| **UNITED STATES  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 28, 2001**OR     **

( )**TRANSITION REPORT  PURSUANT TO SECTION 13 or 15(d) OF THE **

**     SECURITIES  EXCHANGE ACT OF 1934**

  Commission File Number 0-20269**DUCKWALL-ALCO STORES, INC.**(Exact  name of registrant as specified in its charter)

Kansas                                                                            48-0201080  (State or other jurisdiction of                                          (I.R.S. Employer  incorporation or organization)                                         Identification No.)  401 Cottage Street                                                     Abilene, Kansas                                                              67410-2832(Address of principal executive offices)                          (Zip  Code)             Registrant's telephone number including area code: (785) 263-3350

     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___

APPLICABLE ONLY TO CORPORATE ISSUERS:

   4,149,599 shares of  common stock, $.0001 par value (the issuer's only class of common stock),  were outstanding as of October 28, 2001.

  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Duckwall-ALCO Stores, Inc.**  |
|---------------------------------|
| **And Subsidiaries**            |
| **Consolidated Balance Sheets** |
| **(Dollars in Thousands)**      |
|                                 |
| Assets                          |
|                                 |  | October  28, |  | January 28, |
|                                 |  | 2001 |  | 2001 |
| Current assets:                 |  | (unaudited) |  |  |
| Cash and cash equivalents       |  | $3,213
$7,851

Receivables

1,743
2,197

Inventories

142,842
123,745

Prepaid expenses

871
553

     Total current assets

148,669
134,346

Property and equipment

78,646
75,594

Less accumulated depreciation

47,878
44,712

     Net property and equipment

30,768
30,882

Property under capital leases

20,407
20,407

Less accumulated amortization

16,076
15,626

     Net property under capital  leases

4,331
4,781

Other non-current assets

32
85

     Total assets

183,800
$170,094

See accompanying notes to unaudited consolidated  financial statements.

 

**Duckwall-ALCO Stores, Inc.**

**And Subsidiaries**

**Consolidated Balance Sheets**

**(Dollars in Thousands)**

 

Liabilities  and Stockholders' Equity

 

October  28,

January 28,

2001

2001

Current  liabilities:   

(unaudited)

  Current maturities of:

 

 

 

    Long term debt

$461

 

$564

    Capital lease obligations

683

 

683

  Accounts payable

35,310
 

24,590

   Notes payable under revolving loan

30,542
0

  Income taxes payable 

457
 

706

  Accrued salaries and commissions

3,745
 

4,800

  Accrued taxes other than income

5,082
 

4,169

  Other current liabilities

2,572
 

2,711

  Deferred income taxes

2,004
 

2,122

     Total current liabilities

80,856
 

40,345

Notes payable under revolving loan

0

 

25,606

Long term debt - less current maturities

1,152
 

1,501

Capital lease obligations - less current maturities

6,286
 

6,799

Other noncurrent liabilities

1,968
 

1,993

Deferred revenue

716
 

716

Deferred income taxes

627
 

  628

     Total liabilities

91,605
 

77,588

Stockholders' equity:

 

 

 

  Common stock, $.0001 par value, authorized

 

 

 

    20,000,000 shares; issued and  outstanding

 

 

 

      4,149,599 shares and 4,419,599 shares  respectively

1

 

1

    Additional paid-in capital

47,609

 

49,263

    Retained earnings

44,620
 

43,242

  Accumulated other comprehensive income  (loss), net of income taxes

(35)
0

       Total stockholders' equity

92,195
 

92,506

       Total liabilities and  stockholders' equity

$183,800
 

$170,094

  See accompanying notes to unaudited  consolidated financial statements.

 
 

**Duckwall-ALCO      Stores, Inc.**

**And      Subsidiaries**

**Consolidated      Statements of Operations**

(Dollars      in Thousands Except Per Share Amounts)      

(Unaudited)      

 

 

 

 

 

 

 

 

 

 

 

For      the Thirteen Week Periods      

 

For      the Thirty-Nine Week Periods      

 

 

 

 

 

 

 

 

 

 

 

October      28, 2001      

       

October      29, 2000      

 

October      28, 2001      

 

October      29, 2000      

 

 

 

 

 

 

 

 

 

Net      sales      

 

$94,807      

 

$89,263      

 

$288,364      

 

$279,912      

Cost      of sales      

 

62,265      

 

59,291      

 

192,994      

 

186,329      

Gross      margin      

 

32,542      

 

29,972      

 

95,370      

 

93,583      

 

 

 

 

 

 

 

 

 

Selling,      general and administrative      

 

29,515      

 

27,346      

 

86,198      

 

82,121      

Depreciation      and amortization      

 

1,623      

 

1,550      

 

4,738      

 

4,658      

Provision      for asset impairment and store closure      

 

0      

 

0      

 

(8)      

 

114      

          Total operating expenses      

 

31,138      

 

28,896      

 

90,928      

 

86,893      

 

 

 

 

 

 

 

 

 

Income      from operations      

 

1,404      

 

1,076      

 

4,442      

 

6,690      

Interest      expense      

 

738      

 

931      

 

2,216      

 

2,478      

Earnings      before income taxes and      

 

        cumulative effect of accounting change      

 

666      

 

145      

 

2,226      

 

4,212      

Income      tax  expense      

 

254      

 

57      

 

848      

 

1,644      

Earnings      before cumulative effect of      

 

 

 

 

 

 

 

 

        accounting change      

 

412      

 

88      

 

1,378      

 

2,568      

Cumulative      effect of accounting      

 

 

 

 

 

 

 

 

        change (net of tax)      

 

0      

 

0      

 

0      

 

(173)      

Net      earnings      

 

$412      

 

$88      

 

$1,378      

 

$2,395      

 

 

 

 

 

 

 

 

 

Earnings      per share - basic      

 

 

 

 

 

 

 

 

Earnings      before cumulative effect of      

 

 

 

 

 

 

 

 

        accounting change      

 

$0.10      

 

$0.02      

 

$0.33      

 

$0.57      

Cumulative      effect of accounting change      

 

0.00      

 

0.00      

 

0.00      

 

(0.04)      

Net      earnings      

 

$0.10      

 

$0.02      

 

$0.33      

 

$0.53      

 

 

 

 

 

 

 

 

 

Earnings      per share - diluted      

 

 

 

 

 

 

 

 

Earnings      before cumulative effect of      

 

 

 

 

 

 

 

 

        accounting change      

 

$0.10      

 

$0.02      

 

$0.33      

 

$0.57      

Cumulative      effect of accounting change      

 

0.00      

 

0.00      

 

0.00      

 

(0.04)      

Net      earnings      

 

$0.10      

 

$0.02      

 

$0.33      

 

$0.53      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See      accompanying notes to unaudited consolidated financial statements.      

 

 

 

 

 

 

**Duckwall-ALCO      Stores Inc,**

**And      Subsidiaries**

**Consolidated      Statements of Cash Flow**

Dollars      in Thousands      

(Unaudited)      

 

For      the Thirty-Nine Week      

 

 Periods      Ended      

 

October      28, 2001      

 

October      29, 2000      

Cash      Flows From Operating Activities:      

 

 

 

Net      earnings      

$1,378      

 

$2,395      

Adjustments      to reconcile net earnings to net cash      

 

 

 

       used in operating activities      

 

 

 

 

 

 

 

         Loss on disposal and impairment of assets      

61      

 

388      

         Amortization of debt financing costs      

53      

 

78      

         Depreciation and amortization      

4,738      

 

4,658      

         LIFO expense      

0      

 

175      

         Increase in inventories      

(19,097)      

 

(17,606)      

         Increase in accounts payable      

10,720      

 

4,287      

         Decrease in receivables      

454      

 

551      

         Increase in prepaid expenses and other current assets      

(318)      

 

(766)      

         Increase in accrued taxes other than income      

913      

 

921      

         Decrease in accrued salaries and commissions      

(1,055)      

 

(1,192)      

         Decrease in income taxes payable      

(249)      

 

(1,843)      

         Decrease in other liabilities      

(318)      

 

(220)      

Net      cash used in operating activities      

(2,720)      

 

(8,174)      

 

 

 

 

Cash      Flow From Investing Activities:      

 

 

 

         Proceeds from sale of property      

722      

 

0      

         Capital expenditures      

(4,957)      

 

(4,903)      

Net      cash used in investing activities      

(4,235)      

 

(4,903)      

 

 

 

 

Cash      Flow From Financing Activities:      

 

 

 

         Repurchase of common stock      

(1,654)      

 

(2,972)      

         Increase in revolving loan      

4,936      

 

8,357      

         Principal payments on long term notes      

(452)      

 

(977)      

         Principal payments on capital leases      

(513)      

 

(456)      

         Debt issue costs      

0      

 

(44)      

Net      cash provided by financing activities      

2,317      

 

3,908      

 

 

 

 

Net      decrease in cash and cash equivalents      

(4,638)      

 

(9,169)      

Cash      and cash equivalents at beginning of period      

7,851      

 

14,002      

Cash      and cash equivalents at end of period      

$3,213      

 

$4,833      

 

 

 

 

 

 

 

 

See      accompanying notes to unaudited consolidated financial statements      

 

 
**Duckwall-ALCO Stores, Inc.

**And Subsidiaries
Notes to Unaudited Consolidated Financial Statements**
(1)        Basis of  Presentation

             The accompanying unaudited consolidated financial statements are for interim  periods and, consequently, do not include all disclosures required by  generally accepted accounting principles for annual financial statements. It  is suggested that the accompanying unaudited consolidated financial statements  be read in conjunction with the consolidated financial statements included in  the Company's fiscal 2001 Annual Report. In the opinion of management of  Duckwall-ALCO Stores, Inc., the accompanying unaudited consolidated financial  statements reflect all adjustments (consisting of normal recurring accruals)  necessary to present fairly the financial position of the Company and the  results of its operations and cash flows for the interim periods.

(2)        Principles  of Consolidation

             The consolidated financial statements include the accounts of Duckwall-ALCO  Stores, Inc. and its wholly-owned subsidiaries. All significant intercompany  transactions and balances have been eliminated in consolidation.

(3)        Adoption  of New Accounting Policy (dollars in thousands)

             Effective January 29, 2001, the Company adopted Statement of Financial  Accounting Standards (SFAS) No. 133, "Accounting for Derivative  Investments and Hedging Activities." SFAS No. 133 requires that all  derivative instruments be recorded on the balance sheet at fair value. The  accounting for changes in the fair value of a derivative depends on its  designation and effectiveness. For derivatives that qualify as effective  hedges, the change in fair value has no net impact on earnings until the  hedged transaction affects earnings. For derivatives that are not designated  as hedging instruments, or for the ineffective portion of a hedging  instrument, the change in fair value is recognized in current period earnings.

             At January 29, 2001, the Company held one derivative instrument, an interest  rate swap agreement entered into in December, 2000 with a notional principal  amount of $10,000 whereby the Company pays a fixed rate of interest and  receives interest based on LIBOR for the period from April 15, 2001 to April  15, 2002. The purpose of the interest rate swap agreement is to mitigate the  Company's interest rate risk under its revolving credit facility.

             Prior to January 29, 2001, the Company had accounted for the interest rate  swap agreement as a cash flow hedge. Upon adoption of SFAS No. 133, the  Company elected to not use hedge accounting for the interest rate swap  agreement. Accordingly, a cumulative-effect-type adjustment was made to  Accumulated Other Comprehensive Income in the amount of $76, which represents  the fair value of the interest rate swap at the date of adoption of SFAS No.  133 ($123) net of income tax effect ($47). The cumulative effect adjustment is  being amortized to earnings over the period from April 15, 2001 to April 15,  2002 (approximately $61 of the $76 in accumulated other comprehensive income  will be recognized in earnings during the fiscal year ended February 3, 2002).  During the 13 and 39 week periods ended October 28, 2001, the Company recorded  interest expense of $31 ($19 net of tax), and $67 ($41 net of tax),  respectively, to amortize the transition adjustment. Subsequent to the  adoption of SFAS No. 133, the Company recorded interest expense of $11 and $75  for the 13 and 39 week periods ended October 29, 2001, respectively, to  reflect the change in fair value of the interest rate swap agreement.
 

The      components of comprehensive income are as follows:      

       

       

Thirteen      Weeks Ended 

       

Thirty-Nine      Weeks Ended 

       

       

October      28, 2001

       

October      28, 2001

Net      earnings      

       

$412      

       

       

$1,378      

       

Cumulative      effect adjustment upon adoption of SFAS No. 133, net of tax      

       

0      

       

       

(76)

       

Other      comprehensive income - amortization of cumulative effect adjustment      

       

19      

       

       

41      

       

     Comprehensive Income      

       

$431      

       

       

$1,343      

       

Comprehensive      income for the thirteen and thirty-nine week periods ended October 29,      2000 consisted solely of net earnings.      

A      summary of changes in accumulated other comprehensive income (loss) for      the 13 and 39 week periods ended October 28, 2001 is as follows:      

       

       

       

       

       

       

       

Accumulated      other comprehensive income (loss) at beginning of period      

       

($54)

       

       

$0      

       

Cumulative      effect adjustment upon adoption of SFAS No. 133, net of tax      

       

0      

       

       

(76)

       

Amortization      of accumulated other comprehensive income      

       

19      

       

       

41      

       

Accumulated      other comprehensive income (loss)      

       

(35)

       

       

(35)

       

 

(4)       Earnings Per Share      

 

 

 

 

 

 

               Basic net earnings per share is computed by dividing net earnings      by the weighted average number of shares outstanding.  Diluted net earnings per share reflects the potential      dilution that could occur if contracts to issue securities (such as stock      options) were exercised.      

 

 

 

 

               The average number of shares used in computing earnings per share      was as follows:      

 

 

 

 

 

Thirteen      Weeks Ended      

Basic      

Diluted      

 

 

 

 

 

October      28, 2001      

4,149,599      

4,153,559      

 

October      29, 2000      

4,421,063      

4,449,765      

 

 

 

 

 

Thirty-Nine      Weeks Ended      

Basic      

Diluted      

 

 

 

 

 

October      28, 2001      

4,206,962      

4,208,282      

 

October      29, 2000      

4,503,004      

4,528,275      

 

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

(Dollars in thousands)

 The  thirteen weeks ended October 28, 2001 and October 29, 2000 are referred to  herein as the third quarter of fiscal 2002 and 2001, respectively.  

As  used below the term "competitive  market"  refers to any market wherein there is one or more national or regional  full-line discount stores located in the market served by the Company.   The term "non-competitive market" refers to any market where  there is no national or regional full-line discount store located in the  market served by the Company.  Even  in a non-competitive market, the Company faces competition from a variety of  sources.  

**RESULTS OF OPERATIONS**

Thirteen  Weeks Ended October 28, 2001 Compared to Thirteen Weeks Ended October 29,  2000.  

The  Company continues to execute its basic strategy of opening stores in  under-served markets that have no competition from national or regional  full-line discount retailers.  During  the third quarter of fiscal 2002 the Company opened one ALCO store, which was  in a new, non-competitive market and closed one ALCO store and one Duckwall  store, resulting in a quarter end total of 263 stores.   For the thirty-nine week period ended October 28, 2001, the Company  opened three stores and closed seven stores.   As of October 29, 2001, over 80% of the stores were located in  non-competitive  markets.   As of the end of the third quarter, the Company had successfully  completed the remodel of all of the planned 32 ALCO stores targeted for  completion in the current fiscal year.  The  Company plans to continue its remodel program next year.

Net  sales for the third quarter of fiscal 2002 increased $5,544 or 6.2% to $94,807  compared to $89,263 for the third quarter of fiscal 2001.   Net sales for the prototype Class 18 ALCO stores open the full period  in both the third quarter of fiscal 2002 and fiscal 2001 (comparable stores)  increased $1,811 or 4.4%.  The  Duckwall  variety stores produced an increase of  $498  or 6.7% compared to the third quarter of the prior fiscal year.   Net sales for all stores open the full period increased   $4,376 or 5.1% compared to the third quarter of the prior fiscal year.   The 32 remodeled stores have, on average, experienced double digit  increases in sales in the current fiscal year since their remodel.   Feature items and everyday values are emphasized.   In addition to the remodel program, the Company continues to benefit  from exciting marketing and merchandising initiatives that are contributing to  improved sales.  These include  opportunistic buys in various departments, feature programs, expansion of  consumables and more emphasis on everyday values and opening price point  merchandise.  These programs are  designed to increase purchases by our customers while they are shopping.

Net  sales for the thirty-nine week period ended October 28, 2001 increased $8,452  or 3.0% to $288,364 compared to $279,912 in the comparable thirty-nine week  period of the prior fiscal year.  Net  sales of comparable class 18 ALCO stores increased by $3,187 or 2.5% for the  thirty-nine week period ended October 28, 2001 compared to the thirty-nine  week period of the prior fiscal year.  Net  sales for all stores open the full period increased $5,981 or 2.2% for the  thirty-nine week period ended October 28, 2001 compared to the thirty-nine  week period of the prior fiscal year. 

Gross  margin for the third quarter of fiscal 2002 increased $2,570 or 8.6% to  $32,542 compared to $29,972 in the third quarter of fiscal 2001.   Gross margin was positively impacted by an improved merchandise  assortment as well as the mix of sales that included more higher margin items.   Gross margin as a percentage of sales was 34.3% for the third quarter  of fiscal 2002 compared to 33.6% in the third quarter of fiscal 2001.   Gross margin as a percentage of sales also benefited from lower  markdowns and transportation costs, partially offset by increased shrinkage  costs.

 Gross  margin for the thirty-nine week period ended October 28, 2001 was $95,370,  which was $1,787 or 1.9% higher than last year's thirty-nine week gross  margin of $93,583.  As a percent of net sales, gross margin for the thirty-nine  week period ended October 28, 2001 was 33.1% compared to 33.4% in the  thirty-nine week period of the prior fiscal year.   The reduction in gross margin percentage was attributable to higher  transportation costs, as well as the mix of sales and higher shrinkage costs  in the first six months of the year.

Selling,  general and administrative expense increased $2,169 or 7.9% to $29,515 in the  third quarter of fiscal 2002 compared to $27,346 in the third quarter of  fiscal 2001.  As a percentage of  net sales, selling, general and administrative expenses in the third quarter  of fiscal 2002 were 31.1%, compared to 30.6% in the third quarter of fiscal  2001.  The increase in the  selling, general and administrative expense was due to higher than normal  inflationary increases in utilities and insurance costs, and expenses that  increased with the implementation of the Company's store remodel program and  other marketing, merchandising and operations initiatives.

Selling,  general and administrative expenses increased $4,077 or 5.0% to $86,198 for  the thirty-nine week period ended October 28, 2001 compared to $82,121 for the  comparable thirty-nine week period of the prior fiscal year.   Selling, general and administrative expense as a percent of net sales  was 29.9% for the thirty-nine week period ended October 28, 2001, compared to  29.3% for the thirty-nine week period ended October 29, 2000.   The remodel and merchandising initiatives described above also  contributed to the increased selling, general and administrative expenses.

Provision  for asset impairment and store closure was $0 in the third quarter of both  fiscal years.

Provision  for asset impairment and store closure was ($8) for the thirty-nine week  period ended October 28, 2001 compared to $114 for the comparable thirty-nine  week period of the prior fiscal year.  The  store closing expense for the stores closed in the current fiscal year was  accrued in the prior fiscal year.  The  resulting $8 of income was the excess of the accrual for closing over the  actual expenses incurred to close the stores.

Depreciation  and amortization expense increased $73 or 4.7% to $1,623 in the third quarter  of fiscal 2002 compared to $1,550 in the third quarter of fiscal 2001. 

Income  from operations increased $328 or 30.5% to $1,404 in the third quarter of  fiscal 2002 compared to $1,076 in the third quarter of fiscal 2001.   Income from operations as a percentage of net sales was 1.5% in the  third quarter of fiscal 2002 compared to 1.2% in the third quarter of fiscal  2001.

Income  from operations decreased $2,248 or 33.6% to $4,442 for the thirty-nine week  period ended October 28, 2001 compared to $6,690 in the comparable thirty-nine  week period of the prior fiscal year.

Interest  expense decreased $193 or 20.7% in the third quarter of fiscal 2002 compared  to the third quarter of fiscal 2001.  The  reduction of interest expense was primarily due to the lower rate paid on the  company's revolving line of credit.

Net  earnings for the third quarter of fiscal 2002 were $412, an increase of   $324 or 268.2% over the net earnings of $88 for the third quarter of  fiscal 2001.

**LIQUIDITY AND CAPITAL RESOURCES    ** 

The  Company's primary sources of funds are cash flow from operations, borrowings  under its revolving loan credit facility and vendor trade credit financing  (increases in accounts payable).

At  October 28, 2001 working capital (defined as current assets less current  liabilities) was $67,813 compared to $94,001 at the end of fiscal 2001.   The decrease in working capital was due to the classification of the  revolving loan as a current liability as it becomes due in April 2002.   While no commitments are in place, management expects to renew or  replace the revolving loan prior to April 2002.

Operating  activities in the thirty-nine week period of fiscal 2002 used cash in the  amount of $2,720 and used cash in the amount of $8,174 in the thirty-nine week  period of fiscal 2001.  The  decrease in the amount of cash used by operating activities in the thirty-nine  week period of fiscal 2002 compared to the thirty-nine week period of fiscal  2001 was primarily due to a larger increase in accounts payable partially  offset by an increase in inventory.

Cash  used in investing activities in the thirty-nine week periods of fiscal 2002  and 2001 totaled $4,235 and $4,903 respectively.   Total anticipated cash payments for acquisition of property and  equipment in fiscal 2002, principally for store buildings and store and  warehouse fixtures and equipment, are $7,500.

Cash  was provided from financing activities in the thirty-nine week period of  fiscal 2002 in the amount of $2,317 and $3,908 in the thirty-nine week period  of fiscal 2001.  Cash was received  from increasing borrowing under the revolving loan which exceeded cash used  for stock redemption, and to make principal payments on long-term notes and  capital leases.

Cash  used in investing activities in the thirty-nine week periods of fiscal 2002  and 2001 totaled $4,235 and $4,903 respectively.   Total anticipated cash payments for acquisition of property and  equipment in fiscal 2002, principally for store buildings and store and  warehouse fixtures and equipment, are $7,500.   

**BUSINESS OPERATIONS AND SEGMENT INFORMATION**** **

The  Company's business activities include operation of   ALCO discount stores in towns with populations which are typically less  than 5,000 not served by other regional or national full-line discount chains  and Duckwall variety stores that offer a more limited selection of merchandise  which are primarily located in communities of less than 2,500 residents.

For  financial reporting purposes, the Company has established two operating  segments: ALCO Discount Stores,  and All Other,  which includes the Duckwall variety stores and other business activities, such  as general office, warehouse and distribution activities.  

 

 

For      The Thirteen Week      

 

For      The Thirty-Nine Week      

 

Periods      Ended      

 

Periods      Ended      

 

 

 

 

 

 

 

 

 

 October      28,      

 

October      29,      

 

October      28,      

 

October      29,      

 

2001      

 

2000      

 

2001      

 

2001

 

 

 

 

 

 

 

 

Segment      Information      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net      Sales:      

 

 

 

 

 

 

 

        ALCO Discount Stores      

$86,780      

 

$81,415      

 

$263,698      

 

$254,758      

        All Other      

 

 

 

 

 

 

 

          External      

8,027      

 

7,848      

 

24,666      

 

25,154      

          Intercompany      

60,931      

 

59,122      

 

169,944      

 

164,925      

 

$155,738      

 

$148,385      

 

$458,308      

 

$444,837      

 

 

 

 

 

 

 

 

Depreciation      and Amortization      

 

 

 

 

 

 

 

        ALCO Discount Stores      

$1,064      

 

$1,037      

 

$3,087      

 

$3,076      

        All Other      

559      

 

513      

         

1,651      

 

1,582      

 

$1,623      

 

$1,550      

 

$4,738      

 

$4,658      

 

 

 

 

 

       

 

 

Income      (expense) from Operations:      

 

 

 

 

 

 

 

        ALCO Discount Stores      

$6,277      

 

$5,561      

 

$19,646      

 

$20,453      

        All Other      

(4,894)      

 

(4,486)      

          

(15,267)      

 

(13,594)      

 

$1,383      

 

$1,075      

 

$4,379      

 

$6,859      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital      Expenditures:      

 

 

 

 

 

 

 

        ALCO Discount Stores      

$726      

 

$1,554      

 

$3,697      

 

$3,999      

        All Other      

424      

 

351      

         

1,260      

 

904      

 

$1,150      

 

$1,905      

 

$4,957      

 

$4,903      

 

 

 

 

 

 

 

 

Identifiable      Assets:      

 

 

 

 

 

 

 

        ALCO Discount Stores      

$139,480      

 

$143,911      

 

$139,480      

 

$143,911      

        All Other      

43,417      

 

41,232      

 

43,417      

 

41,232      

 

$182,897      

 

$185,143      

 

$182,897      

 

$185,143      
Income from operations as reflected in the above segment  information has been determined differently than income from operations in the  accompanying consolidated statements of operations as follows:  
*Intercompany Sales*

Intercompany sales represent transfers of merchandise from the      warehouse to ALCO discount stores and Duckwall variety stores.
*Intercompany Expense Allocations*
General and administrative expenses incurred at the general office have      not been allocated to the ALCO discount stores for purposes of determining      income from operations for the segment information.

Warehousing and distribution costs including freight applicable to      merchandise purchases, have been allocated to the ALCO discount stores      segment based on the Company's customary method of allocation for such      costs (primarily as a stipulated percentage of merchandise purchases).
*Inventories*
Inventories are based on the FIFO method for segment information      purposes and on the LIFO method for the consolidated statements of      operations.
*Leases*
All leases are accounted for as operating leases for purposes of      determining income from operations for purposes of determining the segment      information for the ALCO discount stores whereas capital leases are      accounted for as such in the consolidated statements of operations.

Identifiable assets as reflected in the above segment information include  cash and cash equivalents, receivables, inventory, property and equipment, and  property under capital leases.
 

For      The Thirteen Week      

 

For      The Thirty-Nine Week      

 

Periods      Ended      

 

 Periods      Ended      

 

 

 

 

 

 

 

October      28,      

October      29,      

 

October      28,      

October      29,      

 

2001      

2000      

 

2001      

2000      

 

 

 

 

 

 

Net      sales per above segment information      

$155,738      

$148,385      

 

$458,308      

$444,837      

Intercompany      elimination      

(60,931)      

(59,122)      

 

(169,944)      

(164,925)      

        Net sales per consolidated statements      

 

 

 

 

 

          of operations      

$94,807      

$89,263      

 

$288,364      

$279,912      

 

 

 

 

 

 

Income      from operations per above segment information      

$1,383      

$1,075      

 

$4,379      

$6,859      

Inventory      method      

0      

0      

 

0      

(175)      

Leases      

21      

1      

 

63      

6      

        Income from operations per consolidated      

 

 

 

 

 

          statements of operations      

$1,404      

$1,076      

 

$4,442      

$6,690      

 **CHANGE  IN ACCOUNTING PRINCIPLES**

          In  December 1999, the Securities and Exchange Commission issued Staff Accounting  Bulletin No. 101 - "Revenue Recognition in Financial Statements"  (SAB 101). This SAB deals with various revenue recognition issues. In the  fourth quarter of fiscal 2001, the Company implemented a change in the way it  recognizes revenues related to layaway sales. The change was adopted  retroactively to the beginning of the year. The impact included a cumulative  effect of an accounting change that reduced diluted earnings per share by  $0.04.

           Effective January 29, 2001, the Company adopted Statement of Financial  Accounting Standards (SFAS) No. 133, "Accounting for Derivative  Investments and Hedging Activities." See additional discussion in Note 3  to Unaudited Consolidated Financial Statements.  **MARKET RISK DISCLOSURE**
          The  revolving credit facility has a floating interest rate that is affected by  changes in market interest rates. The Company entered into an interest rate  swap in December 2000 with a notional principal amount of $10,000 whereby the  Company will pay a fixed rate of interest and receive interest based on LIBOR  for the period April 15, 2001 to April 15, 2002 to mitigate a portion of its  interest rate risk under the revolving credit facility.

**NEW ACCOUNTING STANDARDS**

           Statement of Financial Accounting Standards No. 144, "Accounting for the  Impairment or Disposal of Long-Lived Assets," addresses financial  accounting and reporting for the impairment or disposal of long-lived assets.  The Statement is effective for financial statements issued for fiscal years  beginning after December 15, 2001. The Company does not anticipate that  adoption of Statement No. 144 will have a material impact on its operating  results or its financial condition.

 

****

**OTHER  INFORMATION**

 

**PART II**

 

**Item 1.** Legal Proceedings

No legal  proceedings except those covered by insurance occurred during the thirteen  week period ended October 28, 2001.

****

**Item 2.** Changes in Securities

  Not applicable

****

**Item 3.** Defaults Upon Senior Securities

  Not Applicable

****

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

  Not Applicable

****

**Item 5.** Other Information

  None

****

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

  (a) None

  (b) Reports on Form 8-K

        No reports filed

 

 

****

**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.

 

**DUCKWALL-ALCO  STORES, INC.**

***(Registrant)***

Date, December 11,  2001           /s/Richard  A. Mansfield

  Richard A. Mansfield

  Vice President - Finance

  Chief Financial Officer

   

   

  Signing on behalf of the

  registrant and as principal

  financial officer** |