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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): March 12, 1997
HILLS STORES COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 1-9505 31-1153510
(State or other juris- (Commission (I.R.S. employer
diction of incorporation) file number) identification number)
</TABLE>
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 March 12, 1997, Hills Stores Company (the "Company") issued a press
release reporting its fourth quarter and annual financial results for fiscal
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 March 12, 1997.
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: March 20, 1997
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EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit
Number Title
- ------ -----
99.1 Press Release dated March 12, 1997.
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EXHIBIT 99.1
[HILLS STORES COMPANY LETTERHEAD]
FINANCIAL PRESS RELEASE
FOR IMMEDIATE RELEASE: Investor Inquiries, Contact:
- ---------------------- John Doyle
Vice President-Treasurer
Hills Stores Company
(617) 821-1000 ext. 1694
Media Inquiries, Contact:
Kathleen A. Obert
Senior Vice President
Edward Howard & Co.
(216) 781-2400
HILLS STORES REPORTS YEAR-END AND FOURTH QUARTER FINANCIAL RESULTS
CANTON, MASSACHUSETTS, March 12, 1997 -- Hills Stores Company (NYSE: HDS)
announced its fourth quarter and annual financial results for the period ended
February 1, 1997. Fiscal year 1996 was a 52-week year for Hills, compared with
a 53-week year for fiscal year 1995. The fourth quarter of last year contained
an extra fourteenth week.
The Company reported a net loss for its fourth fiscal quarter ended
February 1, 1997 of $2.9 million, or $0.28 per share on a fully diluted basis,
compared with a net profit of $10.4 million, or $0.93 per share, in the fourth
quarter last year. This year's fourth quarter included a pretax charge of $22
million ($13.5 million after tax, or $1.31 per fully diluted share) related to
the estimated cost of impairment of long-lived assets and the closing of ten
stores which the Company announced in January 1997. Fourth quarter earnings
before interest, taxes, depreciation, amortization, and other non-cash items
(EBITDA) decreased to $58.1 million from $76.7 million last year.
(more)
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HILLS STORES REPORTS ITS ANNUAL FINANCIAL RESULTS/p.2
Total sales for this year's 13-week fiscal quarter were $658.6 million
compared with $699.8 million during the 14-week fiscal quarter last year, the
decrease primarily related to last year's longer fiscal quarter. Compared with
the equivalent 13-week calendar quarter last year, total sales increased by
$5.2 million, and comparable store sales increased by 0.9%. Gross profit
decreased to $168.3 million from $188.9 million and declined as a percentage of
sales to 25.6% from 27.0% last year. Selling and administrative expenses
decreased by $2.0 million to $110.5 million from $112.5 million in the fourth
quarter of prior year and rose as a percentage of sales to 16.8% from 16.1%.
Interest expense declined to $11.1 million from $12.5 million in the fourth
quarter of 1995.
For the full fiscal year ended February 1, 1997, the Company reported a net
loss of approximately $35.1 million, or $3.39 per fully diluted share, compared
with last year's net loss of $16.7 million, or $1.66 per fully diluted share.
This year's loss included pretax charges of $33.7 million ($20.7 million after
tax, or $2.00 per fully diluted share) related to the estimated cost of impair-
ment of long-lived assets and store closings. This year's net loss also
reflected an extraordinary after-tax loss of $4.3 million, or $0.41 per fully
diluted share, from early extinguishments of debt. Last year's net loss
included a pretax charge of $45.5 million ($32.5 million after tax, or $3.24 per
fully diluted share) for costs related to 1995's change of control. For the
fiscal year 1996, EBITDA was $84.7 million compared with $119.3 million last
year.
Total sales for the 52-week fiscal year ended February 1, 1997, decreased
to $1,878.5 million from $1,900.1 million in the 53-week fiscal year ended
February 3, 1996. On an equivalent 52-week calendar basis, sales for fiscal
year 1995 were $1,881.8 million, and comparable store sales decreased by 1.7%.
Gross profit decreased to $486.1 million from $515.7 million and declined as a
percentage of sales to 25.9% from 27.1% last year. Selling and administrative
expenses increased to $403.5 million from $396.9 million last year, and rose as
a percentage of sales to 21.5% from 20.9%, largely due to the full year impact
of expenses associated with the mid-year opening of 10 new stores in fiscal year
1995 compared with one new store opened in fiscal year 1996. Interest expense
for fiscal year 1996 increased to $53.6 million from $47.7 million in 1995,
primarily reflecting 1995's capitalization changes associated with a change in
control and with a buy-back of common stock, and also reflecting 1996's
refinancing of the Company's long-term Senior Notes.
Gregory K. Raven, President and Chief Executive Officer of Hills commented,
"We were disappointed with our sales and profit performance in the fourth
quarter, and for the year as a whole. While in Fall we were able to turn around
a negative sales trend that had developed in the first half of the year, our
holiday sales programs did not adequately compensate for the compressed calendar
between Thanksgiving and Christmas, and the aggressive promotion environment
that came with it. As a result, we had to aggressively markdown excess
clearance merchandise at the end of the year, leading to an erosion in gross
margins."
(more)
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HILLS STORES REPORTS ITS ANNUAL FINANCIAL RESULTS/p.3
Raven continued, "Despite these setbacks, I am pleased with our ability to
end the quarter and year on a positive sales trend. On an equivalent calendar
basis, comparable store sales still increased about 1% for the quarter. Our
positive sales momentum has continued into early 1997, as evidenced by the 7%
comparable store sales increase we posted for the month of February. The rate
of new competitive openings affecting our stores decreased significantly as 1996
progressed, and is expected to drop even lower during 1997. In addition, our
inventory content and margins entering 1997 are in better shape than they were
in 1996. These trends put us in a good position to improve both sales and
profit margins during 1997."
C. Scott Litten, Executive Vice President and Chief Financial Officer of
the Company added, "Our financial liquidity position remains much better than
last year. Our year-end cash balances were $66 million, about $43 million
better than last year, and this improvement remains with us as we enter March.
We have not had any outstanding borrowings on our working capital facility since
mid-December, and do not anticipate any borrowings until later this month. This
will be over a month later than last year, when we began seasonal borrowings in
mid-February."
The nation's eighth largest discount retailer, Hills operates stores
primarily in the Ohio Valley and Great Lakes regions, with a majority of its
stores located in Ohio, Pennsylvania, New York, West Virginia, and Indiana.
# # # #
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Hills Stores Company and Subsidiaries
Condensed Consolidated Operating Statements (a)
(in thousands, except per share amounts)
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<CAPTION>
Fourth Quarter Year
-------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 658,646 $ 699,785 $1,878,477 $1,900,104
Cost of Sales 490,307 510,847 1,392,353 1,384,421
Selling and Administrative Expenses 110,470 112,466 403,522 396,915
Depreciation and amortization 10,046 10,434 40,121 39,052
Impairment of long-lived assets
and store closings (b) 22,000 - 33,706 -
Costs related to change in
control (c) - 2,237 - 45,529
--------- --------- ---------- ----------
Operating earnings (loss) 25,823 63,801 8,775 34,187
Interest expense, net 11,132 12,528 53,555 47,666
--------- --------- ---------- ----------
Income (loss) before income taxes 14,691 51,273 (44,780) (13,479)
Income tax provision (benefit) 17,608 40,873 (14,000) 3,187
--------- --------- ---------- ----------
Income (loss) before
extraordinary loss (2,917) 10,400 (30,780) (16,666)
Extraordinary loss on early
extinguishments of debt, net - - 4,278 -
--------- --------- ---------- ----------
Net Income (Loss) $ (2,917) $ 10,400 $ (35,058) $ (16,666)
========= ========= ========== ==========
Earnings (loss) per share -
Before extraordinary loss $ (0.28) $ 0.93 $ (2.98) $ (1.66)
Extraordinary loss - - (0.41) -
--------- --------- ---------- ----------
Net Income (Loss) $ (0.28) $ 0.93 $ (3.39) $ (1.66)
========= ========= ========== ==========
Shares Outstanding (d) 10,388 11,221 10,336 10,029
Earnings before interest, taxes,
depreciation, amortization and
other non-cash charges (EBITDA) $ 58,149 $ 76,687 $ 84,653 $ 119,344
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Hills Stores Company and Subsidiaries
Condensed Consolidated Balance Sheets (a)
(in thousands)
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<CAPTION>
February 1, February 3,
1997 1996
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<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 66,163 $ 22,898
Accounts receivable, net 24,346 25,187
Inventories 341,477 331,697
Deferred tax asset 46,491 34,011
Other current assets 5,115 5,352
----------- -----------
Total current assets 483,592 419,145
Property, equipment, and capital
lease assets, net 285,902 304,678
Beneficial lease rights, net 6,848 8,247
Deferred tax asset 8,085 8,233
Reorganization value in excess of amounts
allocated to identifiable assets, net 97,508 107,514
Other assets, net 18,418 15,746
----------- -----------
Total Assets $ 900,353 $ 863,563
=========== ===========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion of capital leases $ 7,255 $ 5,732
Borrowings under the revolving credit facility - -
Accounts payable, trade 111,064 87,471
Other accounts payable and accrued expenses 182,018 178,852
----------- -----------
Total current liabilities 300,337 272,055
Long-term senior notes 195,000 160,000
Capital lease and sale/leaseback financing 154,639 143,945
Other liabilites 5,651 8,264
Preferred stock, at mandatory redemption value 19,942 24,636
Common shareholders' equity 224,784 254,663
----------- -----------
Total Liabilities and Shareholders' Equity $ 900,353 $ 863,563
=========== ===========
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Hills Stores Company and Subsidiaries
Notes to Condensed Financial Statements
February 1, 1997
a) The condensed consolidated financial information should be read in con-
junction 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. The presentation of
prior year financial statement amounts have been reclassified to conform
with current year presentation.
b) Represents charges and costs associated with the Company's adoption in
fiscal year 1996 of SFAS No. 121 "Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to Be Disposed Of," and with the
Company's decision in January 1997 to close 10 stores. For the fourth
quarter, the after-tax impact of the charge was $13.5 million, or $1.31 per
share, while for the year, the after-tax impact of the charge was $20.7
million, or $2.00 per share.
c) 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. For the year, the after-tax impact of the charge was
$32.5 million, or $3.24 per share.
d) Earnings per share presented on a fully diluted basis only, as differences
from primary earnings per share are not significant. Fully-diluted average
shares outstanding for the fiscal quarter and year ended February 1, 1997 do
not include 997,121 shares of preferred stock, and the fiscal year ended
February 3, 1996 does not include 1,231,795 shares of preferred stock, as
the effect of the inclusion of such additional shares would be anti-
dilutive.
e) Additional Information (in thousands):
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<capiton>
For the Fourth Quarter For the Year
---------------------- --------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Capital expenditures $ 6,700 $ 6,163 $ 32,858 $ 56,714
Other non-cash items to
arrive at EBITDA 280 215 2,051 576
Cash Interest payments $18,838 $ 6,064 $ 50,122 $ 38,705
Percent to sales -
Gross profit margin 25.6% 27.0% 25.9% 27.1%
SG&A 16.8% 16.1% 21.5% 20.9%
</TABLE>
