Hills Stores has new $300 million revolver,
hires Bear, Stearns as financial advisor and announces second
quarter results
CANTON, Mass.--August 21, 1995--Hills Stores
Company (NYSE:HDS) today announced that it has closed on its
previously announced commitment from Chemical Bank to provide a new
$300 million working capital facility.
Hills also announced that it has retained the investment banking
firm of Bear, Stearns & Co., Inc. as its financial advisor to opine
on the fairness of any acquisition proposals or to assist the board
in setting up a process designed to maximize shareholder value in
the near term. Due to the importance of the fourth quarter to
overall results, the company currently believes that in order to
best maximize shareholder value this process might not conclude
until the first quarter of 1996. Hills also stated that until
warranted it planned no further announcements regarding any
potential extraordinary transactions.
Hills today also released its second quarter results. Total
sales for the quarter ended July 29, 1995, increased 3.7% from the
previous year to $389.4 million and increased 0.4% on a comparable
store basis to $376.3 million. Earnings before interest, taxes,
depreciation, amortization, other non-cash charges and one time
gains/ losses ("EBITDA") decreased to $2.7 million from $14.2
million in the same period of 1994. Net loss was $45.2 million
versus a $3.6 million loss in the prior year second quarter. Loss
per share on a fully-diluted basis was $4.64 compared to a loss per
share of $0.36 in the prior year second quarter. This year's net
income includes a non- recurring charge of $43.3 million ($35.6
million or $3.65 per share after taxes), relating to severance and
refinancing expenses which occurred as a result of the July 5 change
of control.
For the six months ended July 29, 1995, total sales increased
1.5% to $752.3 million while sales on a comparable store basis
declined 1.7% to $727.6 million. EBITDA totaled $13.0 million for
the six month period compared to $24.6 million for the prior year
six month period. Net loss was $49.5 million versus a net loss of
$6.0 million for the prior six month period. The first half loss
per share equaled $4.90 compared to a loss per share of $0.59 in
1994. As previously mentioned, the 1995 results include a $43.3
million charge as a result of change of control related severance
and refinancing expenses. Loss per share for the first half
excluding this one time charge was $1.38 per share.
Jack Smailes, President of Hills Stores Company, commented:
"Our second quarter operating results were negatively impacted
by two factors. First, the Company's second quarter sales forecast
proved too optimistic resulting in more markdowns than planned,
which lowered gross margin. Second, as a result of costs associated
with the new store growth strategy adopted last year and other cost
pressures, SG&A expenses as a percentage of sales increased 0.7%
from the earlier period.
"The aggressive new store growth strategy was significantly
reduced at the beginning of July. As a result of the cost savings
to be achieved from this change, as well as planned improvements in
other controllable expenses, we project that notwithstanding the
second quarter's results for the year ending February 3, 1996 the
company should exceed last year's EBITDA (before a one time pension
related gain) of $136.9 million. This projection is based on a
forecast of a 0.5% increase in comparable store sales for the second
half of 1995.
"My management team and I plan to introduce ourselves to
shareholders at a meeting in New York next week in order to further
elaborate on Hills' business plan."
Hills Stores is a leading regional discounter operating 159
stores in 12 Mid-Western and Mid-Atlantic states.
($ in 000's, except per share amounts)
Second quarter 1995(a) 1994(b) $ Change % Change
Sales $389,424 $375,632 $13,792 3.7%
EBITDA(c) 2,723 14,228 (11,505) (80.9%)
Operating earnings(loss) (50,180) 5,456 (55,636) (1,019.7%)
Net loss (45,170) (3,597) (41,573) (1,155.8%)
Loss per share ($4.64) ($0.36) ($4.28) (1,188.9%)
Shares outstanding(d) 9,730 9,920 (190.0) (1.9%)
July 29, July 30, Six months ended:
1995 1994
Sales $752,286 $741,229 $11,057 1.5%
EBITDA(c) 12,993 24,564 (11,571) (47.1%)
Operating earnings (loss) (49,035) 11,852 (60,887) (513.7%)
Net loss (49,507) (5,959) (43,548) (730.8%)
Loss per share ($4.90) ($0.59) ($4.31) (730.5%)
Shares outstanding(d) 10,109 10,116 (7) (0.1%)
Trailing twelve July 29, July 30,
months ended: 1995 1994
Sales $1,883,078 $1,809,060 $74,018 4.1%
EBITDA(c) 128,677 133,576 (4,899)
(3.7%)
Operating income 44,868 102,200 (57,332) (56.1%)
Net earnings (loss) (3,117) 295,341(e)(298,458) (101.1%)
(a) Operating earnings (loss), net loss and loss per share include a
pre-tax charge of $43.3 million related to severance expenses
paid to certain senior officers and employees of the company,
and legal and other expenses, associated with the July 5, 1995
change of control.
(b) Operating earnings (loss), net loss and loss per share include a
gain of $4.5 million from the elimination of the company's
pension benefit obligation.
(c) Represents earnings before interest, taxes, depreciation and
amortization, and non-recurring items on a first-in, first-out,
inventory basis.
(d) Fully diluted average shares outstanding for the quarter and six
months ended July 29, 1995 do not include 1,285,824 shares of
preferred stock as their effect would be anti-dilutive.
(e) Includes a $258.2 million after-tax extraordinary gain on the
discharge of prepetition debt related to the company's emergence
from Chapter 11 in October 1993.
Hills Stores Company and Subsidiaries Consolidated Statements of
Operations (Unaudited) (dollars in thousands, except per share
amounts)
Three months Six months Twelve months
ended ended ended
7/29/95 7/30/94 7/29/95 7/30/94 7/29/95 7/30/94
Net sales $389,424 $375,632 $752,286 $741,229 $1,883,078 $1,809,060
Cost of
sales 288,683 269,173 550,235 534,436 1,356,020 1,290,896
Selling and
administrative
expenses 98,149 92,231 189,214 177,750 401,861 380,157
Depreciation
and amort-
ization 9,480 8,772 18,580 17,191 37,037 35,807
Costs related
to change
in control 43,292 -- 43,292 -- 43,292 --
Operating
earnings
(loss) (50,180) 5,456 (49,035) 11,852 44,868 102,200
Other income
(expense)
Capital lease
interest (3,538) (3,696) (7,117) (7,428) (14,396) (14,918)
Other
interest (8,186) (5,820) (15,578) (11,485) (28,098) (20,312)
Other income,
net 152 463 1,962 1,102 10,101 3,807
(11,572) (9,053) (20,733) (17,811) (32,393) (31,423)
(61,752) (3,597) (69,768) (5,959) 12,475 70,777
Reorganization
items, net -- -- -- -- -- (6,640)
(61,752) (3,597) (69,768) (5,959) 12,475 64,137
Income tax
provision
(benefit) (16,582) -- (20,261) -- 15,592 26,609
(45,170) (3,597) (49,507) (5,959) (3,117) 37,528
Extraordinary
gain on
discharge of
prepetition
debt
-- -- -- -- -- 258,239
Net earnings
(loss) (45,170) (3,597) (49,507) (5,959) (3,117) 295,767
Preferred
dividend
requirements -- -- -- -- -- 426
Net earnings
(loss)
applicable
to common
share-
holders ($45,170) ($3,597) ($49,507) ($5,959) ($3,117) $295,341
Net loss
per share:
Primary ($4.66) ($0.36) ($5.11) ($0.61)
Fully-
diluted ($4.64) ($0.36) ($4.90) ($0.59)
Shares outstanding
Primary 9,699 9,920 9,683 9,739
Fully-
diluted 9,730 9,920 10,109 10,116
The Consolidated Statement of Operations for the trailing twelve
months ended July 30, 1994 is shown combined for information
purposes only since it was prepared using two different basis of
accounting. The company adopted Fresh-Start accounting in
conjunction with its emergence from Chapter 11 in October 1993.
Hills Stores Company and Subsidiaries Consolidated Balance Sheets
(unaudited) (in thousands)
July 29, July 30,
1995 1994
ASSETS Current Assets:
Cash and cash equivalents $ 456 $ 4,701
Trade receivables, net 48,915 47,108
Inventories 442,565 396,044
Deferred tax asset-short term 20,923 - Other
current assets 6,231 4,319
Total Current assets 519,090 452,172
Property and equipment, net 181,654 151,707
Property under capital issues, net 118,941 129,284
Beneficial lease rights, net 8,661 9,489
Other assets, net 8,187 8,351
Deferred tax asset long-term 10,061
- Reorganization value in excess
of amounts allocable to
identifiable assets, net 140,887 172,235
987,481 923,238
LIABILITIES AND COMMON
SHAREHOLDERS'S EQUITY Current liabilities:
Current portion of
capital leases $ 6,121 $ 5,532
Borrowings under the
revolving credit
facility 115,000
- Accounts payable, trade 122,873 112,121
Other accounts payable
and accrued expenses 181,400 183,264
Total current liabilities 425,394 300,917
Senior notes 160,000 160,000
Obligations under
capital leases 121,525 127,927
Sale/leaseback financing 25,169 -
Other liabilities 8,935 10,118
Commitments and contingencies - -
Preferred stock at mandatory
redemption value 25,716 77,671
Common shareholders equity:
Common stock 97 101
Additional paid in capital 208,486 216,228
Retained earnings 12,159 30,276
Total common shareholders' equity 220,742 246,605
$987,481 $ 923,238
CONTACT: Hills Stores Co.
William K. Friend, 617/821-1000 ext. 1189
or
The Bromley Group
Alan Bromley, 212/807-0878