-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M+Wa5iNyY3w2VJjWy9Nh0SbNclQBz5W8yXPYDPoyuFf4E6htTKCjHfTNHlYMOw1A tQUlHbkl+4b2ndJJHy55hg== 0000786877-97-000029.txt : 19971217 0000786877-97-000029.hdr.sgml : 19971217 ACCESSION NUMBER: 0000786877-97-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971101 FILED AS OF DATE: 19971216 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLS STORES CO /DE/ CENTRAL INDEX KEY: 0000786877 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 311153510 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09505 FILM NUMBER: 97739032 BUSINESS ADDRESS: STREET 1: 15 DAN RD CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178211000 MAIL ADDRESS: STREET 1: 15 DAN ROAD CITY: CANTON STATE: MA ZIP: 02021 FORMER COMPANY: FORMER CONFORMED NAME: HILLS STORES CO /NEW/ DATE OF NAME CHANGE: 19931103 FORMER COMPANY: FORMER CONFORMED NAME: HILLS STORES CO /NEW/ DATE OF NAME CHANGE: 19931015 FORMER COMPANY: FORMER CONFORMED NAME: THL HOLDINGS INC DATE OF NAME CHANGE: 19870506 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 1, 1997 - ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------ ------ COMMISSION FILE NUMBER 1-9505 ----------------------------- HILLS STORES COMPANY -------------------- (Exact name of registrant as specified in its charter) DELAWARE 31-1153510 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 15 DAN ROAD, CANTON, MASSACHUSETTS 02021 ---------------------------------- ----- (Address of principal executive offices) (Zip Code) 781-821-1000 ------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant; (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO ------- ------- The number of shares of common stock outstanding as of November 30, 1997 was 10,419,403 shares. HILLS STORES COMPANY AND SUBSIDIARIES TABLE OF CONTENTS ------------------ PART I - FINANCIAL INFORMATION FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of November 1, 1997, February 1, 1997, and November 2, 1996 3 Condensed Consolidated Statements of Operations for the Thirteen and Thirty-nine Weeks Ended November 1, 1997 and November 2, 1996 4 Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended November 1, 1997 and November 2, 1996 5 Notes to Condensed Consolidated Financial Statements 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS 14 ITEM 2: CHANGES IN SECURITIES 14 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 14
2 HILLS STORES COMPANY AND SUBSIDIARIES - -------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS
November 1, February 1, November 2, (in thousands) 1997 1997 1996 - -------------------------------------------------------------------------------------- (unaudited) (unaudited) ASSETS Current assets: Cash and cash equivalents $ 20,078 $ 66,163 $ 25,013 Accounts receivable, net 63,737 24,346 72,688 Inventories 522,118 341,477 539,907 Deferred tax asset 57,372 46,491 67,593 Other current assets 5,184 5,115 6,556 ---------- -------- ---------- Total current assets 668,489 483,592 711,757 Property and equipment, net 175,201 173,701 186,598 Property under capital leases, net 104,791 112,201 110,979 Beneficial lease rights, net 6,273 6,848 7,380 Other assets, net 35,462 18,418 17,573 Deferred tax asset 13,289 8,085 8,233 Reorganization value in excess of amounts allocable to identifiable assets, net 93,110 97,508 102,138 ---------- -------- ---------- $1,096,615 $900,353 $1,144,658 ========== ======== ========== LIABILITIES AND COMMON SHAREHOLDERS' EQUITY Current liabilities: Current portion of capital leases $ 8,580 $ 7,255 $ 6,428 Borrowings under the revolving credit facility 136,000 - 137,000 Accounts payable, trade 202,556 111,064 211,024 Other accounts payable and accrued expenses 185,379 182,018 186,631 ---------- -------- ---------- Total current liabilities 532,515 300,337 541,083 Senior notes 195,000 195,000 195,000 Capital lease and other financing obligations 148,608 154,639 154,672 Other liabilities 5,385 5,651 6,434 Preferred stock, at mandatory redemption value (Note 2) 18,317 19,942 20,807 Common shareholder's equity 196,790 224,784 226,662 ---------- -------- ---------- $1,096,615 $900,353 $1,144,658 ========== ======== ========== See Notes to Condensed Consolidated Financial Statements
3 HILLS STORES COMPANY AND SUBSIDIARIES - --------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Weeks Ended Thirty-Nine Weeks Ended (unaudited) ------------------------ ------------------------- (in thousands, except per November 1, November 2, November 1, November 2, share amounts) 1997 1996 1997 1996 ___________________________________________________________________________________________________ Net sales $434,555 $460,983 $1,137,328 $1,219,831 Cost of sales 319,454 340,152 839,295 902,046 Selling and administrative expenses 106,648 112,110 304,172 318,587 Amortization of reorganization value in excess of amounts allocable to identifiable assets 1,463 1,509 4,388 4,540 Impairment of long-lived assets (Note 3) - - - 11,706 -------- -------- ---------- ---------- Operating earnings (loss) 6,990 7,212 ( 10,527) ( 17,048) Interest expense, net (Note 4) ( 13,236) ( 13,691) ( 36,558) ( 42,423) -------- -------- ---------- ---------- Loss before income taxes, and extraordinary loss ( 6,246) ( 6,479) ( 47,085) ( 59,471) Income tax benefit (Note 5) 2,300 3,675 17,200 31,608 -------- -------- ---------- ---------- Loss before extraordinary loss ( 3,946) ( 2,804) ( 29,885) ( 27,863) Extraordinary loss (Note 6) - ( 2,232) - ( 4,278) -------- -------- ---------- ---------- Net loss applicable to common shareholders ($ 3,946) ($ 5,036) ($ 29,885) ($ 32,141) ======== ======== ========== ========== Primary loss per common share (Note 7): Before extraordinary items ($ 0.38) ($ 0.27) ($ 2.87) ($ 2.72) Extraordinary items - ( 0.22) - ( 0.42) -------- -------- ---------- ---------- Net loss per share ($ 0.38) ($ 0.49) ($ 2.87) ($ 3.14) ======== ======== ========== ========== Fully-diluted loss per common share (Note 7): Before extraordinary items ($ 0.38) ($ 0.27) ($ 2.88) ($ 2.72) Extraordinary items - ( 0.22) - ( 0.42) -------- -------- ---------- ---------- Net loss per share ($ 0.38) ($ 0.49) ($ 2.88) ($ 3.14) ======== ======== ========== ========== See Notes to Condensed Consolidated Financial Statements
4 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-Nine Weeks Ended ------------------------- (unaudited) November 1, November 2, (in thousands) 1997 1996 - ------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($ 29,885) ($ 32,141) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 27,523 26,304 Amortization of deferred financing costs 1,883 5,308 Amortization of reorganization value in excess of amounts allocable to indentifiable assets 4,388 4,540 Loss on disposal of fixed assets 67 998 Impairment of long-lived assets - 11,706 Extraordinary loss on extinguishment of debt - 4,278 Increase in accounts receivable and other current assets ( 39,460) ( 48,705) Increase in inventories ( 180,641) ( 208,210) Increase in accounts payable and accrued expenses 94,749 133,739 Increase in income taxes ( 17,200) ( 33,582) Decrease in deferred tax asset 1,115 - Other, net 82 ( 70) --------- -------- Net cash used for operating activities ( 137,379) ( 135,835) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 20,298) ( 26,158) Deferred software expenditures ( 19,018) - --------- -------- Net cash used for investing activities ( 39,316) ( 26,158) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facility, net 136,000 137,000 Principal payments under capital lease obligations ( 4,706) ( 4,951) Proceeds from issuance of 12 1/2% Senior Notes - 195,000 Fees incurred with the issuance of 12 1/2% Senior Notes - ( 8,100) Redemption of 10.25% Senior Notes - ( 160,000) Payment of debt premium - ( 1,749) Fixture and equipment financings - 12,639 Cash distributions pursuant to the Plan of Reorganization ( 84) ( 2,068) Other ( 600) ( 3,663) --------- -------- Net cash provided by financing activities 130,610 164,108 --------- -------- Net (decrease) increase in cash and cash equivalents ( 46,085) 2,115 Cash and cash equivalents at beginning of period 66,163 22,898 --------- -------- Cash and cash equivalents at end of period $ 20,078 $ 25,013 ========= ======== See Notes to Condensed Consolidated Financial Statements
5 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim period. The accompanying unaudited consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures normally required by generally accepted accounting principles nor those normally made in the Company's annual Form 10-K filing. Reference should be made to the Company's Annual Report on Form 10-K for additional disclosures, including a summary of the Company's accounting policies. Certain prior year amounts have been reclassified to conform to the current year presentation. The Company's business is seasonal in nature and the results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. The fourth quarter of each fiscal year provides the most significant portion of the Company's annual sales and most of its operating earnings, with operating earnings particularly concentrated in the Christmas selling season. 2. HILLS STORES SERIES A CONVERTIBLE PREFERRED STOCK ------------------------------------------------- During the thirty-nine weeks ended November 1, 1997, 81,245 shares of the Company's Series A Convertible Preferred Stock ($20 par value) were converted to the Company's Common Stock on a share for share basis. 3. IMPAIRMENT OF LONG-LIVED ASSETS ------------------------------- Effective February 4, 1996, the Company adopted Statement of Financial Accounting Standards No. 121: "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). FAS 121 requires that the carrying value of long-lived tangible and certain intangible assets be evaluated periodically in relation to the operating performance and estimated future cash flows of the underlying assets. In accordance with FAS 121, in the first quarter of fiscal 1996, the Company recognized a pre-tax charge of $11.7 million ($7.2 million after tax, or $0.70 per share on a fully- diluted basis) to reduce the carrying value of certain of its long-lived tangible and intangible assets to their estimated fair market value. 6 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. INTEREST EXPENSE ---------------- Interest expense is stated net of the following (in thousands):
Thirteen Weeks Ended Thirty-Nine Weeks Ended ------------------------ ------------------------ November 1, November 2, November 1, November 2, 1997 1996 1997 1996 Interest income $ 41 $ 59 $ 467 $ 868 Capitalized interest 353 0 699 0 ----- ----- ------ ----- Total for each period $ 394 $ 59 $1,166 $ 868 ===== ===== ====== =====
Capitalized interest relates to the Company's program to replace its primary information systems ocurring in fiscal years 1997 and 1998. 5. INCOME TAX BENEFIT ------------------ The Company calculates its provision for interim income taxes in accordance with Accounting Principles Board Opinion No. 28. This usually calls for the application of the estimated full year tax rate to interim pretax accounting income, which practice the Company followed through 1996. In circumstances when the usual approach would cause an unrealistically high interim tax benefit rate or other unreasonable tax results (which the Company is experiencing in 1997), the interim tax provision is calculated by applying the appropriate Federal and State statutory tax rates to taxable book income. Had the 1997 approach been used in 1996, the income tax benefit for the third quarter and nine-month period ended November 2, 1996 would have been reduced, and the net loss increased, by approximately $1.9 million and $9.9 million, respectively. The Company expects to continue to employ the 1997 approach until it is no longer reasonably possible that an unreasonably large interim tax benefit rate would occur. The 1997 approach to interim income taxes will have no effect on the amount of income tax expense or benefit for the full year, but will cause income tax expense in the fourth quarter of fiscal year 1997 to be lower than it would have been had the 1996 approach been used. 6. DEBT REFINANCINGS AND EXTRAORDINARY LOSSES ------------------------------------------ In the first half of fiscal year 1996, the Company refinanced $160 million of 10.25% Senior Notes with proceeds from the sale of $195 million of 12 1/2% Senior Notes. As a result of these transactions, the Company recognized an extraordinary after-tax loss for early extinguishment of debt of $2.0 million, or $0.20 per share, in the second quarter of fiscal year 1996. The extraordinary loss included the redemption premiums and the write-off of the related deferred financing costs. In the third quarter of fiscal year 1996, the Company, through its wholly-owned subsidiary Hills Department Store Company ("HDSC"), and C.R.H. International, 7 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6. DEBT REFINANCINGS AND EXTRAORDINARY LOSSES (CONTINUED) ------------------------------------------------------ Inc., a wholly-owned subsidiary of HDSC, obtained a new $300 million secured revolving credit facility (the "Facility"), of which $200 million is available as a letter of credit facility. In connection with this transaction, the Company recognized an extraordinary after-tax loss for early extinguishment of debt of $2.2 million, or $.22 per share, in the third quarter, from the write-off of deferred financing costs related to the prior credit facility. Front-end fees in connection with the Facility were $2.3 million and will be amortized over the life of the Facility. 7. EARNINGS PER SHARE ------------------ Primary loss per share for the thirteen week periods ended November 1, 1997 and November 2, 1996 was computed based on the weighted average number of common shares assumed to be outstanding during the period of 10,413,708 and 10,273,400 shares, respectively. Fully-diluted loss per share for the thirteen week periods ended November 1, 1997 and November 2, 1996 was computed based on the weighted average number of common shares assumed to be outstanding during the period of 10,424,500 and 10,273,400 shares, respectively. Primary loss per share for the thirty-nine week periods ended November 1, 1997 and November 2, 1996 was computed based on the weighted average number of common shares assumed to be outstanding during the period of 10,373,499 and 10,234,024 shares, respectively. Fully-diluted loss per share for the thirty-nine week periods ended November 1, 1997 and November 2, 1996 was computed based on the weighted average number of common shares assumed to be outstanding during the period of 10,420,533 and 10,234,024 shares, respectively. 8. COMMITMENTS AND CONTINGENCIES ----------------------------- In September 1995, the Company filed a suit in the Court of Chancery of the State of Delaware against the former members of the Board of Directors (the "Former Directors") of the Company. That action seeks, among other things, recovery of damages caused by the breach by the Former Directors of their fiduciary duties to shareholders arising from the refusal of the Former Directors to approve the change in control which took place on July 5, 1995 (the "1995 Change of Control") following the election of seven replacement directors by the shareholders of the Company. In October 1995, the defendants filed a motion to dismiss the suit. In March 1997, the court denied that motion. On or about April 25, 1997, the defendants filed an answer and three of the defendants asserted a counterclaim against the Company and certain members of the Company's Board of Directors. In the counterclaim, these defendants allege that, following the 1995 Change of Control, the Company improperly refused to allow them to exercise options to purchase shares of Hills Stores Company common stock. They seek damages of $2.5 million for lost profits plus consequential damages. The Company has replied to the counterclaim, denying its material allegations. Discovery is ongoing in the case. In August 1995, in the Court of Chancery of the State of Delaware, three shareholders of the Company, Gayle Dolowich, Ivan J. Dolowich and Joseph Weiss, 8 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) ----------------------------------------- filed a class action lawsuit against the seven new directors of the Company elected at the 1995 annual meeting, Dickstein Partners Inc. ("Dickstein Partners") and the Company. In November 1995, the plaintiffs amended their complaint to include a shareholder's derivative cause of action against the Former Directors for breach of their fiduciary duties to the Company and its shareholders. In the amended complaint, the plaintiffs claim (under Section 225 of the Delaware Corporation Code) that in connection with Dickstein Partners' effort to solicit proxies in support of the election of its nominees for directors of the Company, Dickstein Partners issued a number of false and misleading statements regarding its offer to acquire all of the Company's shares it did not already own. On the Section 225 claim, the plaintiffs seek an order nullifying the election of directors and declaring there has been "no change of control" of the Company. The derivative cause of action seeks damages against the Former Directors. In January 1996, in the same Delaware Chancery Court, another shareholder, Peter M. Fusco, filed a substantially similar class action and shareholder derivative suit against the parties named in the Dolowich suit. The Former Directors filed a motion to dismiss the Dolowich and Fusco suits and in March 1997, the court denied that motion. Management does not believe that the disposition of such suits and claims will have a material adverse effect upon the continuing operations and financial position of the Company. 9 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED NOVEMBER 1, 1997 COMPARED WITH QUARTER ENDED NOVEMBER 2, 1996 Sales decreased by 5.7 percent from the previous year to $434.6 million, and comparable store sales decreased by 1.8 percent. The comparable store sales decrease reflected weak apparel sales in September and part of October, partially as the result of unseasonably warm autumn weather, and also reflected weak back-to-school sales in August. Total sales were also impacted by the closing of 10 stores at the beginning of the fiscal year. Cost of sales as a percentage of sales was 73.5% in the third quarter of 1997 compared with 73.8% in the third quarter of 1996. Gross profit decreased by $5.7 million primarily due to the sales decrease, but increased as a percentage of sales by 0.3%, primarily as the result of decreased clearance markdowns between years and an increase in initial markon associated with changes in merchandise procurement programs. This was partially offset by increased promotional markdowns during the quarter. Selling and administrative expenses, including depreciation and other occupancy expenses, decreased by $5.5 million in the third quarter due to the Company operating nine fewer stores in the quarter versus the same period in 1996, but rose as a percentage of sales to 24.5% from 24.3% last year, due to the comparable store sales decrease. Net interest expense decreased by $0.5 million, primarily due to reduced borrowings under the Company's working capital facility. The effective tax rate was 36.8% in the third quarter of fiscal 1997 compared with a rate of 56.7% in the third quarter of fiscal 1996. The decreased benefit was due to a modification in the approach used to calculate interim income taxes. See Note 5 of Notes to Condensed Consolidated Financial Statements. The after-tax extraordinary loss of $2.2 million in 1996 represented the early extinguishment of debt related to the refinancing of the Company's bank credit facility. See Note 6 of the Notes to Condensed Consolidated Financial Statements. THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 COMPARED WITH THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996 Sales decreased 6.8% compared with the same period in 1996. This decrease was primarily due to the closing of ten stores at the beginning of the fiscal year. Comparable store sales decreased by 2.9%, primarily reflecting weakness in men's and children's apparel, and less aggressive promotional efforts early in the year, including a sales loss related to the discontinuance of a "no down payment" back-to-school layaway promotion. Cost of sales as a percentage of sales was 73.8% in fiscal 1997 compared with 73.9% in fiscal 1996. Gross profit decrease by $19.8 million, primarily due to the sales decrease, but increased as a percentage of sales by 0.1%, primarily due to an increase in initial markon associated with changes in procurement programs. 10 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 COMPARED WITH THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996 (CONTINUED) Selling and administrative expenses, including depreciation and other occupancy expenses, decreased by $14.4 million from the first nine months of last year due to the store closings, but rose as a percentage of sales to 26.7% in 1997 compared with 26.1% in the same period of 1996, due to the comparable store sales decrease. See Note 3 of the Notes to Condensed Consolidated Financial Statements regarding the charge for the impairment of long-lived assets. Net interest expense decreased by $5.9 million, primarily due to reduced borrowings under the Company's revolving credit facility, to reduced Senior Notes interest related to temporarily carrying two series of notes in the second quarter of 1996 as the old series was being refinanced, and to reduced amortization costs associated with the Senior Notes that were refinanced in mid-1996. The effective tax rate was 36.5% in fiscal 1997 compared with a rate of 53.1% in fiscal 1996. The decreased benefit was due to a modification in the approach used to calculate interim income taxes. See Note 5 of the Notes to Condensed Consolidated Financial Statements. The after-tax extraordinary loss of $4.3 million in 1996 represented the early extinguishment of debt related to the refinancing and redemption of the 10.25% Senior Notes and the write-off of the deferred financing costs related to the Company's previous credit agreement which was replaced during 1996. See Note 6 of the Notes to Condensed Consolidated Financial Statements. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Certain statements contained in this document (in particular, the discussion of liquidity) are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the Company believes its plans are based upon reasonable assumptions as of the current date, it can give no assurances that any expectations will be attained. Among the factors that could cause actual results to differ materially are the following: general economic conditions, consumer demand, consumer preferences and weather patterns in the Midwest and Mid-Atlantic regions of the United States; competitive factors, including continuing pressure from pricing and promotional activities of major competitors; impact of excess retail capacity and the availability of desirable store locations on suitable terms; the availability, selection and purchasing of attractive merchandise on favorable terms; import risks, including potential disruptions and duties, tariffs and quotas on imported merchandise; acquisition and divestment activities; and other factors that may be described in this document. Net cash used for operating activities was $137.4 million for the thirty-nine weeks ended November 1, 1997 compared with $135.8 million for the same period last year, an increase of $1.6 million. This net use of cash for operating activities is primarily due to the seasonal nature of the Company's business. The larger net use of cash for operating activities in the first nine months of 11 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) fiscal year 1997 compared with the same period in fiscal year 1996, was primarily the result of a one-time benefit during 1996 in improved vendor terms as expressed through higher balances of trade accounts payable, partially offset in 1997 by a run-off of excess inventories that were on hand at the end of fiscal year 1996, and a smaller seasonal inventory buildup in 1997 in the 155 stores operated versus the 165 stores in operation last year. Net cash used for investing activities was $39.3 million for the first nine months of 1997 compared with $26.2 million for the first nine months of 1996, a $13.1 million increase. This increase was primarily the result of the Company's information technology replacement program which was partially offset by a reduction in capital expenditures versus last year related to store remodels. During fiscal year 1997, capital expenditures and deferred software expenditures are expected to approximate $29 million and $25 million, respectively (subject to the further explanation in the following paragraph). The Company will not open any new stores in the current fiscal year. In 1997, the Company initiated a program, which it expects to complete in 1998, to replace most of its primary information systems. These initiatives will require expenditures of approximately $33 million for software procurement, development, and installation (of which the Company estimates fiscal 1997 expenditures of approximately $25 million). In addition, the Company expects to procure approximately $13 million of information technology equipment pursuant to this replacement program. The Company has operating lease commitments for approximately $10 million of this equipment. Currently, the Company is exploring an alternative debt based financing source for the procurement of certain of this equipment. If this alternative financing is employed, total capital expenditures for 1997 would increase by up to $5 million. In connection with this information systems replacement program, the Company is executing a program designed to assure all new and continuing systems are capable of "Year 2000" compliance, including upgrades if needed to those few systems not being replaced. Net cash provided by financing activities was $130.6 million for the first nine months of fiscal 1997 compared with $164.1 million in the same period a year ago, a $33.5 million decrease. The decrease was due to $25.0 million in net proceeds received from the issuance of long-term debt in excess of the debt refinanced in 1996 and $12.6 million decrease due to fixture and equipment financing which occured in 1996. During the first nine months of fiscal 1997, average borrowings under the revolving credit facility were $39.1 million at an average interest rate of 8.1%. Average borrowings were $62.9 million at an average interest rate of 8.5% for the same period in 1996. Excess credit availability at November 1, 1997 was approximately $124 million compared with approximately $117 million at November 2, 1996. The Company believes that its credit arrangements, together with cash from operations, will enable the Company to maintain the liquidity necessary to finance its continuing operations. 12 HILLS STORES COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The terms of the Company's revolving credit facility and Senior Notes limit the ability of the Company's subsidiaries to pay dividends. Any or all of the restrictions, limitations or contingencies under the revolving credit facility and the Senior Notes Indenture, as well as the Company's leverage, could adversely affect the Company's ability to obtain additional financing in the future, to make capital expenditures, to effect store expansions, to make acquisitions, to take advantage of business opportunities that may arise, and to withstand adverse general economic and retail industry conditions and increased competitive pressures. Retail suppliers and their factors monitor carefully the financial performance of retail companies such as the Company, and may reduce credit availability quickly upon learning of actual or perceived deterioration in the financial condition or results of operations of a retail company. 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- See Note 8 of the Notes to Condensed Consolidated Financial Statements. Reference is also made to the Report on Form 10-Q of the Company for the quarter ended May 3, 1997. ITEM 2. CHANGES IN SECURITIES - ------- --------------------- During the quarter ended November 1, 1997, the Company issued 5,605 shares of Common Stock, par value $.01 per share (the "Common Shares"), upon the conversion of 5,605 shares of Series A Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred Shares"). The Series A Preferred Shares were issued pursuant to the exemption from registration set forth in Section 1145(a) of the Federal Bankruptcy Code, and the Common Shares were issued pursuant to the exemption contained in Section 3(a)(9) of the Securities Act of 1933, as amended. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- a. The following documents are filed as part of this Report: 1 3.1 Amended and Restated Certificate of Incorporation of the Company, as amended. 2 3.3 Amended and Restated By-Laws of the Company. 3 4.1 Certificate of the Voting Powers, Preferences and other designated attributes of the Series A Convertible Preferred Stock of the Company. 4 4.2 Form of Series 1993 Stock Right. 5 4.3 Series 1993 Warrant Agreement dated October 4, 1993 between the Company and Chemical Bank, as Warrant Agent. 6 4.4 Rights Agreement dated as of August 16, 1994 (the "Rights Agreement") between the Company and Chemical Bank, as Rights Agent. 6 4.5 Form of Certificate of the Voting Powers, Preferences and other designated attributes of Series B Participating Cumulative Preferred Stock of the Company (which is attached as Exhibit A to the Rights Agreement incorporated by reference as Exhibit 4.4 hereto). 6 4.6 Form of Right Certificate (which is attached as Exhibit B to the Rights Agreement incorporated by reference as Exhibit 4.4 hereto).
14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) - ------- -------------------------------------------- 7 4.7 Amendment dated as of October 18, 1995 to the Rights Agreement. 8 4.8 Indenture dated as of April 19, 1996 relating to the 12 1/2% Senior Notes due 2003, Series B, of the Company. 9 10.1 Loan and Security Agreement (the "Loan and Security Agreement") dated as of September 30, 1996 among the Financial Institutions named therein as the Lenders, BankAmerica Business Credit, Inc., as the Agent, Hills Department Store Company and C.R.H. International, Inc. as the Borrowers, and the other Loan Parties named therein. 10 10.2 First Amendment dated as of February 28, 1997 to the Loan and Security Agreement. 11 10.3 * Employment Agreement made as of February 7, 1996 with Gregory K. Raven. 12 10.4 * Consulting Agreement made as of February 8, 1997 with Chaim Y. Edelstein. 13 10.5 * Employment Agreement made as of November 19, 1996 with Michael R. Hamilton. 14 10.6 * Employment Agreement made as of July 22, 1997 with Frederick L. Angst. 10.7 * Employment Agreement made as of November 11, 1997 with C. Scott Litten. 12 10.8 * Separation Agreement dated February 7, 1996 between the Company and E. Jackson Smailes. 12 10.9 * Confidential Separation Agreement, Voluntary Release and Notice dated March 6, 1997 between the Company and James E. Feldt. 15 10.10 * 1993 Incentive and Nonqualified Stock Option Plan, as amended. 11 10.11 * 1996 Directors Stock Option Plan. 16 10.12 * Hills Stores Company/Hills Department Store Company Associate Stock Purchase Plan, as amended. 11 Statement regarding computation of per share earnings. 17 16 Letters re: change in certifying accountant. 27 Financial Data Schedule. - --------------------- * Executive Compensation Plans and Arrangements.
15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) - ------- -------------------------------------------- 1. Incorporated by reference from the Annual Report on Form 10-K of the Company for the fiscal year ended January 28, 1995. 2. Incorporated by reference from the Report on Form 8-K of the Company dated January 18, 1996. 3. Incorporated by reference from the Form 8-A of the Company filed on September 16, 1993. 4. Incorporated by reference from the Annual Report on Form 10-K of the Company for the fiscal year ended January 29, 1994. 5. Incorporated by reference from the Report on Form 8-K of the Company dated October 4, 1993. 6. Incorporated by reference from the Report on Form 8-K of the Company dated August 16, 1994. 7. Incorporated by reference from the Report on Form 8-K of the Company dated October 18, 1995. 8. Incorporated by reference from the Report on Form 10-Q of the Company for the quarter ended May 4, 1996. 9. Incorporated by reference from the Report on Form 8-K of the Company dated October 1, 1996. 10. Incorporated by reference from the Report on Form 8-K of the Company dated February 28, 1997. 11. Incorporated by reference from the Annual Report on Form 10-K of the Company for the fiscal year ended February 3, 1996. 12. Incorporated by reference from the Annual Report on Form 10-K of the Company for the fiscal year ended February 1, 1997. 13. Incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 14. Incorporated by reference from the Quarterly Report on Form 10-Q of the Company for the quarter ended August 2, 1997. 15. Incorporated by reference from the Company's definitive proxy materials dated May 5, 1997. 16. Incorporated by reference from the Form S-8 of the Company filed on May 28, 1997. 17. Incorporated by reference from the Report on Form 8-K of the Company date November 8, 1995. b. Reports on Form 8-K. None.
16 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. HILLS STORES COMPANY Date: December 16, 1997 /s/C. Scott Litten ------------------ C. Scott Litten Executive Vice President- Chief Financial Officer Date: December 16, 1997 /s/Brian J. Sheehan -------------------- Brian J. Sheehan Vice President - Controller 17 EXHIBIT INDEX Pursuant to Item 601 of Regulation S-K Exhibit Title - ------- ----- 10.7 Employment Agreement made as of November 11, 1997 with C. Scott Litten. 11 Statements regarding computations of earnings per share. 27 Financial Data Schedule.
18 EX-10 2 EXHIBIT 10.7 C. SCOTT LITTEN EMPLOYMENT AGREEMENT This will confirm our agreement under which you are to serve as EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL OFFICER of Hills Department Store Company, a Delaware corporation (the "Subsidiary") and Hills Stores Company, a Delaware corporation (the "Parent"), together collectively referred to as the "Company". 1. TERM. The Company will employ you, and you accept employment, as provided herein, for a term beginning on the Effective Date (as defined in paragraph 6) and ending on the third anniversary of the Effective Date, unless sooner terminated as provided in paragraph 4. 2. DUTIES AND RESPONSIBILITIES. During the term of employment, you shall be EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL OFFICER of the Company and your primary duties will be the SENIOR SUPERVISION OF ALL FINANCIAL FUNCTIONS, INFORMATION SYSTEMS AND MERCHANDISE CONTROL activities of the Company. You shall not be required, without your consent, to perform your duties at any location that is more than fifty (50) miles from the Company's principal office in Canton, Massachusetts. 3. COMPENSATION AND BENEFITS. (a) Your initial compensation ("Base Compensation") shall be at the rate of $350,000 per year. Base Compensation shall be reviewed on an annual basis and increased if the Compensation Committee of the Board of Directors deems it appropriate. No decrease in Base Compensation will be permitted during the term of the Agreement. In accordance with the Company's practice for its senior executives, you will be paid twice each month. (b)(i) You shall be entitled to participate in any bonus, stock option or other incentive compensation plans, profit-sharing plans, retirement plans, life and health insurance plans, vacation and other benefit plans which are made generally available to executives of the Company at a level commensurate with your position and/or years worked for the Company. Notwithstanding any Company policy to the contrary, you will be entitled to not less than four weeks vacation per each full calendar year. You shall also be entitled to such other perquisites as the Company or the Compensation Committee of the Board of Directors deems appropriate. (ii) The auto leasing, insurance and other benefit programs and plans referenced herein, at the levels currently in place, shall not be materially reduced as they apply to you, unless the Company has determined for good and reasonable purposes and intentions to reduce the benefits for all salaried executives or all senior executives and has not made compensation adjustments for the other executives to reflect the reduced benefits. However, in no event shall your four weeks vacation per year be reduced. (c) You shall be entitled to reimbursement for your ordinary and necessary business expenses, travel, and entertainment incurred in the performance of your services hereunder. You shall provide the Company with documentation of such expenses in accordance with the Company's normal practices. 4. TERMINATION AND SEVERANCE. (a) By the Company - (i) Your employment hereunder shall terminate upon your death and may be terminated at the option of the Company forthwith upon delivery of Notice of Termination or upon 30 days Notice of Termination in the case of Disability. (ii) Upon termination by the Company for Cause, the Company shall have no further obligations whatsoever to you hereunder, except as required by law and other than for payment of any unpaid Base Compensation (as hereinafter defined) and vested benefits under any retirement plans to which you are a participant in accordance with the terms of the specific plans, both of which are to be accrued to the date of termination, plus reimbursement of any unused vacation pay accrued to the date of termination and any reimbursable expenses incurred prior to the date of termination. As used herein - "Cause" shall mean (a) a determination by a majority of the members of the Company's Board of Directors, acting on opinion of counsel, of your willful failure, without proper purpose, to perform your functions and assume your responsibilities in accordance with the terms of this Agreement, after a written demand for substantial performance is delivered to you by the Company, which failure amounts to material neglect of your duties (no act or failure to act on your part shall be deemed "willful" unless it is done, or omitted to be done, by you in bad faith or without reasonable belief that the action or omission was in the best interests of Hills), (b) your misappropri- ation (including the unauthorized use or disclosure of confidential or proprietary information of the Company or any of its subsidiaries or affiliates) or your embezzlement with respect to the Company or any of its subsidiaries or affiliates (c) a conviction of or guilty plea or confession by you to any fraud, conversion, misappropriation, embezzlement or felony, or (d) your failure to substantially perform any material covenant to be performed by you hereunder after a written demand for substantial performance is delivered to you by the Company. (iii) Upon termination by virtue of death or Disability, your Base Compensation shall cease to accrue as of the effective date of termination, but you or your estate shall be entitled to payment of: any unpaid Base Compensation accrued to the date twelve (12) months following the date of termination; a pro rata portion of any bonuses or other incentive compensation otherwise payable pursuant to paragraph 3(b) with respect to the fiscal year of termination, determined on the basis of the portion of such fiscal year during which you were employed hereunder; and vested benefits under any retirement plans to which you are a participant (in accordance with the terms of the specific plans) accrued prior to date of termination; and reimbursement of any unused vacation pay accrued to the date of termination and any reimbursable expenses incurred prior to the date of termination. 2 As used herein - "Disability" shall mean that, as a result of any physical or mental disability, you are unable to perform your major duties here- under for a continuous period of 120 days or a total of at least 180 days in any period of 365 consecutive days due to the same or a related medical condition. (b) By the Employee For Good Reason - If any one of the following events occurs during the term of this Agreement, it will be considered "Good Reason" for you to exercise your right to terminate your employment hereunder: (i) A material breach by the Company of any of the provisions of this Agreement; or (ii) The Company's failure to retain you as its EXECUTIVE VICE PRESIDENT-CHIEF FINANCIAL OFFICER (other than as a result of an effective promotion); or (iii) A significant change in the nature or scope of your responsibilities, authorities, powers, functions, duties or activities which has the effect of diminishing your position with the Company or limiting your ability to act as Chief Financial Officer (other than a change resulting from an effective promotion), or (iv) The Relocation of your office more than fifty (50) miles from the site of the Company's current principal office in Canton, Massachusetts; Your right to terminate your employment under paragraphs 4(b)(i), (ii), (iii) and (iv), is conditioned upon your giving written notice to the President, with a copy to the Vice President-Secretary, of your decision to terminate employment not later than three months after the occurrence of the events or the date you first became aware of the events, if later, which gave rise to the right to terminate. Such termination of employment shall be effective thirty (30) days after your written notice has been delivered to the Company, (the "Cure Period") provided the occurrence specified in your notice shall then be continuing. (c) Upon termination by the Company without Cause (other than by reasons of death or Disability) or by you, pursuant to paragraph 4(b), you shall, subject to the limitations stated herein, continue to receive your then current Base Compensation twice a month and the Company shall maintain in full force and effect, Insurance Benefits (as defined and limited below), in each case for the full term of this Agreement or the date twelve (12) months after the date (the "Notice Date") on which a notice of termination is given by the Company, whichever is later. In the event of a termination by employee for Good Reason, the twelve-(12) month's period referenced above does not commence until the end of the thirty-(30) day Cure Period. You shall be further entitled to receive (A) vested benefits under any retirement plans to which you are a participant, in accordance with the terms of the specific plans, accrued prior to the date of termination; and (B) reimbursement of any unused vacation pay or any reimbursable expenses incurred prior to the Notice Date. Base Compensation otherwise payable to you for the remaining term of this Agreement, after the first twelve (12) months immediately following the Notice Date, or the Notice 3 Date and Cure Period, in the event of a termination by employee for Good Reason, (the "Remainder Period") shall be reduced by the amount of any other base employment compensation earned by you and paid to you during this Remainder Period, through the full term of this Agreement. For purposes of this paragraph 4(c) and paragraph 6, "Insurance Benefits" shall mean all life and health insurance or other similar plans in which you were entitled to participate immediately prior to the date of termination. If, your continued participation in any or all such plans is not possible under the general terms and provisions thereof, because you are no longer deemed to be an employee of the Company, the Company itself shall pay or provide for payment of such Insurance Benefits, subject to your continuing contributions pursuant to such plans. Notwith- standing any statement to the contrary in this Agreement, it is understood and agreed that you will be entitled to receive not less than twelve (12) months of Base Compensation following the Notice Date and Cure Period without reduction or offset, in the event you terminate your Employment Agreement pursuant to paragraph 4(b). (d) By Employee Without Good Reason - In addition to the reasons set forth in paragraph 4(b), you may terminate your employment hereunder at any time, with or without Good Reason, upon 90 days' Notice of Termination to the Company. In the event of a termina- tion by you pursuant to this paragraph 4(d), the Company shall, other than as required by applicable law, have no further obligations whatsoever to you here- under, other than for payment of any unpaid Base Compensation accrued to the date of termination and vested benefits under any retirement plans to which you are a participant in accordance with the terms of the specific plans in effect up to the date of termination; and reimbursement of any properly reimbursable expenses incurred prior to the date of termination. (e) Any purported termination of your employment shall be communi- cated by written Notice of Termination from one party to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and, if a termination for "Cause" or "Good Reason", shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (f) Severance - It is understood and agreed that, at the time of your employment, the Company committed to provide you with a minimum of twelve (12) months severance pay without offset. Accordingly, if this Employment Agreement is not renewed or extended or if Company policy with regard to severance eliminates severance payments or reduces such payments to a level below the Company's commitment to you, your severance payment will not be adjusted or eliminated. Nevertheless, if at any time you are terminated "for cause" as defined herein, no severance payments are due. 5. COVENANTS. (a) You recognize that the knowledge of, information concerning and relationship with customers, suppliers and agents, and the knowledge of the Company's business methods, systems, plans and policies which you will 4 establish, receive or obtain as an employee of the Company, are valuable and unique assets of the business of the Company. You will not, during or within two (2) years after the term of your employment, disclose any such knowledge or information pertaining to the Company, its customers, suppliers, agents, policies or other aspects of its business, for any reason or purpose whatsoever, except pursuant to your duties hereunder or as otherwise authorized by the Company in writing. The foregoing restriction shall not apply, following termination of your employment hereunder, to knowledge or information which (i) is in or enters the public domain without violation of this Agreement or other obligations of confidentiality by you or your agents or representatives, (ii) you can demonstrate was in your possession on a non-confidential basis prior to the commencement of your employment with the Company, or (iii) you can demon- strate was received or obtained by you, on a non-confidential basis from a third party who did not acquire it wrongfully or under an obligation of confiden- tiality, subsequent to the termination of your employment hereunder. (b) All memoranda, notes, records or other documents made or compiled by you or made available to you while employed concerning customers, suppliers, agents or personnel of the Company, or the Company's business methods, systems, plans and policies, shall be the Company's property and shall be delivered to the Company on termination of your employment or at any other time on request. (c) During the term of your employment and for two (2) years there- after, you shall not, except pursuant to and in furtherance of your duties hereunder, directly or indirectly solicit or contact any employee of the Company with a view to inducing or encouraging such employee to leave the employ of the Company for the purpose of being hired by you, an employer affiliated with you or any competitor of the Company. (d) You acknowledge that the provisions of this paragraph 5 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, you agree that, in addition to any other relief to which the Company may be entitled in the form of actual or punitive damages, the Company shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction for the purposes of restraining you from any actual or threatened breach of such covenants. (e) In the event that, following the termination of this Agreement, you are entitled to receive any further payments other than for compensation or other amounts accrued prior to termination or expiration of this Agreement, such payments shall nonetheless cease and the Company shall no longer be obligated to make such payments if there is a material breach of any of the covenants in this paragraph 5 and you shall forthwith upon demand of the Company repay any such amounts paid to you subsequent to the date such breach occurred. 6. EFFECTIVE DATE OF AGREEMENT. This Agreement shall be effective (the "Effective Date") as of NOVEMBER 11, 1997. 5 7. MISCELLANEOUS. (a) This Agreement constitutes the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may not be amended or revised except by a writing signed by the parties. (b) This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, but may not be assigned by either party without the prior written consent of the other. (c) Any notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly made when delivered by fax and courier delivery, addressed as follows (or to such other address as you or the Company may specify by notice hereunder to the other): If to you prior to termination: C. Scott Litten Hills Stores Company 15 Dan Road Canton, MA 02021 If to you subsequent to termination: C. Scott Litten 6900-29 Daniels Parkway Ft. Myers, FL 33912 If to the Company: Hills Stores Company 15 Dan Road Canton, Massachusetts 02021 Attention: Vice President-Secretary (d) Captions have been inserted solely for convenience of reference and in no way define, limit or describe the scope or substance of any provisions of this Agreement. (e) The provisions of this Agreement are severable, and the in- validity of any provision shall not affect the validity of any other provision. (f) This Agreement shall be construed under and governed by the internal laws of the Commonwealth of Massachusetts. (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. If the foregoing correctly sets forth our understanding on the subject matter hereof, kindly sign and return to the Company the enclosed copy hereof, which will thereupon become our binding agree- ment. 6 Entered into, accepted and agreed this eleventh day of November 1997. Hills Department Store Company By: /s/ Gregory K. Raven ----------------------------- Gregory K. Raven President and Chief Executive Officer Hills Stores Company By: /s/ William K. Friend ------------------------------ William K. Friend Vice President-Secretary Accepted and Agreed: Employee /s/ C. Scott Litten - ------------------------- C. Scott Litten 7 EX-11 3 EXHIBIT 11 HILLS STORES COMPANY AND SUBSIDIARIES STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS Thirteen Thirteen Weeks Ended Weeks Ended November 1, November 2, 1997 1996 ---------- ----------- Weighted average primary shares outstanding - ------------------------------------------- Weighted average number of common shares assumed to be outstanding during the period 10,413,708 10,273,400 Assumed conversion of preferred stock - - Assumed exercise of stock options - - Assumed exercise of stock rights - - Assumed exercise of stock warrants - - ---------- ---------- 10,413,708 10,273,400 ========== ========== Thirty-nine Thirty-nine Weeks Ended Weeks Ended November 1, November 2, 1997 1996 ---------- ----------- Weighted average primary shares outstanding - ------------------------------------------- Weighted average number of common shares assumed to be outstanding during the period 10,373,499 10,234,024 Assumed conversion of preferred stock - - Assumed exercise of stock options - - Assumed exercise of stock rights - - Assumed exercise of stock warrants - - ---------- ---------- 10,373,499 10,234,024 ========== ========== EXHIBIT 11 HILLS STORES COMPANY AND SUBSIDIARIES STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS Thirteen Thirteen Weeks Ended Weeks Ended November 1, November 2, 1997 1996 ---------- ----------- Weighted average fully-diluted shares outstanding (1) - ----------------------------------------------------- Weighted average number of common shares assumed to be outstanding during the period 10,424,500 10,273,400 Assumed conversion of preferred stock - - Assumed exercise of stock options - - Assumed exercise of stock rights - - Assumed exercise of stock warrants - - ---------- ---------- 10,424,500 10,273,400 ========== ========== Thirty-nine Thirty-nine Weeks Ended Weeks Ended November 1, November 2, 1997 1996 ---------- ----------- Weighted average fully-diluted shares outstanding (1) - ----------------------------------------------------- Weighted average number of common shares assumed to be outstanding during the period 10,420,533 10,234,024 Assumed conversion of preferred stock - - Assumed exercise of stock options - - Assumed exercise of stock rights - - Assumed exercise of stock warrants - - ---------- ---------- 10,420,533 10,234,024 ========== ========== The calculation of the weighted average fully-diluted shares outstanding assumes that actual conversions of Preferred Stock during the thirteen and thirty-nine weeks ended occurred as of the beginning of the period being reported on. The conversion of Preferred Stock, and the exercise of stock options, stock rights, and stock warrants was not assumed as the result would be anti-dilutive. (1) This calculation is presented in accordance with Item 601 of Regulation S-K although it is not required by APB Opinion No. 15. EX-27 4
5 1,000 9-MOS JAN-31-1998 NOV-01-1997 20,078 0 65,171 (1,434) 522,118 668,489 252,869 77,668 1,096,615 532,515 343,608 18,317 0 104 196,686 1,096,615 1,137,328 1,137,328 839,295 839,295 308,560 1,408 36,558 (47,085) (17,200) (29,885) 0 0 0 (29,885) (2.87) (2.87)
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