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Ames Department Stores Inc – ‘10-Q’ for 10/30/99

On: Tuesday, 12/14/99 · For: 10/30/99 · Accession #: 6071-99-17 · File #: 1-05380

  As Of                Filer                Filing    For·On·As Docs:Size

12/14/99  Ames Department Stores Inc        10-Q       10/30/99    2:67K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      27±   128K 
 2: EX-27       Financial Data Schedule                                1      5K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Ames Senior Notes Exhibits and Reports on Form 8-K Legal Proceedings Other Information Quantitative and Qualitative Disclosure About Market Risk Submission of Matters to a Vote of Security Holders
1	1st Page - Filing Submission
6	Ames Senior Notes
9	Item 3. Quantitative and Qualitative Disclosure About Market Risk
10	Item 1. Legal Proceedings
"	Item 4. Submission of Matters to a Vote of Security Holders
"	Item 5. Other Information
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st “Page” of 14 TOC ↑Top Previous Next ↓Bottom Just 1st
 
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              October 30, 1999                    
                               -------------------------------------------------

[   ]      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                                   04-2269444     
-------------------------------          ---------------------------------------
(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
       ---   ---

29,134,401 shares of Common Stock were outstanding on November 15, 1999.

Exhibit Index on page 16

 Page 1 of 24 (including exhibits)

10-Q 2nd “Page” of 14 TOC 1st Previous Next ↓Bottom Just 2nd
 AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES

 FORM 10-Q

FOR THE QUARTER ENDED OCTOBER 30, 1999

 I N D E X

                                                                      Page

Part I:  Financial Information                                                  

     Consolidated Condensed Statements of Operations                   3
for the Thirteen and Thirty-Nine Weeks ended October 30,  
1999 and October 31, 1998                                 

     Consolidated Condensed Balance Sheets as of                       4
October 30, 1999, January 30, 1999 and October 31,        
1998                                                      

     Consolidated Condensed Statements of Cash Flows                   5
for the Thirty-Nine Weeks ended October 30,               
1999 and October 31, 1998                                 

     Notes to Consolidated Condensed Financial Statements              6

     Management's Discussion and Analysis of                          11
Financial Condition and Results of Operations             

     Quantitative and Qualitative Disclosure About Market Risk        15

Part II: Other information                                                      

     Submission of Matters to a Vote of Security Holders              16

     Exhibits and Reports on Form 8-K                                 16

10-Q 3rd “Page” of 14 TOC 1st Previous Next ↓Bottom Just 3rd
                                                        [Enlarge/Download Table]

                                     PART I                                                                                       
                              FINANCIAL INFORMATION                                                                               

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

                                                                     (Unaudited)                           (Unaudited)            
                                                                  For the Thirteen                     For the Thirty-Nine        
                                                                      Weeks Ended                          Weeks Ended            
                                                           --------------------------------     ----------------------------------

                                                            October 30,         October 31,       October 30,        October 31,  
                                                               1999                1998              1999               1998      
                                                           ---------------   --------------     ----------------   ---------------
                                                                                                                                  
Ames net sales                                                 $ 941,794        $ 596,030          $ 2,251,419        $1,628,122  
Hills net sales                                                        -                -              375,642                 -  
                                                           ---------------   --------------     ----------------   ---------------
     Total net sales                                             941,794          596,030            2,627,061         1,628,122  

Costs, expenses and (income):                                                                                                     
     Ames cost of merchandise sold                               680,597          432,936            1,614,686         1,169,758  
     Hills cost of merchandise sold                                    -                -              251,212                 -  
     Ames selling, general and administrative expenses           255,203          153,205              652,778           443,967  
     Hills operating expenses and agency fees                      7,385                -              149,432                 -  
     Leased department and other income                           (9,310)          (6,768)             (29,322)          (20,443) 
     Depreciation and amortization expense, net                   17,516            3,187               48,203             7,365  
     Interest and debt expense, net                               17,736            3,847               43,279             9,093  
                                                           ---------------   --------------     ----------------   ---------------
Income (loss) before income taxes                                (27,333)           9,623             (103,207)           18,382  
Income tax benefit (provision)                                     9,840           (3,623)              37,153            (6,939) 
                                                           ---------------   --------------     ----------------   ---------------
Net income (loss)                                                ($17,493)          $6,000             ($66,054)          $11,443 
                                                           ===============   ==============     ================   ===============

Basic net income (loss) per common share                          $ (0.60)          $ 0.26              $ (2.44)           $ 0.50 
                                                           ===============   ==============     ================   ===============

Weighted average number of common shares outstanding               29,109           23,087               27,027            22,885 
                                                           ===============   ==============     ================   ===============

Diluted net income (loss) per common share                        $ (0.60)          $ 0.25              $ (2.44)           $ 0.47 
                                                           ===============   ==============     ================   ===============

Weighted average number of common and common                                                                                      
     equivalent shares outstanding                                 29,109           24,145               27,027            24,141 
                                                           ===============   ==============     ================   ===============

<FN>                                                                                                                              
                      (The accompanying notes are an integral part of these consolidated condensed financial statements.)         
</FN>                                                                                                                             

10-Q 4th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 4th
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                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                                                           
                      CONSOLIDATED CONDENSED BALANCE SHEETS                                                               
                      (In Thousands, Except Share Amounts)                                                                

                                                                             (Unaudited)                      (Unaudited) 
                                                                             October 30,      January 30,     October 31, 
                                                                                1999             1999            1998     
                                                                            -------------    ------------    ------------ 
                                                                                                                          

                                     ASSETS                                                                               

Current Assets:                                                                                                           

      Cash and short-term investments                                             $42,383          $35,744        $28,421 
      Receivables                                                                 114,030           30,244         56,259 
      Merchandise inventories                                                   1,072,539          621,509        611,216 
      Prepaid expenses and other current assets                                    58,249           16,075         17,171 
                                                                            -------------    -------------   ------------ 
            Total current assets                                                1,287,201          703,572        713,067 

Fixed Assets                                                                      615,379          437,834        191,900 
      Less - Accumulated depreciation and amortization                           (110,957)         (66,205)       (58,382)
                                                                            -------------    -------------   ------------ 
            Net fixed assets                                                      504,422          371,629        133,518 

Other assets and deferred charges                                                  59,451           16,447          5,512 
Deferred taxes, net                                                               102,406          102,406          7,406 
Beneficial lease rights, net                                                       56,817           58,885              - 
Goodwill, net                                                                     195,449          230,454              - 
                                                                            -------------    -------------   ------------ 
                                                                               $2,205,746       $1,483,393       $859,503 
                                                                            =============    =============   ============ 

                      LIABILITIES AND STOCKHOLDERS' EQUITY                                                                

Current Liabilities:                                                                                                      
      Accounts payable:                                                                                                   
         Trade                                                                   $433,991         $313,280       $256,130 
         Other                                                                     73,142           83,485         52,436 
                                                                            -------------    -------------   ------------ 
            Total accounts payable                                                507,133          396,765        308,566 

      Short-term debt                                                                   -                -        136,057 
      Current portion of long-term debt, capital lease and financing obligations   20,999           17,799          6,277 
      Self-insurance reserves                                                      28,385           29,115         16,148 
      Accrued expenses and other current liabilities                              206,277          211,827         79,631 
      Store closing reserves                                                       53,516           59,768          9,781 
                                                                            -------------    -------------   ------------ 
         Total current liabilities                                                816,310          715,274        556,460 

Long-term debt                                                                    615,696           95,810              - 
Capital lease and financing obligations                                           184,039          191,904         43,996 
Other long-term liabilities                                                       124,100          132,376         38,782 
Excess of revalued net assets over equity under fresh-start reporting              19,406           24,021         25,559 
Commitments and contingencies                                                                                             

Stockholders' Equity:                                                                                                     
      Preferred stock (3,000,000 shares authorized; no shares issued or                                                   
         outstanding at October 30, 1999, January 30, 1999 and October 31, 1998,                                          
         respectively; par value per share $.01)                                        -                -              - 
      Common stock (40,000,000 shares authorized; 29,210,662; 23,921,545 and                                              
         23,147,221 shares outstanding at October 30, 1999, January 30, 1999 and                                          
         October 31, 1998, respectively; par value per share $.01)                    292              239            231 
      Additional paid-in capital                                                  424,855          236,667        129,760 
      Retained earnings                                                            21,962           88,016         65,629 
      Treasury stock (79,495 shares, at cost)                                        (914)            (914)          (914)
                                                                            -------------    -------------   ------------ 
         Total stockholders' equity                                               446,195          324,008        194,706 
                                                                            -------------    -------------   ------------ 
                                                                               $2,205,746       $1,483,393       $859,503 
                                                                            =============    =============   ============ 

<FN>                                                                                                                      
 (The accompanying notes are an integral part of these consolidated condensed financial statements.)                      
</FN>                                                                                                                     

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

                                                                                                         (Unaudited)               
                                                                                                     For the Thirty-Nine           
                                                                                                         Weeks Ended               
                                                                                        -------------------------------------------
                                                                                           October 30,                October 31,  
                                                                                              1999                       1998      
                                                                                        ---------------            ----------------
                                                                                                                                   
Cash flows from operating activities:                                                                                              
              Net income (loss)                                                              ($66,054)                     $11,443 
              Adjustments to reconcile net income (loss) to net cash                                                               
                  used for operating activities:                                                                                   
              Income tax (benefit) provision                                                  (37,153)                       6,939 
              Depreciation and amortization of fixed and other assets                          54,704                        9,118 
              Increase in accounts receivable                                                 (83,786)                     (41,447)
              Increase in merchandise inventories                                            (451,030)                    (187,380)
              Increase in accounts payable                                                    110,368                       85,410 
              Increase (decrease) in accrued expenses and other current liabilities            (6,280)                      11,025 
              Increase (decrease) in other working capital and other, net                      18,937                       (7,656)
                                                                                        --------------             ----------------
Cash used for operations before store closing items                                          (460,294)                    (112,548)
Payments of store closing costs                                                                (4,773)                      (1,875)
                                                                                        --------------             ----------------
Net cash used for operating activities                                                       (465,067)                    (114,423)
                                                                                        --------------             ----------------
Cash flows from investing activities:                                                                                              
              Purchases of fixed assets                                                      (169,345)                     (39,919)
              Purchase of leases                                                              (42,835)                           - 
                                                                                        --------------             ----------------
Net cash used for investing activities                                                       (212,180)                     (39,919)
                                                                                        --------------             ----------------
Cash flows from financing activities:                                                                                              
              Payments of debt, capital lease and financing obligations                       (17,026)                     (14,064)
              Borrowings (payments) under the revolver, net                                   319,886                      136,057 
              Proceeds from the issuance of senior notes                                      200,000                            - 
              Proceeds from the issuance of common stock, net                                 187,216                            - 
              Payments of deferred financing costs                                             (7,215)                           - 
              Proceeds from the exercise of options and warrants                                1,025                        3,856 
              Purchase of treasury stock                                                            -                         (914)
                                                                                        --------------             ----------------

Net cash provided by financing activities                                                     683,886                      124,935 
                                                                                        --------------             ----------------

Increase (decrease) in cash and short-term investments                                          6,639                      (29,407)
Cash and short-term investments, beginning of period                                           35,744                       57,828 
                                                                                        --------------             ----------------

Cash and short-term investments, end of period                                                $42,383                      $28,421 
                                                                                        ==============             ================

Supplemental disclosures of cash flow information:                                                                                 
     Cash paid during the period for:                                                                                              
              Interest and debt fees not capitalized                                          $25,535                       $7,029 
              Income taxes                                                                        172                          119 

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


10-Q 6th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 6th
 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  October 30, 1999 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 30,  1999  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 30, 1999  (the "1998  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 1998 Form
10-K.                                                             

              In the fourth  quarter of the year ended January 30, 1999 ("Fiscal
       1998"),  the Company adopted SOP 98-5 "Reporting on the Costs of Start-Up
       Activities"  retroactively effective to the first quarter of Fiscal 1998.
       Therefore,  the  consolidated  condensed  financial  statements  for  the
       thirteen and thirty-nine  weeks ended October 31, 1998 have been adjusted
       accordingly.  Reference can be made to the 1998 Form 10-K for  additional
discussion of the adoption of SOP 98-5 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  1/2%  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.                 

              Total  cash  consideration  for  the acquisition of Hills was $130
million.  Reference can be made to the 1998 Form 10-K for         
further discussion of the Hills acquisition.                      

              The  acquisition  has been recorded  under the purchase  method of
       accounting and,  accordingly,  the results of operations of Hills for the
       quarter  ended  October  30,  1999  are  included  in  the   accompanying
       consolidated condensed financial statements. The aggregate purchase price
       of $130  million has been  allocated to assets  acquired and  liabilities
       assumed based on a preliminary  determination  of respective  fair market
       values at the date of acquisition and is subject to adjustment.  The fair
       value of  tangible  assets  acquired  and  liabilities  assumed  was $477
       million  and $637  million,  respectively.  The  balance of the  purchase
       price,  $290 million,  was recorded as two components:  an excess of cost
       over net  assets  acquired  (goodwill)  of $231  million,  which is being
       amortized over 25 years on a straight-line  basis,  and beneficial  lease
       rights  of $59  million,  which is being  amortized  over the life of the
       respective  leases (which  average  approximately  25 years).  During the
       quarter ended July 31, 1999, goodwill was reduced by $28.3 million due to
       the  completion  of  inventory  liquidation  sales  at  the  Hills  store
locations.                                                        

              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  underperforming,  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.                                           

Agency Agreement Overview                                         

              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 initial  ticketed  selling price of the merchandise  (the  "Guaranteed
       Return").  Accordingly,  the Company  initially valued the acquired Hills
       inventory  at an amount  equal to the  Guaranteed  Return.  Because  sale
       proceeds  exceeded the target percentage of the initial retail value, the
       Company received an amount greater than the Guaranteed Return. The Agency
       Agreement  further entitled the Company to reimbursement of certain store
       operating expenses (e.g., payroll,  rent,  advertising,  etc.) out of the
sale proceeds during the agency period.                           

              The  Agent  was paid a fee (the  "Agency  Fee")  for its  services
       pursuant to the Agency  Agreement.  The Agency Fee was an amount equal to
       the proceeds from the sales of Hills merchandise less a deduction for the
  reimbursement of store operating expenses and the Guaranteed Return.

Agency Agreement Accounting                                       

              As discussed  earlier,  the results of operations of Hills for the
       thirteen and thirty-nine  weeks ended October 30, 1999 have been included
       in the accompanying  consolidated condensed financial statements.  During
       the thirteen and thirty-nine  weeks ended October 30, 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  both for the  Guaranteed  Return amount and the amount based on
       the excess sales performance  referenced above. "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.                          

              The Agency Fee recorded for the third quarter and year-to-date was
       $2.4 million and $41.7 million  respectively,  and was  determined  based
       upon the Hills sales results for the period,  less the Guaranteed Return,
       reimbursable Hills store expenses and an allocation to Ames based on sale
proceeds in excess of specified levels.                           

              The inventory liquidation sales at the Hills stores were completed
       during the quarter  ended July 31, 1999.  Proceeds  from the sales during
       the entire  agency  period  exceeded the targeted  percentage  referenced
       above. The Company shared in the excess and thereby realized in excess of
       the Guaranteed Return for the acquired Hills inventory. The $28.3 million
       adjustment,  recorded as of July 31, 1999,  to recognize  the increase in
       inventory  valuation  concurrently  reduced the original  estimate of the
excess of cost over net assets acquired (goodwill).               

Acquisition of Caldor Sites                                       

              During March 1999, the Company  entered into two  agreements  with
       Caldor  Corporation to purchase seven of its stores in  Connecticut,  two
       stores in Massachusetts and a 649,000 square foot distribution  center in
       Westfield,  MA, for a total cash purchase price of $42.8  million.  Under
       the terms of the agreements,  the Company assumed Caldor's leases for the
       nine stores and the  distribution  center and  acquired  all of the store
       fixtures  in eight of the stores and all  racking,  sorting  systems  and
       materials handling equipment in the distribution center. During March and
       April 1999, the United States  Bankruptcy Court for the Southern District
       of New York approved the  Company's  right to purchase the leases for the
       stores and the distribution center.  All of the transactions subsequently
closed.                                                           

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
       October 30, 1999, 29,023 options were exercised. During the quarter ended
       October 30, 1998,  21,550 options were exercised and 29,169 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  other  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,  with a sublimit of $150 million for letters of credit.
       The Credit  Agreement  replaced a $320 million secured  revolving  credit
facility.                                                         

              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 1998 Form 10-K for  additional  discussion  of the  Credit
       Agreement and for  descriptions  of the Company's  other  obligations not
discussed herein.                                                 

              As  of  October  30,  1999,  borrowings  of  $364.8  million  were
       outstanding under the Credit Agreement.  These borrowings are included in
       long-term debt in the accompanying  consolidated  condensed balance sheet
       as of October 30, 1999.  In  addition,  $20.0 and $1.9 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 and  thirty-nine  weeks ended October 30, 1999 were 8.6%
       and 8.2%, respectively. The peak borrowing level through October 30, 1999
was $370.6 million and occurred in October 1999.                  

Ames Senior Notes                                                 

              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.  Prior to April 15, 2002,  the Company may
       redeem up to 35% of the Ames  Senior  Notes with the  proceeds  of one or
       more  public  equity  offerings  at a  redemption  price  of  110% of the
       principal  amount  thereof.  On or after April 15, 2003,  the Company may
       redeem some or all of the Ames Senior Notes  outstanding  at a redemption
       price equal,  initially, to 105% of the principal amount thereof. In both
       cases,  the accrued and unpaid  interest will be added to the  redemption
price on the applicable redemption date.                          

              The Ames Senior Notes  were issued under an  indenture among Ames,
       its existing subsidiaries and The  Chase  Manhattan  Bank.  The financial
       covenants in the indenture  restrict Ames' ability to: borrow money;  pay
       dividends on or purchase  Ames' stock;  make  investments;  use assets as
       security in other  transactions;  sell certain assets or merge with other
       companies;  and enter into transactions  with affiliates.  If a Change of
       Control  occurs,  each holder of the Ames  Senior  Notes has the right to
       require  the Company to purchase  all or any part of that  holder's  Ames
       Senior  Notes  for a  payment  in cash  equal  to  101% of the  aggregate
       principal  amount of Ames Senior Notes  purchased plus accrued and unpaid
interest.                                                         

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 Standards 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
       income (loss) and net income  (loss) per diluted  common share would have
approximated the pro forma amounts indicated below:               

                                                        [Enlarge/Download Table]


                                             For the Thirteen                    For the Thirty-Nine       
                                               Weeks Ended                           Weeks Ended           
                                     ---------------------------------     --------------------------------
                                       October 30,        October 31,       October 30,        October 31, 
                                          1999               1998              1999               1998     
                                     --------------      -------------     -------------      -------------
                                                                                                           
Net Income (Loss) (in thousands)                                                                           

  As reported                             ($17,493)            $6,000         ($66,054)             $11,443
  Pro forma                                (19,709)             5,071          (71,825)               9,689

Diluted Net Income (Loss)                                                                                  
Per Common Share                                                                                           
  As reported                               ($0.60) (a)         $0.25           ($2.44) (a)           $0.47
  Pro forma                                 ($0.68) (a)         $0.21           ($2.66) (a)           $0.40

<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 at 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  and
       thirty-nine  weeks ended October 30, 1999 and to the income before income
       taxes for the thirteen and  thirty-nine  weeks ended  October 31, 1998 to
       compute a non-cash  income tax benefit in 1999 and a non-cash  income tax
       provision  in 1998.  The income tax benefit is included in other  current
       assets in the  accompanying  consolidated  condensed  balance sheet as of
       October 30, 1999.  The income tax provision is included as an addition to
       paid-in capital in the accompanying  consolidated condensed balance sheet
as of October 31, 1998.                                           

8.    Commitments and Contingencies:                                          
-------------------------------                                     
              Reference  can be  made  to the  1998  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 1998 Form
10-K except as follows:                                           

              With regard to the Gould matter,  on September 17, 1999, the Court
       entered final approval of the  settlement.  Payments have since been made
in accordance with the terms of the Settlement Agreement.         

9.     Equity Offering:                                                         
-----------------                                                   
              On May 24, 1999, the Company  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 borrowings under the Credit Agreement and for general
corporate purposes.                                               

10.    Recently Issued Accounting Pronouncements:                               
-------------------------------------------                         
              On  December  3,  1999,  the  SEC  issued  SAB No.  101,  "Revenue
       Recognition in Financial Statements," which, among other items, prohibits
       the  recognition  of revenue  from  layaway  sales  prior to  merchandise
       delivery. SAB No. 101 is effective for financial statements for the first
  fiscal quarter of the fiscal year beginning after December 15, 1999.

              SAB No.  101 will  require  the  Company  to modify  its method of
       accounting for layaway sales. The Company's timing and method of adoption
       has not been  determined.  The Company  expects that the annual impact on
       the  Company's  financial  statements of adopting SAB No. 101 will not be
material.                                                         

10-Q 7th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 7th
 AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
 FISCAL QUARTER ENDED OCTOBER 30, 1999
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 are included in our consolidated
       results of  operations  for the  thirteen  and  thirty-nine  weeks  ended
       October 30, 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.                         

             We completed the merchandise liquidation of the Hills stores in the
       second quarter.  During the third quarter,  we re-opened the remaining 47
       Hills  stores,  bringing the total  number of former Hills stores  opened
       during 1999 to 151. In addition to the Hills  stores,  we opened 11 other
       new  stores  during the third  quarter,  which  along with 1 other  store
       opened earlier in the year brought the  year-to-date  total of new stores
opened to 163.                                                    

             Under our  agreement with Gordon  Brothers and The Nassi Group,  we
       were 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.  The remaining  sale proceeds,  net of
       the expenses of operating the stores, were 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.                                               

10-Q 8th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 8th
                                                        [Enlarge/Download Table]

     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 thirty-nine weeks ended October 30, 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 October 30, 1999      
                                                     October 31, 1998    ----------------------------------------------------------
                                                    ------------------       Ames           Hills          Other           Total   
                                                                         ------------    ----------     ----------     ------------

                                                                                                                                   
   TOTAL NET SALES                                          $596,030        $941,794           $ -            $ -         $941,794 

   COSTS, EXPENSES AND (INCOME):                                                                                                   
         Cost of merchandise sold                            432,936         680,597             -              -          680,597 
         Selling, general and administrative expenses        153,205         227,643         7,385         27,560          262,588 
         Leased department and other income                   (6,768)        (10,101)          791              -           (9,310)
         Depreciation and amortization expense, net            3,187          15,309           643          1,564           17,516 
         Interest and debt expense, net                        3,847          17,114            17            605           17,736 

                                                   ------------------    ------------    ----------     ----------     ------------

         INCOME (LOSS) BEFORE INCOME TAXES                     9,623          11,232        (8,836)       (29,729)         (27,333)

         Income tax benefit (provision)                       (3,623)         (4,044)        3,181         10,703            9,840 
                                                   ------------------    ------------    ----------     ----------     ------------

         NET INCOME (LOSS)                                    $6,000          $7,188       ($5,655)      ($19,026)        ($17,493)
                                                   ==================    ============    ==========     ==========     ============

         Weighted average number of common shares                             29,109        29,109         29,109           29,109 
            outstanding                                                  ============    ==========     ==========     ============

         Basic net income (loss) per share                                     $0.25        ($0.20)        ($0.65)          ($0.60)
                                                                         ============    ==========     ==========     ============
         Weighted average number of common and                                                                                     
            common equivalent shares outstanding              24,145                                                               
                                                   ==================                                                              

         Diluted net income (loss) per share                   $0.25                                                               
                                                   ==================                                                              

                                                    For the Thirty-Nine                                                            
                                                      Weeks Ended            For the Thirty-Nine Weeks Ended October 30, 1999      
                                                    October 31, 1998     ----------------------------------------------------------
                                                   ------------------        Ames           Hills          Other           Total   
                                                                         ------------    ----------     ----------     ------------

   TOTAL NET SALES                                        $1,628,122      $2,251,419      $375,642            $ -       $2,627,061 

   COSTS, EXPENSES AND (INCOME):                                                                                                   
         Cost of merchandise sold                          1,169,758       1,614,686       251,212              -        1,865,898 
         Selling, general and administrative expenses        443,967         578,546       149,432         74,232          802,210 
         Leased department and other income                  (20,443)        (26,745)       (2,577)             -          (29,322)
         Depreciation and amortization expense, net            7,365          31,832        11,036          5,335           48,203 
         Interest and debt expense, net                        9,093          36,531         4,179          2,569           43,279 

                                                   ------------------    ------------    ----------     ----------     ------------
         INCOME (LOSS) BEFORE INCOME TAXES                    18,382          16,569       (37,640)       (82,136)        (103,207)
         Income tax benefit (provision)                       (6,939)         (5,965)       13,549         29,569           37,153 
                                                   ------------------    ------------    ----------     ----------     ------------

         NET INCOME (LOSS)                                   $11,443         $10,604      ($24,091)      ($52,567)        ($66,054)
                                                   ==================    ============    ==========     ==========     ============

         Weighted average number of common shares                             27,027        27,027         27,027           27,027 
            outstanding                                                  ============    ==========     ==========     ============

         Basic net income (loss) per share                                     $0.39        ($0.89)        ($1.94)          ($2.44)
                                                                         ============    ==========     ==========     ============
         Weighted average number of common and                                                                                     
            common equivalent shares outstanding              24,141                                                               
                                                   ==================                                                              

         Diluted net income (loss) per share                   $0.47                                                               
                                                   ==================                                                              


10-Q 9th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 9th
              For the thirteen and thirty-nine weeks ended October 30, 1999, the
       Ames results  reflect (a) the results of the pre-Hills  acquisition  Ames
       base, (b) the post re-opening  results of the 151 converted Hills stores,
       (c) the results of the 12 other new stores opened at various times during
       the year and (d) 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  primarily  represent  the expenses
       incurred  during the period of remodeling the Hills stores that re-opened
as Ames stores and the other new stores opened during the year.   

              The unique circumstances under which Hills' operations  have  been
       conducted 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 thirty-nine weeks ended October
       30, 1999 and October 31, 1998. In the discussion that follows,  Ames' net
       sales, gross margin, and selling, general and administrative expenses for
       the thirteen and  thirty-nine  weeks ended October 30, 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 October 30,  1999
       increased $345.8 million or 58.0% from the prior-year's third quarter and
       comparable store   sales  increased  4.3%.  These  sales  increases  were
       attributable, in part, to the Grand Openings of 47 converted Hills stores
       and 9 former  Caldor  sites on  September  23,  1999 and the 2 other  new
       stores  opened  on  October  28,  1999  as well  as the  openings  of 104
       converted  Hills  stores and 1 other new Ames store  earlier in the year.
       Ames'  net  sales  for the  thirty-nine  weeks  ended  October  30,  1999
       increased  $623.3  million or 38.3% from the same  prior-year  period and
       comparable-store   sales  increased  7.5%.  These  sales  increases  were
       attributable,  in part, to the openings of 151 converted Hills stores and
       12 other new stores  during the first three  quarters 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 in  the third quarter of 1999  increased  $98.1
       million  or .4% as a  percentage  of  net  sales  compared  to  the third
       quarter  of  1998.   Ames' gross margin for the  thirty-nine weeks  ended
       October 30, 1999  increased  $178.4 million or .1% as a percentage of net
       sales compared to the same  prior-year  period.  The quarter and year-to-
  date gross margin rates benefited from a favorable purchase mark-up.

              Ames' selling, general and administrative expenses increased $74.4
       million for the  thirteen  weeks ended  October 30, 1999  compared to the
       same prior-year  period,  but decreased as a percentage of net sales from
       25.7% in 1998 to 24.2% in 1999.  The  percentage  decrease was  primarily
       attributable to a reduction in store related  expenses as a percentage of
       sales.  Ames'  selling,  general and  administrative  expenses  increased
       $134.6 million for the thirty-nine  weeks ended October 30,1999  compared
       to the same prior-year period, but decreased as a percentage of net sales
       from  27.3%  in 1998 to  25.7%  in  1999.  The  percentage  decrease  was
       primarily  attributable  to a reduction  in store  related  expenses as a
percentage of sales.                                              

              Depreciation and amortization  expense increased  by $14.3 million
       for  the  thirteen  weeks ended  October 30, 1999  compared to  the  same
       prior-year  period.   For the  thirty-nine  weeks ended October 30, 1999,
       depreciation and amortization expense increased by $40.8 million compared
       to the same prior-year period.   In both periods, 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 $13.9 million and $34.2  million for
       the thirteen and thirty-nine weeks ended October 30,  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 the higher average level of bank borrowings.                  

              Our estimated  annual effective income tax rate for each year  was
       applied to the loss before income taxes for the thirteen and  thirty-nine
       weeks ended October 30, 1999 and to the income  before  income  taxes for
       the thirteen and thirty-nine weeks  ended October  31,  1998 to compute a
       non-cash  income tax benefit in 1999 and a non-cash  income tax provision
       in 1998.  The income tax benefit is included in other  current  assets in
       the accompanying  consolidated  condensed balance sheet as of October 30,
       1999.  The income tax  provision  is  included  as an addition to paid-in
       capital in the accompanying  consolidated  condensed  balance sheet as of
October 31, 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 October 30, 1999 under this bank
       credit  facility was $370.6  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 $461.3 million from  October 31,
       1998 to  October 30, 1999  due to the  increases  for the  opening of the
       converted   Hills  stores  and   the  other  new  store  locations.   Our
       merchandise inventories increased $451.0 million from January 30, 1999 to
       October 30, 1999 due  primarily to the  increases  for the opening of the
       converted Hills  stores and the other new store locations along  with the
normal seasonal build-up of inventories.                          

              Trade  accounts payable  increased $177.9 million from October 31,
       1998 to  October 30, 1999  primarily  due to  the  merchandise  inventory
       increases referenced above.  The increase of $120.7 million from  January
       30,  1999  to  October 30,  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  thirty-nine  weeks ended October 30,
       1999 totaled $169.3 million and for the balance of the year are estimated
       to be approximately $40.0  million.  We adjust our plans for making  such
       expenditures  depending  on the  amount  of  internally  generated  funds
available.                                                        

              Net fixed  assets  increased  by $370.9  million from  October 31,
       1998 to October 30, 1999 due primarily to the inclusion of $226.4 million
       in net  fixed assets of Hills.  Our  net fixed  assets  increased  $132.8
       million from January 30, 1999 to October 30,  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  October 30, 1999  consisted  of borrowings
       under our  bank credit facility of $364.8 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  $154.8  million
       from October 31, 1998 to October 30, 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 $4.7 million from
       January 30,  1999 to October  30,  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
       spent approximately  $6.0  million  on this  program  through  the end of
       third quarter  of  fiscal  1999 and  expect  full  implementation  of the
       program will involve  an  additional   $0.5  million  to  $1.0   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.        

Item 3.      Quantitative and Qualitative Disclosure About Market Risk          
   -----------------------------------------------------------
              We have exposure to interest rate volatility primarily relating to
       interest  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 October 30,  1999,  approximately  $364.8  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.                                         

10-Q 10th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 10th
 Part II

 OTHER INFORMATION

Item 1.        Legal Proceedings                                                
-------------------                                 
                      Reference  can  be  made  to  Item 3 -  Legal  Proceedings
               included in the 1998 Form 10-K for various  litigation  involving
               the Company,  for which there were no material  changes since the
              filing date of the 1998 Form 10-K except as set forth in Note 8.

Item 4.        Submission of Matters to a Vote of Security Holders              
 -----------------------------------------------------
                      There  were no  matters  submitted  to a vote of  security
               holders during the third quarter ended October 30, 1999,  through
the solicitation of proxies or otherwise.         

Item 5.        Other Information                                                
-------------------                                 
                      On August 31, 1999,  the Board of Directors of the Company
adopted Amended and Restated By-Laws.             

                                On September 24, 1999, Ames  Department  Stores,
               Inc. (the "Company") and ChaseMellon Shareholder Services, L.L.C.
               as  successor  to Chemical  Bank as Rights  Agent,  entered  into
               Amendment No. 1 (the "Amendment") to the Rights Agreement,  dated
               as of November 30, 1994 (the "Rights Agreement"),  by and between
               the Company and Chemical Bank, as Rights Agent,  which  amendment
               was  previously  approved by the  Company's  Board of  Directors.
               Among other things,  the Amendment (x) amends the exercise  price
               of a right  issued  pursuant to the Rights  Agreement to $180.00,
               subject to  adjustment,  and (y) makes  certain  other  technical
               amendments to the Rights Agreement,  most notably the elimination
               of certain  provisions  commonly known as  "continuing  director"
provisions.                                       

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

(a)        Index to Exhibits                                            
-------------------                                 
              Exhibit No.                Exhibit                      Page No.
              ------------  ----------------------------------------  ----------
               4        Amendment No. 1, dated as of                  18
                September   24,  1999,   to  the  Rights
                Agreement dated as of November 30, 1994,
                by and between Ames  Department  Stores,
                Inc.   and    ChaseMellon    Shareholder
                Services, L.L.C as successor to Chemical
Bank as Rights Agent    

              11        Schedule of computation of basic              24
         and diluted net income (loss) per
share                   

(b)        Reports on Form 8-K:                                         
---------------------                               
               There were no reports on Form 8-K filed with the  Securities  and
Exchange Commission during the third quarter:     

10-Q 11th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 11th
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.                          

                                AMES DEPARTMENT STORES, INC.
                                (Registrant)

Dated:     December 13, 1999         /s/ Joseph R. Ettore             
                                          --------------------------------------
                               Joseph R. Ettore, Chairman,
                                         President and Chief Executive Officer

Dated:     December 13, 1999         /s/ Rolando de Aguiar            
                                          --------------------------------------
                                     Rolando de Aguiar, Executive Vice
                                     President and Chief Financial and
                          Administrative Officer

10-Q 12th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 12th
                                                                     Exhibit 4.1

AMENDMENT NO. 1 TO RIGHTS AGREEMENT 

                  AMENDMENT NO. 1 to Rights Agreement (this  "Amendment")  dated
as of September 24, 1999 by and between Ames Department Stores, Inc., a Delaware
corporation (the "Company") and ChaseMellon Shareholder Services,  L.L.C., a New
Jersey  limited  liability  company,  as successor to Chemical  Bank,  as Rights
Agent.                                                                          

W I T N E S S E T H:

                  WHEREAS,  the Company and  the Rights  Agent  entered   into a
Rights Agreement dated as of November 30, 1994 (the "Rights Agreement"); and    

                  WHEREAS,  pursuant to Section 26 of the Rights Agreement,  the
Board of  Directors of the Company has  authorized  this  Amendment,  which will
amend the Rights Agreement as set forth herein.                                 

                  NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:        

                  Section 1. Certain Definitions.  Unless otherwise specifically
defined herein,  each term used  herein which is defined in the Rights Agreement
has the meaning assigned to such term in the Rights Agreement.                  

Section 2. Amendments.                      

                      (a) Section 1(a) is hereby amended to read in its entirety
as follows:                                                                     

                           "(a)  "Acquiring  Person"  shall  mean any Person (as
                  such term is hereinafter defined) who or which,  together with
                  all  Affiliates  (as such  term is  hereinafter  defined)  and
                  Associates  (as  such  term is  hereinafter  defined)  of such
                  Person,  shall  be the  Beneficial  Owner  (as  such  term  is
                  hereinafter  defined)  of 15% or more of the  shares of Voting
                  Stock (as such term is  hereinafter  defined)  of the  Company
                  then outstanding;  provided, however, that an Acquiring Person
                  shall  not  include  (i) an  Exempt  Person  (as such  term is
                  hereinafter  defined),  or  (ii)  any  Person  who  or  which,
                  together with all  Affiliates  and  Associates of such Person,
                  would be an Acquiring Person solely by reason of (A) being the
                  Beneficial Owner of shares of Voting Stock of the Company, the
                  Beneficial  Ownership  of which was  acquired  by such  Person
                  pursuant  to any  action or  transaction  or series of related
                  actions or  transactions  approved  by the Board of  Directors
                  before such Person otherwise became an Acquiring Person or (B)
                  a reduction in the number of issued and outstanding  shares of
                  Voting  Stock of the Company  pursuant to a  transaction  or a
                  series  of  related  transactions  approved  by the  Board  of
                  Directors;  provided, further, however, that in the event that
                  such Person  described in the  foregoing  clause (ii) does not
                  become an Acquiring  Person by reason of subclause  (A) or (B)
                  of said clause (ii), such Person shall  nonetheless  become an
                  Acquiring Person in the event such Person thereafter  acquires
                  Beneficial  Ownership of an  additional 1% of the Voting Stock
                  of the  Company,  unless the  acquisition  of such  additional
                  Voting  Stock  would not  result in such  Person  becoming  an
                  Acquiring  Person by reason  of  subclause  (A) or (B) of said
                  clause (ii).  Notwithstanding  the foregoing,  if the Board of
                  Directors  of the  Company  determines  in good  faith  that a
                  Person who would otherwise be an "Acquiring Person" as defined
                  pursuant to the foregoing provisions of this paragraph (a) has
                  become such inadvertently, and such Person divests as promptly
                  as  practicable  (as  determined in good faith by the Board of
                  Directors)  a  sufficient  number of shares of Common Stock so
                  that such Person would no longer be an  "Acquiring  Person" as
                  defined pursuant to the foregoing provisions of this paragraph
                  (a),  then such  Person  shall  not be  deemed  an  "Acquiring
Person" for any purposes of this Agreement."

                      (b) Section  1(d)  is hereby  amended by deleting the last
paragraph thereof in its entirety and replacing it with the following:          

                           "Notwithstanding  anything in this  paragraph  (d) to
                  the contrary, a Person engaged in the business of underwriting
                  securities  shall not be deemed the "Beneficial  Owner" of, or
                  to  "Beneficially  Own," any securities  acquired or otherwise
                  beneficially   owned  in  good  faith  in  a  firm  commitment
                  underwriting until the expiration of forty (40) days after the
                  date of the sale of securities to the public  pursuant to such
firm commitment underwriting."              

                      (c) The definition of "Continuing  Director" appearing  in
Section 1(h) is hereby amended by deleting it in its entirety and  replacing  it
with the phrase "Intentionally Omitted."                                        

                      (d) The definition of "Qualifying Tender Offer"  appearing
in Section 1(r) is hereby deleted in its entirety.                              

                      (e) Sections  1(k) through 1(q) are hereby  renumbered  as
Sections 1(l) through 1(r), respectively.                                       

               (f) A new Section 1(k) is hereby added, as follows:

                           "(k)  "Exchange Consideration" shall have the meaning
set forth in Section 27 hereof."            

                      (g) Sections  1(u) through 1(z) are hereby  renumbered  as
Sections 1(v) through 1(aa), respectively.                                      

               (h) A new Section 1(u) is hereby added, as follows:

                           "(u) "Spread"  shall mean the excess of (1) the value
                  of the shares of Common Stock  issuable upon the exercise of a
                  Right  in  accordance  with  Section  11(a)(ii)  over  (2) the
                  Exercise Price in effect at the time of  determination  of the
Spread."                                    

                      (i) Section 1(v) is hereby amended to read in its entirety
as follows:                                                                     

                           "(v)  "Stock  Acquisition  Date" shall mean the first
                  date on which  there  shall be a  public  announcement  by the
                  Company or an Acquiring  Person that an  Acquiring  Person has
                  become such  (which,  for purposes of this  definition,  shall
                  include,  without  limitation,  a  report  filed  pursuant  to
                  Section  13(d) of the Exchange  Act) or such earlier date as a
                  majority of the Directors of the Company shall become aware of
the existence of an Acquiring Person."      

                      (j) Section  3(b)  is  hereby  amended  by  deleting   the
following parenthetical from the first sentence thereof:                        

                           "(but  only if at the time of such  determination  by
                  the Board of Directors  there are then in office not less than
                  two  Continuing  Directors  and such  action is  approved by a
         majority of the Continuing Directors then in office)"

                      (k) Section 3(c) is hereby amended by adding the following
at the end thereof:                                                             

                           "With  respect to such  certificates  containing  the
                  foregoing  legend,  until  the  Distribution  Date the  Rights
                  associated   with  the  Common  Stock   represented   by  such
                  certificates  shall be evidenced by such  certificates  alone,
                  and the surrender for transfer of any such certificate, except
                  as  otherwise  provided  herein,  shall  also  constitute  the
                  transfer  of the  Rights  associated  with  the  Common  Stock
                  represented  thereby.  In the event that the Company purchases
                  or  otherwise  acquires any Common Stock after the Record Date
                  but prior to the Distribution Date, any Rights associated with
                  such Common Stock shall be deemed canceled and retired so that
                  the  Company  shall not be  entitled  to  exercise  any Rights
                  associated   with  the  Common   Stock  which  are  no  longer
outstanding.                                

                           Notwithstanding this paragraph (c), the omission of a
                  legend shall not affect the enforceability of any part of this
         Agreement or the rights of any holder of the Rights."

                      (l) Section  7(a)  is  hereby  amended  by deleting in its
entirety  clauses (i) and (ii)  in the  second sentence thereof and replacing it
with the following:                                                             

                           "(i) November 29, 2004 (the "Final  Expiration Date")
                  or (ii) the date on which the Rights are  redeemed as provided
                  in  Section  23  hereof or the date on which  the  Rights  are
                  exchanged as provided in Section 27 hereof (such  earlier date
        being herein referred to as the "Expiration Date")."

                      (m) The  first sentence of Section 7(b) is hereby  amended
to read in its entirety as follows:                                             

                           "(b)  The Exercise Price shall initially be $180.00."

                      (n) Section 7(e) is hereby  amended by deleting the phrase
"other  than  pursuant  to a  Qualifying Tender Offer,"  from the first sentence
thereof.                                                                        

                      (o) Section 11(a)(ii) is  hereby  amended to  read  in its
entirety as follows:                                                            

                           "(ii) Subject to Section 27 of this Agreement, in the
                  event that any Person, alone or together  with its  Affiliates
                  and  Associates,  shall  become  an  Acquiring  Person,  then,
                  subject to the last  sentence  of Section  23(a) and except as
                  otherwise provided in this Section 11, each holder of a Right,
                  except as provided in Section  7(e) hereof,  shall  thereafter
                  have  the  right  to  receive  upon  exercise  of a  Right  in
                  accordance with the terms of this Rights Agreement and payment
                  of the  Exercise  Price with  respect  to the total  number of
                  shares  of Common  Stock  for  which a Right  was  exercisable
                  immediately  prior  to  the  first  occurrence  of  the  event
                  described in this Section 11(a)(ii),  such number of shares of
                  Common  Stock  as  shall  equal  the  result  obtained  by (x)
                  multiplying  the then current  Exercise Price by the number of
                  shares  of Common  Stock  for  which a Right  was  exercisable
                  immediately  prior  to  the  first  occurrence  of  the  event
                  described in this  Section  11(a)(ii)  and (y)  dividing  that
                  product by 50% of the then current per share Fair Market Value
                  of the Common  Stock  (determined  pursuant  to Section  11(d)
  hereof) on the date of such first occurrence."

                      (p) Section 12  is  hereby amended by replacing  the first
sentence thereof with the following:                                            

                           "Whenever  an  adjustment  is  made  as  provided  in
                  Sections 11, 13,  23(c) or 27, the Company  shall (a) promptly
                  prepare a  certificate  setting forth such  adjustment,  and a
                  brief  statement of the facts giving rise to such  adjustment,
                  (b) promptly file with the Rights Agent and with each transfer
                  agent for the Common Stock a copy of such  certificate and (c)
                  mail a  brief  summary  thereof  to  each  holder  of a  Right
Certificate in accordance with Section 25." 

                      (q) Section 13(a) is hereby amended by deleting the phrase
"(other than pursuant to a Qualifying Tender Offer)"  from  the  first  sentence
thereof.                                                                        

                      (r) Section 23(a)  is hereby amended  by  deleting in  its
entirety the proviso contained in the first sentence thereof.                   

                (s) Section 23(d) is hereby deleted in its entirety.

                      (t) Section 26  is  hereby  amended  by  deleting the last
sentence thereof and replacing it with the following:                           

                           "Notwithstanding  anything  contained  in this Rights
                  Agreement to the contrary, no supplement or amendment shall be
made which changes the Redemption Price."   

                      (u) Sections  27  through  32  are  hereby  renumbered  as
Sections 28 through 33, respectively.                                           

             (v) A new Section 27 is hereby added, as follows:

                           "Section 27. Exchange.  (a) The Board of Directors of
                  the Company  may, at its option,  at any time after any Person
                  becomes an Acquiring Person,  exchange all or part of the then
                  outstanding  and  exercisable  Rights (which shall not include
                  Rights  that  have  become  null  and  void  pursuant  to  the
                  provisions of Section 7(e) hereof) by exchanging for each such
                  Right a number of shares of Common  Stock  having an aggregate
                  Fair Market Value on the date such Person becomes an Acquiring
                  Person equal to the Spread,  appropriately adjusted to reflect
                  any  stock  split,  stock  dividend  or  similar   transaction
                  occurring  after the date such  Person  becomes  an  Acquiring
                  Person (such amount per Right being hereinafter referred to as
                  the "Exchange Consideration").  Notwithstanding the foregoing,
                  the Board of  Directors  shall not be empowered to effect such
                  exchange  at any time after any Person  (other  than an Exempt
                  Person),  together with all  Affiliates and Associates of such
                  Person,  becomes  the  Beneficial  Owner of 50% or more of the
                  Voting Stock then  outstanding.  From and after the occurrence
                  of an event specified in Section 13(a) hereof, any Rights that
                  theretofore  have not been exchanged  pursuant to this Section
                  27(a) shall  thereafter be exercisable only in accordance with
                  Section 13 and may not be  exchanged  pursuant to this Section
27(a).                                      

                           (b)  Immediately  upon  the  action  of the  Board of
                  Directors  of the Company  ordering the exchange of any Rights
                  pursuant to  paragraph  (a) of this Section 27 and without any
                  further  action and without any notice,  the right to exercise
                  such Rights shall terminate and the only right thereafter of a
                  holder  of  such  Rights  shall  be to  receive  the  Exchange
                  Consideration in respect of each Right held. The Company shall
                  promptly  give notice to the Rights Agent and public notice of
                  any such  exchange;  provided,  however,  that the  failure to
                  give,  or any  defect  in,  such  notice  shall not affect the
                  validity of such exchange.  The Company  promptly shall mail a
                  notice  of any such  exchange  to all of the  holders  of such
                  Rights  at  their  last  addresses  as they  appear  upon  the
                  registry books of the Rights Agent. Any notice which is mailed
                  in the manner herein  provided shall be deemed given,  whether
                  or not the holder  receives  the  notice.  Each such notice of
                  exchange  will state the method by which the  exchange  of the
                  shares of Common Stock for Rights will be effected and, in the
                  event of any partial exchange, the number of Rights which will
                  be exchanged.  Any partial exchange shall be effected pro rata
                  based on the number of Rights  (other than  Rights  which have
                  become  null and void  pursuant to the  provisions  of Section
7(e) hereof) held by each holder of Rights. 

                           (c)  The  Company  shall  not be  required  to  issue
                  fractions  of  shares  of  Common   Stock  or  to   distribute
                  certificates which evidence fractional shares. In lieu of such
                  fractional  shares,  the Company  shall pay to the  registered
                  holders of the Right  Certificates  with  regard to which such
                  fractional  shares of Common Stock would otherwise be issuable
                  an amount in cash equal to the same  fraction  of the  current
                  market  value  of a  whole  share  of  Common  Stock.  For the
                  purposes of this  paragraph (c), the current market value of a
                  whole share of Common  Stock  shall be the closing  price of a
                  share of Common Stock for the Trading Day immediately prior to
      the date of exchange pursuant to this Section 27."

                      (w) Exhibits  A and B  to the  Rights  Agreement  shall be
amended in a manner consistent with this Agreement.                             

                  Section 3. Counterparts. This Amendment may be executed in any
number of counterparts,  each of which shall for all purposes be deemed to be an
original,  and all such  counterparts shall  together constitute but one and the
same instrument.                                                                

                  Section 4. Descriptive Headings.   Descriptive headings of the
several Sections of this  Amendment are inserted for  convenience only and shall
not  control or  affect the meaning or  construction of any of the provisions of
this Amendment.                                                                 

                  Section 5. Effectiveness. This Amendment shall be effective as
of the Close  of Business on the  date hereof,  as if executed on such date, and
all  references  to  the  Rights Agreement shall,  from and after such time,  be
deemed to be references to the Rights Agreement as amended hereby.              

                  Section 6. Officer's  Certification.  The undersigned  officer
of  the  Company  certifies  by  execution  hereof  that  this  Amendment  is in
compliance  with the terms of Section 26 of the Rights Agreement.               

10-Q 13th “Page” of 14 TOC 1st Previous Next ↓Bottom Just 13th
                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Amendment  to be duly  executed and  attested,  all as of the day and year first
above written.                                                                  

                                AMES DEPARTMENT STORES, INC.

                  By: /s/ David H. Lissy
                                   ---------------------------------
                       Name:  David H. Lissy
                                       Title: Senior Vice President, General
                                               Counsel and Corporate Secretary

                   By: /s/ Lynore LeConche
                                   ---------------------------------
                        Name:  Lynore LeConche
                       Title: Vice President

                                       CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
                           as successor to Chemical Bank

10-Q Last “Page” of 14 TOC 1st Previous Next ↓Bottom Just 14th
                                                        [Enlarge/Download Table]
                                                                                                                        Exhibit 11

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES                                                                   
         SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE                                                          
                 (Amounts in thousands except per share amounts)                                                                  

                                                                    For the Thirteen                   For the Thirty-Nine        
                                                                       Weeks Ended                         Weeks Ended            
                                                              -----------------------------      -------------------------------  
                                                               October 30,     October 31,         October 30,    October 31,     
                                                                  1999            1998              1999            1998          
                                                              -------------   -------------      ------------   --------------    

                                                                                                                                  
Net income (loss)                                               ($17,493)         $6,000          ($66,054)         $11,443       
                                                              =============   =============      ============   ==============    

For Basic Net Income (Loss) Per Common Share                                                                                      
---------------------------------------------                                                                                     
   Weighted average number of common shares                                                                                       
          outstanding during the period                           29,109          23,087            27,027           22,885       
                                                              =============   =============      ============   ==============    

          Basic net income (loss) per common share               ($0.60)          $0.26            ($2.44)           $0.50        
                                                              =============   =============      ============   ==============    

For Diluted Net Income (Loss) Per Common Share                                                                                    
-----------------------------------------------                                                                                   
   Weighted average number of common shares                                                                                       
          outstanding during the period                           29,109          23,087            27,027           22,885       

   Add:   Common stock equivalent shares represented by                                                                           
        - Series B Warrants                                         (a)             63                (a)             106         
        - Series C Warrants                                         (a)            403                (a)             481         
        - Options under 1994 Management Stock Option Plan &                                                                       
                1998 Stock Incentive Plan                           (a)            536                (a)             608         
        - Options under 1994 Non-Employee Directors                                                                               
                Stock Option Plan                                   (a)             56                (a)              61         

                                                              -------------   -------------      ------------   --------------    
   Weighted average number of common and common equivalent                                                                        
          shares used in the calculation of diluted net                                                                           
          income (loss) per share                                 29,109          24,145            27,027           24,141       
                                                              =============   =============      ============   ==============    

          Diluted net income (loss) per common share             ($0.60)          $0.25            ($2.44)           $0.47        
                                                              =============   =============      ============   ==============    

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

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	11/29/04	12
	4/15/03	6
	6/30/02	6	9
	4/15/02	6
	12/31/99	9
	12/15/99	6
Filed on:	12/14/99
	12/13/99	11
	12/3/99	6
	11/15/99	1
For Period End:	10/30/99	1	10
	10/28/99	9
	9/24/99	10	12
	9/23/99	9
	9/17/99	6
	8/31/99	10
	7/31/99	6		10-Q
	5/24/99	6	9
	4/27/99	6	9
	1/30/99	2	9	10-K, DEF 14A
	12/31/98	6	7
	10/31/98	2	9	10-Q
	10/30/98	6
	11/30/94	10	12
				List all Filings

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Ames Department Stores Inc – ‘10-Q’ for 10/30/99

On: Tuesday, 12/14/99 · For: 10/30/99 · Accession #: 6071-99-17 · File #: 1-05380

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