Ames Department Stores Inc – ‘10-Q’ for 4/29/00

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Quarterly Report   —   Form 10-Q
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      19±    95K 
 2: EX-27       Financial Data Schedule                                1      5K 

10-Q   —   Quarterly Report
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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    April 29, 2000                                

[   ]      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 1-05380

AMES DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)

Delaware                             4-2269444    
--------                             ---------    
(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

 29,404,587 shares of Common Stock were outstanding on May 26, 2000.

Exhibit Index on page 13

 Page 1 of 17 (including exhibits)

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 AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES

 FORM 10-Q

FOR THE QUARTER ENDED APRIL 29, 2000

                                                                [Download Table]

                                 I N D E X                                       

                                                                             Page
                                                                                 

Part I:      Financial Information                                               

     Item 1.     Consolidated Condensed Statements of Operations              3  
                    for the Thirteen Weeks ended April 29, 2000 and              
                    May 1, 1999                                                  

                 Consolidated Condensed Balance Sheets as of                  4  
                    April 29, 2000, January 30, 1999, and May 1,                 
                    1999                                                         

                 Consolidated Condensed Statements of Cash Flows              5  
                    for the Thirteen Weeks ended April 29, 2000                  
                    and May 1, 1999                                              

                 Notes to Consolidated Condensed Financial Statements         6  

     Item 2.     Management's Discussion and Analysis of Financial  10           
                    Condition and Results of Operations                          

     Item 3.     Quantitative and Qualitative Disclosures about Market Risk   12 

Part II:     Other Information                                                   

     Item 1.     Legal Proceedings                                            13 

     Item 4.     Submission of Matters to a Vote of Security Holders          13 

     Item 6.     Exhibits and Reports on Form 8-K                             13 

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PART I
Item 1.                                                                         
 FINANCIAL INFORMATION

                                                        [Enlarge/Download Table]

                                             AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                            
                                            CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS                           
                                               (In Thousands, Except Per Share Amounts)                               
                                                              (Unaudited)                                             

                                                                                           For the Thirteen           
                                                                                             Weeks Ended              
                                                                                 -------------------------------------
                                                                                 ---------------- ---- ---------------

                                                                                                                      

                                                                                    April 29,              May 1,     
                                                                                      2000                  1999      
                                                                                 ----------------      ---------------
                                                                                 ----------------      ---------------

Ames net sales                                                                          $830,657             $567,217 
Hills net sales                                                                           -                   248,942 
                                                                                 ----------------      ---------------
                                                                                 ----------------      ---------------
     Total net sales                                                                     830,657              816,159 
     Leased department and other income                                                    9,259                8,400 
                                                                                 ----------------      ---------------
                                                                                 ----------------      ---------------
Total revenue                                                                            839,916              824,559 

Costs and expenses:                                                                                                   
     Ames cost of merchandise sold                                                       602,924              409,250 
     Hills cost of merchandise sold                                                       -                   168,323 
     Ames selling, general and administrative expenses                                   247,415              176,171 
     Hills operating expenses and agency fees                                             -                    89,257 
     Depreciation and amortization expense, net                                           17,697               14,383 
     Interest and debt expense, net                                                       18,792               11,922 
                                                                                 ----------------      ---------------
                                                                                 ----------------      ---------------

Loss before income taxes                                                                (46,912)             (44,747) 
Income tax benefit                                                                        17,827               16,108 
                                                                                 ----------------      ---------------
                                                                                 ----------------      ---------------
Loss before cumulative effect of accounting change                                      (29,085)             (28,639) 
Cumulative effect of accounting change, net of tax of $614                              -                     (1,107) 
                                                                                 ----------------      ---------------
                                                                                 ----------------      ---------------

Net loss                                                                               ($29,085)            ($29,746) 
                                                                                 ================      ===============
                                                                                 ================      ===============

Basic and diluted net loss per share:                                                                                 
     Before Cumulative Effect of Accounting Change                                       ($0.99)              ($1.19) 
     Cumulative Effect of Accounting Change, net of tax                                    -                   (0.05) 
                                                                                 ----------------      ---------------
                                                                                 ----------------      ---------------
     Net loss                                                                            ($0.99)              ($1.24) 
                                                                                 ================      ===============
                                                                                 ================      ===============

Weighted average number of common shares outstanding                                      29,336               23,990 
                                                                                 ================      ===============

(The  accompanying  Notes  are  an  integral  part  of  these  consolidated     
condensed financial statements.)                                                

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                                             AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                                   
                                                 CONSOLIDATED CONDENSED BALANCE SHEETS                                       
                                               (In Thousands, Except Per Share Amounts)                                      
                                                              (Unaudited)                                                    

                                                                                                                             

                                                                                   April 29,     January 29,       May 1,    
                                                                                     2000           2000            1999     
                                                                                  ------------  --------------  -------------
                                            ASSETS                                                                           
Current Assets:                                                                                                              
     Cash and short-term investments                                                  $44,045         $30,612        $46,315 
     Receivables                                                                       26,911          25,302         33,987 
     Merchandise inventories                                                          987,919         831,387        702,288 
     Deferred taxes, net                                                               46,681          28,854         16,108 
     Prepaid expenses and other current assets                                         32,367          36,772         26,333 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------
          Total current assets                                                      1,137,923         952,927        825,031 

Fixed Assets                                                                          669,316         629,979        471,916 
     Less - Accumulated depreciation and amortization                               (147,884)       (128,229)       (80,016) 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------
          Net fixed assets                                                            521,432         501,750        391,900 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------

Other assets and deferred charges                                                      62,557          57,256         48,973 
Deferred taxes, net                                                                   346,055         346,055        102,406 
Beneficial lease rights, net                                                           55,589          56,280         58,195 
Goodwill, net                                                                          60,388          61,026        228,142 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------
                                                                                   $2,183,944      $1,975,294     $1,654,647 
                                                                                  ============  ==============  =============
                             LIABILITIES AND STOCKHOLDERS' EQUITY                                                            
Current Liabilities:                                                                                                         
     Accounts payable:                                                                                                       
          Trade                                                                      $328,441        $325,356       $275,552 
          Other                                                                        86,113          96,224         75,767 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------
               Total accounts payable                                                 414,554         421,580        351,319 
                                                                                  ------------  --------------  -------------
Current portion of capital lease and financing                                                                               
     obligations                                                                       22,057          22,086         17,799 
Self-insurance reserves                                                                26,489          29,827         29,176 
Accrued expenses and other current liabilities                                        136,405         133,110        256,011 
Store closing reserves                                                                 54,303          55,468         58,789 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------
     Total current liabilities                                                        653,808         662,071        713,094 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------

Long-term debt                                                                        673,782         421,769        333,486 
Capital lease and financing obligations                                               176,020         180,404        184,901 
Other long-term liabilities                                                            56,708          57,916        105,844 
Excess of revalued net assets over equity under fresh start reporting                  16,329          17,868         22,483 
Commitments and contingencies (see Note 8)                                               -               -              -    
Stockholders' Equity:                                                                                                        
     Preferred stock (3,000,000 shares authorized; no shares issued or                                                       
     outstanding at April 29, 2000, January 29, 2000 and May 1, 1999;                                                        
     par value per share $.01)                                                           -               -              -    
     Common stock (40,000,000 shares authorized; 29,403,987; 29,233,650                                                      
     and 24,013,454 shares outstanding at April 29, 2000, January 29, 2000                                                   
     and May 1, 1999, respectively; par value per share $.01)                             296             293            240 
     Additional paid-in capital                                                       531,857         530,744        237,243 
     Retained earnings                                                                 76,058         105,143         58,270 
     Treasury stock, at cost                                                            (914)           (914)          (914) 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------
          Total stockholders' equity                                                  607,297         635,266        294,839 
                                                                                  ------------  --------------  -------------
                                                                                  ------------  --------------  -------------
                                                                                   $2,183,944      $1,975,294     $1,654,647 
                                                                                  ============  ==============  =============

(The  accompanying  Notes  are  an  integral  part  of  these  consolidated     
condensed financial statements.)                                                

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                                             AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                       
                                            CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS                      
                                                            (In Thousands)                                       
                                                              (Unaudited)                                        

                                                                                    For the Thirteen             
                                                                                       Weeks Ended               
                                                                         ----------------------------------------
                                                                         ----------------------------------------
                                                                             April 29,             May 1,        
                                                                               2000                 1999         
                                                                         ------------------  --------------------
                                                                                                                 

                                                                         ------------------  --------------------
Cash flows from operating activities:                                                                            
      Net loss                                                                   ($29,085)             ($29,746) 
      Expenses not requiring the outlay of cash:                                                                 
           Income tax benefit                                                     (17,827)              (16,724) 
           Depreciation and amortization of fixed and other assets                  19,640                16,183 
           Amortization of debt discounts and deferred financing costs               1,200                   969 
                                                                         ------------------  --------------------
Cash used by operations before changes in working capital and                                                    
store closing activities                                                          (26,072)              (29,318) 
Changes in working capital:                                                                                      
      Increase in receivables                                                      (1,609)               (3,743) 
      Increase in merchandise inventories                                        (156,532)              (80,779) 
      Decrease in accounts payable                                                 (7,026)              (49,438) 
      Increase in accrued expenses and other current liabilities                     3,295                30,722 
       Decrease (increase) in other working capital and other, net                   1,094              (19,072) 
Changes due to store closing activities:                                                                         
      Payments of store closing costs                                              (1,165)                 (979) 
                                                                         ------------------  --------------------
                                                                         ------------------  --------------------
Net cash used for operating activities                                           (188,015)             (152,607) 
                                                                         ------------------  --------------------
Cash flows from investing activities:                                                                            
      Purchases of fixed assets                                                   (40,249)              (34,205) 
      Purchases of leases                                                          (7,019)              (27,822) 
                                                                         ------------------  --------------------
                                                                         ------------------  --------------------
Net cash used for investing activities                                            (47,268)              (62,027) 
                                                                         ------------------  --------------------
Cash flows from financing activities:                                                                            
       Borrowings under the revolving credit facility, net                         254,751                37,676 
       Payments on debt and capital lease obligations                              (4,413)               (7,003) 
       Repurchase of Hills Senior Notes                                             (2,738)                    - 
       Proceeds from the issuance of senior notes                                        -               200,000 
       Deferred financing costs                                                          -               (6,044) 
       Proceeds from the exercise of options and warrants                            1,116                   576 
                                                                         ------------------  --------------------
                                                                         ------------------  --------------------
Net cash provided by financing activities                                          248,716               225,205 
                                                                         ------------------  --------------------
                                                                         ------------------  --------------------
Increase in cash and short-term investments                                         13,433                10,571 
Cash and short-term investments, beginning of period                                30,612                35,744 
                                                                         ------------------  --------------------
                                                                         ------------------  --------------------
Cash and short-term investments, end of period                                     $44,045               $46,315 
                                                                         ==================  ====================

Supplemental disclosure of cash flow information:                                                                
       Cash paid during the period for:                                                                          
           Interest and debt fees not capitalized                                  $20,206                $8,271 
           Income taxes                                                              1,234                   355 

(The  accompanying  Notes  are  an  integral  part  of  these  consolidated     
condensed financial statements.)                                                

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 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 April 29, 2000 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.  Pursuant to the  indenture  governing  the Ames Senior Notes (as
defined  in Note 5),  all of  Ames'  subsidiaries  have  jointly  and  severally
guaranteed  the Ames Senior Notes on a full and  unconditional  basis.  Separate
financial statements of those subsidiaries have not been included herein because
management  has  determined  that  they  are  not  material  to  investors.     

     The consolidated  condensed  balance sheet at January 29, 2000 was obtained
from audited financial statements previously filed with the SEC in the Company's
Annual Report on Form 10-K for the fiscal year ended January 29, 2000 (the "1999
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 1999 Form 10-K.                                         

     In the fourth  quarter of the year ended January 29, 2000 ("Fiscal  1999"),
the  Company  adopted  Staff  Accounting   Bulletin  ("SAB")  No.  101  "Revenue
Recognition" as promulgated by the staff of the SEC effective  retroactively  to
the  first  quarter  of  Fiscal  1999.  Therefore,  the  consolidated  condensed
financial statements for the thirteen weeks ended May 1, 1999 have been adjusted
accordingly.  Reference  can be  made  to the  1999  Form  10-K  for  additional
discussion of the adoption of SAB No. 101 by the Company.                       

2.       Acquisition and Agency Agreement:                                      

Acquisition of Hills Stores Company                                   

     On December  31,  1998,  HSC  Acquisition  Corp.  ("HSC"),  a wholly  owned
subsidiary of the Company,  acquired in excess of 80% of the outstanding  voting
stock of Hills Stores Company ("Hills") and approximately 74% of the outstanding
Hills 12.5% senior notes.  Subsequently,  Hills was merged with HSC and became a
wholly owned subsidiary of Ames Department Stores, Inc. In April 1999, Hills was
merged with and into Ames  Department  Stores,  Inc.  The  acquisition  has been
recorded under the purchase method of accounting.                               

     Total cash  consideration  for the  acquisition  of Hills was $129 million.
Reference can be made to the 1999 Form 10-K for further  discussion of the Hills
acquisition.                                                                    

     At the time of the  acquisition  Hills  operated  155  discount  department
stores. During 1999, the Company remodeled and converted 151 of the Hills stores
to Ames  stores.  The four  remaining  Hills  stores along with seven other Ames
stores were closed,  because they were in locations that were either competitive
with or were  under-performing  other Hills or Ames stores.  The  remodeling and
conversion  process  was  conducted  in  three  stages,   each  stage  involving
approximately  one third of the Hills  stores.  The first stage was completed in
late April 1999; the second stage was completed in late July 1999; and the third
stage was completed in late September 1999.                                     

     Concurrent  with  the  Hills  acquisition,   the  Company  entered  into  a
transition and agency  agreement (the "Agency  Agreement")  with Gordon Brothers
Retail Partners, LLC and The Nassi Group, LLC (collectively the "Agent"),  which
provided  that the  Agent  serve  for a  period  of time to  operate  all of the
acquired  Hills  stores and to conduct  inventory  liquidation  sales at each of
those stores prior to its scheduled  remodeling or final  closure.  Accordingly,
the Agent managed the sale of the inventory acquired in the Hills acquisition as
well as certain other inventory  identified in the Agency Agreement.  The Agency
Agreement  entitled  the Company to receive  out of the sale  proceeds a minimum
amount equal to 40% of the initial retail value or ticketed selling price of the
merchandise (the "Guaranteed Return"),  with the possibility of a greater return
if the sale proceeds exceeded a target percentage of initial retail value.      
>                                                                               

     The results of operations of Hills for the thirteen weeks ended May 1, 1999
have  been  included  in  the  accompanying   consolidated  condensed  financial
statements.  During  the  thirteen  weeks  ended  May  1,  1999,  the  following
accounting  treatment  has been  applied to  recognize  the results of the Hills
stores prior to their  conversion to Ames stores  during Fiscal 1999.  Hills net
sales have been recorded as "Hills Net Sales" and  represent net sales  achieved
by the Hills stores  prior to their  conversion  to Ames stores.  "Hills Cost of
Merchandise Sold" represents the cost of merchandise sold in connection with the
above referenced sales as adjusted for the Guaranteed  Return.  "Hills Operating
Expenses and Agency Fees" include the following:  the associated  store expenses
incurred  while  operating  the Hills stores prior to their  conversion  to Ames
stores,  which are  reimbursable  to the  Company  out of the  proceeds of Hills
merchandise sales per the Agency Agreement;  the Agency Fee due to the Agent for
the period  presented;  and other expenses (e.g.  non-store  payroll,  non-store
rent,  etc.)  associated  with  supporting  the  Hills  stores  prior  to  their
conversion  to  Ames  stores,  which  are  not  reimbursable  under  the  Agency
Agreement.                                                                      

Acquisition of Goldblatt's Leases                                     

     In April 2000, the Company consummated its purchase of the leases for seven
stores from  Goldblatt's  Department  Stores,  Inc. for a cash purchase price of
$7.6 million.                                                                   

     Reference  can  be  made  to the  Fiscal  1999  Form  10-K  for  additional
discussion of the Hills and Goldblatt's acquisitions.                           

3.       Net Income (Loss) Per Common Share:                                    

     Net  income  (loss) per share was  determined  using the  weighted  average
number of common  shares  outstanding.  Diluted  net loss per share was equal to
basic net loss per share  because  inclusion of common stock  equivalents  would
have been  anti-dilutive.  During the  quarter  ended  April 29,  2000,  139,382
options were exercised and 100,000 Series B Warrants were converted.  During the
quarter ended May 1, 1999,  103,981  options were exercised and no warrants were
converted.                                                                      

4.       Inventories:                                                           

     Inventories are valued at the lower of cost, using the first-in,  first-out
(FIFO) method, or market and include the  capitalization  of transportation  and
distribution center costs.                                                      

5.       Debt:                                                                  

Credit Agreement                                                      

     On December 31, 1998, in connection with the acquisition of Hills,  certain
of the Company's subsidiaries entered into an agreement (the "Credit Agreement")
with a syndicate of banks and  financial  institutions  for whom Bank of America
NT&SA is serving as agent. The Credit Agreement provides for a secured revolving
credit facility of up to $650 million.                                          

     The Credit  Agreement  is in effect  until June 30,  2002 and is secured by
substantially  all of the assets of the  Company.  Reference  can be made to the
1999  Form  10-K for  additional  discussion  of the  Credit  Agreement  and for
descriptions of the Company's other obligations not discussed herein.           

     As of April 29, 2000,  borrowings of $429.3 million were outstanding  under
the Credit  Agreement.  These  borrowings  are included in long-term debt in the
accompanying  consolidated  condensed  balance  sheet as of April 29,  2000.  In
addition,  $21.5 and $4.2  million  of  standby  and trade  letters  of  credit,
respectively,  were outstanding under the Credit Agreement. The weighted average
interest rate on the  borrowings for the thirteen weeks ended April 29, 2000 was
7.8%.  The peak  borrowing  level through April 29, 2000 was $429.3  million and
occurred in April 2000.                                                         

Senior Notes due 2006                                                 

     On April 27, 1999,  the Company  completed  the sale of $200 million of its
10% seven-year senior notes (the "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 the Credit  Agreement.  The Ames Senior Notes pay
interest semi-annually in April and October and mature April 2006.              

Senior Notes due 2003                                                 

     The 12.5% Senior Notes due 2003 (the "Hills  Senior  Notes")  were,  at the
time of the acquisition of Hills, an unsecured obligation of Hills.             

     The Hills  Senior  Notes pay  interest  in January and June and mature July
2003.  During the quarter  ended April 29, 2000 the Company  repurchased  on the
open market approximately $2.7 million face value of these notes.               

     Reference  can  be  made  to the  Fiscal  1999  Form  10-K  for  additional
discussion of the Ames Senior Notes and Hills Senior Notes.                     

6.       Stock Options:                                                         

     The Company has three stock  option plans (the  "Option  Plans"):  the 1994
Management  Stock  Option  Plan,  the  1998  Stock  Incentive  Plan and the 1994
Non-Employee Directors Stock Option Plan.                                       

     In October 1995,  the Financial  Accounting  Standard Board issued SFAS No.
123  "Accounting  for Stock  Based  Compensation."  SFAS No. 123  established  a
fair-value based method of accounting for stock-based compensation;  however, it
allowed  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 loss and basic net
loss per common share would have  approximated  the pro forma amounts  indicated
below:                                                                          

                                                                [Download Table]

                                          For the Thirteen Weeks Ended     
                                      -------------------------------------
                                      -------------- ------ ---------------
                  (In Thousands)        April 29,               May 1,     
                                          2000                   1999      
                                      --------------        ---------------
                                                                           

                                      --------------        ---------------
Net loss:                                                                  
As reported                               ($29,085)              ($29,746) 
Pro forma                                 ($31,482)              ($31,329) 

Basic net loss per common share: (a)                                       
As reported                                 ($0.99)                ($1.24) 
Pro forma                                   ($1.07)                ($1.31) 

[FN]                                                                            
(a) Common  stock  equivalent  shares  have not been  included  because the     
effect would be anti-dilutive.                                          
</FN>                                                                           

     The fair value of stock  options  used to compute  pro forma net income and
net income per diluted  common share is the  estimated  present  value as of the
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.                                                         

7.       Income Taxes:                                                          

     The Company's  estimated annual effective income tax rate for each year was
applied to the loss before  income taxes for the thirteen  weeks ended April 29,
2000 and May 1, 1999 to compute a non-cash  income tax  benefit.  The income tax
benefit is included in other  current  assets in the  accompanying  consolidated
condensed balance sheet as of April 29, 2000 and May 1, 1999.                   

8.       Commitments and Contingencies:                                         

     Reference  can be made to the 1999 Form 10-K  (Item 3 - Legal  Proceedings)
for various litigation  involving the Company,  for which there were no material
changes since the filing date of the 1999 Form 10-K.                            

9.       Recently Issued Accounting Pronouncements:                             

     In June 1998, the Financial  Accounting  Standard Board issued statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  derivative
instruments and Hedging Activities." This statement  establishes  Accounting and
Reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance  sheet as either an asset or liability  measured at its fair value.  The
statement also requires that changes in a derivative's  fair value be recognized
currently in earnings  unless specific hedge  accounting  criteria are met. SFAS
No. 133 is effective, prospectively, for all fiscal quarters of all fiscal years
beginning  after June 15,  2000,  with early  adoption at the  beginning  of any
fiscal quarter being permitted.  Management is currently analyzing the impact of
this new  pronouncement  on the  Company's  financial  position  and  results of
operations.                                                                     

Item 2.                                                                         
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
the  consolidated  condensed  financial  statements and Notes  presented in this
report.                                                                         

Results of Operations                                                           

     The  consolidated  results of operations  for the quarter ended May 1, 1999
include  the  results of the former  Hills  stores  during the period  they were
operated by Gordon Brothers and The Nassi Group under an agency agreement. These
firms were  engaged to operate  the Hills  stores  until  their  closure  and to
liquidate the merchandise inventories.                                          

     During the quarter ended May 1, 1999,  Gordon  Brothers and The Nassi Group
completed the  merchandise  liquidation  sales in 52 of the former Hills stores.
Subsequent to the liquidation  sales,  the Company  remodeled 50 of these stores
during an eight-week  period and, on April 19, 1999,  the Company  re-opened the
remodeled  stores as Ames  stores.  In addition,  Gordon  Brothers and The Nassi
Group  initiated the  liquidation  sales in 55 former Hills stores in late March
and the final liquidation sales in 48 former Hills stores in early May.         

     The following  table  illustrates  the results of Ames'  operations for the
quarter ended April 29, 2000, as compared to the separate contributions of Ames'
and Hills'  operations and the other costs described  below to the  consolidated
results of operations for the quarter ended May 1, 1999.                        

                                                        [Enlarge/Download Table]

                                                                  ------------------------------------------------
                                                                         For The Thirteen Weeks Ended May 1, 1999 
                                                                  ------------------------------------------------
                                                     For the      ------------------------------------------------
                                                    Thirteen                                                      
                 (In Thousands)                    Weeks Ended                                                    
                                                 April 29, 2000       Ames       Hills      Other       Total     
                                                 --------------       ----       -----      -----       -----     

                                                                                                                  

Net sales                                                $830,657     $567,217   $248,942     -          $816,159 
Leased department and other income                          9,259        6,374      2,026     -             8,400 
                                                ------------------------------------------------------------------
Total revenue                                            $839,916     $573,591   $250,968     -          $824,559 
Cost and expenses:                                                                                                
Cost of merchandise sold                                  602,924      409,250    168,323     -           577,573 
Selling, general and administrative expenses              247,415      159,599     89,257     16,572      265,428 
Depreciation and amortization expenses, net                17,697        5,917      6,580      1,886       14,383 
Interest and debt expense, net                             18,792        7,978      2,774      1,170       11,922 
                                                ------------------------------------------------------------------

Loss before income taxes and cumulative effect           (46,912)      (9,153)   (15,966)   (19,628)     (44,747) 
Income tax benefit                                         17,827        3,295      5,747      7,066       16,108 
                                                ------------------------------------------------------------------
Loss before cumulative effect of accounting                                                                       
change                                                   (29,085)      (5,858)   (10,219)   (12,562)     (28,639) 

Cumulative effect of accounting change, net of                                                                    
tax                                                         -          -           -         (1,107)      (1,107) 
                                                ------------------------------------------------------------------

Net loss                                                ($29,085)     ($5,858)  ($10,219)  ($13,669)    ($29,746) 
                                                ==================================================================

     The Ames column  represents (a) the results of the Ames store base, (b) the
results of the converted Hills stores after their  re-opening as Ames stores and
(c)  certain  expenses  associated  with the  acquisition  of  Hills,  including
interest  expense on the acquired Hills senior notes and a pro rata share of the
amortization of goodwill recorded in connection with the acquisition.           

     The Hills column  represents  (a) the results of  operations  for the Hills
stores during the period that these stores were operated  pursuant to the Gordon
Brothers/Nassi  Agency  Agreement,  including  depreciation and interest expense
directly  associated with such stores and (b) Hills corporate overhead expenses,
principally the Canton, MA facility.                                            

     The Other  column  represents  the expenses  incurred  during the period of
remodeling the Hills stores (for example,  pre-opening  expenses incurred during
the conversion or "dark" period) as well as certain other expenses.             

     The unique  circumstances  under which  Hills'  operations  were  conducted
through  the quarter  ended May 1, 1999  distort  any direct  comparison  of the
principal  components of Ames' consolidated results for the quarters ended April
29, 2000 and May 1, 1999. In the discussion that follows, Ames' net sales, gross
margin, and selling,  general and administrative  expenses for the quarter ended
April 29, 2000 are  compared to the Ames'  results for the quarter  ended May 1,
1999,  exclusive of the Hills  results and other  expenses.  The  comparison  of
depreciation and amortization expense and interest and debt expense will be on a
consolidated basis.                                                             

     Ames' net sales  increased  $263.4  million or 46% in the first  quarter of
2000  compared to the prior year's first  quarter.  This increase is primarily a
result of the  inclusion  of all 151 of the  converted  Hills stores in the Ames
store  base for the  entire  quarter  compared  to only 51 stores  for two weeks
during the quarter  ended May 1, 1999.  Comparable  store sales  increased  1.2%
during the first quarter.                                                       

     Gross margin  increased  $69.8  million or 44% in the first quarter of 2000
from the first quarter of 1999. The increase is a result of the increased number
of Ames stores, as previously  discussed.  Gross margin as a percentage of sales
declined  slightly  from 27.8% to 27.4%.  The  decrease was mainly the result of
slightly higher markdowns and changes in merchandise mix.                       

     Selling, general and administrative expenses increased $87.8 million or 55%
as a result of the expanded  Ames store base.  Expenses as a percentage of sales
increased  from 27.8% to 29.5%  primarily as a result of sales  falling short of
planned levels.                                                                 

     Depreciation  and amortization  expense  increased $3.3 million or 23%. The
increase  resulted  primarily from a full quarter of additional  depreciation on
the  remodeling  expenditures  associated  with  conversion  of the former Hills
stores.                                                                         

     Interest  expense  increased  $6.9  million or 58%.  The increase is mainly
attributed to a higher level of borrowings  under our revolving  credit facility
as well as a full quarter's interest expense for the Ames Senior Notes issued in
April of 1999.                                                                  

     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.  The income tax benefits are included in current  assets in the balance
sheet as of April 29, 2000 and May 1, 1999.                                     

Liquidity and Capital Resources                                                 

     Our principal sources of liquidity are our revolving credit facility,  cash
from operations and cash on hand. Our revolving credit  facility,  which expires
June 20,  2002,  provides  credit of up to $650  million.  Borrowings  under the
revolving  credit facility are secured by  substantially  all of our assets.  In
addition,   we  are  required  to  meet  certain  financial   covenants  if  our
availability under the credit facility falls below a specified level. During the
first  quarter we increased  our drawings on the credit  facility  approximately
$254.8 million but our  availability did not fall below the specified level. Our
peak borrowing  level under the facility during the quarter ended April 29, 2000
was $429.3  million.  We believe we will have  sufficient  liquidity to meet our
financial obligations for the foreseeable future.                               

     Merchandise  inventories increased $156.5 million from January 29, 2000 due
primarily  to an  unexpected  sales  shortfall  during the first  quarter  and a
seasonal merchandise build up. Merchandise  inventories increased $285.6 million
from May 1, 1999  primarily as a result of fully  stocking the  converted  Hills
stores and changing  inventory  valuation in  approximately  two-thirds of those
stores from liquidation value to cost.                                          

     Trade accounts payable decreased  approximately $7 million from January 29,
2000 primarily as a result of a slowdown in merchandise purchases in response to
the first  quarter sales  shortfall.  Trade  accounts  payable  increased  $63.2
million  from  May 1,  1999  due  to the  increase  in  merchandise  inventories
referenced above.                                                               

     Capital  expenditures  for the thirteen  weeks ended April 29, 2000 totaled
$40.2 million and for the balance of the year are estimated to be  approximately
$80.0 million. We adjust our plans for making such expenditures depending on the
amount of internally generated funds.                                           

     Net fixed assets  increased  $19.7 million from January 29, 2000  primarily
due to  $40.2  million  in  capital  expenditures  offset  by $19.7  million  in
depreciation expense.                                                           

     In April 2000, the Company consummated its purchase of the leases for seven
stores from  Goldblatt's  Department  Stores,  Inc. for a cash purchase price of
$7.6 million.  Six of the stores are located in Chicago,  Illinois and one is in
Gary, Indiana.                                                                  

     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 April 29, 2000 consisted of borrowings  under our bank
credit  facility of $429.3  million,  $200.0  million of the Ames  senior  notes
issued in April 1999 and $44.5  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 decreased $4.4 million from January
29,  2000 to April 29, 2000 due  primarily  to  payments  made on capital  lease
obligations. Capital lease and financing obligations decreased $4.6 million from
May 1, 1999 to April 29, 2000 primarily as result of payments slightly exceeding
new capital lease commitments.                                                  

     The net operating loss carryovers  remaining after fiscal 1999,  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.            

Note Concerning Forward-looking Statements                                      

     Statements,  other than  those  based on  historical  facts  which  address
activities,  events, or developments that the Company expects or anticipates may
occur in the future are forward-looking statements which are based upon a number
of assumptions  concerning  further  conditions that may ultimately  prove to be
inaccurate.  Actual events and results may  materially  differ from  anticipated
results described in any  forward-looking  statements.  The Company's ability to
achieve   such   results  is  subject  to  certain   risks  and   uncertainties.
Consequently,  these cautionary  statements  qualify all of the  forward-looking
statements  and there  can be no  assurance  that the  results  or  developments
anticipated  by the Company will be realized or that they will have the expected
effects on the Company or its business or operations.                           

Item 3.  Quantitative and Qualitative Disclosures About Market Risk             

     We have exposure to interest rate volatility primarily relating to interest
rate changes applicable to revolving loans under our bank credit facility. These
loans bear interest at rates which vary with changes in (i) the London Interbank
Offered  Rate (LIBOR) or (ii) a rate of interest  announced  publicly by Bank of
America NT & SA.                                                                

     We do not speculate on the future  direction of interest rates. As of April
29, 2000,  approximately  $429.3  million of our debt bore  interest at variable
rates.  We believe that the effect,  if any, of  reasonably  possible  near-term
changes in interest rates on our  consolidated  financial  position,  results of
operations or cash flows would not be significant.                              

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 PART II
 OTHER INFORMATION

Item 1.           Legal Proceedings.                                            

     Reference  can be  made  to  Item 3 -  Legal  Proceedings  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.

Item 4.           Submission of Matters to a Vote of Security Holders.          

     On May 15,  2000,  the  Company  sent a notice of the annual  meeting and a
proxy statement to its  stockholders.  The notice of meeting  announced that the
Annual  Meeting of  Stockholders  would be held  Wednesday,  June 21,  2000,  to
consider  and act  upon  the  following  matters:  (a) the  election  of six (6)
directors for a term of one year or until their  successor(s)  have been elected
and qualified; (b) the ratification and approval of the Associate Stock Purchase
Plan;  (c) the  ratification  and  approval  of the amended  and  restated  1998
Management  Stock  Incentive  Plan;  (d) the  ratification  and  approval of the
appointment of Arthur Andersen LLP as independent  certified public  accountants
and auditors for the Company for the fiscal year ending  February 03, 2001;  and
(e) the  transaction  of such other  business  as may  properly  come before the
meeting or any adjournment(s) thereof.                                          

     The results of the meeting will be reported in the Quarterly Report for the
Company's fiscal quarter ending July 29, 2000.                                  

Item 6.           Exhibits and Reports on Form 8-K.                             

(a)      Index to Exhibits                                                      

                                                        [Enlarge/Download Table]
                                                                                                            

             Exhibit No.     Exhibit                                                             Page No.   
             -----------     -------                                                             --------   

             11              Schedule of computation of basic and diluted net income (loss) per share    15 

             12              Ratio of Earnings to Fixed Charges                                          16 

             21              Subsidiaries of the Registrant                                              17 

(b)  Reports on Form 8-K                                                                                    

             Date of Report    Date of Filing      Item No.        Description                              
             --------------    --------------      --------        -----------                              

             May 19, 2000      May 19, 2000             5          Disclosure of the  Employment  Agreement 
                                                                   dated  February  28, 2000  between  Ames 
                                                                   Department   Stores,   Inc.   and  Grant 
                                                                   Sanborn.                                 

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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.                                         

                                                                [Download Table]
                                                                           

                                  AMES DEPARTMENT STORES, INC.             
                                          (Registrant)                     

Dated:  June 12, 2000   /s/ Joseph R. Ettore                               
                       ----------------------------------------------------
                       Joseph R. Ettore, Chairman, Chief Executive         
                       Officer, and Director                               

Dated:  June 12, 2000   /s/ Rolando de Aguiar                              
                       ----------------------------------------------------
                       Rolando de Aguiar, Senior Executive Vice President, 
                       Chief Financial and Administrative Officer          

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                                                        [Enlarge/Download Table]

                                                                                                                     Exhibit 11

                                             AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                                     
                                    SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE                            
                                               (In Thousands, Except Per Share Amounts)                                        

                                                                                                                               

                                                                               For the Thirteen Weeks Ended                    
                                                                               ----------------------------                    
                                                                          April 29, 2000           May 1, 1999                 
                                                                          --------------           -----------                 

Loss before Cumulative Effect adjustment                                     ($29,085)              ($28,639)                  
Cumulative Effect adjustment, net of tax                                         -                   (1,107)                   
                                                                        --------------------    -------------------            
                                                                        --------------------    -------------------            
     Net loss                                                                (29,085)                (29,746)                  
                                                                        ====================    ===================            
                                                                        ====================    ===================            
For Basic Earnings Per Share:                                                                                                  
-----------------------------                                                                                                  
Weighted average number of common shares                                                                                       
   outstanding during the period                                            29,336 (b)              23,990 (b)                 
Basic net loss per share:                                                                                                      
Basic net loss per share before Cumulative Effect adjustment                 ($0.99)                 ($1.19)                   
Cumulative Effect Adjustment, net of tax                                         -                    (0.05)                   
                                                                        --------------------    -------------------            
                                                                        --------------------    -------------------            
     Basic net loss per share                                                 ($0.99)                ($1.24)                   
                                                                        ====================    ===================            
                                                                        ====================    ===================            
For Diluted Earnings Per Share:                                                                                                
-------------------------------                                                                                                
Weighted average number of common shares                                                                                       
   outstanding during the period                                            29,336 (b)                23,990                   
Add common stock equivalent shares represented by:                                                                             
     Series B Warrants                                                          (a)                    (a)                     
     Series C Warrants                                                          (a)                    (a)                     
     Options under 1994 Management Stock Option Plan and 1998                                                                  
        Stock Incentive Plan                                                    (a)                    (a)                     
     Options under 1994 Non-Employee Director Stock                                                                            
        Option Plan                                                             (a)                    (a)                     
                                                                        --------------------    -------------------            
                                                                        --------------------    -------------------            
Weighted average number of common and common equivalent shares               29,336                  23,990                    
                                                                        ====================    ===================            
                                                                        ====================    ===================            
Diluted net loss per share before Cumulative Effect adjustment                ($0.99)                ($1.19)                   
Cumulative Effect Adjustment, net of tax                                         -                    (0.05)                   
                                                                        --------------------    -------------------            
                                                                        --------------------    -------------------            
     Diluted net loss per share                                               ($0.99)                ($1.24)                   
                                                                        ====================    ===================            
                                                                        ====================    ===================            

[FN]                                                                            
(a) Common stock  equivalents  have not been  included,  because the effect     
would be  anti-dilutive.                                                
(b) The  weighted  average  number  of  common  shares outstanding is net of    
Treasury Stock.                                                         
</FN>                                                                           

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                                                                                                                        Exhibit 12

                                             AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                                        
                                                  RATIO OF EARNINGS TO FIXED CHARGES                                              
                                                   (In Thousands, Except Ratio Data)                                              

                                                                                                                                  

                                Quarter                                                                                           
                                 Ended                                  Fiscal Year Ended                                         
                              -------------  -------------------------------------------------------------------------            
                              -------------  -------------------------------------------------------------------------            

                               April 29,     January 29,    January 30,    January 31,     January 25,    January 27,             
                                  2000          2000           1999            1998           1997           1996                 
                              -------------  ------------   ------------   -------------   ------------   ------------            
                              -------------  ------------   ------------   -------------   ------------   ------------            

Income (loss) before income                                                                                                       
    taxes, extraordinary                                                                                                          
    item and cumulative                                                                                                           
    effect adjustment             (46,912)      (31,355)         52,605          53,633         26,804        (1,618)             

Add:                                                                                                                              
    Interest expense                18,792        60,843         15,253          11,600         19,043         24,116             
    Interest component of                                                                                                         
       rental expense                9,493        29,253         21,121          18,409         16,541         16,208             
                              -------------  ------------   ------------   -------------   ------------   ------------            
                              -------------  ------------   ------------   -------------   ------------   ------------            

Earnings available for fixed                                                                                                      
   charges                        (18,627)        58,741         88,979          83,642         62,388         38,706             

Fixed Charges:                                                                                                                    
    Interest expense                18,792        60,843         15,253          11,600         19,043         24,116             
    Interest component of                                                                                                         
       rental expense                9,493        29,253         21,121          18,409         16,541         16,208             
                              -------------  ------------   ------------   -------------   ------------   ------------            
                              -------------  ------------   ------------   -------------   ------------   ------------            

Total fixed charges                 28,285        90,096         36,374          30,009         35,584         40,324             

Ratio of earnings to fixed                                                                                                        
   charges                          (0.7x)          0.7x           2.4x            2.8x           1.8x           1.0x             


     For the purpose of  calculating  the ratio of  earnings  to fixed  charges,
earnings  consist  of  income  before  income  taxes,   extraordinary  item  and
cumulative effect  adjustment plus fixed charges (net of capitalized  interest).
Fixed charges consist of interest  expense on all  indebtedness  and capitalized
interest,  amortized  premiums,  discounts and capitalized  expenses  related to
indebtedness,  and  one-third of rent expense on operating  leases  representing
that portion of rent expense deemed by us to be  attributable  to interest.  For
the quarter ended April 29, 2000 and the fiscal year ended January 29, 2000, the
amount of  additional  earnings  that would have been  required  to cover  fixed
charges for these periods was $46.9 million and $31.4 million, respectively.    

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                                                                                                          Exhibit 21

                                            AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                           
                                                    SUBSIDIARIES OF THE REGISTRANT                                  

     As of April 29, 2000, the subsidiaries of the Company were as follows:                                         

                                                                                                                    

                 Name                                                             State of Incorporation            
                 ----                                                             ----------------------            

AmesPlace.com, Inc. (f/k/a AmesMarketplace.com, Inc.)                                   Delaware                    

Ames Transportation Systems, Inc.                                                       Delaware                    

Ames Realty II, Inc.                                                                    Delaware                    

Ames FS, Inc.                                                                           Delaware                    

     AMD, Inc., a subsidiary of Ames FS, Inc.                                           Delaware                    

                  Ames Merchandising Corporation,  a subsidiary of AMD, Inc.            Delaware                    

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-Q’ Filing		Date		First		Last			Other Filings
		6/30/02		6
		6/20/02		6
		2/3/01		7					10-K,  DEF 14A
		7/29/00		7					10-Q
		6/21/00		7
		6/15/00		6
Filed as of:		6/13/00
Filed on:		6/12/00		8
		5/26/00		1
		5/19/00		7					8-K
		5/15/00		7
For Period End:		4/29/00		1		11
		2/28/00		7
		1/29/00		4		10			10-K,  DEF 14A
		5/1/99		2		9			10-Q
		4/27/99		6
		4/19/99		6
		1/30/99		2					10-K,  DEF 14A
		12/31/98		6
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