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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 21, 1996
HILLS STORES COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 1-9505 31-1153510
(State or other jurisdiction of incorporation) (Commission file number) (I.R.S. employer identification number)
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15 DAN ROAD 02021
CANTON, MASSACHUSETTS (Zip Code)
(Address of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(617) 821-1000
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Item 5. Other Events
------------
On November 21, 1996, Hills Stores Company (the "Company") issued a
press release reporting its financial results for the third fiscal quarter of
1996. A copy of the Company's press release is filed as an Exhibit to this
Report and incorporated by reference herein.
Item 7. Exhibits
--------
The following Exhibit is filed as part of this Report:
Exhibit
Number Title
- ------ -----
99.1 Press Release dated November 21, 1996.
SIGNATURE
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.
HILLS STORES COMPANY
By: /s/ C. Scott Litten
--------------------------------
Name: C. Scott Litten
Title: Executive Vice President -
Chief Financial Officer
Dated: November 26, 1996
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EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit
Number Title
- ------ -----
99.1 Press Release dated November 21, 1996.
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EXHIBIT 99.1
FINANCIAL PRESS RELEASE
FOR IMMEDIATE RELEASE: INVESTOR INQUIRIES, CONTACT:
- ---------------------- C. SCOTT LITTEN
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
HILLS STORES COMPANY
(617) 821-1000 EXT. 1691
MEDIA INQUIRIES, CONTACT:
KATHLEEN A. OBERT
SENIOR VICE PRESIDENT
EDWARD HOWARD & CO.
(216) 781-2400
HILLS STORES REPORTS ITS THIRD QUARTER FINANCIAL RESULTS
CANTON, MASSACHUSETTS, NOVEMBER 21, 1996 -- Hills Stores Company (NYSE:
HDS) today released its financial results for the third quarter and nine month
periods ended November 2, 1996.
The Company reported a net loss for its third fiscal quarter ended
November 2, 1996 of $5.0 million, or $0.49 per share on a fully-diluted basis,
compared with a net profit of $22.4 million, or $1.98 per share, in the third
quarter last year. As was previously announced, this year's quarter included an
after-tax extraordinary charge of $2.2 million, or $0.22 per share, from the
early extinguishment of debt related to the refinancing of its bank credit
facility. The prior year's third quarter earnings reflected a tax benefit of
$20.3 million, or $1.79 per fully-diluted share, from the effect of a change in
the estimated tax rate applicable to the results of previous quarters of 1995.
Third quarter earnings before interest, taxes, depreciation and amortization,
costs related to change in control, and other non-cash items (EBITDA) decreased
to $17.6 million from $29.2 million last year.
Total sales for the quarter ended November 2, 1996 increased by 2.9%
from the previous year to $461.0 million, and comparable store sales increased
by 1.5%. Gross profit decreased to $120.8 million from $124.7 million and
declined as a percentage of sales to 26.2% from 27.8% last year. Selling and
administrative expenses increased by $8.0 million to $103.7 million from $95.7
million in the third quarter of fiscal 1995 and rose as a percentage of sales to
22.5% from 21.4%. Interest expense decreased modestly to $13.7 million from
approximately $14.0 million in the third quarter of 1995.
MORE
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Gregory K. Raven, President and Chief Executive Officer of Hills
explained, "During back-to-school, we made a strategic decision to be more
aggressive with prices in selective categories to improve our competitive
position and customer traffic. Although we have been pleased with the resulting
improvement in our sales trend, we were arguably more aggressive than we needed
to be, which cost the Company some gross margin. In addition, markdowns this
year were higher than last year due to earlier clearance of certain Fall
merchandise which, last year, were delayed in an effort to pursue full-priced
sales deeper into the season. Those full-priced sales did not materialize last
year, resulting in higher markdowns in the fourth quarter.
Raven continued, "Throughout the quarter, we refined our pricing and
have seen an improvement in margin trend. We are confident that, in the fourth
quarter, margins will stabilize closer to last year's rate, reversing the trends
experienced in the first three quarters. Together with continuing sales
improvements, our profitability trend should also turn around."
Commenting on expenses, Raven added, "The increase in expenses compared
with last year reflects the impact of new stores added late last year, a timing
shift into the quarter of advertising and other costs, and other programs
designed to improve our customer service levels and to improve our control
activities. The expense levels for the quarter were less than budgeted at the
start of the year. Over the past two years, except for increases in costs
related to new stores, our operating expenses have decreased."
C. Scott Litten, Executive Vice President and Chief Financial Officer
of the Company added, "Our financial liquidity position continues to improve
over the prior year. Outstanding revolver borrowings at November 2nd were $137
million, compared with $169 million at the end of last year's third quarter.
Ongoing revolver availability at the end of the quarter was approximately $130
million, compared with about $60 million last year. Further, our revolver
borrowings peaked this year at $142 million compared with $188 million last
year."
For the first nine months of fiscal year 1996, the Company reported a
net loss of $32.1 million, or $3.14 per share, compared with a loss of $27.1
million, or $2.69 per share, for the same period last year. The current year net
loss included the after-tax extraordinary losses of $4.2 million ($0.42 per
share) from the earlier extinguishments of debt. The current year results also
included a pre-tax, non-cash charge of $11.7 million ($7.2 million after tax, or
$0.71 per share) for the impairment of long-lived assets. The prior year
included a pre-tax charge of $43.3 million ($36.5 million after tax, or $3.62
per share) related to the July 1995, change of control. EBITDA for the first
nine months was $26.5 million compared with $42.8 million for the same period
last year.
Hills Stores Company is a leading regional discount retailer operating
165 stores in 12 Mid-Western and Mid-Atlantic states.
# # # #
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Hills Stores Company and Subsidiaries
Notes to Condensed Statements of Operations
November 2, 1996
a) The condensed consolidated financial information should be read in
conjunction with the notes to the consolidated financial statements in the
Company's annual report on Form 10-K and the quarterly reports on Form 10-Q
filed with the Securities and Exchange Commission. During the fourth
quarter of fiscal year 1995, the company reclassified $7.2 million, before
taxes, of change in control costs from its originally reported results. The
effect of the change was to decrease third quarter net earnings by $3.0
million, or $0.27 per share. In addition, the presentation of prior
year-end and prior year interim financial statement amounts have been
reclassified to conform with current year presentation.
b) Related to severance expenses paid to certain senior officers and employees
of the Company, and legal and other expenses, associated with the July 1995
change of control. The after-tax impact of the charge was $36.5 million
($3.62 per share year to date).
c) A charge related to the Company's 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." The after-tax impact
of the charge was $7.2 million or $0.71 per share.
d) Fully-diluted average shares outstanding for the thirteen and thirty-nine
weeks ended November 2, 1996 and the thirty-nine weeks ended October 28,
1995 do not include 1,040,377 and 1,260,343 shares of preferred stock,
respectively, as the effect would be anti-dilutive.
e) Additional Information: (000's)
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AS OF, OR FOR THE PERIODS ENDED
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QUARTER ENDED YEAR-TO-DATE
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NOV. 2, 1996 OCT. 28, 1995 NOV. 2, 1996 OCT. 28, 1995
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Capital expenditures $8,491 $14,471 $26,158 $50,551
Other non-cash items to
arrive at EBITDA $ 474 $ 224 $ 1,771 $ 482
Cash Interest payments $6,848 $12,045 $32,577 $32,642
Income tax rate on pretax
income (loss) 56.7% 53.1% 58.2%
Percent to sales -
Gross profit margin 26.2% 27.8% 26.0% 27.2%
SG&A 22.5% 21.4% 24.0% 23.7%
Number of stores-ending 165 164
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CONDENSED CONSOLIDATED INCOME SUMMARY (UNAUDITED)
(in thousands, except per share amount)
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THIRD QUARTER(a) YEAR -TO-DATE(a)
----------------------- ---------------------------
1996 1995 1996 1995
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Net Sales $460,983 $448,033 $1,219,831 $1,200,319
Cost of Sales 340,152 323,339 902,046 873,574
Selling and Administrative expenses 103,692 95,680 293,052 284,446
Depreciation and amortization 9,927 10,039 30,075 28,619
Costs related to change in control (b) - 43,292
Impairment of long-lived assets (c) 11,706 -
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Operating earnings (loss) 7,212 18,975 (17,048) (29,612)
Interest expense, net 13,691 13,959 42,423 35,140
Income tax provision (benefit) (3,675) (17,425) (31,608) (37,686)
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Earnings (loss) before extraordinary loss (2,804) 22,441 (27,863) (27,066)
Extraordinary loss on extinguishment of debt, net 2,232 - 4,278 -
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Net Loss $ (5,036) $ 22,441 $ (32,141) $ (27,066)
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Primary earnings (loss) per share-
- ----------------------------------
Before extraordinary loss $ (0.27) $ 2.01 $ (2.72) $ (2.77)
Extraordinary loss (0.22) (0.42)
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Net Income (Loss), as reported $ (0.49) $ 2.01 $ (3.14) $ (2.77)
======== ======== ========== ==========
Fully diluted earnings (loss) per share-
- ----------------------------------------
Before extraordinary loss $ (0.27) $ 1.98 $ (2.72) $ (2.69)
Extraordinary loss (0.22) (0.42)
-------- -------- ---------- ---------
Net Income (Loss), as reported $ (0.49) $ 1.98 $ (3.14) $ (2.69)
======== ======== ========== ==========
Shares outstanding (d)
- ------------------
Primary 10,273 11,164 10,234 9,755
Fully-diluted 10,273 11,346 10,234 10,058
Earnings before interest, taxes, depreciation,
amortization and other non-cash charges (EBITDA) $ 17,613 $ 29,238 $ 26,504 $ 42,781
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CONDENSED CONSOLIDATED BALANCE SHEETS(a)
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HILLS STORES COMPANY AND SUBSIDIARIES
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(unaudited) (unaudited)
NOVEMBER 2, FEBRUARY 3, OCTOBER 28,
(dollars in thousands) 1996 1996 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,013 $ 22,898 $ 23,159
Accounts receivable, net 72,688 25,187 62,776
Inventories 539,907 331,697 518,108
Deferred tax asset 34,011 34,011 20,923
Income taxes 33,582 - 37,686
Other current assets 6,556 5,352 4,013
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Total current assets 711,757 419,145 666,665
Property, equipment, capital leases, net 297,577 304,678 307,014
Beneficial lease rights, net 7,380 8,247 8,454
Other assets, net 17,573 15,746 13,501
Deferred tax asset 8,233 8,233 10,061
Goodwill, net 102,138 107,514 138,948
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TOTAL ASSETS $1,144,658 $863,563 $1,144,643
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LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital leases $ 6,428 $ 5,732 $ 6,121
Borrowings under the revolving credit facility 137,000 - 169,000
Accounts payable, trade 211,024 87,471 199,431
Other accounts payable and accrued expenses 186,631 178,852 186,935
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Total current liabilities 541,083 272,055 561,487
Long-term senior notes 195,000 160,000 160,000
Capital lease and sale/leaseback financing 154,672 143,945 145,140
Other liabilities 6,434 8,264 9,118
Preferred stock, at mandatory redemption value 20,807 24,636 25,206
Common shareholders' equity 226,662 254,663 243,692
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,144,658 $863,563 $1,144,643
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