**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington****,****D.C.********20549******

 

**FORM 10-Q**

** **

** **

 

(X)**QUARTERLY REPORT PURSUANT TO SECTION 13 or15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

For the quarterlyperiod ended May 5, 2002

**OR**

(  )**TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

 

Commission FileNumber 0-20269

 

**DUCKWALL-ALCOSTORES, INC.******

(Exact name ofregistrant 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 principalexecutive offices)                                    (ZipCode)

 

 

Registrant's telephone number including area code: (785)263-3350

 

                Indicateby check mark whether the registrant (1) has filed all reports required to be  filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes  X No___

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

                4,235,562shares of common stock, $.0001 par value (the issuer's only class of commonstock), were outstanding as of May 5, 2002.

 

 

 

 

 

| **Duckwall-ALCO  Stores, Inc.**                                         |
|-------------------------------------------------------------------------|
| **And Subsidiaries**                                                    |
| **Consolidated  Balance Sheets**                                        |
| (Dollars in  Thousands)                                                 |
|                                                                    |   |   |   |   |
|                                                                    |   |   |   |   |
| **Assets**                                                              |
|                                                                    |   |   |   |   |
|                                                                    |   | May 5, |   | February 3, |
|                                                                    |   | 2002 |   | 2002 |
|                                                                    |   | (Unaudited) |   |   |
| Current assets:                                                         |   |   |   |   |
| Cash and cash equivalents                                               |   | $6,827 |   | $3,219 |
| Receivables                                                             |   | 1,442 |   | 1,663 |
| Inventories                                                             |   | 127,422 |   | 125,165 |
| Prepaid expenses                                                        |   | 1,907 |   | 959 |
|                                                                    |   |   |   |   |
| Total  current assets                                                   |   | 137,598 |   | 131,006 |
|                                                                    |   |   |   |   |
| Property and equipment                                                  |   | 79,554 |   | 78,521 |
| Less accumulated depreciation                                           |   | 49,390 |   | 48,723 |
|                                                                    |   |   |   |   |
| Net  property and equipment                                             |   | 30,164 |   | 29,798 |
|                                                                    |   |   |   |   |
| Property under capital leases                                           |   | 20,407 |   | 20,407 |
| Less accumulated  amortization                                          |   | 16,368 |   | 16,226 |
|                                                                    |   |   |   |   |
| Net  property under capital leases                                      |   | 4,039 |   | 4,181 |
|                                                                    |   |   |   |   |
| Other non-current assets                                                |   | 295 |   | 15 |
| Deferred income taxes                                                   |   | 286 |   | 286 |
|                                                                    |   |   |   |   |
| Total  assets                                                           |   | $172,382 |   | $165,286 |
|                                                                    |   |   |   |   |
|                                                                    |   |   |   |   |
| See accompanying notes to unaudited consolidated financial  statements. |   |

 

 

 

 

 

 

 

 

 

 

 

 

| **Duckwall-ALCO  Stores, Inc.**                                         |
|-------------------------------------------------------------------------|
| **And Subsidiaries**                                                    |
| **Consolidated  Balance Sheets**                                        |
| (Dollars in  Thousands)                                                 |
|                                                                    |   |   |   |
| **Liabilities and  Stockholders' Equity**                               |
|                                                                    |   |   |   |
|                                                                    | May 5, |   | February 3, |
|                                                                    | 2002 |   | 2002 |
| Current liabilities:                                                    | (Unaudited) |   |   |
| Current  maturities of:                                                 |   |   |   |
| Long term debt                                                          | $476 |   | $469 |
| Capital lease  obligations                                              | 703 |   | 703 |
| Accounts payable                                                        | 32,673 |   | 24,511 |
| Notes payable  under revolving loan                                     | 0 |   | 18,137 |
| Income taxes  payable                                                   | 831 |   | 3,677 |
| Accrued salaries  and commissions                                       | 4,747 |   | 4,289 |
| Accrued taxes other than income                                         | 4,124 |   | 4,080 |
| Other current  liabilities                                              | 2,242 |   | 2,581 |
| Deferred income  taxes                                                  | 1,420 |   | 1,458 |
|                                                                    |   |   |   |
| Total  current liabilities                                              | 47,216 |   | 59,905 |
|                                                                    |   |   |   |
| Notes payable under revolving loan                                      | 18,335 |   | 0 |
| Long term debt - less current maturities                                | 910 |   | 1,032 |
| Capital lease obligations - less current maturities                     | 5,920 |   | 6,096 |
| Other noncurrent liabilities                                            | 2,208 |   | 1,947 |
| Deferred revenue                                                        | 754 |   | 716 |
|                                                                    |   |   |   |
| Total  liabilities                                                      | 75,343 |   | 69,696 |
|                                                                    |   |   |   |
| Stockholders' equity:                                                   |   |   |   |
| Common stock,  $.0001 par value, authorized                             |   |   |   |
| 20,000,000  shares; issued and outstanding                              |   |   |   |
| 4,235,562 shares  and 4,149,599 shares respectively                     | 1 |   | 1 |
| Additional  paid-in capital                                             | 48,511 |   | 47,609 |
| Retained earnings                                                       | 48,527 |   | 47,996 |
| Accumulated other  comprehensive income (loss),                         |   |   |   |
| net of income  taxes                                                    | 0 |   | (16) |
| Total  stockholders' equity                                             | 97,039 |   | 95,590 |
|                                                                    |   |   |   |
| Total  liabilities and stockholders' equity                             | $172,382 |   | $165,286 |
|                                                                    |   |   |   |
| 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 |   |
|                                                                    |   |   |   |
|                                                                    |   | May 5, 2002 |   | April 29, 2001 |   |
|                                                                    |   |   |   |   |   |
| Net sales                                                               |   | $96,777 |   | $91,794 |   |
| Cost of sales                                                           |   | 64,551 |   | 62,139 |   |
| Gross margin                                                            |   | 32,226 |   | 29,655 |   |
|                                                                    |   |   |   |   |   |
| Selling, general and administrative                                     |   | 29,311 |   | 27,342 |   |
| Depreciation and amortization                                           |   | 1,620 |   | 1,543 |   |
| Provision for asset impairment and store closure                        |   | 6 |   | (8) |   |
| Total operating  expenses                                               |   | 30,937 |   | 28,877 |   |
|                                                                    |   |   |   |   |   |
| Income from operations                                                  |   | 1,289 |   | 778 |   |
| Interest expense                                                        |   | 450 |   | 741 |   |
| Earnings before income taxes                                            |   | 839 |   | 37 |   |
| Income tax  expense                                                     |   | 308 |   | 14 |   |
| Net earnings                                                            |   | $531 |   | $23 |   |
|                                                                    |   |   |   |   |   |
| Earnings per share - basic                                              |   | $0.13 |   | $0.01 |   |
| Earnings per share - diluted                                            |   | $0.12 |   | $0.01 |   |
|                                                                    |   |   |   |   |   |
|                                                                    |   |   |   |   |   |
| See accompanying notes to unaudited consolidated financial  statements. |   |   |
|                                                                    |   |   |   |   |   |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

| **Duckwall-ALCO  Stores Inc,**                                                 |
|--------------------------------------------------------------------------------|
| **And Subsidiaries**                                                           |
| **Consolidated  Statements of Cash Flows**                                     |
| Dollars in  Thousands                                                          |
| (Unaudited)                                                                    |
|                                                                           | For the Thirteen  Week |
|                                                                           | Periods Ended |
|                                                                           | May 5, 2002 |   | April 29, 2001 |
| Cash Flows From Operating Activities:                                          |   |   |   |
| Net earnings                                                                   | $531 |   | $23 |
| Adjustments to reconcile net earnings to net cash  provided by                 |   |   |   |
| (used in) operating activities                                                 |   |   |   |
|        Amortization of  debt financing costs                    | 20 |   | 18 |
|        Depreciation and  amortization                           | 1,620 |   | 1,543 |
|        Loss on disposal  and impairment of assets               | 0 |   | 87 |
|        Increase in  inventories                                 | (2,257) |   | (7,864) |
|        Increase in  accounts payable                            | 8,162 |   | 7,589 |
|        Decrease in  receivables                                 | 221 |   | 98 |
|      (Increase) decrease in prepaid expenses                    | (948) |   | 93 |
|        Increase in  accrued taxes other than income             | 44 |   | 723 |
|        Increase (decrease)  in accrued salaries and commissions | 458 |   | (1,978) |
|        Decrease in  income taxes payable                        | (2,846) |   | (183) |
|        Decrease in  deferred income taxes                       | 38 |   | 0 |
|        Increase in  deferred revenue                            | (38) |   | 0 |
|        Decrease in  other liabilities                           | (62) |   | (890) |
| Net cash  provided by (used in) operating activities                           | 4,943 |   | (741) |
|                                                                           |   |   |   |
| Cash Flows From Investing Activities:                                          |   |   |   |
|        Proceeds from  sale of property                          | 1,036 |   | 0 |
|        Capital  expenditures                                    | (2,880) |   | (1,577) |
| Net cash used in investing activities                                          | (1,844) |   | (1,577) |
|                                                                           |   |   |   |
| Cash Flows From Financing Activities:                                          |   |   |   |
|        Proceeds from  exercise of stock options                 | 902 |   | 0 |
|        Repurchase of  common stock                              | 0 |   | (1,654) |
|        Increase in  revolving loan                              | 198 |   | 1,733 |
|        Principal  payments on long term notes                   | (115) |   | (179) |
|        Principal  payments on capital leases                    | (176) |   | (171) |
|        Debt issue costs                                         | (300) |   | 0 |
| Net cash provided by  (used in) financing activities                           | 509 |   | (271) |
|                                                                           |   |   |   |
| Net  increase (decrease) in cash and cash equivalents                          | 3,608 |   | (2,589) |
| Cash and cash equivalents at beginning of period                               | 3,219 |   | 7,851 |
| Cash and cash equivalents at end of period                                     | $6,827 |   | $5,262 |
|                                                                           |   |   |   |

Seeaccompanying notes to unaudited consolidated financial statements

** **

** **

** **

** **

**Duckwall-ALCO Stores,Inc.**

**And Subsidiaries**

# Notes to Unaudited Consolidated Financial Statements

 

 (1)           Basis of Presentation

The accompanying unauditedconsolidated financial statements are for interim periods and, consequently, do not include all disclosures required bygenerally accepted accounting principles for annual financial statements.  It is suggested that the accompanying unauditedconsolidated financial statements be read in conjunction with the consolidatedfinancial statements included in the Company's fiscal 2002 Annual Report.  In the opinion of management of Duckwall-ALCOStores, Inc., the accompanying unaudited consolidated financial statementsreflect all adjustments (consisting of normal recurring accruals) necessary topresent fairly the financial position of the Company and the results of itsoperations and cash flows for the interim periods.

(2)            Principles of Consolidation

                The consolidated financialstatements include the accounts of Duckwall-ALCO Stores, Inc. and its whollyowned subsidiaries.  All significantintercompany transactions and balances have been eliminated in consolidation. 

(3)            Adoptionof New Accounting Policy  (dollarsin thousands)

EffectiveJanuary 29, 2001, the Companyadopted Statement of Financial Accounting Standards (SFAS) No. 133,"Accounting for Derivative Investments and Hedging Activities."  SFAS No. 133 requires that all derivativeinstruments be recorded on the balance sheet at fair value.  The accounting for changes in the fair valueof a derivative depends on its designation and effectiveness.  For derivatives that qualify as effectivehedges, the change in fair value has no net impact on earnings until the hedgedtransaction affects earnings.  Forderivatives that are not designated as hedging instruments, or for theineffective portion of a hedging instrument, the change in fair value is recognizedin current period earnings. 

TheCompany entered into an interest rate swap agreement in December, 2000 with anotional principal amount of $10,000 whereby the Company paid a fixed rate ofinterest and received interest based on LIBOR for the period fromApril 15, 2001 to April 15, 2002.  Thepurpose of the interest rate swap agreement was to mitigate the Company'sinterest rate risk under its revolving credit facility. 

Priorto  January 29, 2001,the Company had accounted for the interest rate swap agreement as a cash flowhedge.  Upon adoption of SFAS No. 133,the Company elected to not use hedge accounting for the interest rate swapagreement.  Accordingly, a cumulative‐effect‐typeadjustment was made to Accumulated Other Comprehensive Income in the amount of$76 on January 30, 2001,which represents the fair value of the interest rate swap at the date ofadoption of SFAS No. 133 ($123) net of income tax effect ($47).  The cumulative effect adjustment wasamortized to earnings over the period from April 15, 2001 to April 15, 2002.  Duringthe thirteen weeks ended May 5, 2002 and April 29, 2001, respectively, theCompany recorded interest expense of $26 ($16 net of tax), and $5 ($3 net oftax) to amortize the cumulative effect adjustment.

 

 

 

 

 

 

 

 

 

 

 

| The components of  comprehensive income are as follows:                                                                                             |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |   | Thirteen Weeks Ended |   | Thirteen Weeks Ended |
|                                                                                                                                                |   | May 5, 2002 |   | April 29, 2001 |
| Net earnings                                                                                                                                        |   | $531 |   |   | $23 |   |
| Cumulative effect adjustment  upon adoption of SFAS No. 133, net of tax                                                                             |   | 0 |   |   | (76) |   |
| Other comprehensive income -  amortization of cumulative effect adjustment                                                                          |   | 16 |   |   | 3 |   |
| Comprehensive Income                                                                                                                                |   | $547 |   |   | ($50) |   |
|                                                                                                                                                |   |
| A summary of changes in  accumulated other comprehensive income (loss) for the 13  week periods ended May 5, 2002 and April 29, 2001 is as follows: |   |
|                                                                                                                                                |   |   |   |   |   |   |
| Accumulated other  comprehensive income (loss) at beginning of period                                                                               |   | ($16) |   |   | $0 |   |
| Cumulative effect adjustment  upon adoption of SFAS No. 133, net of tax                                                                             |   | 0 |   |   | (76) |   |
| Amortization of accumulated  other comprehensive income                                                                                             |   | 16 |   |   | 3 |   |
| Accumulated other  comprehensive income (loss)                                                                                                      |   | $0 |   |   | ($73) |   |
|                                                                                                                                                |   |   |   |   |   |   |

 

| (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 Ending | Basic     | Diluted |
|                                                                                                                                                                                                                                                                                 |                  |      |   |
|                                                                                                                                                                                                                                                                                 | May 5, 2002           | 4,171,462 | 4,320,427 |
|                                                                                                                                                                                                                                                                                 | April 29, 2001        | 4,321,687 | 4,321,687 |

** **

** **

** **

** ITEM2.****MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

*(Dollars in thousands)*

 

The thirteenweeks ended May 5, 2002 and April 29, 2001 are referred to hereinas the first quarter of fiscal 2003 and 2002 respectively.

As used belowthe term "competitive market" refers to any market wherein there isone or more national or regional full-line discount stores located in themarket served by the Company.  The term"non-competitive market" refers to any market where there is nonational or regional full-line discount store located in the market served bythe Company.  Even in a non-competitivemarket, the Company faces competition from a variety of sources.

 ***RESULTS OF OPERATIONS***

 **Thirteen Weeks Ended****May 5, 2002****Compared toThirteen Weeks Ended****April 29, 2001****.**

The Company continues to execute its basicstrategy of opening stores in under-served markets that have no competitionfrom national or regional full-line discount retailers.  During the first quarter of fiscal 2003 theCompany opened 1 ALCO store, which was in a new, non-competitive market.  The Company also closed 2 ALCO stores duringthe first quarter of fiscal 2003.  As of May 5, 2002 over 80% of the 263 storesare in non-competitive markets.

Netsales for the first quarter of fiscal 2003 increased $4,983 or 5.4% to $96,777compared to $91,794 for the first quarter of fiscal 2002. When sales arecompared with the similar period in the prior year, which ended on May 6, 2001, sales rose $4,439 or4.8%, with same store sales rising $2,777, or 3.1%.

Grossmargin for the first quarter of fiscal 2003 increased $2,571 or 8.7% to $32,226compared to $29,655 in the first quarter of fiscal 2002.  Gross margin as a percentage of sales was33.3% for the first quarter of fiscal 2003 compared to 32.3% for the firstquarter of fiscal 2002.  The higher grossmargin percent in the first quarter of fiscal 2003 compared to the firstquarter of fiscal 2002 was primarily due to lower markdowns, a more favorablemix of sales, and reduced shrinkage.

Selling,general and administrative expense increased $1,969 or 7.2% to $29,311 in thefirst quarter of fiscal 2003 compared to $27,342 in the first quarter of fiscal2002.  As a percentage of net sales,selling, general and administrative expenses in the first quarter of fiscal2003 were 30.3%, compared to 29.8% in the first quarter of fiscal 2002.   The increase was due to higher incentivecompensation and insurance costs, as well as the absence of vendorparticipation in advertising that was associated with the Company's centennialcelebration last year.

Depreciationand amortization expense increased $77 or 5.0% to $1,620 in the first quarterof fiscal 2003 compared to $1,543 in the first quarter of fiscal 2002. 

Provision for assetimpairment and store closure was $6 in the first quarter of fiscal 2003 comparedto ($8) in the first quarter of fiscal 2002.

Incomefrom operations increased $511 or 65.7% to $1,289 in the first quarter offiscal 2003 compared to $778 in the first quarter of fiscal 2002.  Income from operations as a percentage of netsales was 1.3% in the first quarter of fiscal 2003 compared to 0.8% in thefirst quarter of fiscal 2002.

Interestexpense decreased $291 or 39.3% in the first quarter of fiscal 2003 compared tothe first quarter of fiscal 2002.

Netearnings for the first quarter of fiscal 2003 were $531, an increase of  $508 from the netearnings of $23 for the first quarter of fiscal 2002.

 

 

***LIQUIDITY AND CAPITALRESOURCES***

                TheCompany's primary sources of funds are cash flows from operations, borrowingsunder its revolving loan credit facility, mortgage financing and vendor tradecredit financing (increases in accounts payable).

                AtMay 5, 2002 working capital(defined as current assets less current liabilities) was $90,382 compared to  $71,101 at the endof fiscal 2002.  The increase in workingcapital was due to the classification of the revolving loan as a long termliability as it was replaced by a Senior Secured Revolving credit facility on April 15, 2002.  The new revolving credit facility provides aline of credit up to $70 million, subject to borrowing base limitations, for afour year term ending in April 2006.

                Cashgenerated (used) by operating activities in the first quarter of fiscal 2003and 2002 was $4,943 and ($741) respectively.The increase in the amount of cash generated by operating activities inthe first quarter of fiscal 2003 compared to the first quarter of fiscal 2002was primarily due to higher net earnings and a smaller buildup of inventorylevels in fiscal 2003 compared to fiscal 2002.

                TheCompany generated (used) cash in financing activities in the first quarter offiscal 2003 and 2002 of $509 and ($271) respectively.  Cash was generated from proceeds fromexercise of stock options.

                Cashused in investing activities in the first quarter of fiscal 2003 and 2002totaled $1,844 and $1,577, respectively.Total anticipated cash payments for acquisition of property andequipment in fiscal 2003 principally for store buildings and store and warehousefixtures and equipment, are approximately $7,500.

***BUSINESS OPERATIONS ANDSEGMENT INFORMATION***

 TheCompany's business activities include operation of ALCO discount stores intowns with populations which are typically less than 5,000 not served by otherregional or national full-line discount chains and Duckwall variety stores thatoffer a more limited selection of merchandise which are primarily located incommunities of less than 2,500 residents.

Forfinancial reporting purposes, the Company has established two operatingsegments: "ALCO Discount Stores", and "All Other", which includes the Duckwallvariety stores and other business activities, such as general office, warehouseand distribution activities. 

|                              | For The Thirteen  Week |
|-----------------------------------|------------------------|
|                              | Periods Ended          |
|                              |                   |   |   |
|                              | May 5, 2002            |   | April 29, 2001 |
|                              |                   |   |   |
| Segment Information               |                   |   |   |
|                              |                   |   |   |
| Net Sales:                        |                   |   |   |
| ALCO Discount  Stores             | $88,863                |   | $83,942 |
| All Other                         |                   |   |   |
| External                          | 7,914                  |   | 7,852 |
| Intercompany                      | 58,505                 |   | 59,066 |
|                              | $155,282               |   | $150,860 |
|                              |                   |   |   |
| Depreciation and Amortization     |                   |   |   |
| ALCO Discount  Stores             | $1,030                 |   | $1,005 |
| All Other                         | 590                    |   | 538 |
|                              | $1,620                 |   | $1,543 |
|                              |                   |   |   |
| Income (expense) from Operations: |                   |   |   |
| ALCO Discount  Stores             | $7,563                 |   | $5,908 |
| All Other                         | (6,307)                |   | (5,151) |
|                              | $1,256                 |   | $757 |
|                              |                   |   |   |
|                              |                   |   |   |
| Capital Expenditures:             |                   |   |   |
| ALCO Discount  Stores             | $1,616                 |   | $1,130 |
| All Other                         | 1,264                  |   | 447 |
|                              | $2,880                 |   | $1,577 |
|                              |                   |   |   |
| Identifiable Assets:              |                   |   |   |
| ALCO Discount  Stores             | $129,429               |   | $137,047 |
| All Other                         | 40,465                 |   | 37,533 |
|                              | $169,894               |   | $174,580 |
|                              |                   |   |   |

 

Income from operations asreflected in the above segment information has been determined differently thanincome from operations in the accompanying consolidated statements ofoperations as follows:
> 
*Intercompany Sales*

Intercompany salesrepresent transfers of merchandise from the warehouse to ALCO discount storesand Duckwall variety stores.

*Intercompany Expense Allocations*

General and administrativeexpenses incurred at the general office have not been allocated to the ALCODiscount Stores for purposes of determining income from operations for thesegment information.

Warehousing anddistribution costs including freight applicable to merchandise purchases, havebeen allocated to the ALCO Discount Stores segment based on the Company'scustomary method of allocation for such costs (primarily as a stipulatedpercentage of merchandise purchases).

*Inventories*

Inventories arebased on the FIFO method for segment information purposes and on the LIFOmethod for the consolidated statements of operations.

*Leases*

All leases areaccounted for as operating leases for purposes of determining income fromoperations for purposes of determining the segment information for the ALCODiscount Stores whereas capital leases are accounted for as such in theconsolidated statements of operations.

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

A reconciliation of the segmentinformation to the amounts reported in the consolidated financial statements ispresented below:

 

 

 

 

|                                                 | For The Thirteen  Week |
|------------------------------------------------------|------------------------|
|                                                 | Periods Ended          |
|                                                 |                   |   |
|                                                 | May 5, 2002            | April 29, 2001 |
|                                                 |                   |   |
| Net sales per above segment information              | $155,282               | $150,860 |
| Intercompany elimination                             | (58,505)               | (59,066) |
| Net sales per  consolidated statements               | $96,777                | $91,794 |
| of operations                                        |                   |   |
|                                                 |                   |   |
| Income from operations per above segment information | $1,256                 | $757 |
| Leases                                               | 33                     | 21 |
| Income from  operations per consolidated             | $1,289                 | $778 |
| Statements of  operations                            |                   |   |
|                                                 |                   |   |
|                                                 |                   |   |
|                                                 |                   |   |
|                                                 |                   |   |

 

***CHANGE IN ACCOUNTING PRINCIPLES***

EffectiveJanuary 29, 2001, the Company adopted Statement of Financial AccountingStandards (SFAS) No. 133, "Accounting for Derivative Investments and HedgingActivities."  See additional discussionin Note 3 to Unaudited Consolidated Financial Statements.

InAugust 2001, the FASB issued SFAS No. 144, Accounting for the Impairment orDisposal of Long‐Lived Assets (SFAS No. 144).  SFAS No. 144 addresses significant issuesrelating to the implementation of SFAS No. 121, "Accounting for theImpairment of Long‐Lived Assets and for Long‐Lived Assets to BeDisposed Of," and develops a single accounting method under which long‐livedassets that are to be disposed of by sale are measured at the lower of bookvalue or fair value less cost to sell.Additionally, SFAS No. 144 expands the scope of discontinued operationsto include all components of an entity with operations that (1) can bedistinguished from the rest of the entity and (2) will be eliminated from theongoing operations of the entity in a disposal transaction.  SFAS No. 144 is effective for financialstatements issued for fiscal years beginning after December 15, 2001 and itsprovisions are to be applied prospectively.This accounting principle was adopted by the Company effective February4, 2002.  Management believes that theadoption of SFAS No. 144 did not have a significant impact on the financialstatements.

 

##### MARKET RISK DISCLOSURE

                Therevolving credit facility has a floating interest rate that is affected bychanges in market interest rates.  TheCompany entered into an interest rate swap in December 2000 with a notionalprincipal amount of $10,000 whereby the Company paid a fixed rate of interestand received 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 creditfacility.

                On April15, 2002, the Company replaced the existing line of credit with a new line ofcredit with Fleet Retail Finance Inc. that expires in April 2006.  The credit line available is $70,000,000,which carries a variable rate of interest. 

 

 

 

**SIGNATURES**

Pursuant tothe requirements of the Securities Exchange Act of 1934 the registrant has dulycaused this report to besigned on its behalf by the undersigned thereunto dulyauthorized. 

 

**DUCKWALL-ALCO STORES, INC.**

***(Registrant)***

 

 

                                                                      Date,June 17, 2002                                                                        ____________________________

                                                                                                                                                                                                                RichardA. Mansfield

                                                                                                                 VicePresident - Finance

                                                                                                                                                                                                                 ChiefFinancial Officer

 

                                                                                                                                                                                                                  Signingon behalf of the

                                                                                                                                                                                                                  registrant and as principal

                                                                                                                                                                                                                  financial officer