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 August 1, 1998
----------------
[ ] 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
--------------
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
----- -----
23,113,071 shares of Common Stock were outstanding on August 14, 1998.
Exhibit Index on page 13
Page 1 of 15 (including exhibits)
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 1, 1998
I N D E X
Page
----
Part I: Financial Information
Consolidated Condensed Statements of Operations 3
for the Thirteen and Twenty-six Weeks ended
August 1, 1998 and July
26, 1997
Consolidated Condensed Balance Sheets as of 4
August 1, 1998, January 31, 1998, and July 26,
1997
Consolidated Condensed Statements of Cash Flows 5
for the Thirteen and Twenty-six Weeks ended
August 1, 1998 and July 26, 1997
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
Exhibits and Reports on Form 8-K 13
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Thirteen For the Twenty-six
Weeks Ended Weeks Ended
----------------------- -------------------------
August 1, July 26, August 1, July 26,
1998 1997 1998 1997
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
TOTAL SALES $562,736 $530,059 $1,080,959 $978,634
Less: Leased department sales 26,439 26,492 45,614 42,466
---------- ---------- ------------ ----------
NET SALES 536,297 503,567 1,035,345 936,168
COSTS, EXPENSES AND (INCOME):
Cost of merchandise sold 379,461 356,704 740,071 670,462
Selling, general and administrative expenses 145,103 137,190 288,739 265,934
Leased department and other operating income (7,489) (6,446) (13,675) (11,133)
Depreciation and amortization expense 4,153 3,264 7,969 6,187
Amortization of the excess of revalued net assets
over equity under fresh-start reporting (1,539) (1,539) (3,077) (3,077)
Interest and debt expense, net 3,192 3,208 5,246 5,600
------------------------------------------------------
INCOME BEFORE INCOME TAXES 13,416 11,186 10,072 2,195
Income tax provision (5,011) (3,808) (3,785) (747)
---------- ---------- ------------ ----------
NET INCOME $8,405 $7,378 $6,287 $1,448
========== ========== ============ ==========
BASIC NET INCOME PER COMMON SHARE
Net income $0.37 $0.34 $0.28 $0.07
========== ========== ============ ==========
Weighted average number of common shares outstanding 22,950 21,486 22,800 21,188
========== ========== ============ ==========
DILUTED NET INCOME PER COMMON SHARE
Net income $0.35 $0.31 $0.26 $0.06
========== ========== ============ ==========
Weighted average common and common equivalent shares 24,272 23,455 24,171 23,354
========== ========== ============ ==========
<FN>
(The accompanying notes are an integral part of these consolidated condensed financial statements.)
</FN>
</TABLE>
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
August 1, January 31, July 26,
1998 1998 1997
ASSETS ----------- ----------- ----------
<S> <C> <C> <C>
Current Assets:
Cash and short-term investments $20,859 $57,828 $17,548
Receivables 22,662 18,922 26,386
Merchandise inventories 502,157 423,836 443,827
Prepaid expenses and other current assets 13,089 12,060 15,167
----------- ----------- ----------
Total current assets 558,767 512,646 502,928
----------- ----------- ----------
Fixed Assets 165,692 128,790 114,147
Less - Accumulated depreciation and amortization (53,283) (45,457) (38,168)
----------- ----------- ----------
Net fixed assets 112,409 83,333 75,979
----------- ----------- ----------
Other assets and deferred charges 13,306 14,063 8,264
----------- ----------- ----------
$684,482 $610,042 $587,171
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Trade $176,147 $180,971 $153,403
Other 43,060 42,185 45,884
----------- ----------- ----------
Total accounts payable 219,207 223,156 199,287
Note payable - revolver 70,525 - 65,302
Current portion of long-term debt and capital lease obligations 4,638 4,177 7,426
Self-insurance reserves 30,187 31,657 32,647
Accrued expenses and other current liabilities 74,581 73,437 59,753
Store closing reserves 10,301 12,050 19,007
---------- ----------- ----------
Total current liabilities 409,439 344,477 383,422
Long-term debt - 9,340 9,251
Capital lease obligations 37,378 26,393 24,731
Other long-term liabilities 8,774 10,943 7,461
Unfavorable lease liability 14,618 15,333 16,048
Excess of revalued net assets over equity under
fresh-start reporting 27,097 30,174 33,250
Stockholders' Equity:
Common stock 233 225 218
Additional paid-in capital 126,470 118,971 91,702
Retained earnings 60,473 54,186 21,088
---------- ----------- ----------
Total Stockholders' Equity 187,176 173,382 113,008
---------- ----------- ----------
$684,482 $610,042 $587,171
========== =========== ==========
<FN>
(The accompanying notes are an integral part of these
consolidated condensed financial statements.)
</FN>
</TABLE>
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Twenty-six
Weeks Ended
--------------------------------------
August 1, July 26,
1998 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $6,287 $1,448
Adjustments to reconcile net income to net cash
used for operating activities:
Income tax provision 3,785 747
Depreciation and amortization of fixed and other assets 8,368 6,476
Amortization of the excess of revalued net assets over equity (3,077) (3,077)
Increase in accounts receivable (3,740) (7,315)
Increase in merchandise inventories (78,321) (52,751)
Increase (decrease) in accounts payable (3,949) 10,370
Decrease in accrued expenses and other current liabilities (326) (8,132)
Decrease in other working capital and other, net (3,270) (3,210)
----------------- -----------------
Cash used for operations before store closing items (74,243) (55,444)
Payments of store closing costs (1,355) (5,899)
----------------- -----------------
Net cash used for operating activities (75,598) (61,343)
----------------- -----------------
Cash flows from investing activities:
Purchases of fixed assets (22,615) (19,256)
Purchase of leases - (4,148)
----------------- -----------------
Net cash used for investing activities (22,615) (23,404)
----------------- -----------------
Cash flows from financing activities:
Payments of debt and capital lease obligations (13,003) (11,753)
Short-term borrowings under the revolver, net 70,525 65,302
Proceeds from the excercise of options and warrants 3,722 2,627
----------------- -----------------
Net cash provided by financing activities 61,244 56,176
----------------- -----------------
Decrease in cash and short-term investments (36,969) (28,571)
Cash and short-term investments, beginning of period 57,828 46,119
----------------- -----------------
Cash and short-term investments, end of period $20,859 $17,548
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest and debt fees not capitalized $4,043 $4,763
Income taxes 5 2
<FN>
(The accompanying notes are an integral part of these
consolidated condensed financial statements.)
</FN>
</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 August 1, 1998 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 31, 1998 was obtained
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 Per Common Share:
----------------------------
Net income per share was determined using the weighted average
number of common shares outstanding. 190,723 warrants were converted
and 74,210 options were exercised during the quarter ended August 1,
1998. During the quarter ended July 26, 1997, 139,789 warrants were
converted and 254,960 options were exercised.
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 restated all prior periods for the change. The change
had no impact on the historical results of operations of the Company.
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").
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 August 1, 1998.
<PAGE>
As of August 1, 1998, borrowings of $70.5 million were outstanding
under the Credit Agreement. In addition, $19.5 and $8.1 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 twenty-six weeks ended August 1, 1998
were 8.0% and 8.1% respectively. The peak borrowing level through August
1, 1998 was $70.5 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 three stock option plans (the "Option Plans"): the
1994 Management Stock Option Plan, the 1998 Management Stock Incentive
Plan and the 1994 Non-Employee Directors Stock Option Plan.
In October 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation" was issued. SFAS No. 123 establishes a fair-value based
method of accounting for stock-based compensation; however, it allows
entities to continue accounting for employee stock-based compensation
under the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". The
Company elected to account for the Option Plans under APB Opinion No.
25, under which no compensation cost has been recognized, and adopt SFAS
No. 123 through disclosure.
If the Company had elected to recognize compensation cost for the
Option Plans based on the fair value at the grant dates for awards under
those plans, consistent with the method prescribed by SFAS No. 123, net
income and net income per diluted common share would have approximated
the pro forma amounts indicated below:
For the Thirteen For the Twenty-six
Weeks Ended Weeks Ended
--------------------- ---------------------
August 1, July 26, August 1, July 26,
1998 1997 1998 1997
--------------------- ---------------------
Net Income (in thousands)
As reported $8,405 $7,378 $6,287 $1,448
Pro forma 7,690 7,234 5,441 1,131
Net Income per common
share (diluted)
As reported $0.35 $0.31 $0.26 $0.06
Pro forma 0.32 0.31 0.23 0.05
The fair value of stock options used to compute the pro forma net
income and the net income per common share (diluted) is the estimated
present value at grant date using the Black-Scholes option-pricing model
with the following weighted average assumptions: no dividend yield,
expected option volatilities, a risk-free interest rate equal to U.S.
Treasury securities with a maturity equal to the expected life of the
option and an expected life from date of grant until option expiration
date.
<PAGE>
6. Income Taxes:
-------------
The Company's estimated annual effective income tax rate for each
year was applied to the income before income taxes for each period to
compute a non-cash income tax provision. The income tax provisions are
included as additions to paid-in capital on the balance sheet for all
periods presented.
7. Litigation:
-----------
Reference can be made to the latest Form 10-K (Note 12 to the
Consolidated Financial Statements) for various litigation involving the
Company, for which there were no material changes since the filing date
of the Form 10-K, except as follows:
With regard to the Second Complaint (the Austin matter), on July
15, 1998, the Court approved a class action settlement (the "Settlement")
which had been reached by the parties. Notices of the Settlement were
sent to all potential class members on August 19, 1998. The Settlement
provides that in exchange for a release of all claims against the Company
each class member who elects to opt-in to the Settlement will receive a
benefit, either cash or discounts on future purchases at an Ames store,
based on the number of days worked for the Company during the class
period. Individuals who wish to opt-in to the Settlement must sign and
return a Consent and Release Form on or before October 3, 1998. The
maximum cost of the Settlement to the Company cannot exceed $1.5 million
in cash if all participants elect cash or $4.5 million in discounts on
purchases if all participants elect discounts. The Company believes it
has adequately reserved for the settlement.
With regard to the Fifth Complaint (the Moschelle matter),
pursuant to the terms of the Settlement, the parties will jointly move to
dismiss this action without prejudice to the rights of any class member
who does not elect to opt-in to the Settlement by the stated deadline.
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
FISCAL QUARTER ENDED AUGUST 1, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<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
-----------------------------------
August 1, January 31, July 26,
1998 1998 1997
--------- --------- ---------
299 298 296
The following discussion and analysis is based on the results of operations
for the thirteen and twenty-six weeks ended August 1, 1998 and July 26, 1997.
During the first half of 1998, three (3) stores were opened and two (2) stores
were closed. In the comparable prior-year period, seven (7) 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.
The following table sets forth the operating results expressed as a
percentage of net sales for the periods indicated:
Thirteen Twenty-six
Weeks Ended Weeks Ended
---------------------- -----------------------
August 1, July 26, August 1, July 26,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 70.8 70.8 71.5 71.6
--------- --------- --------- ---------
Gross margin 29.2 29.2 28.5 28.4
Expenses and (income):
Selling, general and administrative expenses 27.0 27.3 27.9 28.4
Leased department and other operating income (1.4) (1.3) (1.3) (1.2)
Depreciation and amortization expense 0.8 0.7 0.7 0.7
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 0.6 0.6 0.5 0.6
--------- --------- --------- ---------
Income before income taxes 2.5 2.2 1.0 0.2
Income tax provision (0.9) (0.7) (0.4) (0.1)
--------- --------- --------- ---------
Net income 1.6% 1.5% 0.6% 0.1%
========= ========= ========= =========
</TABLE>
<PAGE>
Net sales for the thirteen weeks ended August 1, 1998 increased $32.7
million or 6.5% from the prior-year's second quarter due primarily to an
increase of 4.0% in comparable-store sales and the net addition of three (3)
stores. Net sales for the twenty-six weeks ended August 1, 1998 increased $99.2
million or 10.6% as compared to the same prior-year period. Comparable-store
sales increased by 8.1% for the first twenty-six weeks.
Gross margin for the second quarter increased $10.0 million, but remained
unchanged as a percentage of net sales, as compared with the quarter ended July
26, 1997. Gross margin for the twenty-six weeks ended August 1, 1998 increased
$29.6 million, or 0.1% as a percentage of net sales compared to the same
prior-year period. The improvement in year-to-date gross margin rates was
primarily attributable to lower markdowns.
Selling, general and administrative expenses for the thirteen weeks ended
August 1, 1998 increased $7.9 million, but decreased 0.3% from the prior-year's
second quarter due primarily to favorable performance in advertising and lower
compensation related expenses. For the twenty-six week period, selling, general
and administrative expenses increased $22.8 million, but decreased 0.5% as a
percentage of net sales as compared to the same prior-year period due to
favorable performances in store and advertising expenses.
Depreciation and amortization expense increased by $0.9 million or 0.1%
as a percentage of net sales, in the thirteen weeks ended August 1, 1998,
compared to the same prior-year period. For the twenty-six weeks ended August 1,
1998, depreciation and amortization increased $1.8 million, but remained
unchanged as a percentage of net sales, compared with the same prior-year
period. 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, was essentially flat
in the thirteen weeks ended August 1, 1998 as compared to the period ended July
26, 1997. For the twenty-six weeks ended August 1, 1998, interest and debt
expense decreased $0.4 million or 0.1% as a percentage of net sales, compared
with the same prior-year period. This decrease was due primarily to a reduction
in short-term interest expense as a result of lower average outstanding balances
under the Credit Agreement (from $55.6 to $36.4 million during the twenty-six
week period) partially offset by increased capital lease interest expense.
The Company's estimated annual effective income tax rate for each year
was applied to the income before income taxes for each period to compute a
non-cash income tax provision. The income tax provisions are included as
additions to paid-in capital on the balance sheet for all periods presented.
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").
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 August 1, 1998. Reference can be made to Note 4 of this Quarterly
Report and the latest Form 10-K for further descriptions of the Credit
Agreement.
<PAGE>
Merchandise inventories, increased $58.3 million from July 26, 1997 to
August 1, 1998 due primarily to planned increases. The increase in inventories
of $78.3 million from January 31, 1998 to August 1, 1998 was principally the
result of a normal seasonal build-up of inventories and planned increases.
Trade accounts payable increased $22.7 million from July 26, 1997 to
August 1, 1998 primarily due to planned merchandise inventory increases. The
decrease of $4.8 million from January 31, 1998 to August 1, 1998 was principally
the result of the seasonal dating in effect as of January 31, 1998.
Capital expenditures totaled $37.5 million (including $14.9 million in
capital leases for store automation (POS) systems) for the twenty-six weeks
ended August 1, 1998 and for the balance of the year are estimated to be
approximately $47 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 1997,
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.
Accounting Pronouncements
- -------------------------
In April 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities". The SOP is effective for fiscal years beginning after December 15,
1998 although earlier adoption is permitted. The SOP will require that the costs
of start-up activities be expensed as incurred. The Company currently expenses
costs associated with the opening of new stores in the year they are opened.
These costs are carried as prepaid expenses prior to the opening of the new
stores. The Company expects to adopt this statement as of January 30, 1999 and
does not anticipate the adoption will materially affect the Company's results of
operations or financial position.
Year 2000
- ---------
As previously reported, the Company has initiated a comprehensive program
to prepare its computer systems and applications for the year 2000. The
assessment phase of the Company's remediation program is complete and the
systems development and testing stages are in progress. The Company has spent
approximately $2.6 million on its Year 2000 initiatives to date and expects that
full implementation of the program will involve an additional $2 to $3 million
over the next two years for conversion and testing of systems. These costs
include incremental expenses such software, outside consulting and other
expenses. Additionally, the Company has allocated systems development staff to
Year 2000 initiatives and estimates the non-incremental costs to be $3 to $4
million over the life of the project.
The Company has formally communicated with all of its vendors and
suppliers to determine the extent to which the Company may be vulnerable to
those third parties' failure to remediate their own Year 2000 issues. The first
phase, which included sending Year 2000 surveys and questionnaires, is complete
and the response evaluation phase is currently in progress. The Company has not
had sufficient response from vendors to provide an estimate of the potential
impact of non-compliance on the part of such vendors. Management is currently
developing contingency plans which include, but are not limited to, securing
alternative vendors who are Year 2000 compliant, developing manual merchandise
ordering processes, and evaluating alternative merchandise assortments. It is
too early to determine to what extent, if any, these contingency plans will
have to be implemented
Although the Company expects to be Year 2000 compliant by mid-1999 and
does not expect to be materially impacted by the external environment, such
future events cannot be known with certainty. Furthermore, the Company's
estimates of future remediation costs and completion dates are based on
presently available information and may be updated as additional information
becomes available.
<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
---------------------------------------------------
The Annual Meeting of Stockholders was held Wednesday, May
27, 1998, to consider and act upon the following matters:
(a) The shareholders elected for one-year terms all persons
nominated for directors as set forth in the Company's proxy
statement filed April 8, 1998. Each nominee for director
was elected as follows:
For Withheld
---------- -----------
Francis X. Basile 19,244,965 53,033
Paul Buxbaum 19,244,179 53,819
Alan Cohen 12,346,191 6,951,807
Joseph R. Ettore 19,249,170 48,828
Richard M. Felner 19,248,139 49,859
Sidney S. Pearlman 19,243,514 54,484
Laurie M. Shahon 19,246,807 51,191
(b) The shareholders ratified and approved the appointment of
Arthur Andersen LLP as independent certified public
accountants and auditors for the Company for the fiscal
year ending January 30, 1999.
For Withheld Abstentions
---------- -------- -----------
19,238,194 39,525 20,279
(c) The shareholders approved the Ames Department Stores, Inc.
1998 Management Stock Incentive Plan, as described in the
Company's Proxy Statement filed April 8, 1998.
For Withheld Abstentions
---------- ---------- -----------
14,634,586 1,342,171 68,525
(d) The shareholders approved an amendment to the Ames
Department Stores, Inc. 1994 Non-Employee Directors Stock
Option Plan to increase the number of shares included in
each option grant.
For Withheld Abstentions
---------- ---------- -----------
18,311,049 900,659 84,690
Item 5. Other Information
-----------------
Any notice of a proposal submitted by a stockholder outside of
the process of Rule 14a-8 after February 22, 1999 will be
considered untimely. Therefore, the proxy solicited on behalf of
the Company's Board of Directors will confer discretionary
authority to vote on any such proposal properly coming before the
1999 Annual Meeting.
<PAGE>
Stock options granted to many of the Company's senior executives
pursuant to the 1994 Management Stock Option Plan will expire in
March 1999. The Company anticipates that in the normal course of
business some senior executives may sell some shares of Ames
Common Stock during the fourth quarter of 1998 and the first
quarter of 1999.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Index to Exhibits
Exhibit No. Exhibit Page No.
----------- -------------------------------- --------
11 Schedule of computation of basic 15
and diluted earnings per share
(b) Reports on Form 8-K:
The following report on Form 8-K was filed with the Securities
and Exchange Commission during the second quarter:
Date of Report Date of Filing Item # Description
-------------- -------------- ------ -------------------------------
June 30, 1998 June 30, 1998 5 Disclosure of the Employment
Agreement dated June 1, 1998
between Ames Department Stores,
Inc. and Joseph R. Ettore.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMES DEPARTMENT STORES, INC.
(Registrant)
Dated: September 1, 1998 /s/ Joseph R. Ettore
Joseph R. Ettore, President, Director,
and Chief Executive Officer
Dated: September 1, 1998 /s/ Rolando de Aguiar
Rolando de Aguiar, Executive Vice
President and Chief Financial Officer
Dated: September 1, 1998 /s/ Gregory D. Lambert
Gregory D. Lambert
Senior Vice President - Finance
<PAGE>
AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(Amounts in thousands except per share amounts)
<TABLE>
Exhibit 11
<CAPTION>
For the Thirteen For the Twenty-six
Weeks Ended Weeks Ended
----------------------- -----------------------
August 1, July 26, August 1, July 26,
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net income $8,405 $7,378 $6,287 $1,448
========== ========== ========== =========
For Basic Net Income Per Share
Weighted average number of common shares
outstanding during the period 22,950 21,486 22,800 21,188
========== ========== ========== =========
Basic net income per share $0.37 $0.34 $0.28 $0.07
========== ========== ========== =========
For Diluted Net Income Per Share
Weighted average number of common shares
outstanding during the period 22,950 21,486 22,800 21,188
Add: Common stock equivalent shares represented by
- Series B Warrants 116 67 127 64
- Series C Warrants 458 1,082 520 1,240
- Options under 1994 Management Stock Option Plan 68 780 63 823
- Options under 1994 Non-Employee Directors
Stock Option Plan 680 40 661 39
---------- ---------- ---------- ---------
Weighted average number of common and common equivalent
shares used in the calculation of diluted net income per share 24,272 23,455 24,171 23,354
========== ========== ========== =========
Diluted net income per share $0.35 $0.31 $0.26 $0.06
========== ========== ========== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-01-1998
<CASH> 20859
<SECURITIES> 0
<RECEIVABLES> 22662
<ALLOWANCES> 0
<INVENTORY> 502157
<CURRENT-ASSETS> 558767
<PP&E> 165692
<DEPRECIATION> 53283
<TOTAL-ASSETS> 684482
<CURRENT-LIABILITIES> 409439
<BONDS> 37378
0
0
<COMMON> 233
<OTHER-SE> 186943
<TOTAL-LIABILITY-AND-EQUITY> 684482
<SALES> 536297
<TOTAL-REVENUES> 543786
<CGS> 379461
<TOTAL-COSTS> 379461
<OTHER-EXPENSES> 147717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3192
<INCOME-PRETAX> 13416
<INCOME-TAX> 5011
<INCOME-CONTINUING> 8405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8405
<EPS-PRIMARY> .37
<EPS-DILUTED> .35
</TABLE>
