12
                       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, 2000
                               -------------------------------------

[   ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to
                               -------------    --------------

                         Commission File Number 1-05380

                          AMES DEPARTMENT STORES, INC.
             (Exact name of registrant as specified in its charter)


               Delaware                             04-2269444
               --------                             ----------
(State or other jurisdiction of          (I.R.S.Employer Identification Number)
 incorporation or organization)


2418 Main Street, Rocky Hill, Connecticut                         06067
-----------------------------------------                         -----
(Address of principal executive                                 (Zip Code)
offices)

Registrant's telephone number including area code:            (860)257-2000
                                                              -------------

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.


                                    YES X    NO
                                       -----   -----




    29,408,057 shares of Common Stock were outstanding on November 24, 2000.

                            Exhibit Index on page 14

                        Page 1 of 39 (including exhibits)
<PAGE>


                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES

                                    FORM 10-Q

                     FOR THE QUARTER ENDED OCTOBER 28, 2000



<TABLE>

                                                        I N D E X



<S>  <C>        <C>                                                                                    <C>

                                                                                                       Page

Part I:         FINANCIAL INFORMATION

     Item 1.        Consolidated Condensed Statements of Operations                                     3
                       for the Thirteen and Thirty-Nine Weeks ended October 28,
                       2000 and October 30, 1999

                    Consolidated Condensed Balance Sheets as of                                         4
                       October 28, 2000, January 29, 2000, and October 30,
                       1999

                    Consolidated Condensed Statements of Cash Flows                                     5
                       for the Thirty-Nine Weeks ended October 28, 2000
                       and October 30, 1999

                    Notes to Consolidated Condensed Financial Statements                                6

     Item 2.        Management's Discussion and Analysis of Financial                                   10
                       Condition and Results of Operations

     Item 3.        Quantitative and Qualitative Disclosures about Market Risk                          13


Part II:        OTHER INFORMATION

     Item 1.        Legal Proceedings                                                                   14

     Item 4.        Submission of Matters to a Vote of Security Holders                                 14

     Item 5.        Other Information                                                                   14

     Item 6.        Exhibits and Reports on Form 8-K                                                    14
</TABLE>

                                    Page - 2
<PAGE>


<TABLE>

                                                        PART I
Item 1.
                                                FINANCIAL INFORMATION

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


                                                                  For the Thirteen              For the Thirty-Nine
                                                                    Weeks Ended                     Weeks Ended
                                                            -----------------------------  ------------------------------
                                                             October 28,    October 30,     October 28,    October 30,
                                                                2000           1999             2000           1999
                                                            -------------- --------------  ------------- ----------------
<S>                                                             <C>            <C>             <C>            <C>

Total net sales                                                 $ 920,321      $ 883,500       $2,623,012     $2,559,634

   Leased department and other income                              14,588          9,274           34,391         29,244
                                                            -------------- --------------  -------------- ---------------
Total revenue                                                     934,909        892,774        2,657,403      2,588,878

Costs and expenses:
   Cost of merchandise sold                                       689,762        638,455        1,923,567      1,817,050
   Selling, general and administrative expenses                   261,856        262,349          757,437        801,933
   Depreciation and amortization expense, net                      19,252         17,516           54,189         48,203
   Interest and debt expense, net                                  24,098         17,736           64,843         43,279
                                                            -------------- --------------  -------------- ---------------

Loss before income taxes                                         (60,059)       (43,282)        (142,633)      (121,587)
Income tax benefit                                                 22,823         15,582           54,201         43,770
                                                            -------------- --------------  -------------- ---------------

Loss before cumulative effect adjustment                        ($37,236)      ($27,700)        ($88,432)      ($77,817)

Cumulative effect adjustment, net of tax                               -              -               -          (1,107)
                                                            -------------- --------------  -------------- ---------------

Net Loss                                                        ($37,236)      ($27,700)        ($88,432)      ($78,924)
                                                            ============== ==============  ============== ===============

Basic net loss per common share:

Before cumulative effect adjustment                         $      (1.27)   $     (0.95)    $      (3.01)   $     (2.88)

Cumulative effect adjustment                                        -              -               -              (0.04)
                                                            -------------- --------------  -------------- ---------------
Net Loss per share                                          $      (1.27)   $     (0.95)    $      (3.01)   $     (2.92)
                                                            ============== ==============  ============== ===============

Basic weighted average number of common shares

outstanding                                                        29,407         29,109          29,378         27,027
                                                            ============== ==============  ============== ===============

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

                                    Page - 3
<PAGE>


<TABLE>

                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                    (In Thousands, Except Per Share Amounts)

                                                                               (Unaudited)                          (Unaudited)
                                                                           ----------------   -----------------   -----------------
                                                                               October 28,         January 29,      October 30,
                                                                                  2000               2000               1999
                                                                           ----------------   -----------------   -----------------
                                            ASSETS
<S>                                                                                <C>                <C>               <C>
Current Assets:
     Cash and short-term investments                                               $  41,876          $  30,612         $ 42,383
     Receivables                                                                      58,814             25,302           51,172
     Merchandise inventories                                                       1,045,847            831,387        1,126,598
     Deferred taxes, net                                                              83,055             28,854           43,770
     Prepaid expenses and other current assets                                        40,360             36,772           25,651
                                                                             ----------------    ---------------    -------------
          Total current assets                                                     1,269,952            952,927        1,289,574

Fixed Assets                                                                         739,723            629,979          615,379
     Less - Accumulated depreciation and amortization                              (188,188)          (128,229)        (110,957)
                                                                             ----------------    ---------------    -------------
          Net fixed assets                                                           551,535            501,750          504,422
                                                                             ----------------    ---------------    -------------

Other assets and deferred charges                                                     59,835             57,256           59,451
Deferred taxes, net                                                                  346,055            346,055          102,406
Beneficial lease rights, net                                                          54,209             56,280           56,817
Goodwill, net                                                                         59,113             61,026          195,449
                                                                             ----------------    ---------------    -------------
                                                                                  $2,340,699        $ 1,975,294      $ 2,208,119
                                                                             ================    ===============    =============
                             LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Accounts payable:
          Trade                                                                    $ 420,730          $ 325,356        $ 433,991
          Other                                                                       84,881             96,224           73,142
                                                                               --------------    ---------------    -------------
               Total accounts payable                                                505,611            421,580          507,133
                                                                               --------------    ---------------    -------------
Current portion of capital lease and financing obligations                            22,057             22,086           20,999
Self-insurance reserves                                                               28,063             29,827           28,385
Accrued expenses and other current liabilities                                       135,474            133,110          221,520
Store closing reserves                                                                51,242             55,468           53,516
                                                                               --------------    ---------------    -------------
     Total current liabilities                                                       742,447            662,071          831,553
                                                                               --------------    ---------------    -------------
Long-term debt                                                                       820,068            421,769          615,696
Capital lease and financing obligations                                              166,095            180,404          184,039
Other long-term liabilities                                                           50,874             57,916          124,100
Excess of revalued net assets over equity under fresh-start reporting                 13,253             17,868           19,406
Commitments and contingencies (see Note 8)
Stockholders' Equity:
     Preferred stock (3,000,000 shares authorized; no shares issued
        or outstanding at October 28, 2000, January 29, 2000 and October
        30, 1999; par value per share $.01)                                               -                  -                -
     Common stock  (40,000,000  shares  authorized;  29,408,057,  29,233,650
        and 29,210,662 shares outstanding at October 28, 2000, January 29,
        2000 and October 30, 1999, respectively; par value per share $.01)               296                293              292
     Additional paid-in capital                                                      531,879            530,744          424,855
     Retained earnings                                                                16,709            105,143            9,092
     Treasury stock, at cost                                                           (922)              (914)            (914)
                                                                               --------------    ---------------    -------------
          Total stockholders' equity                                                 547,962            635,266          433,325
                                                                               --------------    ---------------    -------------
                                                                                  $2,340,699         $1,975,294      $ 2,208,119
                                                                               ==============    ===============    =============

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

                                    Page - 4
<PAGE>

<TABLE>

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

                                                                                       (Unaudited)
                                                                                   For the Thirty-Nine
                                                                                       Weeks Ended
                                                                         ----------------------------------------
                                                                            October 28,          October 30,
                                                                               2000                 1999
                                                                         ------------------  --------------------
<S>                                                                            <C>                   <C>
Cash flows from operating activities:
      Net loss                                                                 $  (88,432)           $  (78,924)
      Expenses not requiring the outlay of cash:
           Income tax benefit                                                     (54,201)              (43,770)
           Depreciation and amortization of fixed and other assets                  60,195                51,119
           Amortization of debt discounts and deferred financing costs               3,589                 3,585
                                                                         ------------------  --------------------
Cash used by operations before changes in working capital and
store closing activities                                                          (78,849)              (67,990)
Changes in working capital:
      Increase in receivables                                                     (33,512)              (20,928)
      Increase in merchandise inventories                                        (214,460)             (476,730)
      Increase in accounts payable                                                  84,031               106,376
      Increase (decrease) in accrued expenses and other current
      liabilities                                                                      600               (4,499)
      (Increase) decrease in other working capital and other, net                  (9,318)                 3,477
Changes due to store closing activities:
      Payments of store closing costs                                              (4,226)               (4,773)
                                                                         ------------------  --------------------
Net cash used for operating activities                                           (255,734)             (465,067)
                                                                         ------------------  --------------------
Cash flows from investing activities:
      Purchases of fixed assets                                                  (110,317)             (169,345)
      Purchases of leases                                                          (7,054)              (42,835)
                                                                         ------------------  --------------------
Net cash used for investing activities                                           (117,371)             (212,180)
                                                                         ------------------  --------------------
Cash flows from financing activities:
      Borrowings under the revolving credit facility, net                          401,151               319,886
      Payments on debt and capital lease obligations                              (14,338)              (17,026)
      Repurchase of Hills Senior Notes                                             (2,852)                     -
      Purchase of treasury stock                                                       (8)                     -
      Proceeds from the issuance of senior notes                                         -               200,000
      Proceeds from the issuance of common stock, net                                    -               187,216
      Payments of deferred financing costs                                           (723)               (7,215)
      Proceeds from the exercise of options and warrants                             1,139                 1,025
                                                                         ------------------  --------------------
Net cash provided by financing activities                                          384,369               683,886
                                                                         ------------------  --------------------
Increase in cash and short-term investments                                         11,264                 6,639
Cash and short-term investments, beginning of period                                30,612                35,744
                                                                         ------------------  --------------------
Cash and short-term investments, end of period                                   $  41,876             $  42,383
                                                                         ==================  ====================

Supplemental  disclosure of cash flow  information:
        Cash paid during the period for:
           Interest and debt fees not capitalized                                 $ 61,234              $ 34,571
           Income taxes                                                              1,711                   172

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

                                    Page - 5
<PAGE>




                  AMES DEPARTMENT STORES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)


1.       Basis of Presentation :
         ---------------------
         In the opinion of management,  the accompanying  unaudited consolidated
         condensed  financial  statements  of Ames  Department  Stores,  Inc. (a
         Delaware  corporation)  and  subsidiaries  (collectively  "Ames" or the
         "Company")  contain all  adjustments  (consisting  of normal  recurring
         adjustments)  necessary  for a  fair  presentation  of  such  financial
         statements  for the  interim  periods.  Due to the  seasonality  of the
         Company's  operations,  the results of its  operations  for the interim
         period ended  October 28, 2000 may not be  indicative  of total results
         for  the  full  year.  Certain  information  and  footnote  disclosures
         normally included in financial  statements  prepared in accordance with
         generally accepted accounting principles have been condensed or omitted
         pursuant to the rules and regulations promulgated by the Securities and
         Exchange  Commission (the "SEC").  Certain prior year amounts have been
         reclassified to conform to the presentation  used for the current year.
         Pursuant to the  indenture  governing the Ames Senior Notes (as defined
         in Note 5),  all of  Ames'  subsidiaries  have  jointly  and  severally
         guaranteed  the Ames Senior  Notes on a full and  unconditional  basis.
         Separate  financial  statements  of  those  subsidiaries  have not been
         included  herein because  management  has determined  that they are not
         material to investors.

         The  consolidated  condensed  balance  sheet at  January  29,  2000 was
         obtained from audited  financial  statements  previously filed with the
         SEC in the  Company's  Annual  Report on Form 10-K for the fiscal  year
         ended  January  29,  2000 (the  "1999  Form  10-K").  The  accompanying
         unaudited consolidated condensed financial statements should be read in
         conjunction with the financial statements and Notes thereto included in
         the 1999 Form 10-K.

         In the fourth  quarter  of the year ended  January  29,  2000  ("Fiscal
         1999"),  the Company adopted Staff Accounting  Bulletin ("SAB") No. 101
         "Revenue Recognition" as promulgated by the staff of the SEC, effective
         retroactively  to the first  quarter  of Fiscal  1999.  Therefore,  the
         consolidated  condensed  financial  statements  for  the  thirteen  and
         thirty-nine   weeks  ended   October   30,  1999  have  been   adjusted
         accordingly. Reference can be made to the 1999 Form 10-K for additional
         discussion of the adoption of SAB No. 101 by the Company.

2.       Acquisition and Agency Agreement:
         --------------------------------
         Acquisition of Hills Stores Company

         On December 31, 1998, HSC  Acquisition  Corp.  ("HSC"),  a wholly owned
         subsidiary of the Company, acquired in excess of 80% of the outstanding
         voting stock of Hills Stores Company ("Hills") and approximately 74% of
         the  outstanding  Hills 12 1/2% senior notes.  Subsequently,  Hills was
         merged with HSC and became a wholly owned subsidiary of Ames Department
         Stores,  Inc.  In April  1999,  Hills  was  merged  with and into  Ames
         Department  Stores,  Inc. The  acquisition  has been recorded under the
         purchase method of accounting.

         Total cash consideration for the acquisition of Hills was $129 million.
         Reference  can be made to the 1999 Form 10-K for further  discussion of
         the Hills acquisition.

         At the time of the acquisition,  Hills operated 155 discount department
         stores.  During 1999,  the Company  remodeled  and converted 151 of the
         Hills stores to Ames stores.  The four  remaining  Hills stores,  along
         with  seven  other  Ames  stores,  were  closed  because  they  were in
         locations that were either  competitive  with or were  under-performing
         other Hills or Ames stores.  The remodeling and conversion  process was
         conducted in three stages, each stage involving approximately one third
         of the Hills stores.  The first stage was completed in late April 1999;
         the second stage was  completed in late July 1999;  and the third stage
         was completed in late September 1999.

                                    Page - 6
<PAGE>

         Concurrent  with the Hills  acquisition,  the  Company  entered  into a
         transition and agency  agreement (the "Agency  Agreement")  with Gordon
         Brothers Retail Partners,  LLC and The Nassi Group,  LLC  (collectively
         the "Agent"),  which provided that the Agent serve for a period of time
         to operate all of the acquired  Hills  stores and to conduct  inventory
         liquidation  sales  at each of  those  stores  prior  to its  scheduled
         remodeling or final closure. Accordingly, the Agent managed the sale of
         the  inventory  acquired  in the Hills  acquisition  as well as certain
         other  inventory  identified  in  the  Agency  Agreement.   The  Agency
         Agreement  entitled  the Company to receive out of the sale  proceeds a
         minimum  amount  equal to 40% of the initial  retail  value or ticketed
         selling price of the merchandise  (the "Guaranteed  Return"),  with the
         possibility of a greater return if the sale proceeds  exceeded a target
         percentage of initial retail value.

         The results of  operations  of the former  Hills  stores prior to their
         conversion to Ames stores for the thirteen and thirty-nine  weeks ended
         October 30, 1999 have been  included in the  accompanying  consolidated
         condensed financial statements.

         Acquisition of Goldblatt's Leases

         In April 2000, the Company  consummated  its purchase of the leases for
         seven  stores  from  Goldblatt's  Department  Stores,  Inc.  for a cash
         purchase price of $7.0 million.

         Reference can be made to the 1999 Form 10-K for  additional  discussion
         of the Hills acquisition and the acquisition of the Goldblatt's leases.

3.       Net Loss Per Common Share:
         -------------------------
         Net loss per share was determined  using the weighted average number of
         common  shares  outstanding.  Diluted  net loss per  share was equal to
         basic net loss per share because  inclusion of common stock equivalents
         would have been  anti-dilutive.  During the quarter  ended  October 28,
         2000,  options  representing  3,470 shares were  exercised.  During the
         quarter ended October 30, 1999, 29,023 options were exercised.

4.       Inventories:
         -----------
         Inventories  are  valued  at the  lower of cost,  using  the  first-in,
         first-out (FIFO) method,  or market and include the  capitalization  of
         transportation and distribution center costs.

5.       Debt:
         ----
         Credit Agreement

         On December 31, 1998,  in  connection  with the  acquisition  of Hills,
         certain of the Company's  subsidiaries  entered into an agreement  (the
         "Credit   Agreement")   with  a  syndicate   of  banks  and   financial
         institutions  for which Bank of America,  N.A. is serving as agent. The
         Credit  Agreement  is in effect  until June 30,  2002 and is secured by
         substantially all of the assets of the Company.

         As of November 8, 2000,  the Company  entered into an Eighth  Amendment
         and Waiver  Agreement (the "Eighth  Amendment")  with its lenders.  The
         Eighth Amendment  reduced our fixed charge coverage ratio  requirements
         and permitted the Company to record  restructuring  charges  associated
         with the closing of up to  thirty-three  stores.  The Eighth  Amendment
         also  provided  that  covenants  will be tested  quarterly  rather than
         monthly,  as  long  as  the  Company's  availability  remains  above  a
         specified  level,  and any  non-compliance  events prior to November 8,
         2000 were  waived.  The Eighth  Amendment  also  provided  for  certain
         changes to the interest rate margins. Reference can be made to the 1999
         Form 10-K, the Company's quarterly report on Form 10-Q for the thirteen
         weeks  ended July 29, 2000 and Part II,  Item 5 of this Form  10-Q for
         additional discussion  of the Credit  Agreement, applicable  amendments
         and  descriptions of the  Company's  other  obligations not  discussed
         herein.

         As of October 28, 2000,  borrowings of $575.7 million were  outstanding
         under the Credit Agreement.  These borrowings are included in long-term
         debt in the  accompanying  consolidated  condensed  balance sheet as of
         October 28, 2000.  In  addition,  $23.7 and $0.6 million of standby and
         trade  letters  of credit,  respectively,  were  outstanding  under the
         Credit Agreement.  The weighted average interest rate on the borrowings
         for the  thirty-nine  weeks ended October 28, 2000 was 8.13%.  The peak
         borrowing  level  through  October  28,  2000 was  $611.1  million  and
         occurred in October 2000.

                                    Page - 7
<PAGE>

         Senior Notes due 2006

         On April 27, 1999,  the Company  completed  the sale of $200 million of
         its 10%  seven-year  senior  notes (the "Ames Senior  Notes").  The net
         proceeds from the sale of the Ames Senior Notes,  approximately  $193.4
         million,  were used to reduce  outstanding  borrowings under the Credit
         Agreement.  The Ames Senior Notes pay interest  semi-annually  in April
         and October and mature April 2006.

         Senior Notes due 2003

         The 12.5% Senior Notes due 2003 (the "Hills Senior Notes") were, at the
         time of the acquisition of Hills, an unsecured obligation of Hills. The
         Hills  Senior  Notes pay  interest  in January and June and mature July
         2003.

         Reference can be made to the 1999 Form 10-K for  additional  discussion
         of the Ames Senior Notes and Hills Senior Notes.

6.       Stock Options:
         -------------
         The Company has four stock option plans (the "Option Plans"):  the 1994
         Management  Stock Option Plan, the 1994  Non-Employee  Directors  Stock
         Option Plan, the 1998  Management  Stock Incentive Plan, as amended and
         restated, and the 2000 Store Manager Stock Option Plan.

         In October  1995,  the Financial  Accounting  Standard  Board  ("FASB")
         issued  Statement of Financial  Accounting  Standards  ("SFAS") No. 123
         "Accounting  for  Stock  Based   Compensation,"   which  established  a
         fair-value  based method of accounting  for  stock-based  compensation.
         SFAS No. 123 did,  however,  allow entities to continue  accounting for
         employee  stock based  compensation  under the  intrinsic  value method
         prescribed by Accounting  Principles Board Opinion No. 25,  "Accounting
         for Stock Issued to Employees."  The Company elected to account for the
         Option Plans under APB Opinion No. 25, under which no compensation cost
         has been recognized, and to adopt SFAS No. 123 through disclosure.

         If the  Company  had  elected to  recognize  compensation  cost for the
         Option  Plans  based on the fair  value at the grant  dates for  awards
         under those plans,  consistent  with the method  prescribed by SFAS No.
         123,  net  loss  and  basic  net  loss  per  common  share  would  have
         approximated the pro forma amounts indicated below:
<TABLE>

                                                       For the Thirteen                    For the Thirty-Nine
                                                         Weeks Ended                           Weeks Ended
                                              -----------------------------------   ----------------------------------

                      (In Thousands)           October 28,         October 30,        October 28,       October 30,
                                                   2000               1999               2000               1999
                                              ---------------    ----------------   ----------------   ---------------
              <S>                                  <C>                 <C>                <C>               <C>

              Net loss:
              As reported                          $(37,236)           $(27,700)          $(88,432)         $(78,924)
              Pro forma                            $(39,830)           $(29,916)          $(95,586)         $(84,695)

              Basic net loss per common
              share: (a)
              As reported                            $(1.27)             $(0.95)            $(3.01)           $(2.92)
              Pro forma                              $(1.35)             $(1.03)            $(3.25)           $(3.13)

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

         The fair value of stock  options  used to compute  pro forma net income
         and net income per diluted common share is the estimated  present value
         as of the grant date using the Black-Scholes  option-pricing model with
         the following weighted average assumptions: no dividend yield, expected
         option  volatilities,  a risk-free interest rate equal to U.S. Treasury
         securities with a maturity equal to the expected life of the option and
         an expected life from date of grant until option expiration date.

                                    Page - 8
<PAGE>

7.       Income Taxes:
         ------------
         The Company's  estimated annual effective income tax rate for each year
         was  applied  to the loss  before  income  taxes for the  thirteen  and
         thirty-nine  weeks  ended  October  28,  2000 and  October  30, 1999 to
         compute a non-cash  income  tax  benefit.  The  income  tax  benefit is
         included in current  deferred  taxes in the  accompanying  consolidated
         condensed balance sheet as of October 28, 2000 and October 30, 1999.

         In Note 8 to the Notes to Consolidated Financial Statements in the 1999
         Form 10-K, the Company reported it had filed a $20 million refund claim
         under  Section 172 (f) of the Internal  Revenue Code and that the claim
         was under review by the Internal Revenue Service  ("IRS").  The Company
         has  recently  received  from  the  IRS  an  adverse  Technical  Advice
         Memorandum  ("TAM").  The positions set forth in the TAM would have the
         effect of denying all or virtually all of the refund claim. The Company
         is presently considering what further action to take.


8.       Commitments and Contingencies:
         -----------------------------
         Reference  can  be  made  to  the  1999  Form  10-K  (Item  3  -  Legal
         Proceedings) for various  litigation  involving the Company,  for which
         there were no material  changes  since the filing date of the 1999 Form
         10-K, except as follows:

         With regard to the Smoot matter,  on November 14, 2000,  the Court gave
         preliminary approval to a class action settlement that had been reached
         by the parties. Notice of the settlement and Fairness Hearing for final
         approval of the settlement  will be mailed to class members on or about
         December 14, 2000.  The  deadline  for filing  objections  to the class
         action  settlement  is January 28, 2001.  The Fairness  Hearing will be
         held on February 12, 2001. The settlement, if approved, will require an
         evidentiary  hearing  on the  proper  classification  of the  Assistant
         Manager positions. The total cost of the settlement to the Company will
         depend upon the outcome of the  evidentiary  hearing.  In the event the
         Company  prevails,  the total cost to the  Company  will be $1 million,
         inclusive  of  attorney's  fees.  If  the  plaintiffs  prevail  at  the
         evidentiary  hearing, the cost to the Company of the settlement will be
         $3 million,  exclusive of attorney's  fees. A date has not been set for
         the evidentiary hearing.

9.       Recently Issued Accounting Pronouncements:
         -----------------------------------------
         In June 1998, the FASB issued SFAS No. 133,  "Accounting for derivative
         instruments and Hedging Activities." In June 2000, the FASB issued SFAS
         No. 138,  "Accounting  for Certain  Derivative  Instruments and Certain
         Hedging  Activities,"  an amendment of SFAS No. 133.  These  statements
         establish  accounting  and  reporting  standards  requiring  that every
         derivative   instrument   (including  certain  derivative   instruments
         embedded in other contracts) be recorded in the balance sheet as either
         an asset or liability  measured at its fair value.  The statements also
         require  that  changes  in a  derivative's  fair  value  be  recognized
         currently in earnings  unless  specific hedge  accounting  criteria are
         met.  The  statements  are  effective,  prospectively,  for all  fiscal
         quarters of all fiscal years beginning after June 15, 2000.  Management
         is  currently  analyzing  the impact of this new  pronouncement  on the
         Company's financial position and results of operations.

10.      Subsequent Events:
         -----------------
         On  November 9, 2000, the  Company  announced  the  planned  closing of
         thirty-two  stores.  All but  one of the  stores  are  under-performing
         stores that were acquired in the Hills  acquisition  in December  1998.
         The other  store  will be closed as a result of the  expiration  of its
         lease.  Management  estimates that a restructuring charge of up to $140
         million  will be  recorded  in the fourth  quarter  of this  year.  The
         restructuring  charge will include provisions for inventory  impairment
         costs,  severance related costs, lease liability payments over a number
         of years, asset impairment write-downs and other related charges.

         In  addition,  the  Company  announced  plans to curtail  purchases  of
         property,  equipment  and other  capital  items in fiscal 2001 and
         initiate   programs  to  further   reduce  its  selling,   general  and
         administrative expenses.

                                    Page - 9
<PAGE>


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



The following  discussion and analysis  should be read in  conjunction  with the
consolidated  condensed  financial  statements  and footnotes  presented in this
report.

Results of Operations
---------------------

The  consolidated  results  of  operations,  as  reported  in  our  Consolidated
Condensed  Statement of Operations,  for the thirty-nine weeks ended October 30,
1999 include the results of the former Hills stores  during the period they were
operated  by  Gordon  Brothers,  LLC and The  Nassi  Group,  LLC under an agency
agreement.  These  firms were  engaged to operate the Hills  stores  until their
closure and to liquidate the merchandise inventories.

As of the quarter ended  October 30, 1999,  Gordon  Brothers,  LLC and The Nassi
Group, LLC completed the merchandise  liquidation sales in all 155 Hills stores.
Subsequent to the liquidation  sales, we closed four of the stores and remodeled
the remaining 151 stores.  The remodeled stores were re-opened as Ames stores in
three phases:  50 stores in April 1999, 54 stores in July 1999, and 47 stores in
September 1999.

The following tables illustrate the results of Ames' operations for the thirteen
and  thirty-nine  weeks ended  October  28,  2000,  as compared to the  separate
contributions of Ames' and Hills' operations and the other costs described below
to the consolidated results of operations for the thirteen and thirty-nine weeks
ended October 30, 1999.
<TABLE>

                                                      For the
                                                     Thirteen
                                                    Weeks Ended              For The Thirteen Weeks Ended
                                                 October 28, 2000                  October 30, 1999
                                                 ----------------   ------------------------------------------------
                (In Thousands)                     Consolidated         Ames       Hills      Other       Total
                                                   ------------         ----       -----      -----       -----
<S>                                                        <C>          <C>           <C>        <C>       <C>
Net sales                                                  $920,321     $883,500      $   -      $   -     $883,500
Leased department and other income                           14,588       10,065      (791)          -        9,274
                                                --------------------------------------------------------------------
Total revenue                                               934,909      893,565      (791)          -      892,774
Costs and expenses:
Cost of merchandise sold                                    689,762      638,455          -          -      638,455
Selling, general and administrative expenses                261,856      227,404      7,385     27,560      262,349
Depreciation and amortization expense, net                   19,252       15,309        643      1,564       17,516
Interest and debt expense, net                               24,098       17,114         17        605       17,736
                                                --------------------------------------------------------------------

Loss before income taxes                                   (60,059)      (4,717)    (8,836)   (29,729)     (43,282)
Income tax benefit                                           22,823        1,698      3,181     10,703       15,582
                                                --------------------------------------------------------------------

Net loss                                                ($  37,236)  ($   3,019) ($  5,655)  ($19,026)    ($27,700)
                                                ====================================================================
</TABLE>

                                   Page - 10
<PAGE>

<TABLE>
                                                      For the
                                                    Thirty-Nine
                                                    Weeks Ended             For The Thirty-Nine Weeks Ended
                                                 October 28, 2000                  October 30, 1999
                                                 ----------------   ------------------------------------------------
                (In Thousands)                     Consolidated         Ames       Hills      Other       Total
                                                   ------------         ----       -----      -----       -----
<S>                                                      <C>          <C>          <C>           <C>     <C>
Net sales                                                $2,623,012   $2,182,517   $377,117      $   -   $2,559,634
Leased department and other income                           34,391       26,667      2,577          -       29,244
                                                --------------------------------------------------------------------
Total revenue                                             2,657,403    2,209,184    379,694          -    2,588,878
Costs and expenses:
Cost of merchandise sold                                  1,923,567    1,564,965    252,085          -    1,817,050
Selling, general and administrative expenses                757,437      578,269    149,432     74,232      801,933
Depreciation and amortization expense, net                   54,189       31,832     11,036      5,335       48,203
Interest and debt expense, net                               64,843       36,531      4,179      2,569       43,279
                                                --------------------------------------------------------------------

Loss before income taxes and cumulative effect
adjustment                                                (142,633)      (2,413)   (37,038)   (82,136)    (121,587)
Income tax benefit                                           54,201          869     13,332     29,569       43,770
                                                --------------------------------------------------------------------
Loss before cumulative effect adjustment                   (88,432)      (1,544)   (23,706)   (52,567)     (77,817)

Cumulative effect adjustment, net of tax                          -            -          -    (1,107)      (1,107)
                                                --------------------------------------------------------------------

Net loss                                                  ($88,432)     ($1,544)  ($23,706)  ($53,674)    ($78,924)
                                                ====================================================================
</TABLE>

The Ames  column,  represents  (a) the results of the Ames store  base,  (b) the
results of the converted Hills stores and (c) certain  expenses  associated with
the acquisition of Hills,  including the interest  expense on the acquired Hills
senior notes and a pro-rata share of the  amortization of the goodwill  recorded
in connection with the acquisition.

The Hills column  represents  (a) the results of operations for the Hills stores
during the  period  that  these  stores  were  operated  pursuant  to the Gordon
Brothers/Nassi  agency  agreement,  including  depreciation and interest expense
directly  associated with such stores and (b) Hills corporate overhead expenses,
principally the Canton, MA facility.

The  Other  column  represents  the  expenses  incurred  during  the  period  of
remodeling the Hills stores (for example,  pre-opening  expenses incurred during
the conversion or "dark" period) as well as certain other expenses.

The unique circumstances under which Hills operations were conducted through the
thirteen  and  thirty-nine  weeks  ended  October  30,  1999  distort any direct
comparison of the  principal  components  of Ames  consolidated  results for the
thirteen and  thirty-nine  weeks ended October 28, 2000 and October 30, 1999. In
the discussion  that follows,  the Ames net sales;  leased  department and other
income; gross margin; and selling,  general and administrative  expenses for the
thirteen and  thirty-nine  weeks ended October 28, 2000 are compared to the Ames
results for the thirteen and thirty-nine weeks ended October 30, 1999, exclusive
of the Hills results and other  expenses.  The  comparison of  depreciation  and
amortization expense and interest and debt expense is on a consolidated basis.

Ames' net sales  increased 4.2% during the third quarter of 2000 compared to the
third quarter of 1999. Ames' net sales for the thirty-nine  weeks ending October
28, 2000  increased  20.2% compared to the  thirty-nine  weeks ended October 30,
1999. Both increases are primarily the result of the inclusion of all 151 of the
converted  Hills  stores in the Ames store base for the  periods in fiscal  2000
compared  to 105  stores  for the entire  third  quarter  in fiscal  1999 and an
additional 46 stores for a portion of the quarter. These increases are partially
offset by decreases in comparable  store sales of 2.6% and 1.6% for the thirteen
and thirty-nine weeks ended October 28, 2000.

Leased  department and other income  increased $4.5 million and $7.7 million for
the thirteen and  thirty-nine  weeks ended October 28, 2000 compared to the same
period in 1999. The increase is primarily  attributable  to the inclusion of all
151 Hills stores as  previously  discussed  and the  inclusion of a $2.8 million
gain in the third quarter on the disposal of a store lease.

                                   Page - 11
<PAGE>

Gross margin as a percentage  of sales  declined  from 27.7% to 25.1% during the
third quarter and from 28.3% to 26.7% for the  year-to-date  period  compared to
the same period in 1999. The decrease is the result of increased promotional and
clearance  markdowns as well as a lower markup on sales resulting from increased
logistical costs and changes in merchandise mix.

Selling,  general and  administrative  expenses  increased by $34.5  million and
$179.2  million for the thirteen and  thirty-nine  weeks ended October 28, 2000,
compared to the same period in 1999,  primarily as a result of the expanded Ames
store  base.  Excluding  the  pre-opening  expenses  included in the fiscal 2000
selling, general and administrative expenses,  expenses as a percentage of sales
increased  from  25.7%  to 27.4%  and  26.5% to 28.0%  for  those  periods.  The
percentage increase was primarily a result of lower than expected sales.

Depreciation  and amortization  expense  increased $1.7 million and $6.0 million
for the thirteen and thirty-nine  weeks ended October 28, 2000,  compared to the
same  periods  in  1999,  primarily  as  a  result  of  additional  depreciation
associated  with the remodeling  expenditures  incurred during the conversion of
the former Hills stores.

The  increase in  interest  expense of $6.4  million  and $21.6  million for the
thirteen and  thirty-nine  weeks ended  October 28,  2000,  compared to the same
periods in 1999, is mainly  attributable  to a higher level of borrowings  under
our revolving  credit facility as well as interest  expense  associated with the
Ames senior notes issued in April 1999.

Our estimated  annual effective income tax rate for each year was applied to the
loss  before  income  taxes for each  period to  compute a  non-cash  income tax
benefit.  The  income  tax  benefits  are  included  in  current  assets  in the
consolidated  condensed  balance  sheet as of October  28,  2000 and October 30,
1999.

Liquidity and Capital Resources
-------------------------------

Merchandise  inventories increased 25.8% from January 29, 2000 due to a seasonal
merchandise  build-up.  Merchandise  inventories decreased 7.2% from October 30,
1999 while the number of open  stores  increased  by a net of  twenty-four.  The
decrease was primarily a result of inventory control initiatives.

Trade accounts payable  increased 29.3% from January 29, 2000 and decreased 3.1%
from October 30, 1999. The increase from the beginning of the year is due to the
holiday season inventory buildup. The decrease from the same period last year is
primarily  a result  of  efforts  to  control  merchandise  inventory  levels as
previously discussed.

Federal  income tax law allows  taxpayers,  including  corporations,  to use net
operating  losses in future years to reduce taxable income ("net  operating loss
carryovers").  Our net operating  loss  carryovers  remaining  after fiscal 1999
should  offset  income on which  taxes  would  otherwise  be payable in the next
several years, subject to any limitations imposed by federal income tax law.

Purchases of property and equipment for the thirteen and thirty-nine weeks ended
October 28, 2000 totaled $33.8 million and $117.4  million,  respectively.  Such
purchases  for the  balance of the year are  expected  to be  approximately  $25
million.

Long-term  debt as of October 28, 2000  consisted of  borrowings  under our bank
credit  facility of $575.7  million,  $200.0  million of the Ames  senior  notes
issued in April  1999 and $44.4  million  of the Hills  senior  notes.  The Ames
senior  notes and the Hills  senior  notes  are due  April  2006 and July  2003,
respectively.

Sources of liquidity
--------------------

Our principal sources of operating funds are our bank credit facility, cash from
operations  and cash on hand. We have a bank credit  facility  revolving line of
credit  that  provided  up to $705  million  during the period from July 1, 2000
through  November  30, 2000 and,  at all other  times,  provides  for up to $650
million.  Borrowings under the bank credit facility are secured by substantially
all of our assets.  The credit facility  expires on June 30, 2002. Our borrowing
rates for the credit facility are based on either the London  Interbank  Offered
Rate or a reference  rate announced by Bank of America,  San Francisco,  and may
include an additional  percentage margin added to both. During the quarter ended
October  28,  2000,  our  borrowings  increased  under the  credit  facility  by
approximately $67.3 million. The bank credit facility was amended on November 8,
2000 to modify our minimum fixed charge coverage ratio covenant  requirement and
permit  the  restructuring   charges  associated  with  the  closing  of  up  to
thirty-three  stores.  Any  non-compliance  event  prior to November 8, 2000 was
waived and covenants  were amended.  The peak  borrowing  level under the credit
facility during the quarter was $611.1 million. We believe the company will have
sufficient sources of cash to meet our financial obligations for the foreseeable
future.

                                   Page - 12
<PAGE>

Lease Commitments
-----------------

We are committed  under long-term  leases for various retail stores,  warehouses
and  equipment  expiring at various  dates  through  2026 with  varying  renewal
options and  escalating  rent  clauses.  Some leases are  classified  as capital
leases in accordance with generally accepted accounting principles. We generally
pay for real estate taxes, insurance, and specified maintenance costs under real
property  leases.  Most leases also provide for  contingent  rent  payments,  in
addition to fixed lease  payments,  based on a percentage  of sales in excess of
specified amounts.

Subsequent Events
-----------------

     On November 9, 2000, we announced the planned closing of thirty-two stores.
All but one of the stores are  under-performing  stores  that we acquired in the
Hills  acquisition  in December 1998. The other store will be closed as a result
of the expiration of its lease. We estimate a restructuring charge of up to $140
million  will be taken in the fourth  quarter of this  year.  The  restructuring
charge will include provisions for inventory impairment costs, severance related
costs,  lease  liability  payments  over a number  of  years,  asset  impairment
write-downs and other related charges.

In addition, we announced plans to curtail purchases of property,  equipment and
other  capital items in fiscal 2001 and to initiate  programs to further  reduce
selling, general and administrative expenses.

Note Concerning Forward-looking Statements
------------------------------------------

Statements other than those based on historical facts which address  activities,
events, or developments that we expect or anticipate may occur in the future are
forward-looking  statements  which  are  based  upon  a  number  of  assumptions
concerning further conditions that may ultimately prove to be inaccurate. Actual
events and results may differ  materially from anticipated  results described in
any forward-looking  statements.  Our ability to achieve such results is subject
to risks and  uncertainties  which may  include,  but are not  limited  to,  the
competitive  environment  in which the  Company  operates,  the  ability  of the
Company to maintain  and improve its sales and gross margins,  regional  weather
conditions, and the general economic conditions in the geographic areas in which
the Company operates.  Consequently,  these cautionary statements qualify all of
the forward-looking statements and there can be no assurance that the results or
developments  anticipated  by us will be  realized  or that  they  will have the
expected effects on Ames or its business or operations.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk
-------     ----------------------------------------------------------

We have exposure to interest rate volatility primarily relating to interest rate
changes  applicable  to revolving  loans under our bank credit  facility.  These
loans bear interest at rates which vary with changes in (i) the London Interbank
Offered  Rate (LIBOR) or (ii) a rate of interest  announced  publicly by Bank of
America, N.A.

We do not speculate on the future direction of interest rates. As of October 28,
2000,  approximately $575.7 million of our debt bore interest at variable rates.
We believe that the effect, if any, of reasonably  possible near term changes in
interest rates on our consolidated financial position,  results of operations or
cash flows would not be significant.

                                   Page - 13
<PAGE>

                                     PART II
                                OTHER INFORMATION


Item 1.           Legal Proceedings.

                  Reference can be made to Item 3 - Legal  Proceedings  included
                  in the Company's most recent Form 10-K for various  litigation
                  involving  the  Company,  for  which  there  were no  material
                  changes since the filing date of the Form 10-K,  except as set
                  forth in Note 8 to the above Consolidated  Condensed Financial
                  Statements.

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

                  There were no matters  submitted to a vote of security holders
                  during the third quarter  ended October 28, 2000,  through the
                  solicitation of proxies or otherwise.

Item 5.           Other Information.

                  On October 23,  2000,  the Board of  Directors  of the Company
                  adopted an amendment to the Amended and Restated Bylaws of the
                  Company which provides the Board of Directors with the ability
                  to act  without  a  meeting  through  the  use  of  electronic
                  transmission. A copy of the Amended and Restated Bylaws of the
                  Company, as amended, is filed as Exhibit 3 to this Form 10-Q.

                  As of  November  8,  2000,  the  Company  amended  the  Credit
                  Agreement (the "Eighth Amendment") with Bank of America, N.A.,
                  as agent,  and a syndicate  consisting of nineteen other banks
                  and  financial  institutions,  a copy of  which is filed as an
                  Exhibit hereto.

                  On November 9, 2000, the Company announced the planned closing
                  of thirty-two stores and its intention to record an associated
                  restructuring charge of up to $140 million.

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

(a)      Index to Exhibits
<TABLE>
                <S>                   <C>                                                                 <C>
                 Exhibit No.          Exhibit                                                             Page No.
                 -----------          -------                                                             --------

                 3                    Form of Amended and Restated By-Laws of Ames Department                     16
                                      Stores, Inc., as amended on October 23, 2000.

                 10                   Eighth Amendment and Waiver, dated as of November 8, 2000,                  27
                                      among  certain  lenders,  Bank of America,
                                      N.A.,  as  agent,  and Ames  Merchandising
                                      Corporation,   and  other  Credit  Parties
                                      named  in  and  signatory  to  the  Second
                                      Amended and Restated Credit Agreement.

                 11                   Schedule of computation of basic and diluted net income (loss)              38
                                      per share

                 12                   Ratio of Earnings to Fixed Charges                                          39
</TABLE>


(b)      Reports on Form 8-K

                  There were no  reports  on Form 8-K filed with the  Securities
                  and Exchange Commission during the third quarter.

                                   Page - 14
<PAGE>






                                   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.

<TABLE>

                                                                            AMES DEPARTMENT STORES, INC.
                                                                                    (Registrant)
<S>                  <C>                                         <C>

Dated:               December 11, 2000                            /s/ Joseph R. Ettore
                                                                 ----------------------------------------------------
                                                                 Joseph R. Ettore, Chairman, Chief Executive
                                                                 Officer, and Director

Dated:               December 11, 2000                            /s/ Rolando de Aguiar
                                                                 ----------------------------------------------------
                                                                 Rolando de Aguiar, Senior Executive Vice
                                                                 President, Chief Financial and Administrative
                                                                 Officer
</TABLE>

                                   Page - 15
<PAGE>