UNITED STATES
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 May 3, 1997
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
COMMISSION FILE NUMBER 1-9505
-----------------------------
HILLS STORES COMPANY
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1153510
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15 DAN ROAD, CANTON, MASSACHUSETTS 02021
---------------------------------- -----
(Address of principal executive offices) (Zip Code)
617-821-1000
------------
(Registrant's telephone number, including area code)
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
------- -------
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
------- -------
The number of shares of common stock outstanding as of May 31, 1997 was
10,281,447 shares.
<PAGE>
<TABLE>
HILLS STORES COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
------------------
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Balance Sheets as of May 3, 1997,
February 1, 1997 and May 4, 1996 3
Condensed Consolidated Statements of Operations for the
Quarters Ended May 3, 1997 and May 4, 1996 4
Condensed Consolidated Statements of Cash Flows for the
Quarters Ended May 3, 1997 and May 4, 1996 5
Notes to Condensed Consolidated Financial Statements 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12
</TABLE>
2
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<TABLE>
HILLS STORES COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
May 3, February 1, May 4,
(in thousands) 1997 1997 1996
- --------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,537 $ 66,163 $ 29,516
Cash restricted to redemption
of senior notes - - 153,762
Accounts receivable, net 27,131 24,346 28,203
Inventories 395,344 341,477 410,330
Deferred and interim tax assets 51,792 46,491 49,213
Other current assets 6,103 5,115 5,735
-------- -------- ----------
Total current assets 497,907 483,592 676,759
Property and equipment, net 171,102 173,701 182,096
Property under capital leases, net 109,717 112,201 109,610
Beneficial lease rights, net 6,656 6,848 7,782
Deferred tax asset 8,085 8,085 8,233
Reorganization value in excess of amounts
allocable to identifiable assets, net 96,046 97,508 105,158
Other assets, net 22,190 18,418 22,223
-------- -------- ----------
$911,703 $900,353 $1,111,861
======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Senior notes subject to redemption $ - $ - $ 154,725
Current portion of long-term debt 7,430 7,255 5,732
Borrowings under revolving
credit facility 5,000 - 43,000
Accounts payable, trade 127,267 111,064 125,835
Other accounts payable and accrued
expenses 183,140 182,018 173,046
-------- -------- ----------
Total current liabilities 322,837 300,337 502,338
Senior notes 195,000 195,000 195,000
Obligations under capital leases 118,814 120,539 117,148
Financing obligations - sale/leaseback 34,100 34,100 25,169
Other liabilities 5,945 5,651 7,536
Commitments and contingencies (Note 5) - - -
Preferred stock, at mandatory redemption
value (Note 2) 19,782 19,942 21,498
Common shareholders' equity 215,225 224,784 243,172
-------- -------- ----------
$911,703 $900,353 $1,111,861
======== ======== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
<TABLE>
HILLS STORES COMPANY AND SUBSIDIARIES
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Quarter Ended
------------------------
(unaudited) May 3, May 4,
(in thousands, except per share amounts) 1997 1996
_______________________________________________________________________________
<S> <C> <C>
Net sales $353,504 $370,248
Cost of sales 256,720 270,985
Selling and administrative expenses 99,142 102,710
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 1,462 1,521
Impairment of long-lived assets - 11,706
-------- --------
Operating loss ( 3,820) ( 16,674)
Interest expense, net ( 11,300) ( 13,266)
-------- --------
Loss before income taxes ( 15,120) ( 29,940)
Income tax benefit (Note 4) 5,300 15,202
-------- --------
Net loss ($ 9,820) ($ 14,738)
======== ========
Primary and fully-diluted
loss per share (Note 3) ($ 0.95) ($ 1.45)
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
<TABLE>
HILLS STORES COMPANY AND SUBSIDIARIES
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Quarter Ended
---------------------
(unaudited) May 3, May 4,
(in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 9,820) ($ 14,738)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 9,095 8,822
Amortization of deferred financing costs 627 1,860
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 1,462 1,521
Loss on disposal of fixed assets - 329
Impairment of long-lived assets - 11,706
Increase in accounts receivable and other
current assets ( 3,773) ( 3,399)
Increase in inventories ( 53,867) ( 78,633)
Increase in accounts payable and accrued expenses 17,325 32,558
Increase in income taxes ( 5,301) ( 15,202)
Other, net 111 79
-------- --------
Net cash used for operating activities ( 44,141) ( 55,097)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 3,605) ( 6,573)
Deferred software expenditures ( 4,376) -
-------- -------
Net cash used for investing activities ( 7,981) ( 6,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 12 1/2% Senior Notes - 195,000
Fees incurred with the issuance of
12 1/2% Senior Notes - ( 8,100)
Redemption of 10.25% Senior Notes - ( 5,275)
Cash restricted to redemption of
10.25% Senior Notes - ( 153,762)
Borrowings under revolving credit facility, net 5,000 43,000
Principal payments under capital lease obligations ( 1,550) ( 1,628)
Cash distributions pursuant to the Plan of
Reorganization - ( 1,081)
Other financing activities 46 134
-------- --------
Net cash provided by financing activities 3,496 68,288
-------- --------
Net increase (decrease) in cash
and cash equivalents ( 48,626) 6,618
Cash and cash equivalents at beginning of period 66,163 22,898
-------- --------
Cash and cash equivalents at end of period $ 17,537 $ 29,516
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. The information furnished
reflects all normal recurring adjustments which are, in the opinion of
management, necessary to present a fair statement of the results for the
interim period.
The accompanying unaudited condensed consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and consequently do
not include all the disclosures normally required by generally accepted
accounting principles nor those normally made in the Company's annual Form 10-K
filing. Reference should be made to the Company's Annual Report on Form 10-K
for additional disclosures, including a summary of the Company's accounting
policies. Certain prior year amounts have been reclassified to conform to the
current year presentation. The Company's business is seasonal in nature and
the results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full fiscal year. The fourth
quarter of each fiscal year provides the most significant portion of the
Company's annual sales and most of its operating earnings, with operating
earnings particularly concentrated in the Christmas selling season.
2. HILLS STORES SERIES A CONVERTIBLE PREFERRED STOCK
-------------------------------------------------
During the quarter ended May 3, 1997, 8,021 shares of the Company's Series
A Convertible Preferred Stock ($20 par value) were converted to the Company's
Common Stock on a share for share basis.
3. EARNINGS PER SHARE
------------------
Primary loss per share of the Company for the quarters ended May 3, 1997 and
May 4, 1996 was computed based on the weighted average number of common
shares assumed to be outstanding during the periods of 10,343,676 and
10,165,710 shares, respectively. Fully-diluted loss per share for the quarters
ended May 3, 1997 and May 4, 1996 was computed based on the weighted average
number of common shares assumed to be outstanding during the periods of
10,345,781 and 10,165,710 shares, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128").
FAS 128 is effective for financial statements, for both interim and annual
periods, ending after December 15, 1997. FAS 128 would have no impact on the
Company's earnings per share calculations for the quarters ended May 3, 1997 and
May 4, 1996.
6
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. INCOME TAX BENEFIT
------------------
The Company calculates its provision for interim income taxes in accordance
with Accounting Principles Board Opinion No. 28. This usually calls for the
application of the estimated full year tax rate to interim pretax accounting
income, which practice the Company followed through 1996. In circumstances
when the usual approach would cause an unrealistically high interim tax benefit
rate or other unreasonable tax results (which the Company is experiencing in
1997), the interim tax provision is calculated by applying the appropriate
Federal and state statutory tax rates to taxable book income. Had the approach
employed in 1997 been applied in 1996, the effect would have been to reduce
the interim income tax benefit and to increase the net loss for 1996's first
quarter by approximately $4.2 million. The Company expects to continue to
employ the 1997 approach until it is no longer reasonably possible that an
unreasonably large interim tax benefit rate would occur. The approach to
interim income taxes will have no effect on the amount of income tax expense
for the full year.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
In September 1995, the Company filed a suit in the Court of Chancery of the
State of Delaware against the former members of the Board of Directors (the
"Former Directors") of the Company. That action seeks, among other things,
recovery of damages caused by the breach by the Former Directors of their
fiduciary duties to shareholders arising from the refusal of the Former
Directors to approve the change in control which took place on July 5, 1995 (the
"1995 Change of Control") following the election of seven replacement directors
by the shareholders of the Company. On or about April 25, 1997, certain of the
defendants filed an answer and asserted a counterclaim against the Company and
certain members of the Company's Board of Directors. In the counterclaim,
Michael Bozic, Norman S. Matthews and John G. Reen allege that, following the
1995 Change of Control, the Company improperly refused to allow them to exercise
options to purchase shares of Hills Stores Company common stock. The
plaintiffs-in-counterclaim seek damages of $2.5 million for lost profits plus
consequential damages. The Company believes the counterclaim is without merit
and plans to contest it vigorously.
The Company also filed suit against Smith Barney, Inc. in September 1995 in the
New York State Supreme Court for the County of New York, seeking damages for
losses, as stated in the complaint, caused by the gross negligence of this
firm in rendering financial advice to the Former Directors of the Company in
breach of their fiduciary duties. On May 22, 1997, the New York Supreme Court,
Appellate Division, First Department, affirmed the trial court's dismissal of
the suit.
In August 1995, in the Court of Chancery of the State of Delaware, three
shareholders of the Company, Gayle Dolowich, Ivan J. Dolowich and Joseph Weiss,
filed a class action lawsuit against the seven new directors of the Company
elected at the 1995 annual meeting, Dickstein Partners Inc. ("Dickstein
Partners") and the Company. In November 1995, the plaintiffs amended their
complaint to include a shareholder's derivative cause of action against the
Former Directors for breach of their fiduciary duties to the Company and its
7
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
shareholders. In the amended complaint, the plaintiffs claim (under Section
225 of the Delaware Corporation Code) that in connection with Dickstein Partners
effort to solicit proxies in support of the election of its nominees for
directors of the Company, Dickstein Partners issued a number of false and
misleading statements regarding its offer to acquire all of the Company's shares
it did not already own. On the Section 225 claim, the plaintiffs seek an order
nullifying the election of directors and declaring there has been "no change of
control" of the Company. The derivative cause of action seeks damages against
the Former Directors. In January 1996, in the same Delaware Chancery Court,
another shareholder, Peter M. Fusco, filed a substantially similar class action
and shareholder derivative suit against the parties named in the Dolowich suit.
The Former Directors filed a motion to dismiss the Dolowich and Fusco suits,
and that motion was argued in October 1996 and is presently pending.
Management does not believe that the disposition of such suits and claims will
have a material adverse effect upon the continuing operations and financial
position of the Company.
8
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED MAY 3, 1997 COMPARED WITH
QUARTER ENDED MAY 4, 1996
Net sales decreased 4.5% compared with the same period in 1996. This sales
decrease was primarily related to the Company operating nine fewer stores
during the first quarter of 1997 and a comparable store sales decrease of 0.5%.
The comparable store sales decrease was impacted by the elimination of one ad
circular, an earlier Easter, and unseasonably cold weather after Easter.
Sales increases in women's apparel and home electronics were offset by sales
decreases in men's and children's apparel.
Cost of sales as a percentage of sales was 72.6% in the first quarter of 1997
compared with 73.2% in the first quarter of 1996. The increase in gross margin
percentage of 0.6% was primarily due to an improvement in purchase markon and
lower inventory shortage costs.
Selling and administrative expenses, including depreciation and other occupancy
expenses, as a percentage of sales were 28.0% compared with 27.7% in 1996, a
0.3% increase. The increase was primarily due to the decline in comparable
store sales together with legislated minimum wage increases over the prior year.
Effective February 4, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121: "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("FAS 121"). In accordance
with FAS 121, the Company recognized a pre-tax charge of $11.7 million, $7.2
million after tax, or $0.71 per share, in the first quarter of 1996 to reduce
the carrying value of certain of its long-lived tangible and intangible assets
to their estimated fair market value. No charge was recorded in the first
quarter of 1997.
Net interest expense was $11.3 million in the first quarter of 1997 compared
with $13.3 million in the same period of 1996. This $2.0 million decrease was
attributable to lower working capital borrowings and reduced amortization costs
associated with borrowings that were refinanced in 1996.
The effective tax rate was 35.1% in the first quarter of 1997 compared with a
rate of 50.8% in the first quarter of 1996. The decreased benefit was due to
a modification in the approach used to calculate interim income taxes. See
Note 4 of Notes to Condensed Consolidated Financial Statements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Certain statements contained in this document (in particular, the discussion of
liquidity) are forward-looking statements that involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are the following: general economic conditions, consumer demand,
consumer preferences and weather patterns in the Great Lakes and Ohio Valley
regions of the United States; competitive factors, including continuing
pressure from pricing and promotional activities of major competitors; impact
of excess retail capacity and the availability of desirable store locations on
9
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
suitable terms; the availability, selection and purchasing of attractive
merchandise on favorable terms; import risks, including potential disruptions
and duties, tariffs and quotas on imported merchandise; acquisition and
divestment activities; and other factors that may be described in this document.
Net cash used for operating activities was $44.1 million for the quarter ended
May 3, 1997 compared with $55.1 million for the same period last year, a
decrease of $11.0 million. The use of cash for the interim periods primarily
reflects the build-up of merchandise inventories due to the seasonal nature of
the Company's business. The build-up of inventories was less in the first
quarter of 1997 compared with the same period last year as a result of the
reduction in the number of stores.
Net cash used for investing activities was $8.0 million compared with $6.6
million in the first quarter of 1996, a $1.4 million increase. Approximately
$4.4 million was spent during the first quarter of 1997 pursuant to a program
to upgrade the Company's information systems. This expenditure was partially
offset by a decrease from year to year due to approximately $3.2 million spent
on store remodels last year. During fiscal 1997, capital expenditures are
expected to approximate $30 million. The Company expects to open no new stores
during fiscal 1997. In addition to the capital expenditures, fiscal 1997
investing activities are expected to include approximately $20 million of
deferred, intangible costs for software procurement, development and
installation costs.
Net cash provided by financing activities was $3.5 million in the first quarter
of 1997 compared with $68.3 million in the same period a year ago, a $64.8
million decrease. The decrease was primarily due to a $38.0 million year-to-
year decrease in borrowings under the revolving credit facility resulting from
higher available cash balances at the beginning of the quarter this year
compared with last year (an increase of approximately $42 million). In
addition, during the first quarter of 1996 the Company generated $27.8 million
of excess proceeds from the refinancing of its Senior Notes. During the first
quarter of 1997, average borrowings under the revolving credit facility were
approximately $396,000 at an average interest rate of 9.0%. During the first
quarter of 1996, average borrowings were $27.4 million at an average interest
rate of 8.6%. Excess credit availability under the revolving credit facility
at May 3, 1997 was approximately $169.4 million compared with approximately
$126.4 million at May 4, 1996.
The Company believes that its credit arrangements, together with cash from
operations, will enable the Company to maintain the liquidity necessary to
finance its continuing operations and capital expenditure requirements.
The terms of the Company's revolving credit facility and the New Senior Notes
limit the ability of the Company's subsidiary's to pay dividends. Any or all
of the restrictions, limitations or contingencies under the revolving credit
facility and the Senior Notes Indenture, as well as the Company's leverage,
could adversely affect the Company's ability to obtain additional financing in
the future, to make capital expenditures, to effect store expansions, to make
acquisitions, to take advantage of business opportunities that may arise, and
10
<PAGE>
HILLS STORES COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
to withstand adverse general economic and retail industry conditions and
increased competitive pressures. Retail suppliers and their factors monitor
carefully the financial performance of retail companies such as the Company,
and may reduce credit availability quickly upon learning of actual or
perceived deterioration in the financial condition or results of operations of
a retail company.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
With respect to the previously reported suit by the Company and Hills Department
Store Company ("HDSC") against the former members of the Board of Directors, on
or about April 25, 1997, certain of the defendants filed an answer and asserted
a counterclaim against the Company, HDSC and certain members of the Company's
Board of Directors. In the counterclaim, Michael Bozic, Norman S. Matthews and
John G. Reen allege that, following the July 5, 1995 change of control, the
Company improperly refused to allow them to exercise options to purchase shares
of Hills Stores Company common stock. The plaintiffs-in-counterclaim seek
damages of $2.5 million for lost profits plus consequential damages. The
Company believes the counterclaim is without merit and plans to contest it
vigorously.
With respect to the previously reported suit by the Company and HDSC against
Smith Barney, Inc., on May 22, 1997, the New York Supreme Court, Appellate
Division, First Department, affirmed the trial court's dismissal of the suit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a. The following documents are filed as part of this report:
1
3.1 Amended and Restated Certificate of Incorporation of the Company,
as amended.
2
3.3 Amended and Restated By-Laws of the Company.
3
4.1 Certificate of the Voting Powers, Preferences and other
designated attributes of the Series A Convertible Preferred
Stock of the Company.
4
4.2 Form of Series 1993 Stock Right.
5
4.3 Series 1993 Warrant Agreement dated October 4, 1993 between the
Company and Chemical Bank, as Warrant Agent.
6
4.4 Rights Agreement dated as of August 16, 1994 (the "Rights
Agreement") between the Company and Chemical Bank, as Rights
Agent.
6
4.5 Form of Certificate of the Voting Powers, Preferences and other
designated attributes of Series B Participating Cumulative
Preferred Stock of the Company (which is attached as Exhibit A to
the Rights Agreement incorporated by reference as Exhibit 4.4
hereto).
6
4.6 Form of Right Certificate (which is attached as Exhibit B to the
Rights Agreement incorporated by reference as Exhibit 4.4 hereto).
7
4.7 Amendment dated as of October 18, 1995 to the Rights Agreement.
8
4.8 Indenture dated as of April 19, 1996 relating to the 12 1/2%
Senior Notes due 2003, Series B, of the Company.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
- ------- --------------------------------------------
9
10.1 Loan and Security Agreement (the "Loan and Security Agreement")
dated as of September 30, 1996 among the Financial Institutions
named therein as the Lenders, BankAmerica Business Credit, Inc.,
as the Agent, Hills Department Store Company and C.R.H.
International, Inc. as the Borrowers, and the other Loan Parties
named therein.
10
10.2 First Amendment dated as of February 28, 1997 to the Loan and
Security Agreement.
11
10.3 * Employment Agreement made as of February 7, 1996 with Gregory K.
Raven.
12
10.4 * Consulting Agreement made as of February 8, 1997 with Chaim Y.
Edelstein.
13
10.5 * Employment Agreement made as of July 6, 1995 with William K.
Friend.
14
10.6 * Employment Agreement made as of November 19, 1996 with Michael
R. Hamilton.
12
10.7 * Separation Agreement dated February 7, 1996 between the Company
and E. Jackson Smailes.
12
10.8 * Confidential Separation Agreement, Voluntary Release and Notice
dated March 6, 1997 between the Company and James E. Feldt.
15
10.9 * 1993 Incentive and Nonqualified Stock Option Plan, as amended.
11
10.10 * 1996 Directors Stock Option Plan.
16
10.11 * Hills Stores Company/Hills Department Store Company Associate
Stock Purchase Plan, as amended.
11 Statements regarding computation of per share earnings.
17
16 Letters re: change in certifying accountant.
27 Financial Data Schedule.
- ---------------------
* Executive Compensation Plans and Arrangements.
1. Incorporated by reference from the Annual Report on Form 10-K
of the Company for the fiscal year ended January 28, 1995.
2. Incorporated by reference from the Report on Form 8-K of
the Company dated January 18, 1996.
3. Incorporated by reference from the Form 8-A of the Company
filed on September 16, 1993.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
- ------- --------------------------------------------
4. Incorporated by reference from the Annual Report on Form 10-K
of the Company for the fiscal year ended January 29, 1994.
5. Incorporated by reference from the Report on Form 8-K of the
Company dated October 4, 1993.
6. Incorporated by reference from the Report on Form 8-K of the
Company dated August 16, 1994.
7. Incorporated by reference from the Report on Form 8-K of the
Company dated October 18, 1995.
8. Incorporated by reference from the Report on Form 10-Q of the
Company for the quarter ended May 4, 1996.
9. Incorporated by reference from the Report on Form 8-K of the
Company dated October 1, 1996.
10. Incorporated by reference from the Report on Form 8-K of the
Company dated February 28, 1997.
11. Incorporated by reference from the Annual Report on Form 10-K
of the Company for the fiscal year ended February 3, 1996.
12. Incorporated by reference from the Annual Report on Form 10-K
of the Company for the fiscal year ended February 1, 1997.
13. Incorporated by reference from the Report on Form 10-Q of the
Company for the quarter ended July 29, 1995.
14. Incorporated by reference from the Quarterly Report on Form 10-Q
for the quarter ended November 2, 1996.
15. Incorporated by reference from the Company's definitive proxy
materials dated May 5, 1997.
16. Incorporated by reference from the Form S-8 of the Company filed
on May 28, 1997.
17. Incorporated by reference from the Report on Form 8-K of the
Company dated November 8, 1995.
b. Reports on Form 8-K
1. A report on Form 8-K dated February 28, 1997 was filed by the
Company concerning the First Amendment to the Loan and Security
Agreement.
2. A report on Form 8-K dated March 12, 1997 was filed by the Company
concerning the fourth quarter and year-end press release issued on
that date.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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
Date: June 16, 1997 /s/C. Scott Litten
------------------
C. Scott Litten
Executive Vice President-
Chief Financial Officer
Date: June 16, 1997 /s/Brian J. Sheehan
------------------
Brian J. Sheehan
Vice President - Controller
and Principal Accounting Officer
15
<PAGE>
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit Title
- ------- -----
11 Statements regarding computation of earnings per share.
27 Financial Data Schedule.
16
<PAGE>
<TABLE>
EXHIBIT 11
HILLS STORES COMPANY AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Quarter Ended
-------------------------
May 3, May 4,
1997 1996
---------- -----------
<S> <C> <C>
Weighted average primary shares outstanding
- -------------------------------------------
Weighted average number of common shares
assumed to be outstanding during the period 10,343,676 10,165,710
Assumed conversion of preferred stock - -
Assumed exercise of stock options - -
Assumed exercise of stock rights - -
Assumed exercise of stock warrants - -
---------- ----------
10,343,676 10,165,710
========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
Weighted average fully-diluted shares outstanding (1)
- -----------------------------------------------------
Weighted average number of common shares assumed
to be outstanding during the period 10,345,781 10,254,944
Assumed conversion of preferred stock - -
Assumed exercise of stock options - -
Assumed exercise of stock rights - -
Assumed exercise of stock warrants - -
---------- ----------
10,345,781 10,254,944
========== ==========
</TABLE>
The calculation of the weighted average fully-diluted shares outstanding
assumes that actual conversions of Preferred Stock during the quarter
occurred as of the beginning of the period being reported on. The
conversion of Preferred Stock, and the exercise of stock options, stock
rights, and stock warrants was not assumed as the result would be anti-
dilutive.
(1) This calculation is presented in accordance with Item 601 of Regulation
S-K although it is not required by APB Opinion No. 15.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 17,537
<SECURITIES> 0
<RECEIVABLES> 28,234
<ALLOWANCES> (1,103)
<INVENTORY> 395,344
<CURRENT-ASSETS> 497,907
<PP&E> 235,917
<DEPRECIATION> (64,815)
<TOTAL-ASSETS> 911,703
<CURRENT-LIABILITIES> 322,837
<BONDS> 347,914
19,782
0
<COMMON> 103
<OTHER-SE> 215,122
<TOTAL-LIABILITY-AND-EQUITY> 911,703
<SALES> 353,504
<TOTAL-REVENUES> 353,504
<CGS> 256,720
<TOTAL-COSTS> 256,720
<OTHER-EXPENSES> 100,604
<LOSS-PROVISION> 434
<INTEREST-EXPENSE> 11,300
<INCOME-PRETAX> (15,120)
<INCOME-TAX> (5,300)
<INCOME-CONTINUING> (9,820)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,820)
<EPS-PRIMARY> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
