SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 25, 1997
----------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------------
AMES DEPARTMENT STORES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2269444
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2418 Main Street, Rocky Hill, Connecticut 06067
- ----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (860) 257-2000
---------------------
None
- -----------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
YES X NO
----- -----
22,336,974 shares of Common Stock were outstanding on November 7, 1997.
Exhibit Index on page 12
Page 1 of 15 (including exhibits)
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 25, 1997
I N D E X
Page
Part I: Financial Information
Consolidated Condensed Statements of Operations 3
for the Thirteen and Thirty-nine Weeks Ended
October 25, 1997 and October 26, 1996
Consolidated Condensed Balance Sheets at 4
October 25, 1997, January 25, 1997, and
October 26, 1996
Consolidated Condensed Statements of Cash Flows 5
for the Thirty-nine Weeks Ended
October 25, 1997 and October 26, 1996
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II: Other Information
Submission of Matters to a Vote of Security Holders 12
and Exhibits and Reports on Form 8-K
<PAGE>
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
AMES DEPARTMENT STORES, INC. AND SUSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION> For the Thirteen For the Thirty-nine
Weeks Ended Weeks Ended
----------------------- --------------------------
October 25, October 26, October 25, October 26,
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
TOTAL SALES $550,235 $540,607 $1,528,869 $1,521,501
Less: Leased department sales 22,662 23,731 65,128 66,851
----------- ----------- ------------ ------------
NET SALES 527,573 516,876 1,463,741 1,454,650
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 379,342 375,652 1,050,796 1,056,299
Selling, general and administrative expenses 143,510 141,163 409,877 403,574
Leased department and other operating income (6,750) (7,466) (19,309) (20,461)
Depreciation and amortization expense 3,915 2,646 10,102 7,915
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (1,538) (1,538) (4,615) (4,615)
Interest and debt expense, net 3,758 5,821 9,359 15,266
Gain on disposition of properties - - - (395)
----------- ---------- ------------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 5,336 598 7,531 (2,933)
Income tax (provision) benefit (1,817) (177) (2,564) 870
----------- ---------- ------------- -----------
NET INCOME (LOSS) $3,519 $421 $4,967 ($2,063)
=========== ========== ============= ===========
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) $0.15 $0.02 $0.21 ($0.10)
=========== ========== ============= ===========
Weighted average common and common equivalent
shares 23,898 21,974 23,549 20,465
=========== ========== ============= ===========
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
<CAPTION>
October 25, January 25, October 26,
1997 1997 1996
ASSETS -------------------------------------
<S> <C> <C> <C>
Current Assets:
Cash and short-term investments $18,748 $46,119 $20,577
Receivables 43,964 19,071 45,055
Merchandise inventories 585,239 391,076 558,727
Prepaid expenses and other current assets 17,685 12,169 15,620
------------------------------------
Total current assets 665,636 468,435 639,979
------------------------------------
Fixed Assets 124,123 96,114 91,597
Less - Accumulated depreciation and amortization (41,778) (32,529) (27,919)
------------------------------------
Net fixed assets 82,345 63,585 63,678
------------------------------------
Other assets and deferred charges 6,589 4,773 4,792
------------------------------------
$754,570 $536,793 $708,449
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $239,147 $145,737 $218,439
Other 44,112 43,180 40,919
------------------------------------
Total accounts payable 283,259 188,917 259,358
Note payable - revolver 137,692 - 141,507
Current portion of long-term debt and capital lease oblig 6,617 15,578 16,260
Self-insurance reserves 33,001 34,177 35,395
Accrued expenses and other current liabilities 70,616 66,356 55,509
Store closing reserves 11,520 24,438 18,515
------------------------------------
Total current liabilities 542,705 329,466 526,544
------------------------------------
Long-term debt 9,311 11,134 12,599
Capital lease obligations 25,992 27,086 26,966
Other long-term liabilities 9,422 7,565 5,793
Unfavorable lease liability 15,690 17,029 17,442
Excess of revalued net assets over equity under
fresh-start reporting 31,712 36,327 37,865
Stockholders' Equity:
Common stock 223 205 205
Additional paid-in capital 94,908 88,341 80,759
Retained earnings 24,607 19,640 276
------------------------------------
Total stockholders' equity 119,738 108,186 81,240
------------------------------------
$754,570 $536,793 $708,449
====================================
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
</TABLE>
<PAGE>
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
For the Thirty-nine
Weeks Ended
------------------------
October 25, October 26,
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $4,967 ($2,063)
Adjustments to reconcile net loss to net cash
used for operating activities:
Income tax provision (benefit) 2,564 (870)
Gain on disposition of properties - (395)
Depreciation and amortization of fixed and other assets 10,553 8,289
Amort. of the excess of revalued net assets over equity (4,615) (4,615)
Increase in accounts receivable (24,893) (30,577)
Increase in merchandise inventories (194,163) (159,794)
Increase in accounts payable 94,342 103,040
Increase (decrease) in accrued expenses and other 3,497 (3,421)
current liabilities
Increase in other working capital and other, net (5,596) (1,196)
---------- ----------
Cash used for operations before store closing items (113,344) (91,602)
Payments of store closing costs (13,385) (6,356)
---------- ----------
Net cash used for operating activities (126,729) (97,958)
---------- ----------
Cash flows from investing activities:
Proceeds from sales of properties and leases 1,900 690
Purchases of fixed assets (28,031) (15,288)
Purchase of leases (2,861) (3,165)
---------- ----------
Net cash used for investing activities (28,992) (17,763)
---------- ----------
Cash flows from financing activities:
Payments of debt and capital lease obligations (13,363) (15,110)
Short-term borrowings under the revolver, net 137,692 137,223
Proceeds from the exercise of options and warrants 4,021 -
---------- ----------
Net cash provided by financing activities 128,350 122,113
---------- ----------
Increase (Decrease) in cash and short-term investments (27,371) 6,392
Cash and short-term investments, beginning of period 46,119 14,185
---------- ----------
Cash and short-term investments, end of period $18,748 $20,577
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest and debt fees not capitalized $8,333 $10,973
Income taxes 3 2
<FN>
(The accompanying notes are an integral part of these consolidated condensed
financial statements.)
</TABLE>
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
----------------------
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements of Ames Department Stores, Inc. (a Delaware
Corporation) and subsidiaries (collectively "Ames" or the "Company")
contain all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of such financial statements for the
interim periods. Due to the seasonality of the Company's operations, the
results of its operations for the interim period ended October 25, 1997 may
not be indicative of total results for the full year. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations promulgated by
the Securities and Exchange Commission (the "SEC"). Certain prior year
amounts have been reclassified to conform to the presentation used for the
current year. The consolidated condensed balance sheet at January 25, 1997
was taken from audited financial statements previously filed with the SEC
in the Company's latest Form 10-K. The accompanying unaudited consolidated
condensed financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
Form 10-K.
2. Net Income (loss) Per Common Share:
-----------------------------------
Net income (loss) per share was determined using the weighted average
number of common shares outstanding. 376,949 warrants were converted and
273,650 options were exercised during the quarter ended October 25, 1997.
No warrants or options were exercised during the quarter ended October 26,
1996. Common stock equivalents were excluded for the thirty-nine weeks
ended October 26, 1996, as their inclusion would have reduced the reported
loss per share. Fully diluted net income (loss) per share was equal to
primary net income (loss) per share for all periods presented.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"). Under SFAS No. 128, the presentation of Primary and
Fully Diluted Earnings per Share will be replaced by Basic and Diluted
Earnings per Share. The Company will adopt the provisions of SFAS No. 128
effective January 31, 1998, and will, at that time, restate all prior
periods. Adoption will not have any affect on the Company's financial
condition, results of operations or cash flows.
Had the Company reported net income (loss) per share for the periods
presented as determined under SFAS No. 128, Basic and Diluted Net Income
(Loss) per Share would have been as follows:
Quarter Ended Year-To-Date Ended
------------------ ------------------
Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
Basic Net Income (Loss) Per Share $.16 $.02 $.23 ($.10)
Diluted Net Income (Loss) Per Share $.15 $.02 $.21 ($.10)
3. Inventories:
------------
Inventories are valued at the lower of cost or market. Effective
October 25, 1997, the Company changed from the retail last-in, first-out
(LIFO) method of accounting for inventories to the first-in, first-out
(FIFO) method and has restated all prior periods for the change. The
change has no impact on the historical results of operations of the
Company. Reference can be made to Exhibit 12 of this Quarterly Report.
<PAGE>
4. Debt:
-----
On December 27, 1996, the Company entered into an agreement with
BankAmerica Business Credit, Inc., as agent, two financial institutions as
co-agents (together with the agent, the "Agents"), and a syndicate
consisting of five other banks and financial institutions, for a secured
revolving credit facility of up to $320 million, with a sublimit of $100
million for letters of credit and a $20 million term loan portion available
for capital expenditures (the "Credit Agreement").
Prior to this date, the Company had a $300 million secured revolving
credit facility (the "Prior Credit Agreement") in place with the same
financial institutions. The Prior Credit Agreement terminated on the
effective date of the Credit Agreement.
The Credit Agreement is in effect until June 30, 2000, is secured by
substantially all of the assets of the Company, and requires the Company to
meet certain financial covenants. In addition, each year outstanding
borrowings under the Credit Agreement may not exceed any balance due under
the term loan portion plus up to $20 million in revolver loans for a
consecutive 30-day period between November 15th and February 15th of the
following year. The Company is in compliance with the financial covenants
through the quarter ended October 25, 1997.
As of October 25, 1997, borrowings of $137.7 million were outstanding
under the Credit Agreement. In addition, $21.6 and $1.4 million of standby
and trade letters of credit, respectively, were outstanding under the
Credit Agreement. The weighted average interest rates on the borrowings
for the thirteen and thirty-nine weeks ended October 25, 1997 were 8.1% and
8.2%, respectively. The peak borrowing level through October 25, 1997 was
$146.6 million.
The amount of borrowing under the Credit Agreement shall not exceed the
sum of (i) an amount equal to 60% of inventory not covered by any
outstanding letter of credit plus (ii) an amount equal to 50% of inventory
covered by any outstanding letter of credit. In addition, the Credit
Agreement provides for the potential establishment of other reserves
contingent upon the Company's financial performance. Each Agent, in
addition, reserves the right to adjust the total available to be borrowed
by establishing reserves, making determinations of eligible inventory,
revising standards of eligibility or decreasing from time to time the
percentages set forth above. Reference can be made to the latest Form 10-K
for further descriptions of the Credit Agreement and for descriptions of
the Company's other obligations not discussed herein.
5. Stock Options:
--------------
The Company has two stock option plans, the 1994 Management Stock Plan
and the 1994 Non-Employee Directors Stock Option Plan. The Company
accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. The impact of applying SFAS
Statement No. 123 to the Company's net income and loss per share would have
been immaterial for all periods presented.
6. Income Taxes:
-------------
The Company's estimated annual effective income tax rate for each year
was applied to the income (loss) before income taxes for each period to
compute a non-cash income tax provision/benefit. The income tax benefit is
included in other current assets in the accompanying balance sheet as of
October 26, 1996.
<PAGE>
7. Litigation:
-----------
Reference can be made to the latest Form 10-K (Note 12 to the
Consolidated Financial Statements) and to the Form 10-Q for the quarter
ended July 26, 1997 (Note 7 to the Consolidated Financial Statements) for
various litigation involving the Company, for which there were no material
changes since the filing date of the Form 10-Q, except as follows.
With regard to the GOULD matter, on October 31, 1997, the Company
served its opposition to the motion for class certification.
With regard to the ROOT matter, payments have been made according to
the terms of the settlement agreement.
<PAGE>
<PAGE>
<TABLE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FISCAL QUARTER ENDED OCTOBER 25,1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<CAPTION>
Results of Operations
- ---------------------
The following table sets forth the number of stores in operation as of the dates indicated:
Number of Stores in Operation
--------------------------------------------
October 25, January 25, October 26,
1997 1997 1996
----------- ----------- -----------
298 303 303
The following discussion and analysis is based on the results of operations for the
thirteen and thirty-nine weeks ended October 25, 1997 and October 26, 1996. During fiscal 1997,
nine (9) stores were opened, thirteen (13) stores were closed and the Company determined that it would not
re-open a store previously closed as a result of flooding. In the comparable prior-year period, seventeen
(17) stores were closed and thirteen (13) stores were opened.
The following table sets forth the operating results expressed as a percentage of net sales for the
periods indicated:
Thirteen Thirty-nine
Weeks Ended Weeks Ended
------------------ -------------------
Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of merchandise sold 71.9 72.7 71.8 72.6
------- ------- ------- --------
Gross margin 28.1 27.3 28.2 27.4
Expenses and (income):
Selling, general and administrative expenses 27.2 27.3 28.0 27.7
Leased department and other operating income (1.3) (1.4) (1.3) (1.4)
Depreciation and amortization expense 0.8 0.5 0.7 0.5
Amortization of the excess of revalued net
assets over equity under fresh-start reporting (0.3) (0.3) (0.3) (0.3)
Interest and debt expense, net 0.7 1.1 0.6 1.0
Gain on disposition of properties - - - -
------- ------- ------- --------
Income (loss) before income taxes 1.0 0.1 0.5 (0.2)
Income tax (provision) benefit (0.3) - (0.2) 0.1
------- ------- ------- --------
Net income (loss) 0.7 % 0.1 % 0.3 % (0.1)%
======= ======= ======= ========
</TABLE>
<PAGE>
Net sales for the thirteen weeks ended October 25, 1997 increased $10.7
million or 2.1% from the prior-year's third quarter due primarily to an increase
of 1.7% in comparable-store sales. Net sales for the thirty-nine weeks ended
October 25, 1997 increased $9.1 million or 0.6% from the same prior-year period.
Comparable-store sales increased by 0.7% for the first thirty-nine weeks.
Gross margin for the third quarter increased $7.0 million, or 0.8% as a
percentage of net sales. Gross margin for the thirty-nine weeks increased $14.6
million, or 0.8% as a percentage of net sales. The improvement in third quarter
and year-to-date gross margin rates was primarily attributable to lower
markdowns.
Selling, general and administrative expenses for the third quarter increased
$2.3 million, a decrease of 0.1% as a percentage of net sales. Selling, general
and administrative expenses increased $6.3 million, or 0.3% as a percentage of
net sales, in the thirty-nine weeks ended October 25, 1997. The Company
experienced increased store payroll and general liability expenses partially
offset by a reduction in advertising expenses during both the quarter and
year-to-date periods.
Depreciation and amortization expense increased by $1.3 and $2.2 million, or
0.3% and 0.2% as a percentage of net sales, in the thirteen and thirty-nine
weeks ended October 25, 1997, respectively, compared to the same prior-year
periods. The adoption of fresh-start reporting as of December 26, 1992 resulted
in the write-off of all of the Company's non-current assets at that date, and
therefore depreciation and amortization expense results only from capital
additions after that date.
The amortization of the excess of revalued net assets over equity under
fresh-start reporting remained the same in the current periods presented as
compared to the prior year. The Company is amortizing this amount over a
ten-year period.
Interest and debt expense, net of interest income, declined by $2.1 and $5.9
million, or 0.4% as a percentage of net sales, in the thirteen and thirty-nine
weeks ended October 25, 1997, respectively. These decreases were due primarily
to a reduction in the amortization of deferred financing costs, a reduction in
short-term interest expense and lower outstanding long-term debt balances.
Short-term interest expense was lower as a result of lower average outstanding
balances (from $131.0 to $105.1 million during the thirteen week period and from
$93.8 to $72.1 million during the thirty-nine week period) and lower interest
rates.
The Company's estimated annual effective income tax rate for each year was
applied to the income (loss) before income taxes for each period to compute a
non-cash income tax provision/benefit. The income tax benefit is included in
other current assets in the balance sheet as of October 26, 1996.
Liquidity and Capital Resources
- --------- --- ------- ---------
On December 27, 1996, the Company entered into an agreement with BankAmerica
Business Credit, Inc., as agent, two financial institutions as co-agents
(together with the agent, the "Agents"), and a syndicate consisting of five
other banks and financial institutions, for a secured revolving credit facility
of up to $320 million, with a sublimit of $100 million for letters of credit
(the "Credit Agreement").
Prior to this date, the Company had a $300 million secured revolving credit
facility (the "Prior Credit Agreement") in place with the same financial
institutions. The Prior Credit Agreement terminated on the effective date of
the Credit Agreement.
<PAGE>
The Credit Agreement is in effect until June 30, 2000. The Company was in
compliance with the financial covenants of the Credit Agreement through the
quarter ended October 25, 1997. Reference can be made to Note 4 of this
Quarterly Report and the latest Form 10-K for further descriptions of the Credit
Agreement.
Merchandise inventories, increased $26.5 million from October 26, 1996 to
October 25, 1997 due to a planned increase in household and toy lines. The
increase in inventories of $194.2 million from January 25, 1997 to October 25,
1997 was principally the result of a normal seasonal build-up of inventories.
Trade accounts payable increased $20.7 million from October 26, 1996 to
October 25, 1997 due primarily to the timing of merchandise receipts and
improved trade payment terms. The increase in trade accounts payable of $93.4
million from January 25, 1997 to October 25, 1997 was the result of the seasonal
build-up of merchandise inventories referenced above.
Capital expenditures for the thirty-nine weeks ended October 25, 1997
totaled $28.0 million and for the balance of the year are estimated to be
approximately $20.0 million. The Company adjusts its plans for making such
expenditures depending on the amount of internally generated funds.
The net operating loss carryovers remaining after fiscal year 1996, subject
to any limitations pursuant to Internal Revenue Code Sec. 382, should offset
income on which taxes would otherwise be payable in future years.
The Company believes that available cash and expected cash flows from the
current fiscal year's operations and beyond, and the availability of its
financing facilities, will enable the Company to fund its expected needs for
working capital, capital expenditures and debt service requirements.
Achievement of expected cash flows from operations and compliance with the
financial covenants in the Credit Agreement are dependent upon the Company's
attainment of sales, gross profit, and expense levels that are reasonably
consistent with its financial projections.
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Reference can be made to Note 12 to the Consolidated Financial
Statements included in the Company's most recent Form 10-K for various
litigation involving the Company, for which there were no material
changes since the filing date of the Form 10-K, except as set forth in
Note 7 of this Quarterly Report.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
There were no matters submitted to a vote of security holders
during the third quarter ended October 25, 1997, through the
solicitation of proxies or otherwise.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Index to Exhibits
-----------------
Exhibit No. Exhibit Page No.
----------- ------- --------
11 Schedule of computation of primary 14
and fully diluted net income (loss)
per share
12 Auditor's Preferability Letter 15
(b) Reports on Form 8-K:
--------------------
The following reports on Form 8-K were filed with the Securities
and Exchange Commission during the third quarter:
Date of Report Date of Filing Item # Description
-------------- -------------- ------ -----------
August 7, 1997 August 7, 1997 5 Disclosure of the fiscal
July 1997 results.
August 7, 1997 August 7, 1997 5 Disclosure of the revised
fiscal 1997 summary financial
plan.
September 4, 1997 September 4, 1997 5 Disclosure of fiscal
August 1997 results.
October 9, 1997 October 9, 1997 5 Disclosure of fiscal
September 1997 results.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMES DEPARTMENT STORES, INC.
(Registrant)
Dated: November 21, 1997 /s/ Joseph R. Ettore
------------------------------------
Joseph R. Ettore, President, Director,
and Chief Executive Officer
Dated: November 21, 1997 /s/ John F. Burtelow
------------------------------------
John F. Burtelow, Executive Vice
President and Chief Financial Officer
Dated: November 21, 1997 /s/ Gregory D. Lambert
------------------------------------
Gregory D. Lambert
Senior Vice President - Finance
<PAGE>
<PAGE>
<TABLE>
Exhibit 11
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME (LOSS)
PER SHARE
(Amounts in thousands except per share amounts)
<CAPTION>
For the Thirteen For the Thirty-nine
Weeks Ended Weeks Ended
----------- ----------- ----------- -----------
October 25, October 26, October 25, October 26,
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $3,519 $421 $4,967 ($2,063)
========== =========== =========== ===========
For Primary Net Income (Loss) Per Share
- ---------------------------------------
Weighted average number of common shares
outstanding during the period 22,114 20,460 21,510 20,465
Add: Common stock equivalent shares represented by
- Series B Warrants 121 (a) 83 (b)
- Series C Warrants 859 1,340 1,113 (b)
- Options under 1994 Management Stock
Option Plan 750 168 799 (b)
- Options under 1994 Non-Employee Directors
Stock Option Plan 54 6 44 (b)
--------- --------- ----------- -----------
Weighted average number of common and common
equivalent shares used in the calculation
of primary net income (loss) per share 23,898 21,974 23,549 20,465
========= ========= =========== ===========
Primary net income (loss) per share $0.15 $0.02 $0.21 ($0.10)
========= ========= =========== ===========
For Fully Diluted Net Income (Loss) Per Share
- ---------------------------------------------
Weighted average number of common shares
outstanding during the period 22,114 20,460 21,510 20,465
Add: Common stock equivalent shares represented by
- Series B Warrants 124 (a) 124 (b)
- Series C Warrants 860 1,480 1,157 (b)
- Options under 1994 Management Stock
Option Plan 758 314 950 (b)
- Options under 1994 Non-Employee Directors
Stock Option Plan 55 17 55 (b)
--------- --------- ----------- -----------
Weighted average number of common and common
equivalent shares used in the calculation
of fully diluted net income (loss) per share 23,911 22,271 23,796 20,465
========= ========= =========== ===========
Fully diluted net income (loss) per share $0.15 $0.02 $0.21 ($0.10)
========= ========= =========== ===========
<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>
Exhibit 12
November 21, 1997
Ames Department Stores, Inc.
Re: Form 10-Q Report for the quarter ended October 25, 1997
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, as of October 25, 1997, the Company changed from the
last-in, first-out ("LIFO") method of accounting for inventories to the
first-in, first-out ("FIFO") method. According to the management of the
Company, this change was made for the following reasons: (1) differences between
the results under LIFO or FIFO accounting methods are not material to the
historical results of operations of the Company and the differences are not
expected to be material in the future based on the manner in which the Company
currently operates; and (2) the change to FIFO will allow the Company to reduce
the costs incurred in administering the current LIFO system and avoid the
expenditure of future costs to design and implement a LIFO cost accounting
system in connection with the current modification and upgrade of the Company's
management information system.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis, and our opinion stated
below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period subsequent to January 25, 1997. Further, we have not examined and
do not express any opinion with respect to your financial statements for the 39
weeks ended October 25, 1997.
Very truly yours,
/s/ Arthur Andersen LLP
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