| ★ wanayoo — archive 1999 http://biz.yahoo.com/e/l/a/ames.html | Nouvelle recherche | Portail wanayoo |
 | Home - Yahoo! - Help |  |
More Info: Quote | Chart | News | Profile | Research | SEC | Msgs | Insider | Financials
Results of Operations - On December 31, 1998, we acquired in excess of 80% of the outstanding voting stock of Hills Stores Company. Accordingly, the operations of Hills and its subsidiaries during the quarter are included in our consolidated results of operations for the thirteen and twenty-six weeks ended July 31, 1999. Immediately following our acquisition of Hills, we began implementing a series of initiatives to prepare for the conversion of 151 of the Hills stores into Ames stores and the permanent closure of the four remaining Hills stores. These initiatives included the termination of most of Hills' corporate and administrative operations and personnel, the announced closure of seven Ames stores that we considered to be directly competitive with acquired Hills stores and the engagement of two experienced liquidation firms, Gordon Brothers Retail Partners and The Nassi Group, to operate the Hills stores until their closure and to liquidate Hills' merchandise inventories.
In May 1999, Gordon Brothers and The Nassi Group completed the merchandise liquidation sales in 56 of the Hills stores. Of these stores, 2 were closed permanently and 54 were remodeled during an eight week period and were re-opened in July 1999, as Ames stores. In July 1999, Gordon Brothers and The Nassi Group completed the merchandise liquidation sales in the final 47 Hills stores, all of which are expected to be re-opened as Ames stores in late September.
Under our agreement with Gordon Brothers and The Nassi Group, we are entitled to retain from the proceeds of the merchandise inventory sales, as a minimum guaranteed amount, 40% of the initial ticketed retail price of the inventory being sold, irrespective of the actual price at which it is sold. The remaining sale proceeds, net of the expenses of operating the stores, are payable to the liquidators as compensation for their services, subject to additional allocations to Ames to the extent the proceeds exceed specified levels. For financial reporting purposes, Hills' net sales represent the actual sale proceeds from merchandise liquidation sales, its cost of merchandise sold represents the minimum guaranteed amount adjusted for proceeds in excess of specified targets, and its selling, general and administrative expenses include the portion of those proceeds that are to be paid over to the liquidators.
The following table illustrates the separate contribution of Ames' and Hills' operations to various components of the consolidated results of operations, as described below, for the thirteen and twenty-six weeks ended July 31, 1999, as well as the impact on these consolidated results of the other costs described below:
For the Thirteen
Weeks Ended For the Thirteen Weeks Ended July 31, 1999
August 1, 1998 ------------------------------------------------------
------------------- Ames Hills Other Total
-------- -------- --------- --------
TOTAL NET SALES $535,047 $728,023 $128,175 $ - $856,198
Cost of merchandise sold 378,211 514,584 83,762 - 598,346 Selling, general and administrative expenses 145,490 191,271 52,790 30,100 274,161 Leased department and other income (7,489) (10,248) (1,342) - (11,590) Depreciation and amortization expense, net 2,257 10,606 3,813 1,885 16,304 Interest and debt expense, net 3,192 11,439 1,388 794 13,621
--------------- -------------- ------------- ----------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 13,386 10,371 (12,236) (32,779) (34,644)
Income tax benefit (provision) (5,000) (3,733) 4,404 11,800 12,471
--------------- -------------- ------------- ----------- ---------------
NET INCOME (LOSS) $8,386 $6,638 ($7,832) ($20,979) ($22,173)
=============== ============== ============= =========== ===============
Weighted average number of common shares 22,950 27,706 27,706 27,706 27,706
outstanding =============== ============== ============= =========== ===============
Net income (loss) per share $ 0.37 $ 0.24 ($0.28) ($0.76) ($0.80)
=============== ============== ============= =========== ===============
Weighted average number of common and
common equivalent shares outstanding 24,272
===============
Diluted net income per share $ 0.35
===============
For the Twenty-Six
Weeks Ended For the Twenty-Six Weeks Ended July 31, 1999
August 1, 1998 -----------------------------------------------------------
------------------ Ames Hills Other Total
-------------- ------------- ----------- ---------------
TOTAL NET SALES $1,032,092 $1,309,625 $375,642 $ - $1,685,267
Cost of merchandise sold 736,822 934,089 251,212 - 1,185,301 Selling, general and administrative expenses 290,762 350,903 142,047 46,672 539,622 Leased department and other income (13,675) (16,644) (3,368) - (20,012) Depreciation and amortization expense, net 4,178 16,523 10,393 3,771 30,687 Interest and debt expense, net 5,246 19,417 4,162 1,964 25,543
--------------- -------------- ------------- ----------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 8,759 5,337 (28,804) (52,407) (75,874)
Income tax benefit (provision) (3,316) (1,921) 10,368 18,866 27,313
--------------- -------------- ------------- ----------- ---------------
NET INCOME (LOSS) $5,443 $3,416 ($18,436) ($33,541) ($48,561)
=============== ============== ============= =========== ===============
Weighted average number of common shares 22,800 25,914 25,914 25,914 25,914
outstanding =============== ============== ============= =========== ===============
Net income (loss) per share $ 0.24 $ 0.13 ($0.71) ($1.29) ($1.87)
=============== ============== ============= =========== ===============
Weighted average number of common and
common equivalent shares outstanding 24,171
===============
Diluted net income per share $ 0.23
===============
For the thirteen and twenty-six weeks ended July 31, 1999, the Ames results reflect (a) the results of the pre-Hills acquisition Ames base, (b) the post re-opening results of the 104 converted Hills stores and (c) certain expenses associated with the acquisition of Hills, including the interest expense on the acquired Hills senior notes and a pro rata share of the amortization of the goodwill recorded in connection with the acquisition. The Hills results represent (a) the results of operations for the Hills stores during the period that these stores were operated pursuant to the agreement with Gordon Brothers and The Nassi Group, including the fee due Gordon and Nassi and the depreciation and interest expense directly associated with such stores and (b) Hills corporate overhead expenses, principally the Canton, MA corporate facility. The other costs represent the expenses incurred during the period of remodeling the 54 Hills stores that re-opened as Ames stores on July 19, 1999.
The unique circumstances under which Hills' operations have been conducted through the second quarter ended July 31, 1999 and the accounting treatment accorded those operations as a consequence of our agreement with Gordon Brothers and The Nassi Group distort any direct comparison of the principal components of Ames' consolidated results for the thirteen and twenty-six weeks ended July 31, 1999 and August 1, 1998. In the discussion that follows, Ames' net sales, gross margin, and selling, general and administrative expenses for the thirteen and twenty-six weeks ended July 31, 1999 are presented and compared exclusive of the Hills results. The impact of the Hills acquisition is included in the comparison of depreciation and amortization expense and interest and debt expense.
Ames' net sales for the thirteen weeks ended July 31, 1999 increased $193.0 million or 36.1% from the prior-year's second quarter and comparable-store sales increased 9.5%. These sales increases were attributable, in part, to the Grand Openings of 54 converted Hills stores on July 22, 1999 along with the openings of 50 converted Hills stores and 1 other new Ames store in April 1999. Ames' net sales for the twenty-six weeks ended July 31, 1999 increased $277.5 million or 26.9% from the same prior-year period and comparable-store sales increased 9.3%. These sales increases were attributable, in part, to the openings of 104 converted Hills stores and 1 other new Ames store during the first half of 1999. Net sales for last year have been restated to reflect the effect of recording promotional coupons issued by Ames as markdowns, which conforms to the current year treatment.
Ames' gross margin increased $56.6 million in the second quarter of 1999 compared to the second quarter of 1998, but remained unchanged as a percentage of net sales at 29.3%. Ames' gross margin for the twenty-six weeks ended July 31, 1999 increased $80.3 million or .07% as a percentage of net sales compared to the same prior-year period. The year- to-date gross margin rate benefited from a favorable purchase mark-up.
Ames' selling, general and administrative expenses increased $45.8 million for the thirteen weeks ended July 31, 1999 compared to the same prior-year period, but decreased as a percentage of net sales from 27.2% in 1998 to 26.3% in 1999. The percentage decrease was primarily attributable to a reduction in store related and advertising expenses as a percentage of sales. Ames' selling, general and administrative expenses increased $60.1 million for the twenty-six weeks ended July 31, 1999 compared to the same prior-year period, but decreased as a percentage of net sales from 28.2% in 1998 to 26.8% in 1999. The percentage decrease was primarily attributable to a reduction in store related and advertising expenses as a percentage of sales.
Depreciation and amortization expense increased by $14.0 million for the thirteen weeks ended July 31, 1999 compared to the same prior- year period. For the twenty-six weeks ended July 31, 1999, depreciation and amortization expense increased by $26.5 million compared to the same prior-year period. The Hills acquisition added $3.8 million and $10.4 million of depreciation and amortization expense for the thirteen and twenty-six weeks ended July 31, 1999, respectively. The increase was due to the additional depreciation and amortization of the Hills fixed assets and beneficial lease rights and the amortization of goodwill relating to the excess of the Hills acquisition cost over the value of the acquired assets.
Interest expense increased by $10.4 million and $20.3 million for the thirteen and twenty-six weeks ended July 31, 1999, respectively, compared to the same prior-year periods. The increase was primarily attributable to the interest expense incurred for the Ames senior notes, the Hills senior notes, the Hills capital lease and financing obligations and, for the year-to-date period, to the increased interest on bank borrowings.
Our estimated annual effective income tax rate for each year was applied to the loss before income taxes for each period to compute a non-cash income tax benefit or provision. The income tax benefits are included in other current assets in the balance sheet as of July 31, 1999 and the income tax provision is included as an addition to paid-in capital in the balance sheet as of August 1, 1998.
Liquidity and Capital Resources - Our principal sources of liquidity are our bank credit facility, cash from operations and cash on hand. Our current bank credit facility consists of a revolving credit facility of up to $650.0 million, with a sublimit of $150.0 million for letters of credit, which expires June 30, 2002. Borrowings under the bank credit facility are secured by substantially all of our assets and after February 2000, we are required to meet certain financial covenants. In addition, we are required to maintain a minimum availability of at least $100.0 million. Our peak borrowing level during the quarter ended July 31, 1999 under this bank credit facility was $88.1 million. We believe we will have sufficient liquidity to meet our financial obligations for the foreseeable future.
On April 27, 1999, we completed the sale of $200 million of Ames senior notes. The net proceeds from the sale of the Ames senior notes, approximately $193.4 million, were used to reduce outstanding borrowings under our bank credit facility. The Ames senior notes pay interest semi-annually in April and October and mature April 2006.
On May 24, 1999, we completed the public offering of 5.1 million shares of Common Stock at a price of $38.75 per share. The proceeds, net of underwriting discounts, of approximately $187.9 million were used to reduce our borrowings under the bank credit facility and for general corporate purposes.
Merchandise inventories increased $293.3 million from August 1, 1998 to July 31, 1999 due to planned increases for the opening of the converted Hills stores. Our merchandise inventories increased $173.9 million from January 30, 1999 to July 31, 1999 due primarily to the planned increases for the opening of the converted Hills and Caldor stores along with the normal seasonal build-up of inventories.
Trade accounts payable increased $167.8 million from August 1, 1998 to July 31, 1999 primarily due to the merchandise inventory increases referenced above. The increase of $30.7 million from January 30, 1999 to July 31, 1999 was principally the result of the merchandise inventory increases referenced above, partially offset by the seasonal dating of inventories in effect as of January 30, 1999.
Capital expenditures for the twenty-six weeks ended July 31, 1999 totaled $83.6 million and for the balance of the year are estimated to be approximately $135.0 million. We adjust our plans for making such expenditures depending on the amount of internally generated funds.
Net fixed assets increased by $319.2 million from August 1, 1998 to July 31, 1999 due primarily to the inclusion of $226.4 million in net fixed assets of Hills. Our net fixed assets increased $60.0 million from January 30, 1999 to July 31, 1999 due primarily to the capital expenditures associated with the newly converted Hills stores.
Beneficial lease rights represent the excess of the fair market value of the acquired Hills leases over contract value of those leases. We are amortizing this amount over the terms of the related leases (which average approximately 25 years) using the straight-line method. Goodwill is being amortized over 25 years using the straight-line method.
Long-term debt as of July 31, 1999 consisted of borrowings under our bank credit facility of $6.2 million, $200.0 million of the Ames senior notes issued in April 1999, and $50.9 million of the Hills senior notes that remained outstanding after the acquisition. The Hills senior notes became direct obligations of Ames as a result of the merger of Hills into Ames.
Capital lease and financing obligations increased $146.2 million from August 1, 1998 to July 31, 1999 due primarily to the inclusion of $144.5 million of capital lease and financing obligations of Hills. Capital lease and financing obligations decreased by $8.4 million from January 30, 1999 to July 31, 1999 due to payments made on capital lease obligations.
The net operating loss carryovers remaining after fiscal year 1998, subject to any limitations pursuant to Internal Revenue Code Sec. 382, should offset income on which taxes would otherwise be payable in the next several years.
Year 2000 Readiness - In operating our business, we are dependent on information technology and process control systems that employ computers as well as embedded microprocessors. We also depend on the proper functioning of the business systems of third parties, particularly the more than 3,200 vendors from whom we purchase the merchandise sold in our stores. Many computer systems and microprocessors can only process dates in which the year is represented by two digits. As a result, some of these systems and processors may interpret "00" incorrectly as the year 1900 instead of the year 2000, in which event they could malfunction or become inoperable after December 31, 1999. Systems and processors that can properly recognize the year 2000 are referred to as "year 2000 compliant."
As previously reported, we initiated a comprehensive program to prepare our computer systems and applications for the year 2000. We have spent approximately $5.1 million on this program through the end of the second quarter of fiscal 1999 and expect that full implementation of the program will involve an additional $1.0 million to $1.5 million,
including expenditures for software and consulting services.
Additionally, we estimate the allocated costs of our internal system
development staff who are implementing our year 2000 initiatives to be
$3.5 million to $4.0 million over the life of the project.