SFAS No. 109
(Note 9), the Company recorded a non-cash income tax provision of
$8.2 million for Fiscal 1994 with an associated increase of $8.2
million in additional paid-in capital.
As a result of the debt refinancing and associated prepayment
of certain debt, the Company recorded a non-cash extraordinary charge
of $1.5 million, net of tax benefit of $0.7 million, in Fiscal 1994.
The charge was primarily for the write-off of deferred financing
costs and debt discounts related to the debt that was prepaid.
(b) Liquidity and Capital Resources.
Credit Facilities - Fiscal 1995 and Fiscal 1994
The Company's principal sources of liquidity are certain
available credit facilities, cash from operations, and cash on hand.
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 "Credit
Agreement"). The Credit Agreement is in effect until June 22, 1997,
is secured by substantially all of the assets of the Company, and
requires the Company to meet certain quarterly financial covenants.
Ames is in compliance with the financial covenants, as amended,
through the quarter ended January 27, 1996. Reference can be made to
Note 5 for a further description of the Credit Agreement. The
Company's peak borrowing level in Fiscal 1995 under the Credit
Agreement was $195.4 million. Ames repaid all such borrowings by
December, 1995, and fulfilled its "clean-up" requirement (Note 5) in
January, 1996.
<PAGE>
Review of Cash Flows, Liquidity and Financial Condition
The Company's unrestricted cash position decreased $14.2
million during Fiscal 1995. This decrease was primarily due to $27.2
million of capital expenditures and payments of $23.8 million on debt
and capital lease obligations, partially offset by $19.2 million in
net cash provided by operations and $11.6 million of proceeds from
the sale of certain properties. Please see below and the
Consolidated Financial Statements for further discussions of
activities and details affecting cash and liquidity for Fiscal 1995.
The Company's unrestricted cash position increased $11.9
million during Fiscal 1994. This increase was primarily due to $83.5
million in net cash provided by operations and $53.9 million of
restricted cash withdrawals, partially offset by $24.5 million of
fixed asset purchases, the paydown of $15.4 million in the
outstanding balance under revolving credit facilities, and the
payments of $87.8 million on debt and capital lease obligations,
including the prepayments of $67.7 million on certain debt described
above. Please see below and the Consolidated Financial Statements
for further discussions of activities and details affecting cash and
liquidity for Fiscal 1994.
As of January 28, 1995, Ames restricted approximately $0.2
million of cash for expected payments of certain remaining
administrative and priority claims under the plan of reorganization.
This amount was also included in "Restricted cash and short-term
investments." The associated liability was included in "Accrued
expenses." The Company earned interest on invested segregated funds.
As of January 28, 1995, the Company also had $1.8 million of cash
received in escrow from the December, 1994 sale of a store's lease
interest. The cash was released from escrow in February, 1995.
Merchandise inventories declined $28.0 million and $12.0
million during Fiscal 1995 and Fiscal 1994, respectively. The
decrease in Fiscal 1995 was primarily a result of planned reductions
and lower-than-planned merchandise purchases in January, 1996. The
decline during Fiscal 1994 was primarily due to strong fourth quarter
sales. The LIFO reserve as of December 26, 1992 was eliminated in
connection with the adoption of fresh-start reporting. Ames remained
on the LIFO method after emergence from Chapter 11, but there has
been no LIFO charge or credit in Fiscal 1995 and Fiscal 1994 because
inventory levels declined, the Company's merchandise mix continued to
change, and inflation was insignificant during those periods.
Accounts payable declined $8.2 million during Fiscal 1995
primarily as a result of the decline in merchandise inventories.
Accounts payable increased $54.4 million during Fiscal 1994, due
primarily to longer payment terms. During Fiscal 1994, the Company
began a concerted effort to return to normal industry payment terms
by lengthening its payment terms with merchandise vendors. During
Fiscal 1995 and Fiscal 1994, the Company paid its trade payables
within the terms negotiated with vendors.
The Company and its pre-bankruptcy lenders agreed to a
restructuring of the Company's obligations as part of the plan of
reorganization. The new obligations consisted primarily of secured
notes that certain banks elected to receive, which were prepaid in
Fiscal 1994, and deferred cash distributions. The major component of
the "Current portion of long-term debt" at January 27, 1996 and
January 28, 1995 related primarily to cash distributions of $8.0
million paid on January 31, 1996 and January 31, 1995 pursuant to the
plan of reorganization.
<PAGE>
The "Note payable" of approximately $4.3 million at January 27,
1996 was the amount outstanding under the Credit Agreement. There
were no outstanding borrowings under the Credit Agreement as of
January 28, 1995. The "Unfavorable lease liability" was recorded as
part of fresh-start reporting.
No dividends were paid while Ames was under the protection of
Chapter 11, or since its emergence from Chapter 11. The Company is
restricted from declaring dividends under the terms of the Credit
Agreement.
Capital Expenditures
Capital expenditures for Fiscal 1995 were $27.2 million and
included, among other things, the full scale remodel of 24 stores,
the partial remodel of 38 stores and the opening of two new stores.
Capital expenditures for Fiscal 1994 were $24.5 million and included,
among other things, new apparel fixtures for all stores, partial
remodeling of 52 stores, and the rollout of certain specialty
departments to additional stores.
Capital spending is expected to be approximately $21.0 million
for Fiscal 1996, primarily for the opening of twelve new stores, the
full scale remodel of five stores and the purchase of equipment to
improve the processing of merchandise through the Company's
distribution centers. The Company expects to finance equipment
purchases, new store fixtures and equipment, and the remodeling of
existing stores through internally-generated funds. The Company
adjusts the plans for making such expenditures depending on the
amount of internally- generated funds available. Land, buildings and
improvements are financed principally through long-term leases.
Summary
The Company believes the ability to meet its financial
obligations and make planned capital expenditures will depend on the
Company's future operating performance, which will be subject to
financial, economic and other factors affecting the industry and
operations of the Company, including factors beyond its control. The
Company believes its operating performance and the availability of
its financing facilities will provide sufficient liquidity to allow
the Company to meet its financial obligations.
Ames currently anticipates the following investment and
financing activities for Fiscal 1996: capital expenditures as
described above, seasonal borrowings and payments under the Credit
Agreement and planned payments of debt and capital lease obligations.
The Company believes the actions set forth above and the
availability of its financing facilities, together with the Company's
available cash and expected cash flows from Fiscal 1996 operations
and beyond, will enable Ames to fund its expected needs for working
capital, capital expenditures and debt service requirements.
Achievement of expected cash flows from operations and compliance
with the EBITDA covenant (Note 5) is dependent upon the Company's
attainment of sales, gross profit, and expense levels that are
reasonably consistent with its financial projections.
The Company expects from time to time to consider possible
capital market transactions, debt refinancing, and other transactions
to further enhance the Company's financial flexibility.
<PAGE>
The significant net operating loss carryforwards remaining
after Fiscal 1995, subject to limitations pursuant to Internal
Revenue Code Sec. 382, should offset income on which taxes would
otherwise be payable in future years.
Item 8. Financial Statements and Supplementary Data.
See Index to Consolidated Financial Statements.
Item 9. Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 10. Officers and Directors of the Registrant.
Information as to the directors of the registrant required by
Item 10 is incorporated herein by reference from the information set
forth under the caption "ELECTION OF DIRECTORS" of the Company's
definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the close of its fiscal year.
The following table indicates the names of all executive
officers of Ames and the offices held by each. Other than the
employment contracts with Mr. Ettore and Mr. Lemire described in the
Company's proxy statement, there are no other arrangements or
understandings between any officer below and any other person
pursuant to which he was selected as an officer.
Joseph R. Ettore ............. President, Chief Executive
Officer, and Director
John F. Burtelow ............. Executive Vice President,
Chief Financial Officer
Denis T. Lemire .............. Executive Vice President,
Merchandising
Eugene E. Bankers ............ Senior Vice President,
Marketing
Richard L. Carter ............ Senior Vice President,
Human Resources
Paul Lanham .................. Senior Vice President,
Management Information Systems
David H. Lissy ............... Senior Vice President,
General Counsel and Corporate
Secretary
William C. Najdecki .......... Senior Vice President, Finance
Alfred B. Petrillo, Jr. ...... Senior Vice President,
Store Planning
Grant C. Sanborn ............. Senior Vice President,
Store Operations
James A. Varhol .............. Senior Vice President,
Asset Protection
Joseph R. Ettore, age 56, joined Ames as President, Chief
Executive Officer and Director in June, 1994. Prior to joining Ames,
he was President, Chief Executive Officer and Director of Jamesway
Corporation("Jamesway") from July, 1993 to June, 1994; President,
Chief Operating Officer and Director of Jamesway in June, 1993;
Chairman of the Board and Chief Executive Officer of Stuarts
Department Stores, Inc.("Stuarts") from October, 1992 to June, 1993;
and President, Chief Operating Officer and Director of Stuarts from
October, 1989 to October, 1992. He remained a Director of Stuarts
until May, 1994. Jamesway filed for protection under Chapter 11 of
the Bankruptcy Code ("Chapter 11") in July, 1993; emerged from the
Chapter 11 case in January, 1995; and re-filed for protection under
Chapter 11 in October, 1995. Stuarts filed under Chapter 11 in
December, 1990; emerged from the Chapter 11 case in October, 1992;
and re-filed for protection under Chapter 11 in May, 1995.<PAGE>
John F. Burtelow, age 48, joined Ames as Executive Vice
President, Chief Financial Officer in August, 1994. Prior to joining
Ames, he was Senior Vice President, Chief Financial Officer of
Venture Stores, Inc. from March, 1989 to May, 1994. He held a number
of increasingly senior financial positions with The May Department
Stores Company between 1979 and 1989.
Denis T. Lemire, age 48, joined Ames as Executive Vice
President, Merchandising in August, 1994. Prior to joining Ames, he
was President and Chief Operating Officer of Stuarts from November,
1993 to August, 1994 and Senior Vice President, Merchandising for
Stuarts from April, 1990 to November, 1993. Stuarts filed for
protection under Chapter 11 in December, 1990; emerged from the
Chapter 11 case in October, 1992; and re-filed for protection under
Chapter 11 in May, 1995.
Eugene E. Bankers, age 56, joined Ames as Senior Vice
President, Marketing in December, 1993. Prior to joining Ames, he
was Vice President, Communications and Investor Relations at Shopko
Stores, Inc. from 1991 to 1993, and Vice President of Advertising,
Sales Promotions, Special Events and Public Relations from 1982 to
1991.
Richard L. Carter, age 47, joined Ames as Senior Vice
President, Human Resources in February, 1993. Prior to joining Ames,
he was Senior Vice President, Human Resources at G. Fox & Co., Inc.
from 1989 to 1993.
Paul Lanham, age 38, became Senior Vice President, Management
Information Systems, in March, 1996. He joined Ames in October, 1994
as Vice President, Allocation and Planning. Prior to joining Ames he
was employed at Brookstone Stores from 1989 in various capacities
related to inventory systems and inventory planning and allocation,
most recently as Director of Inventory Management.
David H. Lissy, age 52, became Senior Vice President, General
Counsel and Corporate Secretary in December, 1992. He began work on
the Ames Chapter 11 cases in June, 1990, and in July, 1990 was named
Vice President, Legal Services. He was appointed Vice President,
General Counsel and Corporate Secretary in October, 1991. He has
been owner of Samuel Lehrer & Co., Inc., a wholesaler of fine quality
fabrics, since 1988.
William C. Najdecki, age 45, became Senior Vice President,
Finance in April, 1995. He joined Ames in April, 1991 as Vice
President, Bankruptcy Administration and became Vice President,
Controller in July, 1991 and Senior Vice President, Chief Accounting
Officer in December, 1992. Prior to joining Ames, he was Hardlines
Controller for Montgomery Ward from 1989 to 1991.
Alfred B. Petrillo, Jr., age 53, joined Ames as Senior Vice
President, Store Planning in October, 1995. Prior to joining Ames,
he was employed at Jamesway as Vice President, Store Planning,
Construction, Maintenance and Energy from 1976 to 1995 when he was
appointed Senior Vice President, Store Planning, Construction, Visual
Merchandising, Planogramming, Maintenance and Energy.
Grant C. Sanborn, age 44, became Senior Vice President, Store
Operations in January, 1995. Since joining Ames in 1971, he has
served in a number of store operations positions, including Assistant
Regional Manager from July, 1989 to May, 1991; Regional Director from
May, 1991 to July, 1991; Director, Store Operations from July, 1991
to October, 1993; and Vice President, Store Operations from October,
1993 to January, 1995.
<PAGE>
James A. Varhol, age 40, joined Ames as Senior Vice President,
Asset Protection in August, 1995. Prior to joining Ames, he was Vice
President, Loss Prevention at Jamesway from 1987 to 1995.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by
reference from the information set forth under the sections titled
"Executive Compensation," "Board Meetings and Committees,"
"Compensation of Directors," "Employment Contracts, Termination,
Severance and Change-of-Control Arrangements," "Additional
Information with respect to Board of Directors Interlocks and Insider
Participation in Compensation Decisions," "The Board of Directors
Report on Executive Compensation," and "Performance Graph" of the
Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the close of its fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information required by Item 12 is incorporated herein by
reference from the information set forth under the sections titled
"Security Ownership of Management" and "Security Ownership of Certain
Beneficial Owners" of the Company's definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the close of
its fiscal year.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated herein by
reference from the information set forth under the section titled
"Transactions with Management" of the Company's definitive proxy
statement to be filed pursuant to Regulation 14A within 120 days
after the close of its fiscal year.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K.
(a) Documents Filed as Part of this Form 10-K
1. Financial Statements
The Financial Statements listed in the accompanying
Index to Consolidated Financial Statements are
filed as part of this Form 10-K.
2. Financial Statement Schedule
The Financial Statement Schedule listed in the
accompanying Index to Consolidated Financial
Statements is filed as part of this Form 10-K.
3. Exhibits
The Exhibits filed as part of this Form 10-K are
listed on the Exhibit Index immediately preceding
such Exhibits, incorporated herein by reference.
(b) Reports on Form 8-K
Reports on Form 8-K were filed with the Securities and
Exchange Commission during the fourth quarter as
follows:
<TABLE>
<CAPTION>
Date of Report Date of Filing Item # Description
----------------- ----------------- ------ ------------------------------------------
<S> <C> <C> <C>
November 14, 1995 November 14, 1995 5 Disclosure of fiscal October 1995 results.
December 7, 1995 December 7, 1995 5 Disclosure of fiscal November 1995 results.
January 12, 1996 January 12, 1996 5 Disclosure of fiscal December 1995 results.
January 26, 1996 January 26, 1996 5 Disclosure of amendment to Credit Agreement
and 17-store closing announcement.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 1996 /s/ Joseph R. Ettore
------------------------------------
Joseph R. Ettore,
President, Chief Executive
Officer and Director
Dated: March 29, 1996 /s/ John F. Burtelow
------------------------------------
John F. Burtelow,
Executive Vice President,
Chief Financial Officer
Dated: March 29, 1996 /s/ William C. Najdecki
------------------------------------
William C. Najdecki,
Senior Vice President, Finance
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Dated: March 29, 1996 /s/ Paul M. Buxbaum
------------------------------------
Paul M. Buxbaum, Director
and Chairman
Dated: March 29, 1996 /s/ Francis X. Basile
------------------------------------
Francis X. Basile, Director
Dated: March 29, 1996 /s/ Alan Cohen
------------------------------------
Alan Cohen, Director
<PAGE>
Dated: March 29, 1996 /s/ Richard M. Felner
------------------------------------
Richard M. Felner, Director
Dated: March 29, 1996 /s/ Sidney S. Pearlman
------------------------------------
Sidney S. Pearlman, Director
Dated: March 29, 1996 /s/ Laurie M. Shahon
------------------------------------
Laurie M. Shahon, Director
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
-------------------------------
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
(FORM 10-K)
EXHIBITS
For the Fiscal Years Ended January 27, 1996,
January 28, 1995 and January 29, 1994
(With Report of Independent Public Accountants)
-------------------------------------
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Financial
Statement Schedule for the Fiscal Years Ended
January 27, 1996, January 28, 1995 and January 29, 1994
Financial Statements:
Report of Independent Public Accountants.
Consolidated Statements of Operations for the fiscal years
ended January 27, 1996, January 28, 1995 and January 29, 1994.
Consolidated Balance Sheets as of January 27, 1996 and
January 28, 1995.
Consolidated Statements of Changes in Stockholders' Equity for
the fiscal years ended January 27, 1996, January 28, 1995 and
January 29, 1994.
Consolidated Statements of Cash Flows for the fiscal years
ended January 27, 1996, January 28, 1995 and January 29, 1994.
Notes to Consolidated Financial Statements.
Schedule:
II. Valuation and Qualifying Accounts for the fiscal years ended
January 27, 1996, January 28, 1995 and January 29, 1994.
Schedules Omitted:
All other schedules are omitted as they are not applicable or
the information is shown in the consolidated financial statements or
notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
AMES DEPARTMENT STORES, INC.:
We have audited the accompanying consolidated balance sheets of
Ames Department Stores, Inc. (a Delaware corporation) and subsidiaries
as of January 27, 1996 and January 28, 1995, and the related
consolidated statements of operations, changes in stockholders' equity
and cash flows for the fifty-two weeks ended January 27, 1996, January
28, 1995 and January 29, 1994. These consolidated financial statements
and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ames
Department Stores, Inc. and subsidiaries as of January 27, 1996 and
January 28, 1995, and the results of their operations and their cash
flows for the fifty-two weeks ended January 27, 1996, January 28, 1995
and January 29, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 20 to the consolidated financial statements,
in the quarter ended January 27, 1996 the Company changed its method of
accounting for
long-lived assets to conform with SFAS No. 121, and in connection
therewith, recorded an impairment loss of $3.4 million for long-lived
assets to be held and used.
Our audits were performed for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule
listed in the index to the consolidated financial statements is
presented for the purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 5, 1996
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 27, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
TOTAL SALES $2,216,009 $2,242,270 $2,228,135
Less: Leased department sales 95,178 99,443 104,608
------------ ------------ ------------
NET SALES 2,120,831 2,142,827 2,123,527
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 1,557,345 1,571,181 1,537,400
Selling, general and administrative expenses 552,729 569,645 586,267
Leased department and other operating income (29,677) (30,296) (34,357)
Depreciation and amortization expense 12,360 5,288 2,105
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (6,153) (6,153) (6,215)
Interest and debt expense, net 24,116 25,367 26,434
Gain on disposition of properties (9,136) (8,255) (1,340)
Restructuring charge 20,865 - -
Distribution center closing costs - 1,300 -
Nonrecurring gain - litigation settlement - (12,001) -
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (1,618) 26,751 13,233
Income tax provision - (8,208) (3,338)
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (1,618) 18,543 9,895
Extraordinary item - gain (loss) on early extinguishment of debt
(net of tax benefit of $727 in the fiscal year ended
January 28, 1995) - (1,517) 928
------------ ------------ ------------
NET INCOME (LOSS) ($1,618) $17,026 $10,823
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES USED IN THE CALCULATION OF EARNINGS PER SHARE 20,127 21,499 21,183
============ ============ ============
INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY ITEM ($0.08) $0.86 $0.47
EXTRAORDINARY GAIN (LOSS) PER SHARE - (0.07) 0.04
------------ ------------ ------------
NET INCOME (LOSS) PER SHARE ($0.08) $0.79 $0.51
============ ============ ============
<FN>
(The accompanying notes are an integral part of these consolidated financial statements.)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<CAPTION>
January 27, January 28,
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Current Assets:
Unrestricted cash and short-term investments $14,185 $28,402
Restricted cash and short-term investments - 2,047
---------- ----------
Total cash and short-term investments 14,185 30,449
Receivables:
Trade 6,900 8,834
Other 7,578 7,973
---------- ----------
Total receivables 14,478 16,807
Merchandise inventories 402,177 430,152
Prepaid expenses and other current assets 12,793 8,999
---------- ----------
Total current assets 443,633 486,407
Fixed Assets:
Land and buildings 1,074 845
Property under capital leases 3,809 687
Fixtures and equipment 53,259 35,130
Leasehold improvements 20,345 11,991
---------- ----------
78,487 48,653
Less - Accumulated depreciation and amortization (20,259) (7,620)
---------- ----------
Net fixed assets 58,228 41,033
Other assets and deferred charges 3,965 5,948
---------- ----------
$505,826 $533,388
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $112,682 $130,737
Other 43,636 33,794
---------- ----------
Total accounts payable 156,318 164,531
Note payable - revolver 4,284 -
Current portion of long-term debt 13,682 15,168
Current portion of capital lease obligations 3,665 3,988
Self-insurance reserves 39,003 46,413
Accrued compensation 20,424 20,129
Accrued expenses 34,519 40,491
Restructuring reserve 30,623 2,878
---------- ----------
Total current liabilities 302,518 293,598
---------- ----------
Long-term debt 23,159 39,030
Capital lease obligations 29,372 38,065
Other long-term liabilities 6,322 6,242
Unfavorable lease liability 18,672 22,903
Excess of revalued net assets over equity under fresh-start reporting 42,480 48,633
Commitments and contingencies
Stockholders' Equity:
Common stock (40,000,000 shares authorized; 20,472,269 and 20,127,269 shares
outstanding at January 27, 1996 and January 28, 1995, respectively; par value $.01) 205 201
Additional paid-in capital 80,759 80,759
Reatined earnings 2,339 3,957
---------- ----------
Total Stockholders' Equity 83,303 84,917
---------- ----------
$505,826 $533,388
========== ==========
<FN>
(The accompanying notes are an integral part of these consolidated balance sheets.)
<PAGE>
<PAGE>
</TABLE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<CAPTION>
Priority
Common Stock Common Stock Additional
----------------- ------------- Paid-In Retained Total
Shares Amount Shares Amount Capital Earnings Equity
-------- -------- ------- ----- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Jan. 30, 1993 8,962 $90 11,038 $110 $69,800 ($23,892) $46,108
Conversion of Priority
Common Stock into
Common Stock 7,178 72 (7,178) (72) 0
Exercise of Series C
Warrants 127 1 140 141
Utilization of Tax
Attributes 3,338 3,338
Net Income (Loss) 10,823 10,823
-------- -------- ------- ----- ----------- ------------ -----------
Balance, Jan. 29, 1994 16,267 $163 3,860 $38 $73,278 ($13,069) $60,410
Conversion of Priority
Common Stock into
Common Stock 3,860 $38 (3,860) (38) 0
Utilization of Tax
Attributes 7,481 7,481
Net Income (Loss) 17,026 17,026
-------- -------- ------- ----- ----------- ------------ -----------
Balance, Jan. 28, 1995 20,127 $201 - - $80,759 $3,957 $84,917
Issuance of Common Stock
under 1995 Long Term
Incentive Plan 345 4 4
Net Income (Loss) (1,618) (1,618)
-------- -------- ------- ----- ----------- ------------ -----------
Balance, Jan. 27, 1996 20,472 $205 - - $80,759 $2,339 $83,303
======== ======== ======= ===== =========== ============ ===========
<FN>
(The accompanying notes are an integral part of these consolidated financial statements.)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
January 27, January 28, January 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($1,618) $17,026 $10,823
Expenses not requiring the outlay of cash:
Extraordinary gain (loss) on early extinguishment of debt - 1,517 (928)
Income tax provision - 8,208 3,338
Depreciation and amortization of fixed assets 12,713 5,528 2,167
Amortization of the excess of revalued net assets over equity (6,153) (6,153) (6,215)
Amortization of unfavorable lease liability (1,884) (2,094) (2,123)
Amortization of debt discounts and deferred financing costs 4,755 5,843 5,834
Gain on disposition of properties (9,136) (8,255) (1,340)
Other, net (315) (855) (725)
----------- ----------- -----------
Cash provided by (used for) operations before changes in working
capital and restructuring items (1,638) 20,765 10,831
Changes in working capital:
Decrease in receivables 2,329 1,385 5,484
Decrease in merchandise inventories 27,975 12,046 22,358
(Increase) decrease in prepaids and other current assets (3,794) 1,131 (1,056)
Increase (decrease) in accounts payable (8,213) 54,986 4,798
(Decrease) in accrued expenses and other current liabilities (16,790) (1,050) (35,069)
Changes due to restructuring activities:
Payments of restructuring costs (1,498) (5,737) (32,448)
Restructuring charge 20,865 - -
----------- ----------- -----------
Net cash provided by (used for) operating activities 19,236 83,526 (25,102)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from the disposition of properties 11,634 8,821 3,439
Proceeds from the sale of assets held for disposition - 1,458 37,012
Purchase of fixed assets (27,152) (24,470) (20,215)
Decrease in restricted cash 2,047 53,933 27,687
----------- ----------- -----------
Net cash provided by (used for) investing activities (13,471) 39,742 47,923
----------- ----------- -----------
Cash flows from financing activities:
Borrowings (payments) under the revolving credit facilities, net 4,284 (15,360) (7,600)
Payments on debt and capital lease obligations (23,766) (87,828) (28,685)
Deferred financing costs (500) (8,143) (2,067)
Proceeds from exercise of Series C Warrants - - 141
----------- ----------- -----------
Net cash provided by (used for) financing activities (19,982) (111,331) (38,211)
----------- ----------- -----------
Increase (decrease) in unrestricted cash and short-term investments (14,217) 11,937 (15,390)
Unrestricted cash and short-term investments, beginning of period 28,402 16,465 31,855
----------- ----------- -----------
Unrestricted cash and short-term investments, end of period $14,185 $28,402 $16,465
=========== =========== ===========
<FN>
(The accompanying notes are an integral part of these consolidated financial statements).
</TABLE>
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
------------------------------------------
(a) Nature of operations:
Ames Department Stores, Inc. (a Delaware corporation)
and its subsidiaries (collectively, "Ames" or the
"Company") are retail merchandisers. As of March 1, 1996,
Ames operated 308 discount department stores under the
Ames name in 14 states in the Northeast, Middle Atlantic
and Mid-West regions and the District of Columbia. The
Company's stores are located in rural communities, some of
which are not served by other large retail stores,
high-traffic suburban sites, small cities and several
major metropolitan areas. The stores largely serve middle
and lower-middle income customers.
(b) Basis of presentation:
The Company filed petitions under Chapter 11 of the
U.S. Bankruptcy Code ("Chapter 11") on April 25, 1990.
From that time until December 30, 1992, Ames operated its
business as a debtor-in-possession subject to the
jurisdiction of the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court").
On December 30, 1992, Ames emerged from bankruptcy (Note
2).
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain prior year items have been reclassified to
conform to the current year presentation.
(c) Fiscal year:
The Company's fiscal year ends on the last Saturday in
January. The fiscal years ended January 27, 1996 (Fiscal
1995), January 28, 1995 (Fiscal 1994) and January 29, 1994
(Fiscal 1993) each included
52 weeks.
(d) Principles of consolidation:
The consolidated financial statements include the
accounts of Ames and its subsidiaries, all of which are
wholly-owned. All material intercompany accounts and
transactions have been eliminated.
<PAGE>
(e) Cash and short-term investments:
Ames considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
and short-term investments.
(f) Inventory valuation:
Substantially all inventories are stated at the lower
of cost, using the retail last-in, first-out (LIFO)
method, or market and include the capitalization of
transportation and distribution center costs.
(g) Fixed assets:
Land and buildings, fixtures and equipment, and
leasehold improvements are recorded at cost. All fixed
assets at December 26, 1992 were written-off under
fresh-start reporting (Note 2). Major replacements and
betterments are capitalized. Maintenance and repairs are
charged to earnings as incurred. The cost of assets sold
or retired and the related amounts of accumulated
depreciation are eliminated from the accounts in the year
of disposal, with the resulting gain or loss included in
earnings.
(h) Depreciation and amortization:
Land and buildings, fixtures and equipment are
recorded at cost and are depreciated on a straight-line
basis over their estimated useful lives. Property under
capital leases and leasehold improvements are depreciated
over the shorter of their estimated useful lives or their
related lease terms.
The unfavorable lease liability (recorded under
fresh-start reporting) is being amortized on a
straight-line basis over the applicable lease terms.
The excess of revalued net assets over equity under
fresh-start reporting is being amortized over a 10 year
period (Note 2).
(i) Deferred charges:
Expenses related to new store openings are expensed in
the fiscal year in which the store opens.
Debt transaction costs and related issue expenses are
deferred and amortized over the term of the associated
debt.
<PAGE>
(j) Income taxes:
Ames and its subsidiaries file a consolidated federal
income tax return. Ames adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109") under fresh-start reporting.
Under this method, any deferred income taxes recorded are
provided for at currently enacted statutory rates on the
differences in the basis of assets and liabilities for tax
and financial reporting purposes. If recorded, deferred
income taxes are classified in the balance sheet as
current or non-current based upon the expected future
period in which such deferred income taxes are anticipated
to reverse.
(k) Self-insurance reserves:
The Company is self-insured for workers' compensation,
general liability, property and casualty, and accident and
health insurance claims, subject to certain limitations.
The Company has insurance coverage for losses that may
occur above certain levels. The Company determines its
liability for claims based on each individual claim's
circumstances and estimates its liability for claims
incurred but not yet reported based on historical
experience.
As of January 27, 1996 and January 28, 1995, Ames had
established self-insurance reserves of $39.0 million and
$46.4 million, respectively. Major portions of these
reserves may not be paid within a year and are subject to
changes in estimates as claims are settled or continue to
remain outstanding. The Company's insurance expense was
lower by $5.2 million in Fiscal 1995 compared to Fiscal
1994 as a result of a reduction in the reserves for prior
years' claims as well as the continued improved experience
in workers' compensation and general liability claims,
partially offset by an increase in health claims.
(l) Leased department sales and income:
Ames has an agreement with an independent contractor
that allows the independent contractor to operate shoe
departments within the Ames stores. Ames receives a
percentage of the sales under the agreement.
(m) Earnings per common share:
Net income (loss) per common share for Fiscal 1995,
1994 and 1993 was determined by using the weighted average
number of common and common equivalent shares outstanding
during each fiscal year. Primary and fully-diluted
earnings per share were the same in each year. Common
stock equivalents represented the assumed exercise of the
outstanding Series C Warrants.
<PAGE>
2. Reorganization Case and Fresh-Start Reporting:
---------------------------------------------
Reorganization Case
As discussed in Note 1, Ames and its subsidiaries filed
petitions for reorganization under Chapter 11 on April 25, 1990
(the "Filing Date"). The Company's disclosure statement
relating to its Third Amended and Restated Joint Plan of
Reorganization dated October 23, 1992 (the "Amended Plan") was
approved by the Bankruptcy Court on October 29, 1992. The
Amended Plan was confirmed by the Bankruptcy Court on December
18, 1992 and consummated on December 30, 1992 (the
"Consummation Date").
The Amended Plan provided for, among other things, the
payment of $303.5 million of cash (including $46.5 million in
deferred cash distributions), $68.9 million in secured notes
(the "POR Term Notes"), the reinstatement of certain
obligations, and the distribution of all of the new common
stock of the reorganized Ames to creditors to settle
approximately $1.6 billion of total estimated claims against
the Company that existed as of the Filing Date.
Fresh-Start Reporting
Pursuant to the guidance provided by the American
Institute of Certified Public Accountants in Statement of
Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the
Company adopted fresh-start reporting and reflected the
consummation distributions in the consolidated balance sheet as
of December 26, 1992 (the fiscal month-end for December, 1992).
Under fresh-start reporting, the reorganization value of the
Company was allocated to the emerging Company's net assets on
the basis of the purchase method of accounting.
The Company's reorganization value was less than the fair
value of the current assets at the Consummation Date. In
accordance with the purchase method of accounting, the excess
of book value over fair value was allocated to reduce
proportionately the values assigned to non-current assets in
determining their fair values. Because this allocation reduced
the non-current assets to zero value, the remainder was
classified as a deferred credit ("Excess of revalued net assets
over equity under fresh-start reporting" or "negative
goodwill") and is being amortized systematically to income over
the period estimated to be benefited (ten years). Depreciation
and amortization of fixed assets is for capital additions after
December 26, 1992.
3. Cash and Short-Term Investments:
-------------------------------
As of January 27, 1996, the Company had no restricted cash
balances. As of January 28, 1995, the Company had $1.8 million
of cash received in escrow from the December, 1994 sale of a
store's lease interest. This cash was included in "Restricted
cash and short-term investments" at January 28, 1995 and was
released from escrow in February, 1995. In addition, as of
January 28, 1995, Ames restricted approximately $0.2 million of
cash for expected payments of certain remaining administrative
and priority claims under the Amended Plan. These amounts are
also included in "Restricted cash and short-term investments."
The associated liability is included in "Accrued expenses."
<PAGE>
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
and includes the capitalization of transportation and
distribution center costs. No LIFO reserve was necessary as of
January 27, 1996, January 28, 1995 and January 29, 1994.
5. Debt:
----
The Credit Agreement
On April 28, 1994, the Company entered into an agreement
with BankAmerica Business Credit, Inc., as agent, two financial
institutions as co-agents (together with the agent, the
"Agents"), and a syndicate consisting of five other banks and
financial institutions, for a secured revolving credit facility
of up to $300 million, with a sublimit of $100 million for
letters of credit (the "Credit Agreement"). The Credit
Agreement is in effect until June 22, 1997, is secured by
substantially all of the assets of the Company, and requires
the Company to meet certain quarterly financial covenants which
were amended in January, 1996. The Credit Agreement has no
requirement for cash collateralization of letters of credit,
except in limited instances. The funds under the Credit
Agreement may only be used for working capital and for the
payment of certain debt described below. The interest rate per
annum on the Credit Agreement is equal to the Reference Rate
(as defined in the Credit Agreement) plus 2% of the first $270
million of Advances (subject to downward adjustments) or 5% of
the last $30 million of Advances. Alternatively, the first
$270 million of Advances under the Credit Agreement may be made
at the interest rate per annum equal to the Eurodollar Rate (as
defined in the Credit Agreement) plus 3.75% (subject to
downward adjustments).
As of January 27, 1996, the interest rate on the Credit
Agreement was 10.5%. For Fiscal 1995, the weighted average
interest rate on the Company's revolving credit facilities was
10.1%. The peak borrowing level under the Credit Agreement
during Fiscal 1995 was $195.4 million. As of January 27, 1996,
approximately $1.9 and $27.5 million was outstanding in trade
and standby letters of credit, respectively, under the Credit
Agreement.
The amount of borrowing under the Credit Agreement 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
($14.6 million as of January 27, 1996). In addition, the
Credit Agreement provides for the potential establishment of
other reserves contingent upon the Company's financial
performance. Each Agent, in addition, reserves the right to
adjust the total available to be borrowed by establishing
reserves, making determinations of eligible inventory, revising
standards of eligibility or decreasing from time to time the
percentages set forth above.
<PAGE>
The quarterly financial covenants under the Credit
Agreement are limited to: capital expenditure limits; minimum
EBITDA (as defined below); and minimum EBITDA to cash interest
expense. The definition of EBITDA, as modified by Amendment
No. 4 to the Credit Agreement which was effective January 12,
1996 and was filed in a Form 8-K dated January 26, 1996, is:
income before (a) interest expense, (b) income tax expense or
benefit, (c) depreciation and amortization expense, LIFO
expense, stock appreciation rights accruals, restructuring
charges and other noncash charges, (d) certain pre-opening
expenses incurred in connection with the opening of the
locations formerly operated by Jamesway Corporation and (e)
gain or losses on properties sold after January 28, 1996.
Compliance with the EBITDA covenant will be dependent upon
the Company's attainment of results that are reasonably
consistent with its financial projections reported on Form 8-K
dated February 21, 1996. In addition, each year Ames must have
no outstanding borrowings (other than borrowings, not to exceed
$20 million, related to certain expenditures) under the Credit
Agreement for a consecutive 30-day period between November 15th
and February 15th of the following year (the "clean-up"
requirement). The Company is in compliance with the financial
covenants, as amended, through the quarter ended January 27,
1996.
Fees required under the Credit Agreement include: (1)
quarterly commitment fees of .5% per annum on the unused
portion of the facility during each quarter, (2) an initial
facility fee of $5.4 million paid on the closing date and an
additional facility fee of $3.0 million ($1.0 million paid at
closing and the remainder due in quarterly installments of
$250,000 each beginning in the second year), and (3) prepayment
fees of 3.0%, 2.0%, and 1.0% of the amount of the Tranche A
portion (as defined in the Credit Agreement) reduced or
terminated prior to the first, second, and third (six months or
more prior to the maturity date) anniversary of the Credit
Agreement, respectively.
In June, 1994, the Company utilized the funds that were no
longer restricted for the collateralization of letters of
credit, and funds from the Credit Agreement, to prepay the POR
Term Notes, a $1.2 million term note, and the outstanding
borrowings under the credit agreement in effect immediately
prior to the prepayment. As a result of the refinancing and
associated commitment to prepay the above debt, a non-cash
extraordinary charge of $1.5 million, net of tax benefit of
$0.7 million, was recorded 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.
Other Debt
The Company's outstanding debt as of January 27, 1996 and
January 28, 1995 is listed and described below. Pursuant to
the Amended Plan, the Company and its lenders agreed to a
restructuring of the Company's obligations at December 26,
1992.
<PAGE>
New and reinstated debt obligations that carried face
interest rates significantly lower than market rates (for
financing of a similar nature) as of the Consummation Date were
discounted to their present values using estimated market
rates. The discount amounts are being amortized to interest
expense over the terms of the related obligations using the
effective interest method. The market interest rates used to
determine the present values at December 26, 1992 are shown in
the table below.
As of January 27, 1996, payments due on long-term debt for
the next five years and thereafter were as follows:
(000's Omitted)
Fiscal Year Ending January Amount
-------------------------- ---------------
1997 $13,682
1998 12,097
1999 2,770
2000 9,500
2001 -0-
Thereafter -0-
<PAGE>
Outstanding debt at January 27, 1996 and January 28, 1995
is listed below. Further explanations of certain of the
obligations follow the table.
<TABLE>
<CAPTION>
(000's omitted)
---------------------
1/27/96 1/28/95
--------- ---------
<S> <C> <C>
Secured Debt -
--------------
Revolving Credit Facility (Note Payable):............ $ 4,284 $ -
Senior Debt:
Guaranteed First Mortgage Notes, interest rate
of 9.5%, due 3/97 through 3/99. Discount rate 11%.. 12,500 12,500
Real Estate Mortgage, interest rate 6%, due 12/97.
Discount rate 12%................................ 5,800 10,720
Loan and Security Agreement, non-interest
bearing, due 5/95. Discount rate 10%.............. - 717
Equipment Notes, interest rates at 9% to 10%, due
12/94 through 12/97. Discount rate 11% to 12%..... 1,887 2,542
8.5% Industrial Development Bonds, prepaid in
Fiscal 1995 (Note 16).............................. - 2,671
------- --------
Total Face Value of Secured Debt................. $24,471 $ 29,150
------- --------
Unsecured Debt -
----------------
Senior Debt:
Allowed Priority Tax Obligations,
5% interest rate. Discount rate 9%............... $1,592 $4,173
Subordinated Debt:
Deferred Cash Distributions due 1/31/94 through
1/31/97, 5% interest rate beginning 2/94.
Discount rate 12%................................. 15,500 23,500
TJX Expense Note, 10% interest rate,
due 1/98 (Note 11)............................... 770 747
------- --------
Total Face Value of Unsecured Debt............... $17,862 $28,420
------- --------
Total Face Value of Debt............................. 42,333 57,570
Less: Current Portion.................... 13,682 15,168
Debt Discounts..................... 1,208 3,372
Note Payable - Revolver............ 4,284 -
------- --------
Amount Due After One Year............................ $23,159 $39,030
======= ========
</TABLE>
<PAGE>
Allowed Priority Tax Obligations
Allowed priority tax obligations consist of remaining
claims entitled to priority status under the Bankruptcy Code,
including claims based on retail sales made by Ames (the
proceeds of which are deemed to be held in trust by Ames for
the benefit of various state taxing authorities). Unless
otherwise agreed to in writing with Ames, the holder of an
allowed priority tax claim receives deferred cash payments in a
principal amount equal to the amount of such claim over a
period not exceeding six years from the date of assessment of
the tax on which the claim is based. The deferred cash
payments may be made in annual installments equal to 10% of the
allowed priority tax claim together with simple interest at the
rate of 5% per annum. The remaining unpaid principal and
accrued interest thereon will be paid on the first business day
following the date that is the sixth anniversary of the date of
assessment of the tax on which the claim is based. During
Fiscal 1993, the Company paid approximately $1.9 million to
certain state taxing authorities in early settlement of
approximately $2.8 million of tax obligations (Note 19).
Deferred Cash Distributions
The Amended Plan provided that approximately $46.5 million
of cash distributions in respect to several classes of claims
would be paid subsequent to the Consummation Date. On January
31, 1993, January 31, 1994, January 31, 1995 and January 31,
1996, $15.0, $8.0, $8.0 and $8.0 million, respectively, of
these deferred cash distributions were paid as scheduled, and
the remaining unsecured amount of $7.5 million is due January
31, 1997, with interest that began on February 1, 1994 at 5%
per annum.
6. Lease Commitments and Unfavorable Lease Liability:
-------------------------------------------------
Ames is committed under long-term leases for various
retail stores, warehouses and equipment expiring at various
dates through 2018 with varying renewal options and escalating
lease clauses. Some leases are classified as capital leases
under Statement of Financial Accounting Standards No. 13.
Capital lease obligations were revalued under fresh-start
reporting. Ames generally pays for real estate taxes,
insurance, and specified maintenance costs under real property
leases. Certain leases also provide for contingent rentals
based on percentages of sales in excess of specified amounts.
<PAGE>
Future minimum lease payments for leases as of January 27,
1996 were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
Lease Payments
--------------------
Fiscal Year Capital Operating
Ending January Leases Leases
-------------------- ------- ---------
<S> <C> <C>
1997........................ $7,357 $40,743
1998........................ 5,887 37,757
1999........................ 4,786 34,529
2000........................ 4,286 30,830
2001........................ 4,240 27,660
Thereafter.................. 37,655 179,738
------ --------
Total minimum lease payments..... 64,211 $351,257
========
Less: amount representing
estimated executory costs......... 803
------
Net minimum lease payments........ 63,408
Less:amount representing interest. 30,371
------
Present value of net minimum
lease payments................... 33,037
Less: currently payable.......... 3,665
------
Long-term capital
lease obligations................$29,372
=======
</TABLE>
Total payments have not been reduced by minimum sublease
rentals to be received in the aggregate under noncancellable
subleases of capital leases and operating leases of
approximately $2.6 and $2.0 million, respectively, as of
January 27, 1996.
Amortization of capital lease assets was approximately
$0.2, $0.1 and $0.0 million for Fiscal 1995, Fiscal 1994 and
Fiscal 1993, respectively.
Rent expense (income), excluding the benefit from the
amortization of the unfavorable lease liability, was as
follows:
<TABLE>
<CAPTION>
(000's Omitted)
---------------------------------
Fiscal Fiscal Fiscal
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Minimum rent on operating leases $42,751 $42,913 $42,646
Contingent rental expense 5,873 6,214 6,414
Sublease rental income (2,491) (2,757) (3,206)
</TABLE>
<PAGE>
The unfavorable lease liability in the Consolidated
Balance Sheets was recorded as part of fresh-start reporting
and represents the estimated liability related to lease
commitments that exceeded market rents for similar locations.
This liability is being amortized as a reduction of rent
expense in the Consolidated Statements of Operations over the
remaining lease terms.
7. Stockholders' Equity:
--------------------
Common Stock and Priority Common Stock
As provided under the Amended Plan, the authorized capital
stock of the reorganized Ames consisted of 40,000,000 shares of
common stock (20,472,269 and 20,127,269 shares outstanding as
of January 27, 1996 and January 28, 1995, respectively), par
value $.01 per share (the "Common Stock"), and 12,000,000
shares of priority common stock (0 shares outstanding as of
January 27, 1996 and January 28, 1995, respectively), par value
$.01 per share (the "Priority Common Stock"). The outstanding
shares of the Priority Common Stock as of December 30, 1994
were automatically converted into an equal number of fully paid
and nonassessable shares of Common Stock. Such conversion was
deemed to have occurred on such date without any notice or
other action on the part of the Company or the holder of such
Priority Common Stock.
Holders of shares of Common Stock are entitled to one vote
per share on all matters to be voted upon by stockholders and
are entitled to receive dividends when, as and if declared by
the Board of Directors. Dividends cannot be declared under the
terms of the Credit Agreement.
The Common Stock does not have any preemptive right or
subscription or redemption privilege. The Common Stock also
does not have cumulative voting rights, which means the holder
or holders of more than half of the shares voting for the
election of directors can elect all the directors then being
elected. All of the shares of Common Stock are fully paid and
nonassessable.
All equity interests existing immediately prior to the
consummation of the Amended Plan were cancelled pursuant to the
Amended Plan and the accumulated deficit was eliminated under
fresh-start reporting.
Warrants
An aggregate of 200,000 Series B Warrants were issued
under the Amended Plan. Each such warrant entitles the holder
to purchase one share of the Common Stock at any time from six
months after the Consummation Date through the eighth
anniversary of the Consummation Date. The exercise price is
$5.92 per share. No Series B Warrants have yet been exercised.
An aggregate of 2,120,000 Series C Warrants were issued
(1,992,715 outstanding as of January 27, 1996) under the
Amended Plan. Each such warrant entitles the holder to
purchase one share of the Common Stock at any time from six
months after the Consummation Date through January 31, 1999.
The exercise price is $1.11 per share. There were no exercises
of the Series C Warrants during Fiscal 1995 and Fiscal 1994.
<PAGE>
The exercise prices of the above warrants are subject to
adjustment upon the occurrence of certain events, including,
among other things, the payment of a stock dividend with
respect to the Company's Common Stock, the subdivision,
combination or reclassification of Common Stock, the merger or
consolidation of the reorganized Company, and the issuance for
consideration of rights, options or warrants (other than rights
to purchase Common Stock issued to shareholders generally) to
acquire Common Stock of the Company. Rights, options or
warrants distributed to holders of Common Stock prior to the
warrant expiration dates will be distributed to holders of such
warrants as if the warrants had been exercised immediately
prior to the record date for such distribution. Upon the
exercise of warrants, a holder of such warrants is entitled to
receive any distributions (other than distributions described
above, distributions in connection with the total liquidation,
dissolution, or winding-up of the Company or dividends payable
out of current earnings) made to holders of Common Stock prior
to expiration of such warrants as if the holder had exercised
such warrants prior to the record date of such distribution.
In this case, the holder, upon conversion, would also receive
interest at a rate of 10% per annum on any cash payable, as
well as any income earned on distributed assets, property or
securities from the distribution date to the date of exercise.
The exercise prices and number of shares issuable upon exercise
will also be adjusted in certain circumstances if the Company
issues certain securities at below market prices.
A holder of any of the warrants described above as such
will not be entitled to any rights as a stockholder of the
Company, including without limitation the right to vote with
respect to the shares of Common Stock of the Company, until
such holder has properly exercised the warrants in accordance
with the terms of the respective warrant agreement.
Stock Purchase Rights Agreement
On November 30, 1994, the Company adopted a Stock Purchase
Rights Agreement (the "Rights Agreement"). Under the terms of
the Rights Agreement, one purchase right ("Right"), with an
exercise price of $14.00, is attached to each share of the
Company's Common Stock outstanding as of, or issued subsequent
to, November 30, 1994 but prior to the occurrence of certain
events (as more fully described in the Rights Agreement). The
Rights become exercisable in the event that a person or group
(an "Acquiring Person") either acquires 15% or more of the
Company's outstanding voting stock or announces an intention to
acquire 20% or more of such stock. Once exercisable, each
Right will, depending on the circumstances, entitle a holder,
other than an Acquiring Person, to purchase shares of either
the Company or an acquiring company having a market value equal
to twice the exercise price. The Rights Agreement was adopted
to assure that all of the Company's stockholders receive full
value for their investment in the event of stock accumulation
by an Acquiring Person. Unless previously redeemed by the
Company, the Rights will expire on November 29, 2004.
<PAGE>
8. Stock Options:
-------------
Pursuant to the 1994 Management Stock Option Plan (the
"Option Plan") approved by stockholders in June, 1994, the
Company may grant options with respect to an aggregate of up to
1,700,000 shares of Common Stock, with no individual optionee
to receive in excess of 200,000 shares of Common Stock upon
exercise of options granted under the Option Plan. The
exercise prices of the options are equal to the fair market
value of the Common Stock on the date the options are granted.
The options become exercisable over three to five years and
terminate after five to six years from the grant date.
Pursuant to the 1994 Non-Employee Directors Stock Option
Plan (the "Non-Employee Plan") approved by stockholders in May,
1995, the Company may grant options to purchase up to an
aggregate of 200,000 shares of Common Stock. The exercise
prices of the options are equal to the fair market value of the
Common Stock on the date the options are granted. The options
become exercisable in full six months after date of grant or
date of stockholder approval, whichever is later, and will
terminate July 21, 2004. Effective on the date of each annual
meeting of stockholders of the Company commencing with the 1996
Annual Meeting of Stockholders, each non-employee director of
the Company then in office will be granted an option to
purchase 2,500 shares, with the date of grant to be the date of
such meeting. As of January 27, 1996, 45,000 options had been
granted under the Non-Employee Plan at prices ranging from
$2.75 to $3.13; all were exercisable.
The following table sets forth the stock option activity
for both stock option plans for Fiscal 1995 and Fiscal 1994.
<TABLE>
<CAPTION>
1995 1994
--------------------- ----------------------
Exercise Exercise
Shares Prices Shares Prices
------ -------- ------ -------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year........ 1,299,500 $3.50-$5.12 -0- ---
Granted.................... 275,100 $1.69-$3.13 1,608,500 $3.50-$5.12
Exercised................... --- --- --- ---
Terminated.................. (255,000) $1.69-$5.06 (309,000) $3.81-$5.06
---------- ----------
Outstanding at end of year.. 1,319,600 $1.69-$5.12 1,299,500 $3.50-$5.12
========== ==========
Exercisable at end of year... 375,300 $2.75-$5.12 -0-
========== =========
</TABLE>
9. Income Taxes:
------------
The Company had no income tax provision for Fiscal 1995.
For Fiscal 1994 and Fiscal 1993, the Company recorded non-cash
income tax provisions of approximately $8.2 and $3.3 million,
respectively.
<PAGE>
The Company adopted SFAS No. 109 in conjunction with the
adoption of fresh-start reporting. Under SFAS No. 109,
deferred income taxes are recognized by applying the enacted
statutory tax rates in future years to the changes in
"cumulative temporary differences" (the differences between
financial statement carrying values and the tax basis of assets
and liabilities).
As a consequence of the adoption of fresh-start reporting
and SFAS No. 109, any tax benefits realized for tax purposes
after the Consummation Date for pre-consummation cumulative
temporary differences, as well as for the pre-consummation net
operating loss carryovers, are reported as additions to
paid-in-capital (see Consolidated Statements of Changes in
Stockholders' Equity) rather than as reductions in the tax
provisions in the Consolidated Statements of Operations. Tax
benefits or liabilities realized for book purposes after the
Consummation Date will be segregated from the pre-consummation
deferred tax assets. Ames, although not likely to pay income
taxes in the near future, may be required to record tax
provisions on book income. However, the utilization of post-
consummation deferred tax assets may reduce future income tax
provisions. Such income tax provisions have no impact on the
Company's taxes payable or cash flows.
Ames has the following deferred tax assets from
pre-consummation ("Pre") and post-consummation ("Post")
periods, as of the following dates ($ in millions):
<TABLE>
<CAPTION>
As of As of
January 27, 1996 January 28, 1995
------------------- ------------------
Pre Post Total Pre Post Total
----- ---- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Fixed assets............ $46 ($1) $45 $60 ($2) $58
Self insurance reserves.. 11 7 18 13 6 19
Restructuring reserves... 3 20 23 5 - 5
Leases................... 16 6 22 20 9 29
Vacation pay reserve
and other.............. (1) 3 2 (3) 10 7
Net operating loss
carryovers............. 193 - 193 183 - 183
---- ---- ----- ----- ---- -----
Total deferred tax assets 268 35 303 278 23 301
Valuation allowances.....(268) (35) (303) (278) (23) (301)
----- ---- ----- ----- ---- -----
Net deferred tax assets. $0 $0 $0 $0 $0 $0
===== ==== ===== ===== ==== =====
</TABLE>
The Company has fully reserved for its deferred tax assets
because of the current uncertainty of the future recognition of
such deductions. In subsequent periods, Ames may reduce the
valuation allowances, provided that the possibility of
utilization of the deferred tax asset is more likely than not,
as defined by SFAS No. 109. Any such reduction in the pre-
consummation valuation allowance in the near future will result
in a corresponding addition to paid-in-capital.
<PAGE>
The Company has treated "pre-emergence net operating
losses" (qualified losses incurred prior to the Consummation
Date) under Section 382(l)(5) of the Internal Revenue Code
(hereafter "L-5"). Under "L-5," there is approximately $295
million in pre-emergence net operating losses currently
available as carryovers without any annual limitation. The
Company has filed a $20 million refund claim under Section
172(f) of the Internal Revenue Code. The claim represents a 10
year carryforward of qualified expenses and is currently under
review by the Internal Revenue Service ("IRS"). The claim will
reduce pre-emergence net operating losses by approximately
$43.5 million.
Ames also has a "post-emergence net operating loss"
carryover (incurred after the Consummation Date) of
approximately $189 million. Both pre- and post-emergence net
operating loss carryovers will expire between 2007 and 2011.
In addition, Ames has targeted jobs tax credit carryovers of
approximately $7 million and alternative minimum tax credit
carryovers of approximately $3 million, which will expire in
2007 and 2004, respectively. Federal net operating loss
carryovers for fiscal years subsequent to January 27, 1990 are
subject to future adjustments, if any, by the IRS.
Ames has substantial potential state net operating loss
carryovers. It is difficult, however, to quantify the
utilizable amounts of such state operating losses because of
the uncertainty related to the mix of future profits in
specific states.
10. Benefit and Compensation Plans:
------------------------------
Retirement and Savings Plan
Ames has a defined contribution retirement and savings
plan (the "Retirement and Savings Plan") that is qualified
under Sections 401(a) and 401(k) of the Internal Revenue Code
of 1986, as amended, for employees who, after one year of
service, have reached the age of 21 and have completed at least
1,000 hours of service in a 12-month period. For each
participant's contribution (up to a maximum of 5% of such
participant's total compensation), the Company contributes to
the Retirement and Savings Plan an amount equal to 50% of such
contribution. A participant may contribute to the plan from 1%
to 18% of annual compensation on a pre-tax or after-tax basis,
or a combination of both. Participants who terminate their
employment with the Company are entitled to receive the full
amount of their contributions and, depending on the length of
the participant's service to Ames, a portion of the Company's
matching contributions. Ames funds all administrative costs
incurred by the plan. Ames' expense associated with this plan
amounted to approximately $3.0, $3.1, and $2.6 million, in
Fiscal 1995, Fiscal 1994 and Fiscal 1993, respectively.
Income Continuation Plan
Certain officers of Ames participate in an Income
Continuation Plan ("ICP"), which guarantees up to one year's
salary in the event of termination other than for cause. As of
January 27, 1996, the Company had reserved for its known
obligations under the ICP.
<PAGE>
Stock Appreciation Rights
In connection with the Amended Plan, stock appreciation
rights ("SARs") exercisable only for cash, equivalent to 1.2
million shares of the new Common Stock, were granted to certain
members of management as compensation for their efforts in
restructuring Ames and enabling it to emerge from Chapter 11.
After exercises and terminations, SARs equivalent to 183,350
shares were outstanding at January 27, 1996. One-third of the
SARs vested on the Consummation Date, one-third vested on
December 30, 1993, and the remaining one-third vested on
December 30, 1994. Each SAR entitles the recipient, upon
exercise (which may not be later than five years after the
Consummation Date), to receive in cash the excess of the
average closing price of a share of Common Stock during the ten
trading days prior to the exercise date, over the average
closing price of a share of Common Stock during the 60 trading
days after the Consummation Date ($2.96). The average closing
price for the last 10 trading days of Fiscal 1995 was $1.47 per
share. During Fiscal 1995, no SARs were exercised.
Long Term Incentive Plan
On May 24, 1995, the stockholders approved the Company's
1995 Long Term Incentive Plan (the "Long Term Plan") under
which the Company may make awards of an aggregate of up to
500,000 shares of Common Stock and cash payment in an amount up
to 50% of the fair market value (as defined in the Long Term
Plan) of the Common Stock awarded, determined as of and paid on
the vesting date. Each award under the Long Term Plan vests in
full on the third anniversary of the date of grant of such
award. Awards may be made to the Chief Executive Officer, any
Executive Vice President and any Senior Vice President of the
Company. Other than for death or disability, awards which have
not yet vested are forfeited upon the termination of the
employment of the executive.
As of January 27, 1996, awards aggregating to 345,000
shares of Common Stock had been made to certain executives of
the Company. The shares for these awards have been issued and
are being held in custody by the Company on behalf of the
grantees thereof. A portion of the estimated market value of
the awards, including the cash, has been accrued as
compensation expense as of January 27, 1996.
<PAGE>
Key Employee Continuity Benefit Plan
Ames has a Key Employee Continuity Benefit Plan (the
"Continuity Plan") that covers all officers, Vice President and
above, and certain other employees of Ames. If the employment
of any participant in the Continuity Plan is terminated, other
than for death, disability, cause (as defined in the Continuity
Plan) or by the participant other than for good reason (as
defined in the Continuity Plan), within 18 months after a
change of control of Ames, the participant will receive a lump
sum cash severance payment. The severance payment is 2.99
times Base Compensation for the President and Executive Vice
Presidents, 2 times Base Compensation for Senior Vice
Presidents and selected Vice Presidents and 1 times Base
Compensation for other Vice Presidents. Base Compensation is
defined generally as the sum of the participant's annual base
compensation in effect immediately prior to the participant's
termination plus one-third of the value of the cash and stock
bonuses paid to the participant during the 36 months ending on
the date of termination. For purposes of the Continuity Plan,
a change of control includes but is not limited to the
acquisition by any person of beneficial ownership of 20% or
more of Ames outstanding voting securities or the failure of
the individuals who constituted the Board of Directors at the
beginning of any period of 12 consecutive months to continue to
constitute a majority of the Board during such period.
Annual Incentive Compensation Plan
The Company has an Annual Incentive Compensation Plan (the
"Annual Bonus Plan") that is subject to annual review by the
Board of Directors. The Annual Bonus Plan provides annual
incentive cash bonuses based on the achievement of the
Company's financial goals for the year (and customer service
goals for store and field management). Bonus expense recorded
under the plan was $1.5, $1.6 and $2.8 million for Fiscal 1995,
1994 and 1993, respectively.
Retirement Plan
Through the end of Fiscal 1995, Ames had an unfunded
Retirement Plan for Officers/Directors (the "Retirement Plan").
It provided that every person who was employed by Ames when he
or she retired, died or became disabled and who (i) served as
both a full-time officer and a director of Ames and had
completed five years of service, not necessarily consecutive,
in both of these capacities, or (ii) served as a director of
Ames and had completed 10 years, not necessarily consecutive,
of service to Ames, was eligible for benefits under the
Retirement Plan.
Benefits under the Retirement Plan were payable upon
termination of employment due to retirement, death or
disability. The annual benefit was equal to two-thirds of the
participant's average annual base salary during the five-year
period of highest compensation preceding such termination of
employment. The maximum annual benefit under the Retirement
Plan was $100,000, reduced by an amount equal to certain of
such participant's annual Social Security benefits. Each
participant in the Retirement Plan was entitled to benefits for
a period of 10 years. Upon the earlier death of the
participant, at the Company's option, the future payments as
scheduled or the then present value of all unpaid benefits
would be paid to the participant's estate. The Company has a
reserve established for potential payments under the Retirement
Plan. No payments were made under this plan during the periods
presented.<PAGE>
The G.C. Murphy Company Life Insurance Plan
The G.C. Murphy Company Life Insurance Plan granted a flat
dollar amount (defined benefit) of group term life insurance at
no cost to certain retired employees. This plan excludes G.C.
Murphy Co. employees who retired from Ames after January 31,
1986. The amount of coverage varies by retiree, is payable
only upon death, and has no loan or cash value. There were
2,128 retirees covered by this plan as of January 27, 1996.
The Company has a reserve established for the projected
payments under this plan.
11. Commitments and Contingencies:
-----------------------------
As part of the Company's settlement with TJX Companies,
Inc. ("TJX") under the Amended Plan, Ames must reimburse TJX
for various obligations, fees, and expenses that may be paid by
TJX relating to various properties that were under leases
rejected by Ames. The obligations, fees, and expenses are
subject to certain maximum amounts and the total reimbursement
may not exceed $2.7 million and will be in the form of an
unsecured note payable due on January 31, 1998 (the "TJX
Expense Note"). TJX provides Ames with the amounts paid, if
any, during each quarter and those amounts, after appropriate
review, become the principal due under the TJX Expense Note.
As of January 27, 1996, the amount claimed as due by TJX and
recorded by Ames as the TJX Expense Note was approximately $.8
million (see Note 5). Interest is being accrued on the
principal amounts due at 10% per annum and will be payable on
January 31, 1998.
The Amended Plan states that portions of any "Excess cash
flow amount" must be distributed to holders of claims in
certain classes in the order set forth in the Amended Plan.
"Excess cash flow amount" is defined as, with respect to the
fiscal years ending January 27, 1996 and January 25, 1997, 50%
of the excess of (i) EBITDA (as defined in the Company's credit
agreement in effect on Consummation Date) of reorganized Ames
for such fiscal year over (ii)(a) $99.1 million with respect to
the fiscal year ending January 27, 1996 and (b) $114.7 million
with respect to the fiscal year ending January 25, 1997;
provided, however, that excess cash flow amounts shall not be
paid with respect to any fiscal year after the fiscal year
ending January 25, 1997. There are a number of events that
must occur before these classes will receive any payments from
the excess cash flow amount. First, Ames must realize cash
flows that exceed the level of projected cash flows in the
Amended Plan. Second, if there is cash flow exceeding those
projections, it will be allocated to pay the other
distributions scheduled under the Amended Plan before any of
the classes entitled to receive excess cash flow payments will
receive any payments from the excess cash flow amount. Thus,
if Ames has excess cash flow, some of the deferred
distributions provided in the Amended Plan may be paid earlier
than otherwise scheduled. Third, the excess will be measured
at the end of each fiscal year through January 25, 1997. This
means that if the required earnings levels are not reached
during those years, no excess cash flow amount will ever be
paid. There were no excess cash flow amounts through January
27, 1996 and none are anticipated in the Company's latest
projections.
<PAGE>
The Amended Plan further states that portions of any
Wertheim Claim Proceeds (Note 12) and Litigation Claims (as
defined in the Amended Plan) must be distributed to certain
classes of claims. As to the Wertheim Claim Proceeds received
in June, 1994, after distribution of $7 million to the Class
AG-6A Trust, Ames retained the remaining $12 million. To the
Company's knowledge, the relevant creditor groups have not
formed the Litigation Trust which would be responsible for
pursuing any Litigation Claims. Any future net proceeds from
Litigation Claims would be distributed pursuant to the Amended
Plan.
12. Litigation:
----------
On April 25, 1990 (the "Filing Date"), Ames filed for
protection under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Southern
District of New York ("the Bankruptcy Court"), Case Nos.
90B11233 through 11285. By Order dated as of December 18, 1992
(and modified subsequently) (the "Confirmation Order"), the
Bankruptcy Court confirmed the Amended Plan. The Amended Plan
was consummated on December 30, 1992.
The Confirmation Order, among other things, dismissed with
prejudice all pending litigation, and released all claims that
could have been brought in litigation, between the Company and
the Citibank Group, TJX (to the extent provided in the Ames-TJX
Release), and the creditors of the Company, including but not
limited to Claims arising in (a) the Tax Refund Motion, (b) the
Citibank Lift Stay Motion, (c) the Ames Declaratory Judgment
Action, (d) the Substantive Consolidation Motion (as terms (a)
through (d) are defined on pages 24 and 25 of the October 23,
1992 Disclosure Statement and Restated Joint Plan of
Reorganization of Ames Department Stores, Inc. and Other
Members of the Ames Group), and (e) an action filed under seal
in the Bankruptcy Court on April 24, 1992 by the members of the
Ames Group as Adversary Proceeding No. 92-9016A (JAG).
A number of claims filed in connection with the Ames
Chapter 11 cases remain unresolved, only a few of which are
asserted to be administrative, priority or secured claims. To
the extent that such claims are properly asserted or found to
be unpaid administrative, priority or secured claims, they
would be the responsibility of the Company. Based on its
continuing review of these claims, the Company believes that
some have, in fact, already been fully satisfied, others are
pre-petition unsecured claims which are not the responsibility
of the Company, and some will be without any validity. In the
aggregate, the Company does not believe the remaining pre-
petition claims for which it will be liable under the Amended
Plan will be material.
<PAGE>
On March 21, 1995, a Class Action Complaint (the
"Complaint") was filed against the Company in the Superior
Court Department of the Trial Court, Suffolk County,
Massachusetts entitled David W. Abrams, Individually and On
Behalf of All Other Persons Similarly Situated v. Ames
Department Stores, Inc. The Complaint alleged that Ames
violated Massachusetts wage and hour law by failing to pay
Abrams, and others similarly situated Assistant Managers in
Massachusetts, time and one-half their regular rates of pay for
hours worked in excess of 40 a week. The Complaint sought
injunctive relief, treble damages, costs and attorney's fes.
On April 21, 1995, the case was removed to the United States
District Court for the District of Massachusetts. The Company
has denied the claims on the basis that Abrams and other
similarly situated Assistant Managers were exempt employees not
entitled to overtime pay. The Company has further denied that
the action is properly maintainable as a class action and that
the plaintiff is not a proper representative of the purported
class. Discovery on whether a class should be certified is
ongoing and a hearing on this question will likely occur later
this year.
On December 13, 1995, a Class Action Complaint was filed
and on January 23, 1996 and Amended Class Action Complaint was
filed (the "Second Complaint") in the United States District
Court for the District of Massachusetts entitled Colleen
Austin, On Behalf of Herself and Others Similarly Situated v.
Ames Department Stores, Inc. et al. The factual allegations in
the Second Complaint are essentially the same as in the Abrams
Complaint referenced above. However, the Second Complaint also
includes claims against the Company and certain of its officers
and directors under the Fair Labor Standards Act, ERISA and the
wage and hours laws of each state where Ames does business, and
purports to state cliams on behalf of Assistant Managers in
each of those states. The Company believes, among other
things, that the case is not properly maintainable as a class
action suit and that the plaintiff is not a proper class
representative. The Company also denies liability on that
basis that Austin and other similarly situated Assistant
Managers were exempt employees and has moved to dismiss the
claims under ERISA and the laws of all states except
Massachusetts. Discovery has not yet commenced in this matter.
On September 15, 1995, the Company commenced an adversary
proceeding in the Bankruptcy Court entitled Ames Department
Stores, Inc. v Argonaut Insurance Company (the "Adversary
Proceeding"). The reason for this filing was a September 1995
assertion by Argonaut Insurance Company ("Argonaut") that an
evergreen letter of credit issued to the benefit of Argonaut at
the request of Ames in May 1990 (the "Letter of Credit") could
be drawn upon to satisfy Argonaut's pre-petition claim against
Ames under an insurance policy issued by Argonaut to Ames in
October 1989 (the "Insurance Policy"). The Letter of Credit is
in the amount of $5 million and Ames has an obligation to
reimburse the issuing bank for any draw down on the Letter of
Credit.
The Adversary Proceeding against Argonaut seeks, among
other things, to enjoin Argonaut from drawing down the Letter
of Credit to satisfy its pre-petition claims. The Company
asserts, among other things, that the Letter of Credit was not
intended to cover pre-petition claims and, in any event, could
not do so under relevant bankruptcy law. The Company also
asserts that in the event Argonaut is permitted to draw down on
the Letter of Credit, the proper interpretation of the
aggregate deductible provision in the Insurance Policy means
that the maximum draw down amount is substantially less than $5
million.<PAGE>
On November 14, 1995 Argonaut filed a motion to dismiss
the Complaint in the Adversary Proceeding. Ames filed its
First Amended Complaint on November 28, 1995. Argonaut's
motion to dismiss was denied by order of the Bankruptcy Court
dated January 19, 1996. Argonaut appealed to the District
Court from the Bankruptcy Court's denial of the motion to
dismiss and Argonaut's motion for leave to appeal from an
interlocutory order is currently pending. Because Argonaut
refused to consent to any additional amendments, Ames moved on
January 18, 1996 for leave to file its Second Amended
Complaint. On February 14, 1996, Argonaut filed its objection
to this motion.
The Company believes the positions it has asserted in the
Complaint and the Amended Complaints have a strong basis in
fact and law. The Company has recorded a liability for what it
believes its maximum exposure to be. Discovery in the
Adversary Proceeding is currently underway and is scheduled to
end on June 1, 1996.
Wertheim Proceeding
On October 13, 1992, Ames commenced an adversary
proceeding against Wertheim Schroder & Co., Inc. ("Wertheim")
and James A. Harmon ("Harmon") (Wertheim & Harmon, collectively
the "Defendants"). In this proceeding (the "Wertheim
Proceeding"), Ames sought damages and equitable relief for
breach of fiduciary duty, professional malpractice, fraudulent
conveyance and transfer pursuant to the Bankruptcy Code and New
York law, and other improper conduct relating to Ames'
acquisition from Zayre Corporation ("Zayre") of Zayre's
discount stores division in October 1988 (the "Zayre
Acquisition"). Wertheim was investment advisor to both Ames
and Zayre in connection with the Zayre Acquisition; Harmon at
the time of the Zayre Acquisition served as Chairman of the
Board of Directors of Ames and as Chairman of Wertheim.
On November 20, 1992, the Defendants answered the
complaint, denied its material allegations and interposed ten
counterclaims against Ames, asserting (i) contribution claims
under common law and the 1933 Securities Act, and (ii) claims
for indemnity under Ames' articles of incorporation, Ames'
engagement letter with Wertheim, other agreements between
Wertheim and Ames, Delaware law and common law.
On March 31, 1994, Ames entered into a settlement
agreement with the Defendants (the "Settlement Agreement"),
which was subject to the approval of the Bankruptcy Court. In
summary, the Settlement Agreement provided for a $19 million
settlement payment by the Defendants and dismissal of all
claims and counterclaims in the Wertheim Proceeding. The
Settlement Agreement also provided for the Bankruptcy Court to
enter an order (the "Bar Order") barring the assertion of
further claims arising out of the Zayre Acquisition against the
Defendants by Ames and holders of Allowed Claims (as defined in
the Amended Plan). The Settlement Agreement also required Ames
to indemnify the Defendants in the event that the assertion of
Zayre-related claims by Ames against any third party results in
that third party bringing a claim over against either of the
Defendants. A hearing on the motion to approve the Settlement
Agreement and enter the Bar Order was held on April 26, 1994.
<PAGE>
Subsequent to the hearing, the Bankruptcy Court entered an
order approving the Settlement Agreement, and the closing on
the Wertheim Settlement Agreement took place in June, 1994. At
that time, 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.
Other Matters:
Both prior and subsequent to the Filing Date, various
class action suits were commenced on behalf of certain prior
stockholders and debenture holders of Ames Department Stores,
Inc. A settlement of these class actions, dated May 14, 1993,
was reached between the plaintiffs and defendants and was
approved by the United States District Court, Southern District
of New York, on July 14, 1993. Any claim against Ames arising
out of these suits were discharged as part of and in accordance
with the terms of the Amended Plan which was confirmed on
December 18, 1992. Accordingly, the settlement of these cases
has no financial impact on Ames beyond the terms of the Amended
Plan.
Ames has owned and/or leased current and former facilities
that are subject to several environmental laws relating to the
operation and maintenance of those facilities, particularly
with respect to the facilities' 200 or more underground storage
tanks. The vast majority of those tanks have been cleanly
removed. Some residual contamination exists at a limited
number of facilities, the extent of which has not been
determined at this time. Environmental liabilities associated
with these facilities may be shared with facility landlords,
tenants, subtenants, or other third parties. In some states,
clean-ups may be eligible for financing from state funds.
Based on currently available information, no liabilities
material to the Company will result from any underground
storage tank residual contamination. The Company believes that
adequate liabilities have been recorded related to any
potential costs.
Under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended by the
Superfund Amendments and Reauthorization Act of 1986
("Superfund"), liability may be imposed on waste generators,
site owners and operators, and others regardless of fault or
the legality of the original waste disposal activity. Ames may
be liable for costs at several sites under Superfund or similar
state laws either for generating wastes, including waste oils
disposed of at those sites, or in connection with the
assumption by Ames of certain Zayre Discount Division
liabilities. Ames believes that it has been connected to most
of these sites based on relatively small amounts of wastes and
that many other parties are involved at these sites and may
share in the ultimate liability. Ames does not have sufficient
information to determine its relative responsibility for, or
contribution to (if any), all of these sites at this time.
The Company is a party to various claims and legal
proceedings covering a wide range of matters that arise in the
ordinary course of its business activities. The Company
believes that its likely liability as to these matters will not
have a material adverse effect on the consolidated financial
position or results of operations of the Company.
<PAGE>
13. Supplemental Cash Flow Information:
----------------------------------
Cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
--------------------------------
Fiscal Fiscal Fiscal
1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Interest...................... $19,217 $19,953 $23,204
Income taxes.................. 2 7 19
Ames entered into other non-cash investing and financing activities as
follows:
(000's Omitted)
------------------------------
Fiscal Fiscal Fiscal
1995 1994 1993
--------- -------- -------
New capital lease obligations $3,203 $687 $ -
Conversion of Priority Common
Stock into Common Stock....... - 38 72
Issuance of Common Stock under
1995 Long Term Incentive Plan.. 4 - -
</TABLE>
14. Fair Values of Financial Instruments:
------------------------------------
The Financial Accounting Standards Board requires
disclosure of the fair value of financial instruments under
Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" ("SFAS
No. 107"). The following methods and assumptions were used by
the Company in estimating the fair value disclosures for its
financial instruments.
The Company's financial instruments as of January 27, 1996
and January 28, 1995 were cash and short-term investments,
long-term debt, and the Series C Warrants. For cash and
short-term investments, the carrying amounts reported in the
Consolidated Balance Sheets approximated fair values. For
long-term debt obligations, the fair values were estimated
using a discounted cash flow analysis (based upon the Company's
incremental borrowing rates for similar types of borrowing
arrangements). The fair value of the Series C Warrants was
based on the market trading price at year-end times the number
of such warrants that were outstanding.
<PAGE>
The carrying amounts and fair values of the Company's financial
instruments at January 27, 1996 and January 28, 1995 were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
----------------------------------------
January 27, 1996 January 28, 1995
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ------ --------- --------
<S> <C> <C> <C> <C>
Cash and short-term investments... $14,185 $14,185 $30,449 $30,449
Long-term debt
Secured debt.................... 19,404 19,782 27,312 27,091
Unsecured debt.................. 17,437 17,495 26,886 26,611
Series C Warrants............. - 1,619 - 3,667
</TABLE>
15. Gain on Disposition of Properties:
---------------------------------
The following is a summary of the major components of the
"Gain on disposition of properties":
<TABLE>
<CAPTION>
(000's Omitted)
----------------------------
Fiscal Fiscal Fiscal
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Gain on:
Sales of closed distribution centers... $5,099 $ - $ -
Sales/assignment of lease
interests at closed locations........ 991 2,965 -
Sale of office building................ - 2,870 -
Sales of shopping centers.............. 3,046 1,649 844
Insurance proceeds and other........... - 771 496
------ ------- ------
$9,136 $8,255 $1,340
====== ====== ======
</TABLE>
16. Distribution Center Closing Costs:
---------------------------------
On November 1, 1994, the Company announced it would close
the distribution center in Clinton, Massachusetts in June, 1995
and recorded a provision of $2.5 million in the third quarter
for the estimated costs associated with closing the facility.
By the end of Fiscal 1994, the Company had entered into an
agreement to sell the Clinton facility in the second quarter of
Fiscal 1995, earlier than originally anticipated. Due to this
earlier-than-expected sale, the Company reduced the provision
to $1.3 million in the fourth quarter of Fiscal 1994 to
eliminate the reserve amounts established for real estate taxes
and other estimated property holding costs. Transfer of the
Clinton operations to the Company's distribution center in
Leesport, Pennsylvania and the sale of the Clinton facility
were completed in June, 1995. In conjunction with the sale of
the Clinton facility, the Company was required to prepay the
8.5% Industrial Development Bonds which had secured the
facility.
<PAGE>
Approximately $0.6 million of estimated termination
benefits was included in the provision. Approximately 330
employees were affected by the closing. The following items
represent the major components (in thousands) of the total
provision for the Clinton closing costs:
<TABLE>
<S> <C>
Termination benefits and other
human resources costs $776
Asset write-off 145
Other closing costs 379
------
$1,300
======
</TABLE>
Through January 27, 1996, $1,250,000 of costs have been
charged to the provision and minimal future expenses are
expected.
17. Restructuring:
-------------
The Company announced in January, 1996 that it would close
17 stores in March, 1996 and that it eliminated 71 positions in
the corporate headquarters. In connection with the 17 store
closings and related headquarter reductions, the Company
recorded a restructuring charge of $20.9 million in January,
1996.
The following items represent the major components of the
total restructuring charge recorded in January, 1996:
<TABLE>
<CAPTION>
(OOO's Omitted)
---------------
Fiscal
Item 1995
---- ---------------
<S> <C>
Lease costs $12,926
Inventory write-down 3,244
Net fixed asset write-down 2,094
Termination benefits and other
human resource costs 1,857
Other exit costs related to
store closings 744
-------
$20,865
=======
</TABLE>
<PAGE>
The lease costs provided for in the restructuring charge
include all projected occupancy costs from date of closing
until estimated lease disposition date. Termination benefits
and other human resource costs include severance to be paid
under the Company's severance policy to terminated associates
in the 17 stores and in corporate headquarters. Other exit
costs related to the closings include, among other items,
incremental cleaning and security costs as well as costs to
remove or transfer retained assets.
18. Leased Department and Other Operating Income:
--------------------------------------------
<TABLE>
<CAPTION>
(000's Omitted)
---------------------------
Fiscal Fiscal Fiscal
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Leased department income........ $17,132 $17,900 $18,829
Concession and vending income... 1,291 1,342 1,620
Layaway service fees............ 2,386 3,163 3,109
Various other................... 8,868 7,891 10,799
------- ------- -------
$29,677 $30,296 $34,357
======= ======= =======
</TABLE>
19. Extraordinary Items:
-------------------
The Company prepaid certain debt (Note 5) during Fiscal
1994 and recorded a non-cash extraordinary charge of $1.5
million, net of tax benefit of $0.7 million, primarily for the
write-off of deferred financing costs and debt discounts.
During Fiscal 1993, the Company paid $1.9 million to
certain state taxing authorities in early settlement of $2.8
million of tax obligations and recorded the difference of $0.9
million as an extraordinary gain.
20. Recently Issued Accounting Standards:
------------------------------------
Effective January 27, 1996, the Company has elected early
adoption of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." As a result, the
Company recorded an impairment loss of $3.4 million in the
quarter ended January 27, 1996. The impairment loss,
classified as part of "Depreciation and amortization expense,"
was equivalent to the current carrying value of fixtures and
equipment and leasehold improvements for specific stores where
historical and projected operating performance indicated an
impairment. The Company will continue to operate these stores
until such time that the estimated closing costs are less than
any current cash losses.
<PAGE>
In November 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). This statement establishes a fair value based method of
accounting for an employee stock option or similar equity
instrument but allows companies to continue to measure
compensation cost for those plans using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees". Companies electing
to remain with the accounting under APB Opinion No. 25 must,
however, make pro forma disclosures of net income and earnings
per share as if the fair value based method of accounting
defined in SFAS No. 123 had been applied. These disclosure
requirements are effective for years beginning after December
15, 1995.
The Company has elected to continue to account for stock
options under APB Opinion No. 25 and, in Fiscal 1996, will be
making pro forma disclosures of net income and earnings per
share as if the method defined in SFAS No. 123 had been
applied.
21. Subsequent Event:
----------------
On February 5, 1996, the Company announced that its $2.8
million bid to acquire 10 locations previously operated as
Jamesway stores had been approved by the bankruptcy court
supervising the Jamesway liquidation. The Company was
subsequently successful in acquiring an eleventh location. The
Company expects to open nine of the eleven locations by the end
of April, 1996.
<PAGE>
22. Quarterly Financial Data (Unaudited):
------------------------------------
Summarized unaudited quarterly financial data (in
thousands except for per share amounts) for the last three
fiscal years are shown below. The quarterly gross margin
results for Fiscal 1994 and Fiscal 1993 have been restated to
conform to the presentation adopted in fourth quarter of Fiscal
1994.
<TABLE>
<CAPTION>
Net Income (Loss)
Net Sales Gross Margin Net Income (Loss) Per Common Share
----------- ------------ ----------------- -----------------
Fiscal 1995:
-----------
<S> <C> <C> <C> <C>
First $441,692 $115,345 ($11,141) ($.55)
Second 504,164 136,000 3,188 .15
Third 505,932 134,137 (4,884) (.24)
Fourth 669,043 178,004 11,219 (a) .54
------- -------- ------- ----
Total $2,120,831 $563,486 ($ 1,618)(a) ($.08)(d)
========== ======== ========= ======
Fiscal 1994:
-----------
First $435,755 $116,039 ($15,141)(b,f) ($.75)(b,f)
Second 491,300 136,210 6,609 (c,f) .31 (c,f)
Third 511,268 137,136 (5,102)(f) (.25)(f)
Fourth 704,504 182,261 30,660 (f) 1.44 (f)
-------- -------- ------- -----
Total $2,142,827 $571,646 $17,026 $.79 (d)
========== ======== ========= ======
Fiscal 1993:
-----------
First $434,761 $119,234 ($17,992) ($.90)
Second 496,850 137,193 (9,955) (.50)
Third 526,502 145,123 (1,653)(e) (.08)(e)
Fourth 665,414 184,577 40,423 1.91
------- ------- --------- -----
Total $2,123,527 $586,127 $10,823 $.51 (d)
========== ======== ========= =====
<FN>
(a) Includes a restructuring charge of $20.9 million related to the
closing of 17 stores (Note 17).
(b) Includes the extraordinary loss of $1.5 million, net of tax benefit,
related to the prepayment of certain debt (Note 19).
(c) Includes the nonrecurring gain of $8.3 million, net of tax provision,
for a litigation settlement (Note 12).
(d) Per share figures do not total due to the weighted average number of
common and common equivalent shares outstanding in each quarter.
(e) Includes the extraordinary gain on early extinguishment of debt of
$0.9 million (Note 19).
(f) Fiscal 1994 quarterly results included income tax benefits
(provisions) of $6.5, ($3.2), $2.4 and ($14.0) million for the first,
second, third and fourth quarters, respectively. Fiscal 1993
quarterly results did not include an income tax benefit or provision
until the $3.3 million annual provision was recorded in the fourth
quarter.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(000's Omitted)
Balance at Charged to Balance at
Beginning of Cost and End of
Description Period Expense Reclassifications(a) Deductions Period
- ----------- ------------ --------- -------------------- ---------- ----------
Fiscal 1995
- -----------
<S> <C> <C> <C> <C> <C>
Restructuring Reserve $2,878 $20,865 $8,378 ($1,498)(b) $30,623
Distribution Center
Closing Reserve
included in Accrued
Expenses $1,567 - ($194) ($1,250)(c) $123
Fiscal 1994
- -----------
Restructuring Reserve $6,992 - $1,623 ($5,737)(b) $2,878
Distribution Center
Closing Reserve
included in Accrued
Expenses - $2,500 $267 ($1,200)(d) $1,567
Fiscal 1993
- -----------
Restructuring Reserve $22,497 - $16,943 ($32,448)(b) $6,992
<FN>
(a) Represents reclassifications of liabilities associated with closed
stores and other reclassifications.
(b) Represents payments of restructuring costs.
(c) Represents payments related to the closing of the distribution center.
(d) Represents reduction of amount charged to cost and expense to eliminate
the amounts established for real estate taxes and other estimated
property holding costs due to the earlier-than-expected sale.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
E X H I B I T I N D E X
Cross-reference
Exhibit or page number
Number Exhibit in Form 10-K
- ------- ------- ---------------
<S> <C> <C>
2(a) Third Amended and Restated Plan of Reorganization
of the Ames Department Stores, Inc. and other
members of the Ames Group, Citibank, N.A. as
Agent, the Parent Creditor's Committee, the
Subsidiaries Creditor's Committee, the Bond-
holders' Committee and the Employees' Committee
dated October 23, 1992 (incorporated herein by
reference to Exhibit 2 of the Company's Report
on Form 8-K dated December 29, 1992 and filed
December 31, 1992).
2(b) Statement of Ames Group with respect to conditions
to Consummation of Third Amended and Restated
Joint Plan of Reorganization of Ames Department
Stores, Inc. other members of Ames Group,
Citibank, N.A., Parent Creditors' Committee,
Subsidiaries Creditors' Committee, Bondholders'
Committee and Employees' Committee dated
December 28, 1992 (incorporated herein by
reference to Exhibit 2B of the Company's Report
on Form 8-K dated December 29, 1992 and filed
December 31, 1992).
2(c) Ames Department Stores, Inc. Information
Supplementing Disclosure Statement dated
December 29, 1992 (incorporated herein by
reference to Exhibit 2C of the Company's
Report on Form 8-K dated December 29, 1992
and filed December 31, 1992).
3(a) Amended and Restated Certificate of Incorporation
of Ames Department Stores, Inc.
(incorporated herein by reference to
Form 8 dated and filed December 29, 1992).
3(b) Form of By-laws of Ames Department Stores, Inc.
as amended February 23, 1995. (incorporated
herein by reference to Exhibit 3(b) of the
Company's Annual Report on Form 10-K dated
January 28, 1995 and filed on April 10, 1995).
4(a) Series B Warrant Certificate for Purchase of New
Common Stock of Ames Department Stores, Inc.
(incorporated herein by reference to Form 8-A
dated and filed December 11, 1992).
4(b) Series C Warrant Certificate for Purchase of New
Common Stock of Ames Department Stores, Inc.
(incorporated herein by reference to Form 8-A
dated and filed December 11, 1992).
<PAGE>
E X H I B I T I N D E X
Cross-reference
Exhibit or page number
Number Exhibit in Form 10-K
- ------- ------- ---------------
4(c) Credit Agreement, dated April 28, 1994, between
BankAmerica Business Credit, Inc., as Agent,
and Ames Department Stores, Inc. (incorporated
herein by reference to Exhibit 4 of the
Company's Report on Form 8-K dated and filed
May 12, 1994).
4(d) First Amendment dated as of June 30, 1994 between 54
BankAmerica Business Credit, Inc., as Agent,
and Ames Department Stores, Inc.
4(e) Second Amendment dated as of November 1, 1994 between 61
BankAmerica Business Credit, Inc., as Agent,
and Ames Department Stores, Inc.
4(f) Third Amendment dated as of July 11, 1995 between 68
BankAmerica Business Credit, Inc., as Agent,
and Ames Department Stores, Inc.
4(g) Fourth Amendment and Waiver Agreement dated as of
January 12, 1996 between BankAmerica Business
Credit, Inc., as Agent, and Ames Department
Stores, Inc. (incorporated herein by reference
to Exhibit 4 of the Company's Report on Form
8-K dated and filed January 26, 1996).
4(h) Rights Agreement, dated as of November 30, 1994,
between Ames Department Stores, Inc. and
Chemical Bank, as Rights Agent (incorporated
herein by reference to Exhibit 4 of the
Company's Quarterly Report on Form 10-Q for
the quarterly period ended October 29, 1994
filed on December 13, 1994).
10(a) Retirement and Savings Plan as restated
December 27, 1984, and Amendment No. 1
(incorporated herein by reference to Exhibit
10(n) of the Company's 1985 Annual Report on
Form 10-K dated January 26, 1985 and filed
April 24, 1985).
10(b) Settlement Agreement, dated March 31, 1994, between
Ames Department Stores, Inc. and Subsidiaries
and Wertheim Schroder & Co. Incorporated and
James A. Harmon (incorporated herein by reference
to Exhibit 10 of the Company's Report on Form 8-K
dated and filed April 8, 1994).
10(c) 1994 Management Stock Option Plan (incorporated herein
by reference to the Company's definitive proxy
statement filed on May 5, 1994).
<PAGE>
E X H I B I T I N D E X
Cross-reference
Exhibit or page number
Number Exhibit in Form 10-K
- ------- ------- ---------------
10(d) Employment Agreement, dated June 6, 1994, and Amendment
thereto, dated June 9, 1994, between Ames Department
Stores, Inc. and Joseph Ettore (incorporated herein
by reference to the Company's Report on Form 8-K
dated and filed June 21, 1994).
10(e) Employment Agreement, dated August 9, 1994, between Ames
Department Stores, Inc. and Denis Lemire (incorpor-
ated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
July 30, 1994 filed on September 9, 1994).
11 Schedule of computation of primary and fully-diluted 77
net earnings per share.
22 Subsidiaries of the Registrant. 78
</TABLE>
<PAGE>
Exhibit 4(d)
FIRST AMENDMENT, dated as of June 30, 1994 (this
"Amendment"), to the Credit Agreement, dated as of April
28, 1994 (as heretofore amended, supplemented or
otherwise modified, the "Credit Agreement") among Ames
Department Stores, Inc., Ames Stores, Zayre New England
Corp. and certain Affiliates thereof, the lenders listed
on the signature pages hereto, who are parties to the
Credit Agreement (the "Lenders"), and BankAmerica
Business Credit, Inc. as administrative agent (the
"Agent") and General Electric Capital Corporation and
Congress Financial Corporation, each as co-agent (the
"Co-Agents") (the Agent and Co-Agents are hereafter
collectively referred to as the "Agents").
W I T N E S S E T H :
WHEREAS, the Borrowers (as that term is defined in
the Credit Agreement), the Lenders and the Agents are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the
Credit Agreement be amended and the Lenders are willing
to amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms. Unless otherwise defined
herein, capitalized terms used herein have the meanings
set forth in the Credit Agreement.
2. Amendment to Schedule 5.3A. Schedule 5.3A to
the Credit Agreement is hereby deleted in its entirety
and Schedule 5.3A annexed hereto is hereby substituted
therefor.
<PAGE>
3. Representations and Warranties. To induce
Agents and Lenders to enter into this Amendment, each of
the Credit Parties hereby represents and warrants as
follows, with the same effect as if such representations
and warranties were set forth in the Credit Agreement:
(a) Each Credit Party has the power and
authority to enter into this Amendment, and has
taken all corporate action required to authorize
its execution, delivery and performance of this
Amendment. This Amendment has been duly executed
and delivered by such Credit Party and the Credit
Agreement, as amended hereby, constitutes the valid
and binding obligation of such Credit Party,
enforceable against Borrower in accordance with its
terms. The execution, delivery, and performance of
this Amendment and the Credit Agreement, as amended
hereby, by such Credit Party, will not violate its
certificate of incorporation or by-laws or any
agreement or legal requirement binding on such
Credit Party.
(b) On the date hereof and after giving
effect to the terms of this Amendment, (i) the
Credit Agreement and the other Loan Documents are
in full force and effect and, to the extent that a
Credit Party is a party thereto, constitutes its
binding obligation, enforceable against in
accordance with their respective terms; (ii) no
Default or Event of Default has occurred and is
continuing; and (iii) no Credit Party has any
defense to or setoff, counterclaim or claim against
payment of the Lender Debt and enforcement of the
Loan Documents based upon a fact or circumstance
existing or occurring on or prior to the date
hereof.
(c) Each of the Credit Parties hereby
restates, repeats, and reaffirms each of the
representations and warranties contained in the
Credit Agreement, provided that each reference in
such representations and warranties to "this
Agreement" shall be deemed to be a reference to the
Credit Agreement as amended by this Amendment.
4. Limited Effect. Except as expressly amended
hereby, all of the terms, covenants and provisions of the
Credit Agreement and all liens, security interests and
collateral granted by the Credit Parties are and shall
continue to be unmodified and in full force and effect.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF
LAWS PROVISIONS) OF THE STATE OF NEW Y0RK.
<PAGE>
6. Counterparts; Effectiveness. This Amendment
may be executed by the parties hereto in any number of
separate counterparts, each of which shall be an
original, and all of which taken together shall be deemed
to constitute one and the same instrument. This
Amendment shall not be effective unless and until Agent
has received an executed counterpart of this Amendment
from each of the Credit Parties and each of the Lenders.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective proper and duly authorized officers as of the
day and year first above written.
ZAYRE NEW ENGLAND CORP.
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Treasurer & Asst.
Secretary
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Vice President
AMES STORES
By: Zayre New England Corp.,
its general partner
By: /s/ Angelina M. Spoto
--------------------------
Name: Angelina M. Spoto
Title: Treasurer & Asst.
Secretary
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Vice President
<PAGE>
By: Zayre Central Corp.
its general partner
By: /s/ Angelina M. Spoto
--------------------------
Name: Angelina M. Spoto
Title: Treasurer & Asst.
Secretary
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Vice President
AMES DEPARTMENT STORES, INC.
By: /s/ Angelina M. Spoto
--------------------------
Name: Angelina M. Spoto
Title:
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Assistant Treasurer
ZAYRE CENTRAL CORP.
By: /s/ Angelina M. Spoto
--------------------------
Name: Angelina M. Spoto
Title: Treasurer & Asst.
Secretary
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Vice President
<PAGE>
AMD, INC.
By: /s/ Angelina M. Spoto
--------------------------
Name: Angelina M. Spoto
Title: Asst. Treasurer &
Asst. Secretary
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Asst. Treasurer &
Asst. Secretary
AMES REALTY II, INC.
By: /s/ Angelina M. Spoto
--------------------------
Name: Angelina M. Spoto
Title: Asst. Treasurer &
Asst. Secretary
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Asst. Treasurer &
Asst. Secretary
AMES TRANSPORTATION SYSTEMS, INC.
By: /s/ Angelina M. Spoto
--------------------------
Name: Angelina M. Spoto
Title: Asst. Treasurer &
Asst. Secretary
By: /s/ Mark von Mayrhauser
--------------------------
Name: Mark von Mayrhauser
Title: Asst. Treasurer &
Asst. Secretary
<PAGE>
BANKAMERICA BUSINESS CREDIT, INC.
(Individually and as
Administrative Agent)
By: /s/ George Markowsky
--------------------------
Name: George Markowsky
Title: V.P.
GENERAL ELECTRIC
CREDIT CORPORATION
(Individually and as
Co-Agent)
By: /s/ Timothy Morris
--------------------------
Name: Timothy Morris
Title: Duly Authorized
Signatory
CONGRESS FINANCIAL CORPORATION
(Individually and as Co-Agent)
By: /s/ Eugene Seip
--------------------------
Name: Eugene Seip
Title: A V P
SANWA BUSINESS
CREDIT CORPORATION
By: /s/ Peter L. Skauh
--------------------------
Name: Peter L. Skauh
Title: Vice President
<PAGE>
CHEMICAL BANK, N.A.
By: /s/ Jeffrey S. Ackerman
--------------------------
Name: Jeffrey S. Ackerman
Title: V. P.
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Michael Burns
--------------------------
Name: Michael Burns
Title: V. P.
LASALLE BUSINESS CREDIT, INC.
By: /s/ Mary Ellen Nixon-Moore
--------------------------
Name: Mary Ellen Nixon-Moore
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ John Behan
--------------------------
Name: John Behan
Title: V. P.
<PAGE>
<TABLE>
<CAPTION>
Schedule 5.3A
Additional CIT Collateral
Store No. Location
<S> <C>
0019 213 Lake Flower Avenue
Saranac Lake, NY 12983
0052 Ames Plaza
RD #2, Box 73
Towanda, PA 18848
0319 3484 Andover Road
Route #17, RD #5
Wellsville, NY 14895
0388 500 Hawk Ridge Drive
Hamburg, PA 19526
0511 7875 Eastpoint Mall
Baltimore, MD 21224
0515 Patapsco Village Plaza
3450 Annapolis Road
Baltimore, MD 21227
2120 615 Broadway
Bangor, ME 04401
</TABLE>
<PAGE>
Exhibit 4(e)
SECOND AMENDMENT, dated as of November 1, 1994 (this
"Amendment"), to the Credit Agreement, dated as of April
28, 1994 (as heretofore amended, supplemented or
otherwise modified, the "Credit Agreement") among Ames
Department Stores, Inc., Ames Stores, Zayre New England
Corp. and certain Affiliates thereof, the lenders listed
on the signature pages hereto, who are parties to the
Credit Agreement (the "Lenders"), and BankAmerica
Business Credit, Inc. as administrative agent (the
"Agent") and General Electric Credit Corporation and
Congress Financial Corporation, each as co-agent (the
"Co-Agenas ts") (the Agent and Co-Agents are hereafter
collectively referred to the "Agents").
W I T N E S S E T H
WHEREAS, the Borrowers (as that term is defined in
the Credit Agreement), the Lenders and the Agents are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the
Credit Agreement be amended and the Lenders are willing
to amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms. Unless otherwise defined
herein, capitalized terms used herein have the meanings
set forth in the Credit Agreement.
<PAGE>
2. Amendment to Section 1.1 (Definitions).
Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "Reinstated Debt Reserve" set
forth therein and substituting the following therefor:
"'Reinstated Debt Reserve' shall mean at any time
an amount equal to (i) $36,000,000, less (ii) the
aggregate amount of all regularly scheduled
principal installments paid after April 30, 1994
(as and when such installments become due and
payable in accordance with the Reinstated Debt
Documents) by one or more of the Borrowers in
respect of the unpaid principal balance of the
Indebtedness described on Schedule 1.1(b) hereto to
the extent such payments are permitted to be paid
hereunder, less (iii) the aggregate amount of
principal paid after April 30, 1994 by one or more
of the Borrowers in respect of the unpaid principal
balance of the Indebtedness described on Schedule
1.1(b) hereto to the extent such payments represent
proceeds from the sale of Store No. 547 (Irwin,
Pennsylvania) or the Clinton Warehouse in Clinton,
Massachusetts but not to exceed, in each case, the
lesser of the amount of scheduled principal
installments that would have been payable from the
date of sale to the Maturity Date on account of the
Reinstated Debt relating to such asset or the
proceeds of sale applied to the Reinstated Debt
relating to such assets; and subject to the Agents'
receipt of satisfactory evidence of such payments."
3. Representations and Warranties. To induce
Agents and Lenders to enter into this Amendment, each of
the Credit Parties hereby represents and warrants as
follows, with the same effect as if such representations
and warranties were set forth in the Credit Agreement:
(a) Each Credit Party has the power and
authority to enter into this Amendment, and has
taken all corporate action required to authorize
its execution, delivery and performance of this
Amendment. This Amendment has been duly executed
and delivered by such Credit Party and the Credit
Agreement, as amended hereby, constitutes the valid
and binding obligation of such Credit Party,
enforceable against such Credit Party in accordance
with its terms. The execution, delivery, and
performance of this Amendment and the Credit
Agreement, as amended hereby, by such Credit Party,
will not violate its certificate of incorporation
or by-laws or any agreement or legal requirement
binding on such Credit Party.
<PAGE>
(b) On the date hereof and after giving effect
to the terms of this Amendment, (i) the Credit
Agreement and the other Loan Documents are in full
force and effect and, to the extent that a Credit
Party is a party thereto, constitutes its binding
obligation, enforceable against it in accordance
with their respective terms; (ii) no Default or
Event of Default has occurred and is continuing;
and (iii) no Credit Party has any defense to or
setoff, counterclaim or claim against payment of
the Lender Debt and enforcement of the Loan
Documents based upon a fact or circumstance
existing or occurring on or prior to the date
hereof.
(c) Each of the Credit Parties hereby
restates, repeats, and reaffirms each of the
representations and warranties contained in the
Credit Agreement, provided that each reference in
such representations and warranties to "this
Agreement" shall be deemed to be a reference to the
Credit Agreement as amended by this Amendment.
4. Limited Effect. Except as expressly amended
hereby, all of the terms, covenants and provisions of the
Credit Agreement and all liens, security interests and
collateral granted by the Credit Parties are and shall
continue to be unmodified and in full force and effect.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF
LAWS PROVISIONS) OF THE STATE OF NEW YORK.
6. Counterparts; Effectiveness. This Amendment
may be executed by the parties hereto in any number of
separate counterparts, each of which shall be an
original, and all of which taken together shall be deemed
to constitute one and the same instrument. This
Amendment shall not become effective unless and until
Agent has received an executed counterpart of this
Amendment from each of the Credit Parties and each of the
Lenders.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective proper and duly authorized officers as of the
day and year first above written.
<PAGE>
ZAYRE NEW ENGLAND CORP.
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: President
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title: Treasurer & Assistant
Secretary
AMES STORES
By: Zayre New England Corp.,
its general partner
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: President
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title:Treasurer & Assistant
Secretary
By: Zayre Central Corp.,
its general partner
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: President
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title: Treasurer & Assistant
Secretary
<PAGE>
AMES DEPARTMENT STORES, INC.
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: Senior Vice President,
Treasury
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title: Vice President,
Treasury Operations
ZAYRE CENTRAL CORP.
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: President
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title: Treasurer & Assistant
Secretary
AMD, INC.
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: President and
Treasurer
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title: Assistant Treasurer &
Assistant Secretary
<PAGE>
AMES REALTY II, INC.
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: Vice President and
Treasurer
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title: Assistant Treasurer &
Assistant Secretary
AMES TRANSPORTATION SYSTEMS, INC.
By: /s/ Cornelius F. Moses III
-----------------------------
Name: Cornelius F. Moses III
Title: Vice President and
Treasurer
By: /s/ Angelina M. Spoto
-----------------------------
Name: Angelina M. Spoto
Title: Assistant Treasurer &
Assistant Secretary
BANKAMERICA BUSINESS CREDIT, INC.
(Individually and as
Administrative Agent)
By: /s/ George Markowsky
-----------------------------
Name: George Markowsky
Title: V.P.
<PAGE>
GENERAL ELECTRIC
CAPITAL CORPORATION
(Individually and as Co-Agent)
By: /s/ Timothy Morris
-----------------------------
Name: Timothy Morris
Title: Duly Authorized
Signatory
CONGRESS FINANCIAL CORPORATION
(Individually and as Co-Agent)
By: /s/ Eugene Seip
-----------------------------
Name: Eugene Seip
Title: A V P
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Peter L. Skauh
-----------------------------
Name: Peter L. Skauh
Title: Vice President
CHEMICAL BANK, N.A.
By: /s/ George McKinley
-----------------------------
Name: George McKinley
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Michael Burns
-----------------------------
Name: Michael Burns
Title: Vice President
<PAGE>
LASALLE BUSINESS CREDIT, INC.
By: /s/ Mary Ellen Nixon-Moore
-----------------------------
Name: Mary Ellen Nixon-Moore
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ John Behan
-----------------------------
Name: John Behan
Title: V. P.
<PAGE>
Exhibit 4(f)
THIRD AMENDMENT, dated as of July 11, 1995 (this
"Amendment"), to the Credit Agreement, dated as of April
28, 1994 (as heretofore amended, supplemented or
otherwise modified, the "Credit Agreement") among Ames
Department Stores, Inc., Ames Stores, Zayre New England
Corp. and certain Affiliates thereof, the lenders listed
on the signature pages hereto, who are parties to the
Credit Agreement (the "Lenders"), and BankAmerica
Business Credit, Inc. as administrative agent (the
"Agent") and General Electric Capital Corporation and
Congress Financial Corporation, each as co-agent (the
"Co-Agents") (the Agent and Co-Agents are hereafter
collectively referred to as the "Agents").
W I T N E S S E T H
WHEREAS, the Borrowers (as that term is defined in
the Credit Agreement), the Lenders and the Agents are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the
Credit Agreement be amended and the Lenders are willing
to amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms. Unless otherwise defined
herein, capitalized terms used herein have the meanings
set forth in the Credit Agreement.
2. Amendment to Section 4.1(d) (Payments and
Prepayments). Section 4.1(d) of the Credit Agreement is
hereby amended in its entirety to read as follows:
"(d) (i) The Borrowers shall designate,
upon prior Written Notice to the
Administrative Agent, a period of at
least thirty (30) consecutive days during
each three month period which commences
on November 15 and ends on February 15
(any such thirty day period so
designated, a "Cleanup Period"). Each
Written Notice under this paragraph shall
be given prior to January 10 for the
three month period ending on the
immediately following February 15. At
all times during each Cleanup Period the
Borrowers shall cause the aggregate
outstanding principal balance of the
Revolving Loan to not exceed the lesser
of (i) $20,000,000 or (ii) the aggregate
amount actually expended by the Borrowers
(the "Acquisition Costs") after June 30,
1995 in connection with the
acquisition ( a "Qualified Acquisition")
of one or more additional store locations
(exclusive of annual "planned" or
forecasted additional store locations)
including, but not limited to, lease
assumption payments, remodeling
expenditures, the cost of initial
stocking of inventory (including the cost
of inventory located at such store
locations and acquired in connection with
the acquisition of such store locations;
provided; however that (a) the
acquisition of such inventory is
otherwise permitted under this Agreement
and (b) the Agent has received evidence
satisfactory to it that the Borrowers
will have good and undisputed title to
such inventory upon its acquisition and
such inventory shall not be subject to
any Lien or claim other than Liens
permitted under Section 10.2 hereof) and
transaction costs; provided, however,
that any Revolving Advance made under
Section 3.4 hereof may remain outstanding
for up to one Business Day during any
Cleanup Period.
(ii)The Borrowers shall give the
Administrative Agent at least ten (10)
days prior Written Notice (the "QA
Notice") before making a Qualified
Acquisition, along with a good faith
estimate of the Acquisition Costs in such
reasonable detail as requested by the
Administrative Agent (the "QA Cost
Estimate"). The QA Cost Estimate shall
also include the cumulative amount of all
Acquisition Costs as of the date of such
QA Cost Estimate and the cumulative
amount, if any, of other QA Cost
Estimates for Qualified Acquisitions
pending or not completed as of such date
(the "QA Re-Cap").
<PAGE>
(iii) Within 45 days of the completion of
a Qualified Acquisition (i.e. the opening
for business of the store or stores
acquired pursuant to such Qualified
Acquisition), the Borrowers shall provide
the Administrative Agent with a report of
the actual expenditures made by the
Borrowers in connection with such
Qualified Acquisition in such detail as
reasonably requested by the
Administrative Agent (the "QA Cost
Report") including a QA Re-Cap as of the
date of such QA Cost Report.
(iv) If a Cleanup Period commences during
the pendency of a Qualified Acquisition,
the Borrowers may provide the
Administrative Agent with a report as of
the commencement date of the Cleanup
Period (the "QA Interim Report") of
actual expenditures in connection with
such pending Qualified Acquisition
(including a QA Re-Cap). After the
Commencement of the Cleanup Period, the
Borrowers may provide the Administrative
Agent with periodic updated QA Interim
Reports with respect to such pending
Qualified Acquisition detailing the
Borrowers actual expenditures since the
commencement of such Cleanup Period.
(v) If a Qualified Acquisition is
completed prior to the commencement of a
Cleanup Period or during a Cleanup Period
but before a QA Cost Report is available
or due hereunder, the Borrowers may
provide the Administrative Agent with a
good faith estimate of the QA Cost Report
and such good faith estimate shall be
used by the Administrative Agent, on an
interim basis, to determine the
Borrowers' compliance with this Section
4.1(d) until the QA Cost Report is
delivered to the Administrative Agent, at
which time the Administrative Agent will
determine the Borrowers' actual
compliance or non-compliance with this
Section 4.1(d).
<PAGE>
(vi) All reports or estimates referred to
in this Section 4(d) shall be in such
form and contain such detail as is
reasonably requested by the
Administrative Agent and at any time that
the Borrowers have actual knowledge that
a report or estimate given to the
Administrative Agent hereunder is
incorrect in any material way, the
Borrowers shall promptly notify the
Administrative Agent and supply the
Administrative Agent with a corrected or
updated report or estimate and such
details as the Administrative Agent shall
reasonably require."
3. Representations and Warranties. To induce
Agents and Lenders to enter into this Amendment, each of
the Credit Parties hereby represents and warrants as
follows, with the same effect as if such representations
and warranties were set forth in the Credit Agreement:
(a) Each Credit Party has the power and
authority to enter into this Amendment,
and has taken all corporate action
required to authorize its execution,
delivery and performance of this
Amendment. This Amendment has been duly
executed and delivered by such Credit
Party and the Credit Agreement, as
amended hereby, constitutes the valid and
binding obligation of such Credit Party,
enforceable against such Credit Party in
accordance with its terms. The
execution, delivery, and performance of
this Amendment and the Credit Agreement,
as amended hereby, by such Credit Party,
will not violate its certificate of
incorporation or by-laws or any agreement
or legal requirement binding on such
Credit Party.
<PAGE>
(b) On the date hereof and after giving
effect to the terms of this Amendment,
(i) the Credit Agreement and the other
Loan Documents are in full force and
effect and, to the extent that a Credit
Party is a party thereto, constitutes its
binding obligation, enforceable against
it in accordance with their respective
terms; (ii) no Default or Event of
Default has occurred and is continuing;
and (iii) no Credit Party has any defense
to or setoff, counterclaim or claim
against payment of the Lender Debt and
enforcement of the Loan Documents based
upon a fact or circumstance existing or
occurring on or prior to the date hereof.
(c) Each of the Credit Parties hereby
restates, repeats, and reaffirms each of
the representations and warranties
contained in the Credit Agreement,
provided that each reference in such
representations and warranties to "this
Agreement" shall be deemed to be a
reference to the Credit Agreement as
amended by this Amendment.
4. Limited Effect. Except as expressly amended
hereby, all of the terms, covenants and provisions of the
Credit Agreement and all liens, security interests and
collateral granted by the Credit Parties are and shall
continue to be unmodified and in full force and effect.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF
LAWS PROVISIONS) OF THE STATE OF NEW YORK.
6. Counterparts; Effectiveness. This Amendment
may be executed by the parties hereto in any number of
separate counterparts, each of which shall be an
original, and all of which taken together shall be deemed
to constitute one and the same instrument. This
Amendment shall not become effective unless and until
Agent has received an executed counterpart of this
Amendment from each of the Credit Parties and each of the
Lenders.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective proper and duly authorized officers as of the
day and year first above written.
ZAYRE NEW ENGLAND CORP.
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: Vice President
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Treasurer & Assistant
Secretary
AMES STORES
By: Zayre New England Corp.,
its general partner
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: Vice President
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Treasurer & Assistant
Secretary
By: Zayre Central Corp.,
its general partner
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: Vice President
<PAGE>
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Treasurer & Assistant
Secretary
AMES DEPARTMENT STORES, INC.
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: EVP, Chief Financial
Officer
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Vice President,
Treasury Operations
ZAYRE CENTRAL CORP.
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: Vice President
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Treasurer & Assistant
Secretary
AMD, INC.
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: Vice President
<PAGE>
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Asst. Treasurer &
Asst. Secretary
AMES REALTY II, INC.
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: Vice President
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Asst. Treasurer &
Asst. Secretary
AMES TRANSPORTATION
SYSTEMS, INC.
By: /s/ John F. Burtelow
-------------------------
Name: John F. Burtelow
Title: Vice President
By: /s/ Angelina M. Spoto
-------------------------
Name: Angelina M. Spoto
Title: Asst. Treasurer &
Asst. Secretary
BANKAMERICA BUSINESS
CREDIT, INC.
(Individually and as
Administrative Agent)
By: /s/ Louis Alexander
-------------------------
Name: Louis Alexander
Title: Senior Account
Executive
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
(Individually and as Co-Agent)
By: /s/ Timothy Morris
-------------------------
Name: Timothy Morris
Title: Duly Authorized
Signatory
CONGRESS FINANCIAL CORPORATION
(Individually and as Co-Agent)
By: /s/ Anna M. Karcinsky
-------------------------
Name: Anna M. Karcinsky
Title: Assistant Vice
President
SANWA BUSINESS
CREDIT CORPORATION
By: /s/ Peter L. Skauh
-------------------------
Name: Peter L. Skauh
Title: Vice President
CHEMICAL BANK, N.A.
By: /s/ George Louis McKinley
----------------------------
Name: George Louis McKinley
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Michael Burns
-------------------------
Name: Michael Burns
Title: Vice President
<PAGE>
LASALLE BUSINESS CREDIT, INC.
By: /s/ Mary Ellen Nixon-Moore
----------------------------
Name: Mary Ellen Nixon-Moore
Title:Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ John Behan
-------------------------
Name: John Behan
Title: V. P.
<PAGE>
<PAGE>
<TABLE>
Exhibit 11
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY-DILUTED NET EARNINGS PER SHARE
(Amounts in thousands except per share amounts)
<CAPTION>
For the For the For the
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 27, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income (loss) before extraordinary item ($1,618) $18,543 $9,895
Extraordinary gain (loss) - (1,517) 928
------------ ------------ ------------
Primary and fully-diluted net income (loss) ($1,618) $17,026 $10,823
============ ============ ============
For Primary Earnings Per Share:
Weighted average number of common shares
outstanding during the period 20,127 20,127 20,049
Add: Common stock equivalent shares represented by
- Series B Warrants (b) (a) (a)
- Series C Warrants (b) 1,372 1,134
- Options under 1994 Management Stock Option Plan (b) (a) -
- Options under 1995 Non-Employee Director Stock
Option Plan (b) - -
------------ ------------ ------------
Weighted average number of common and common
equivalent shares used in the computation of primary
net earnings per share 20,127 21,499 21,183
============ ============ ============
Primary earnings per share:
Primary income (loss) per share before extraordinary item ($0.08) $0.86 $0.47
Extraordinary gain (loss) - (0.07) 0.04
------------ ------------ ------------
Primary net income (loss) per share ($0.08) $0.79 $0.51
============ ============ ============
For Fully-Diluted Earnings Per Share:
Weighted average number of common shares
outstanding during the period 20,127 20,127 20,049
Add: Common stock equivalent shares represented by
- Series B Warrants (b) (a) (a)
- Series C Warrants (b) 1,372 1,165
- Options under 1994 Management Stock Option Plan (b) (a) -
- Options under 1995 Non-Employee Director Stock
Option Plan (b) - -
------------ ------------ ------------
Weighted average number of common and common
equivalent shares used in the computation of fully-diluted
earnings per share 20,127 21,499 21,214
============ ============ ============
Fully-diluted earnings Per share:
Fully-diluted income (loss) per share before extraordinary item ($0.08) $0.86 $0.47
Extraordinary gain (loss) - (0.07) 0.04
------------ ------------ ------------
Fully-diluted net income (loss) per share ($0.08) $0.79 $0.51
============ ============ ============
<FN>
(a) These options/warrants were not considered common stock equivalents because the exercise price
exceeded the market price of the common stock for all or substantially all of the period.
(b) Common stock equivalents have not been included because the effect would be anti-dilutive.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 22
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Name State of Incorporation
- ---------------------------------------- ----------------------
<S> <C>
Ames Transportation Systems, Inc. Delaware
AMD, Inc. Delaware
Ames Realty II, Inc. Delaware
Zayre New England Corp. * Delaware
Zayre Central Corp.* Delaware
* Holds a 50% interest in Ames Stores, a partnership.
/TABLE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-END> JAN-27-1996
<CASH> 14185
<SECURITIES> 0
<RECEIVABLES> 14478
<ALLOWANCES> 0
<INVENTORY> 402177
<CURRENT-ASSETS> 443633
<PP&E> 78487
<DEPRECIATION> 20259
<TOTAL-ASSETS> 505826
<CURRENT-LIABILITIES> 302518
<BONDS> 52531
205
0
<COMMON> 0
<OTHER-SE> 83098
<TOTAL-LIABILITY-AND-EQUITY> 505826
<SALES> 2120831
<TOTAL-REVENUES> 2150508
<CGS> 1557345
<TOTAL-COSTS> 1557345
<OTHER-EXPENSES> 558936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24316
<INCOME-PRETAX> (1618)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1618)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1618)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
