Duckwall-Alco Stores 10-K 2005
Documents found in this filing:
For the fiscal year ended January 30, 2005
DUCKWALL-ALCO STORES, INC.
(Exact name of registrant as specified in its charter)
pursuant to Section 12(b) of the Act:
pursuant to Section 12(g) of the Act:
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the 3,631,927 shares of Common Stock, par value $.0001 per share, of the registrant held by non-affiliates of the registrant is $60,181,030 on August 2, 2004, based on a closing sale price of $16.57. As of April 8, 2005, there were 4,476,232 shares of Common Stock outstanding.
Documents incorporated by reference: portions of the Registrants Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.
ITEM 1. BUSINESS
Duckwall-ALCO Stores, Inc., (the Company or Registrant), was founded as a general merchandising operation in 1901 in Abilene, Kansas by A. L. Duckwall. From its founding until 1968, the Company conducted its retail operations as small variety or dime stores. In 1968, the Company followed an emerging trend to discount retailing when it opened its first ALCO discount store. In 1991, the Company adopted its current business strategy that focuses on under-served markets that have no direct competition from another full-line discount retailer. This strategy includes opening either an ALCO discount store or a Duckwall variety store, depending upon the market size. As of January 30, 2005, the Company operates 266 retail stores located in the central United States, consisting of 186 ALCO retail discount stores and 80 Duckwall variety stores.
The Company was incorporated on July 2, 1915 under the laws of Kansas. The Companys executive offices are located at 401 Cottage Street, Abilene, Kansas 67410-2832, and its telephone number is (785) 263-3350.
The Company is a regional retailer operating 266 stores in 21 states in the central United States. The Companys strategy is to target smaller markets not served by other regional or national full-line retail discount chains and to provide the most convenient access to retail shopping within each market. The Companys ALCO discount stores offer a full line of merchandise consisting of approximately 35,000 items, including automotive, candy, crafts, domestics, electronics, fabrics, furniture, hardware, health and beauty aids, housewares, jewelry, ladies, mens and childrens apparel and shoes, pre-recorded music and video, sporting goods, seasonal items, stationery and toys. The Companys smaller Duckwall variety stores offer a more limited selection of similar merchandise.
Of the Companys 186 ALCO discount stores, 151 stores are located in communities that do not have another full-line discounter. The Company intends to continue its strategy of opening ALCO stores in markets that do not have other full-line discount retailers and where the opening of an ALCO store is likely to be preemptive to the entry by other full-line discount competitors in the market. The ALCO discount stores account for 92% of the Companys net sales. The current ALCO store averages 20,600 square feet of selling space. However, the Companys store expansion program is primarily directed toward opening stores with a design prototype of approximately 18,000 square feet of selling space (Class 18 Stores). Based on the Companys experience, the design of the Class 18 Stores produces a greater return on investment for newly opened stores.
The Companys 80 Duckwall variety stores are primarily located in communities of less than 2,500 residents and are designed to act as the primary convenience retailer in these smaller communities. These stores, which account for the remaining 8% of the Companys net sales, average approximately 5,500 square feet of selling space and offer approximately 12,000 items. Operating Duckwall stores offer the Company the opportunity to serve the needs of a community that would not support a full-line retail discount store with a reduced investment per store.
All of the Companys discount and variety stores are serviced by the Companys 352,000 square foot distribution center in Abilene, Kansas.
The Companys focus over the last three fiscal years has been to implement new merchandising and marketing initiatives in an effort to increase customer traffic and same-store sales. One of the initiatives was a remodel program. During Fiscal 2005, the Company remodeled 16 stores. During Fiscal 2004 and fiscal 2003, the Company remodeled 23 stores and 32 stores, respectively. These stores feature an improved merchandise mix, with greater emphasis on everyday low values that are highlighted through a new and more dominant sign program. The Company has also opened a net total of 22 new ALCO stores during the last four fiscal years that incorporate the enhanced merchandising concepts of the remodeled stores, bringing the total number of stores with this new format to 125 at the end of Fiscal 2005. The Company plans to open approximately eight to ten ALCO stores in fiscal 2006.
To reduce the number of unproductive stores, the Company is in the process of closing 20 stores. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation-Subsequent Events. The Company continues to close non-performing stores in competitive markets, which slows the growth of overall store count.
The Company expects to open approximately eight to ten ALCO stores during fiscal year 2006. The Companys strategy regarding store development is to increase sales and profitability at existing stores by continually refining the merchandising mix and improving operating efficiencies, and through new store openings in the Companys targeted base of under-served markets in the central United States. The following table summarizes the Companys growth during the past three fiscal years:
As of January 30, 2005, the Company owned 12 ALCO and one Duckwall location, and leased 174 ALCO and 79 Duckwall store locations. The Companys present intention is to lease all new stores. The Company may own some of the ALCO locations, but will generally lease these store locations. The estimated investment to open a new Class 18 ALCO Store that is leased is approximately $625,000 for the equipment and inventory.
As discussed above, before entering a new market with an ALCO or Duckwall store, the Company analyzes and screens available competitive, market, and demographic data to evaluate the suitability and attractiveness of the potential market. The screening process also involves a visit by officers of the Company to more subjectively evaluate the potential new site. The Company is in the site selection and/or procurement process in approximately 29 of those markets, each of which has been approved by the Company for a new store location.
Store Environment and Merchandising
The Company manages its stores to attractively and conveniently display a full line of merchandise within the confines of the stores available square footage. Corporate merchandising direction is provided to each ALCO and Duckwall store to ensure a consistent company-wide store presentation. To facilitate long-term merchandising planning, the Company divides its merchandise into three core categories driven by the Companys customer profile: primary, secondary, and convenience. The primary core receives managements primary focus, with a wide assortment of merchandise being placed in the most accessible locations within the stores and receiving significant promotional consideration. The secondary core consists of categories of merchandise for which the Company maintains a strong assortment that is easily and readily identifiable by its customers. The convenience core consists of categories of merchandise for which ALCO will maintain convenient (but limited) assortments, focusing on key items that are in keeping with customers expectations for a discount store. Secondary and convenience cores include merchandise that the Company feels is important to carry, as the target customer expects to find them within a discount store and they ensure a high level of customer traffic. The Company continually evaluates and ranks all product lines, shifting product classifications when necessary to reflect the changing demand for products.
Procurement and merchandising of products is directed by a staff of three Vice President - Divisional Merchandise Managers who are each responsible for specific product categories. The Company employs 19 merchandise buyers and five assistant buyers who each report to a Vice President - Divisional Merchandise Manager. Buyers are assisted by a management information system that provides them with current price and volume information by SKU, thus allowing them to react quickly with buying and pricing adjustments dictated by customer buying patterns.
The Company purchases its merchandise from approximately 2,000 suppliers. The Company generally does not utilize long-term supply contracts. Only one supplier accounted for more than 5% of the Companys total purchases in Fiscal 2005 and competing brand name and private label products are available from other suppliers at competitive prices. The Company believes that its relationships with its suppliers are good and that the loss of any one or more of its suppliers would not have a material adverse effect on the Company.
Merchandise pricing is done at the corporate level and is essentially the same for all of the ALCO stores, regardless of the level of local competition. This pricing strategy, with its promotional activities, is designed to bring consistent value to the customer. In fiscal 2006, promotions on various items will be offered approximately 34 times through advertising circulars. Even though the same general pricing and advertising activities are carried out for all ALCO stores, the impact of such activities is significantly different depending upon the level of competition in the market.
Distribution and Transportation
The Company operates a 352,000 square foot distribution center in Abilene, Kansas, from which it services each of the 186 ALCO discount stores and 80 Duckwall variety stores. This distribution center is responsible for distributing approximately 80% of the Companys merchandise, with the balance being delivered directly to the Companys stores by its vendors. This distribution center ships to each of the Companys ALCO stores once a week, primarily through irregular route common carriers. The Company also utilizes its wholly owned subsidiary, SPD Truck Line, Inc. (the Subsidiary) for delivery to the stores. The distribution center is fully integrated into the Companys management information system, allowing the Company to utilize such cost cutting efficiencies as perpetual inventories, safety programs, and employee productivity software.
The Subsidiary acts as a contract carrier for the Company in transporting goods to and from its stores. The Subsidiary uses five tractors and leases 23 trailers for such deliveries.
Management Information Systems
The Company has committed significant resources to the purchase and application of available computer hardware and software to its discount retailing operations with the intent to lower costs, improve customer service and enhance general business planning.
In general, the Companys merchandising systems are designed to integrate the key retailing functions of seasonal merchandise planning, purchase order management, merchandise distribution, sales information and inventory maintenance and replenishment. All of the Companys ALCO discount stores have POS computer terminals that record certain sales data in a format that can be transmitted nightly to the Companys data processing facility where it is used to produce daily and weekly management reports. During the last three fiscal years, the Company has devoted resources to development of systems that have improved information available to management and improved specific operational efficiencies.
Approximately 2,000 of the Companys merchandise suppliers currently participate in the Companys electronic data interchange (EDI) system, which makes it possible for the Company to place purchase orders electronically. A number of these suppliers are able to utilize additional EDI functions, including transmitting invoices and advance shipment notices to the Company and receiving sales history from the Company.
As of January 30, 2005, the Company operated 186 ALCO stores in 21 states located in smaller communities in the central United States. Of the ALCO stores, 12 are owned by the Company and 174 are leased by the Company. The ALCO stores average approximately 20,600 square feet of selling space, with an additional 5,000 square feet utilized for merchandise processing, temporary storage and administration. The Company also operates 80 Duckwall stores in 10 states, one of which is owned by the Company, and 79 of which are leased by the Company. The geographic distribution of the Companys stores is as follows:
Duckwall Stores (80)
ALCO Stores (186)
While the discount retail business in general is highly competitive, the Companys business strategy is to locate its ALCO discount stores in smaller markets where there is no direct competition with larger national or regional full-line discount chains, and where it is believed no such competition is likely to develop. Accordingly, the Companys primary method of competing is to offer its customers a conveniently located store with a wide range of merchandise at discount prices in a primary trade area
population under 16,000 that does not have a large national or regional full-line discount store. The Company believes that trade area size is a significant deterrent to larger national and regional full-line discount chains. Duckwall variety stores are located in very small markets, and like the ALCO stores, emphasize the convenience of location to the primary customer base.
In the discount retail business in general, price, merchandise selection, merchandise quality, advertising and customer service are all important aspects of competing. The Company encounters direct competition with national full-line discount stores in 27 of its ALCO markets, and another 8 ALCO stores are in direct competition with regional full-line discount stores. The competing regional and national full-line discount retailers are generally larger than the Company and the stores of such competitors in the Companys markets are substantially larger, have a somewhat wider selection of merchandise and are very price competitive in some lines of merchandise. Where there are no national or regional full-line discount retail stores directly competing with the Companys ALCO stores, the Companys customers nevertheless shop at retail discount stores and other retailers located in regional trade centers, and to that extent the Company competes with such discount stores and retailers. The Company also competes for retail sales with mail order companies, specialty retailers, mass merchandisers, dollar stores, manufacturers outlets, and the internet. In the 138 markets in which the Company operates a Class 18 Store, only three markets have direct competition from a national or regional full-line discount retailer. The Company competes with dollar stores in approximately three-fourths of its ALCO stores and approximately forty percent of its Duckwall stores.
Executive Officers of the Company
The following table sets forth the names, ages, positions and certain other information regarding the executive officers of the Company as of April 29, 2005.
Except as set forth below, all of the executive officers have been associated with the Company in their present position or other capacity for more than the past five years. There are no family relationships among the executive officers of the Company.
Bruce C. Dale has served as President and Chief Executive Officer of the Company since March 28, 2005. Mr. Dale has approximately 35 years of experience in the retail industry. Mr. Dale was with Michaels Stores for ten years, where he served for eight of those years as president of Aaron Brothers Art & Framing.
James E. Schoenbeck has served as Vice President of Store Operations and Advertising since 1988. From 1979 to 1988, Mr. Schoenbeck served as the Vice President of Administration. Mr. Schoenbeck has approximately 30 years of experience in the retail industry.
Richard A. Mansfield has served as Vice President Finance and Treasurer of the Company since May 1997. For the two years prior to that he served as Chief Financial Officer of Country General Stores, Inc., a regional chain of specialty farm and ranch stores located in the Midwest. For the three years prior to that he served as Chief Financial Officer of American Laminates, Inc. and Relco, Inc. Mr. Mansfield has approximately 24 years of experience in the retail industry.
Tom L. Canfield, Jr. has served as Vice President Distribution and Administration since 1992. From 1973 to 1992, Mr. Canfield served in various capacities with the Company. Mr. Canfield has approximately 32 years of experience in the retail industry.
As of January 30, 2005, the Company employed approximately 4,900 people. Of these employees, approximately 500 were employed in the general office and distribution center in Abilene, 3,900 in the ALCO stores and 500 in the Duckwall stores. Additional employees are hired on a seasonal basis, most of whom are sales personnel. There is no collective bargaining agent for any of the Companys employees. The Company considers its relations with its employees to be excellent.
The Company is subject to numerous federal, state and local government laws and regulations, including those relating to the development, construction and operation of the Companys stores. The Company is also subject to laws governing its relationship with employees, including minimum wage requirements, laws and regulations relating to overtime, working and safety conditions, and citizenship requirements. Material increases in the cost of compliance with any applicable law or regulation and similar matters could materially and adversely affect the Company.
In 1996, Congress enacted The Small Business Job Protection Act of 1996 (the Act), raising the hourly minimum wage from $4.75 to $5.15 effective as of September 1, 1997. The majority of the Companys store employees were paid hourly wages below these increased minimum wage rates. As a result, the Act increased the Companys payroll expense. Additional increases in the minimum wage could have a material impact on the results of the Companys operations if it is unable to pass those increased costs on to customers, or the Company cant find ways to reduce SG&A expenses in other areas, or if sales are not increasing at a rate large enough to offset the impact.
Quarterly results of operations have historically fluctuated as a result of retail consumers purchasing patterns, with the highest quarter in terms of sales and profitability being the fourth quarter. Quarterly results of operations will likely continue to fluctuate significantly as a result of such patterns and may fluctuate due to the timing of new store openings.
Similar to other retail businesses, the Companys operations may be affected adversely by general economic conditions and events which result in reduced consumer spending in the markets served by its stores. Also, smaller communities where the Companys stores are located may be dependent upon a few large employers or may be significantly affected by economic conditions in the industry upon which the community relies for its economic viability, such as the agricultural industry. This may make the Companys stores more vulnerable to a downturn in a particular segment of the economy than the Companys competitors, which operate in markets which are larger metropolitan areas where the local economy is more diverse.
Dependence on Officers
The development of the Companys business is largely dependent on the efforts of its current management team headed by Bruce C. Dale and four other executive officers, as well as 11 other officers. The loss of the services of one or more of these officers could have a material adverse effect on the Company.
ITEM 2. PROPERTIES.
The Company owns facilities in Abilene, Kansas that consist of a general office (approximately 35,000 square feet), the Distribution Center (approximately 352,000 square feet) and additional warehouse space adjacent to the general office.
Twelve of the ALCO stores and one of the Duckwall stores operate in buildings owned by the Company. The remainder of the stores operate in properties leased by the Company. As of January 30, 2005, such ALCO leases account for approximately 4,400,000 square feet of lease space, which expire as follows: approximately 409,952 square feet (9.3%) expire between January 30, 2005 and January 29, 2006; approximately 515,068 square feet (11.7%) expire between January 30, 2006 and January 28, 2007; and approximately 649,383 square feet (14.7%) expire between January 29, 2007 and January 28, 2008. The remainder of the leases expire through 2021. All Duckwall store leases have terms remaining of thirty eight months or less. The majority of the leases that are about to expire have renewal options with lease terms that are the same as the existing lease.
The Company is in the process of closing 20 stores. Two of the closing stores are owned, and the remaining 18 stores comprise approximately 202,000 square feet of leased space.
ITEM 3. LEGAL PROCEEDINGS.
Other than routine litigation from time to time in the ordinary course of business, the Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders of the Company during the fourth quarter of the fiscal year ended January 30, 2005.
The Common Stock of the Company is quoted on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol DUCK. The following table sets forth the range of high and low bid information for the Companys Common Stock for each quarter of Fiscal 2005 and 2004.
As of April 8, 2005, there were approximately 1,249 holders of record of the Common Stock of the Company. The Company has not paid cash dividends on its Common Stock during the last five fiscal years. The terms of the Loan and Security Agreement, dated as of April 15, 2002, between the Company and Fleet Retail Finance Inc. allow for the payment of dividends unless certain loan covenants are triggered, which are not expected to occur during fiscal 2006.
Equity Compensation Plan Information
No Recent Dividend Payments; Restrictions on Payment of Dividends
The Company has not paid a cash dividend on the Common Stock for more than five years, and it has no plans to commence paying cash dividends on the Common Stock. The Companys revolving loan credit facility currently allows the payment of cash dividends unless certain loan covenants are triggered.
ITEM 6. SELECTED FINANCIAL DATA.
CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of the end of, each of the last five fiscal years under the captions Statements of Operations Data and Balance Sheet Data have been derived from the audited consolidated financial statements of the Company. This data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations (Item 7) and the consolidated financial statements, related notes, and other financial information included herein (Item 8).
Operations. The Company is a regional discount retailer operating in 21 states in the central United States, with two business segments, consisting of:
Store counts are as of January 30, 2005. The Companys fiscal year ends on the Sunday closest to January 31. Fiscal 2005, 2004, and 2003 each consisted of 52 weeks. For subsequent information, see Subsequent Events.
As used below, the term competitive market refers to any market in which there is one or more national or regional full-line discount stores located in the primary market served by the Company. The term non-competitive market refers to any market in which there is no national or regional full-line discount store located in the primary market served by the Company. Even in a non-competitive market, the Company faces competition from a variety of sources. See Item 1 Business-Competition.
The Retail Industry. The Companys business is generally a highly competitive business. However, to reduce the competition and improve the Companys performance, the Companys overall business strategy involves identifying, and opening stores in under-served markets that currently have no direct competition from another larger national or regional full-line discount retailer and providing the most convenient access to retail shopping within those markets. A key aspect of this strategy includes placing the Companys stores in markets where the Company believes no such competition is likely to develop. This strategy does not eliminate the competition for the Companys stores as the Companys customers still shop at retail discount stores and other retailers located in regional trade centers. The Company also competes for retail sales with mail order companies, specialty retailers, mass merchandisers, dollar stores, manufacturers outlets, and the internet.
Key Items in Fiscal 2005. Significant financial items during Fiscal 2005 were:
Company Performance Measures. The Company measures itself against a number of financial metrics to assess its performance. The following are the most frequently discussed metrics, and are discussed in more detail under the heading Fiscal 2005 Compared to Fiscal 2004.
Results of Operations. The following table sets forth, for the fiscal years indicated, the components of the Companys consolidated statements of operations expressed as a percentage of net sales:
Critical Accounting Policies
Inventory: As discussed in Note 1(d) to the Consolidated Financial Statements, inventories are stated at the lower of cost or net realizable value with cost determined using the last-in, first-out (LIFO) method. The retail inventory method (RIM) used by the Company is an averaging method that has been widely used in the retail industry. This method calculates a cost to retail ratio that is applied to the retail value of inventory to calculate cost inventory and the resulting gross margin. Use of the RIM method does not eliminate the use of management judgments and estimates, including markdowns and shrinkage, which significantly impact the ending inventory valuation at cost and the resulting gross margins. The Company continually evaluates product categories to determine if markdown action is appropriate, or if a markdown reserve should be established. The Company recognizes that the use of the RIM will result in valuing inventories at lower of cost or market if markdowns are currently taken as a reduction of the retail value of inventories. As of January 30, 2005 and February 1, 2004, the Company had recorded markdowns that had not been taken and which served to reduce inventories to lower of cost or market by approximately $398,000 and $658,000, respectively. Management believes that the RIM provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market.
Property and Equipment: The Companys policy is to capitalize property and equipment if it has a useful life beyond one year. Major improvements are capitalized, while maintenance and repairs, which do not extend the useful life of the asset, are expensed as incurred. The nature and extent of the repair, as well as the relative dollar amount of the repair in relation to the cost of the asset determine whether the expenditure is capitalized or expensed.
Impairment of Long-Lived Assets: The Company considers determination of impairment of long-lived assets as a critical accounting policy because determination as to whether the long-lived assets of a store are impaired and, if impaired, the fair value of such assets requires the use of judgment, particularly as it relates to projecting whether the sum of expected undiscounted future cash flows for the store over an extended period of time will equal or exceed the carrying value of such assets. Management uses the best information available to make the determination; however, actual future cash flows for the store may vary significantly from the cash flows projected in conjunction with the impairment assessment. The potential impact on the financial statements of incorrect judgments regarding impairment of long-lived assets is that a provision for impairment could be needlessly recorded if projected future cash flows for a store are significantly under estimated or a provision for impairment could be deferred until later determined necessary in a future period if initial projected cash flows are over estimated. See Note 1(l) of Notes to Consolidated Financial Statements for a description of the Companys accounting policy for impairment of long-lived assets.
Insurance: The Company considers general insurance cost a critical accounting policy. Starting with the insurance policy year of June 2003, the Company has a $100,000 deductible and is essentially self insured for workers compensation claims. The previous deductible was $2,500. For general liability insurance, the deductible was increased from $5,000 to $50,000. Due
to the fact that it takes more than one year to determine the actual costs under these plans, these costs are estimated based on the Companys historical loss experience and estimates from the insurance carriers and consultants.
Income Taxes: The Companys tax provision and establishment of reserves for potential tax liabilities involves the use of estimates and professional judgment. The Company has identified exposures for which they have established a reserve, such as differences in interpretation of tax laws at the federal, state, and local units of government. During fiscal year 2004, the Company, based on current information, analyzed its income tax liability account and determined that it was overaccrued with respect to certain matters arising in prior years. The Company reversed such overaccrual of approximately $618,000 during fiscal 2004.
Leases: The Company considers it method of accounting for rent expense to be a critical accounting policy. During Fiscal 2005, the Company determined that its methods of accounting for rent were not in accordance with the SECs recent clarification of what is acceptable under generally accepted accounting principles, even though those methods of accounting were in line with common industry practices. The Company had previously started recording rent expense at the time the store opened, and is now modifying its recognition of rent expense to include the period prior to opening using a straight-line method. Additionally, the Company determined that in those instances where the lease includes a rent escalation clause, that the rent was not being accounted for in accordance with the recent SEC clarification. The Company is now modifying its practices to handle these in accordance with the SECs recent clarification. The Company reviewed the impact of these changes on prior years and determined that it is not material, so prior year financial statements will not be restated. However, it has recorded a one time after tax charge of $150,000, or $0.03 per diluted share in the fourth quarter of fiscal year 2005 to reflect a cumulative catch up adjustment.
Fiscal 2005 Compared to Fiscal 2004
Fiscal 2005 was a disappointing year in every category of the Companys key performance measures. Company revenue goals were not met, and same store sales performance was unacceptable. Fiscal year 2005 included a number of one-time costs and markdowns associated with the implementation of programs focused on improving long-term performance. The Company has outlined a number of initiatives that address the poor performance of each of the key performance measures, with the goal of improving performance in each area over the long term.
Net sales for fiscal 2005 increased $9.3 million or 2.2% to $433.9 million compared to $424.5 million for fiscal 2004. During fiscal 2005, the Company opened 6 ALCO and 3 Duckwall stores, all but one of which were in new non-competitive markets. Four ALCO and three Duckwall stores were closed, resulting in a year end total of 266 stores. The increase in net sales was due primarily to new stores opened over the last two fiscal years. Net sales for all stores open the full year in both fiscal 2005 and 2004 (same stores), increased by $512,000 or 0.1% in fiscal 2005 compared to fiscal 2004. Comparable store sales of the ALCO stores in non-competitive markets increased 0.6%. Sales in the Duckwall division were comparatively strong, with a 2.5% comparable store increase.
Gross margin for fiscal 2005 increased $2.1 million, or 1.5%, to $142.9 million compared to $140.7 million in fiscal 2004. As a percentage of net sales, gross margin decreased to 32.9% in fiscal 2005 compared to 33.2% in fiscal 2004. This decrease in the gross margin percentage was attributable to a less favorable mix of sales and higher markdowns, partially offset by lower shrink. The gross margin percentage was also unfavorably impacted by higher transportation costs, as a result of higher fuel prices. The shift in sales mix partly reflects the Companys decision to expand the offerings of consumable products within its stores. While consumables generally carry a lower margin than most other store merchandise, the Companys management believes the decision to place greater emphasis upon consumables had a positive impact upon sales and profits during fiscal 2005. The higher markdowns were primarily in the fourth quarter, and included those resulting from the Companys efforts to reduce its seasonal inventory carryover.
Selling, general and administrative expenses increased $5.0 million or 4.1% to $128.4 million in fiscal 2005 compared to $123.3 million in fiscal 2004. As a percentage of net sales, selling, general and administrative expenses were 29.6% in fiscal 2005 and 29.0% in fiscal 2004, due to significantly higher general and medical insurance costs, and the one-time costs of a business advisory service, the abandonment of a technology asset, costs associated with the retirement of the Companys President, and a lease accounting charge in the fourth quarter of the fiscal year. The largest impact on SG&A was insurance, where rising costs added $2.2 million in additional expense during Fiscal 2005. This equates to an additional 0.5% of sales.
Depreciation and amortization expense decreased $433,000 or 6.1% to $6.7 million in fiscal 2005 compared to $7.1 million in fiscal 2004. The decrease in depreciation and amortization expense was attributable to store fixtures and equipment becoming fully depreciated in the current fiscal year on a large number of ALCO stores that were opened in fiscal years 1996 and 1997.
Income from continuing operations decreased $2.5 million, or 24.0%, to $7.8 million in fiscal 2005 compared to $10.3 million in fiscal 2004. The decrease was a result of SG&A expenses increasing by more than the amount of the Gross Profit dollars increase. Income from continuing operations as a percentage of net sales was 1.8% in fiscal 2005 compared to 2.5% in fiscal 2004.
Interest expense decreased $156,000, or 11.3%, in fiscal 2005 compared to fiscal 2004. The reduction in interest expense was due to lower amounts borrowed on the revolver.
Income taxes were $2.2 million in fiscal 2005 compared to $2.7 million in fiscal 2004. The Companys effective tax rate was 33.8% in fiscal 2005 and 30.3% in fiscal 2004. The rate was lower in fiscal 2004 because, during the fourth quarter of fiscal 2004, the Company, based on current information, analyzed its income tax liability account and determined that it was over-accrued with respect to certain matters arising in prior years. The Company reversed such over-accrual of $618,000 during 2004. Approximately $200,000 of this adjustment was for previously unidentified state tax credits relating to prior years, which the Company became aware of in the fourth quarter of fiscal 2004.
Loss from discontinued operations, net of income taxes was $430,000 in fiscal 2005, compared to income of $313,000 in fiscal 2004. In fiscal 2004, a company owned store was closed and the building was sold. The gain on sale of the building in the amount of $406,000 was accounted for as part of discontinued operations. The gain on sale more than offset the losses from the operations of the eight stores closed in fiscal 2004, resulting in an income from discontinued operations in the amount of $313,000 net of taxes.
Fiscal 2004 Compared to Fiscal 2003
Net sales for fiscal 2004 increased $30.3 million or 7.7% to $424.5 million compared to $394.2 million for fiscal 2003. During fiscal 2004, the Company opened eight ALCO stores, seven of which were in new non-competitive markets. Two ALCO and six Duckwall stores were closed, resulting in a year end total of 264 stores. The increase in net sales was due to new stores opened over the last two fiscal years. Net sales for all stores open the full year in both fiscal 2004 and 2003 (same stores), increased by $3.9 million or 1.0% in fiscal 2004 compared to fiscal 2003. Comparable store sales of the ALCO stores in non-competitive markets increased 1.7%. Sales in the Duckwall division were relatively strong, with a 5.6% comparable store increase.
Gross margin for fiscal 2004 increased $9.2 million, or 7.0%, to $140.7 million compared to $131.5 million in fiscal 2003. As a percentage of net sales, gross margin decreased to 33.2% in fiscal 2004 compared to 33.4% in fiscal 2003. The decrease in the gross margin percentage was attributable to a less favorable mix of sales and higher shrinkage costs, partially offset by slightly lower markdowns. The shift in sales mix partly reflects the Companys decision to expand the offerings of consumable products within its stores. While consumables generally carry a lower margin than most other store merchandise, the Companys management believes the decision to place greater emphasis upon consumables had a positive impact upon sales and profits during fiscal 2004.
Selling, general and administrative expenses increased $8.5 million or 7.4% to $123.3 million in fiscal 2004 compared to $114.8 million in fiscal 2003. As a percentage of net sales, selling, general and administrative expenses were 29.0% in fiscal 2004 and 29.1% in fiscal 2003, primarily due to lower distribution center, advertising and remodeling expenses, which were partially offset by higher general insurance and store opening costs.
Depreciation and amortization expense increased $415,000 or 6.2% to $7.1 million in fiscal 2004 compared to $6.7 million in fiscal 2003. The increase in depreciation and amortization expense was attributable to capital expenditures of $4.3 million and $7.6 million in fiscal 2004 and 2003, respectively.
Income from continuing operations increased $303,000, or 3.1%, to $10.3 million in fiscal 2004 compared to $10.0 million in fiscal 2003. Income from continuing operations as a percentage of net sales was 2.5% in fiscal 2004 compared to 2.6% in fiscal 2003.
Interest expense decreased $223,000, or 13.9%, in fiscal 2004 compared to fiscal 2003. The reduction in interest expense was due to lower interest rates and lower amounts borrowed on the revolver.
Income taxes were $2.7 million in fiscal 2004 compared to $3.1 million in fiscal 2003. The Companys effective tax rate was 30.3% in fiscal 2004 and 36.7% in fiscal 2003. The rate was lower in fiscal 2004 because, during the fourth quarter of fiscal 2004, the Company, based on current information, analyzed its income tax liability account and determined that it was over-accrued with respect to certain matters arising in prior years. The Company reversed such over-accrual of $618,000 during 2004. Approximately $200,000 of this adjustment was for previously unidentified state tax credits relating to prior years, which the Company became aware of in the fourth quarter of fiscal 2004.
Income from discontinued operations, net of income taxes was $313,000 in fiscal 2004, compared to $57,000 in fiscal 2003. In fiscal 2004, a company owned store was closed and the building was sold. The gain on sale of the building in the amount of $406,000 was accounted for as part of discontinued operations. The gain on sale more than offset the losses from the operations of the eight stores closed in fiscal 2004, resulting in an income from discontinued operations in the amount of $313,000 net of taxes.
Seasonality and Quarterly Results
The following table sets forth the Companys net sales, gross margin, income from operations, and net earnings during each quarter of Fiscal 2005 and 2004.
See Note 10 of Notes to Consolidated Financial Statements for quarterly earnings per share information.
The Companys business is subject to seasonal fluctuations. The Companys highest sales levels occur in the fourth quarter of its fiscal year which includes the Christmas holiday selling season. The Companys results of operations in any one quarter are not necessarily indicative of the results of operations that can be expected for any other quarter or for the full fiscal year. The Companys results of operations may also fluctuate from quarter to quarter as a result of the amount and timing of sales contributed by new stores and the integration of the new stores into the operations of the Company, as well as other factors. The addition of a large number of new stores can, therefore, significantly affect the quarterly results of operations. Also, refer to Impact of Change in Accounting Principle and Note 10 to the Consolidated Financial Statements regarding the impact of the accounting change on quarterly results.
Management does not believe that its merchandising operations have been materially affected by inflation over the past few years. The Company will continue to monitor costs, take advantage of vendor incentive programs, selectively buy from competitive vendors and adjust merchandise prices based on market conditions.
The Companys operating expenses have been impacted by increases in general and medical insurance, as well as competitive pressures in wages in selected markets. See additional discussion of wages in the Government Regulation section.
The increase in the price of oil adversely affects the Companys transportation costs, both on inbound shipments to the Companys distribution center, and on outbound shipments of merchandise to the stores. The Company also believes the higher retail price of gasoline adversely affects the amount of discretionary spending dollars our customers have to spend at our stores.
Liquidity and Capital Resources
At the end of Fiscal 2005, working capital (defined as current assets less current liabilities) was $95.4 million compared to $89.5 million at the end of fiscal 2004 and $93.4 million at the end of fiscal 2003.
The Companys primary sources of funds are cash flow from operations, borrowings under its revolving loan credit facility, vendor trade credit financing and lease financing. In fiscal years 2005 and 2003, the Company completed a sale-leaseback of a number of its owned stores. The proceeds from these transactions amounted to $1.7 million and $1.3 million, in fiscal years 2005 and 2003, respectively. No sale-leaseback transactions were completed in Fiscal 2004.
Cash provided by operating activities aggregated $5.8 million, $16.4 million, and $5.4 million, in Fiscal 2005, 2004 and 2003, respectively. The decrease in cash provided in Fiscal 2005 relative to fiscal 2004 resulted primarily from a decrease in accounts payable. The increase in cash provided in fiscal 2004 relative to fiscal 2003 resulted primarily from a smaller increase in inventory an a larger increase in accounts payable.
The Company uses its revolving loan credit facility and vendor trade credit financing to fund the build up of inventories periodically during the year for its peak selling seasons and to meet other short-term cash requirements. The revolving loan credit facility provides up to $70 million of financing in the form of notes payable and letters of credit. The loan agreement expires in April 2006. The revolving loan note payable and letter of credit balance at January 30, 2005 was $7.6 million, resulting in an available line of credit at that date of $62.4 million. Loan advances are secured by a security interest in the Companys inventory.
The loan agreement contains various restrictions that are applicable when outstanding borrowings exceed $42.5 million. Short-term trade credit represents a significant source of financing for inventory to the Company. Trade credit arises from the willingness of the Companys vendors to grant payment terms for inventory purchases.
In Fiscal 2005, the Company made net cash payments on its revolving credit facility of $935,000 and made cash payments of $1.3 million to reduce its long-term debt and capital lease obligations, and repurchased $80,000 of Company stock. The Company received $1.3 million in proceeds from the exercise of outstanding stock options. In Fiscal 2004, the Company made net cash payments on its revolving credit facility of $12.5 million and made cash payments of $1.2 million to reduce its long-term debt and capital lease obligations, and repurchased $658,000 of Company stock. The Company received $868,000 in proceeds from the exercise of outstanding stock options. In fiscal 2003, the Company made net cash payments on its revolving credit facility of $654,000 and made cash payments of $1.2 million to reduce its long-term debt and capital lease obligations. The Company received $1.2 million in proceeds from the exercise of outstanding stock options. The Company executed operating leases for 22 additional stores during the three year period ending in Fiscal 2005. The Companys long-range plan assumes growth in the number of stores in smaller markets where there is less competition, and, in accordance with this plan, 6 new ALCO and 3 new Duckwall stores were opened in Fiscal 2005 and 8 to 10 new ALCO stores are expected to be opened in fiscal 2006. The Company believes that with the $70 million line of credit, sufficient capital is available to fund the Companys planned expansion.
Cash used for acquisition of property and equipment in Fiscal 2005, 2004 and 2003 totaled $6.5 million, $4.3 million, and $7.6 million, respectively. A sale-leaseback of store buildings was completed in the amount of $1.7 million and $1.3 million in fiscal 2005 and 2003, respectively. In Fiscal 2005, company owned surplus land was sold for $315,000, and in Fiscal 2004, a company owned store was closed and the building was sold for $1.2 million. This resulted in net cash used for acquisition of property and equipment in Fiscal 2005, 2004, and 2003 of $4.6 million, $3.1 million, and $6.3 million, respectively. Anticipated cash payments for acquisition of property and equipment in fiscal 2006, principally for store buildings and fixtures, are $15.5 million.
During fiscal 1999, the Companys Board of Directors approved a plan to repurchase up to 411,000 shares of the Companys Common Stock (the Stock Repurchase Program). During fiscal 2000, the Companys Board of Directors approved the repurchase of an additional 1,000,000 shares. Purchases pursuant to the Stock Repurchase Program are to be made from time to time in the open market or directly from stockholders at prevailing market prices. The Stock Repurchase Program has been funded and is anticipated to be funded by cash generated from operations and borrowing under the Companys credit facility. As of January 30, 2005, the Company had purchased and retired 1,084,600 shares of Common Stock for $8.9 million, which represents 21% of its outstanding shares.
The following table summarizes the Companys significant contractual obligations payable as of January 30, 2005 (in thousands). Payments due under the revolving loan credit facility and long-term debt represent principle payments only.
On March 17, 2005, the Company announced that, as part of its initiatives designed to improve performance of the Company for its shareholders, it will be closing 8 ALCO and 12 Duckwall stores that do not meet the Companys minimum return on investment threshold. The process to close these stores began immediately, and the Company expects it will take approximately three months to complete. The Company has engaged Gordon Brother Retail Partners, LLC to assist in the orderly inventory liquidation and to help minimize the total cost of closing these stores. The Companys primary lender, Fleet Retail Group, Inc., has consented to these closings. The Company estimates that pursuant to these store closings, it will liquidate approximately $6.5 million of inventory. Of the stores being closed, the Company owns the property on which two ALCO stores are located and leases the properties for the remaining 18 stores. The company anticipates that the aggregate cost to close these stores, before income taxes, will be in the range of $3.8 to $4.8 million. The majority of that expense will be recorded in the first and second quarters of Fiscal Year 2006. The twenty stores that are closing produced gross sales of $19.9 million in Fiscal Year 2005, and employed approximately 260 associates.
On April 19, 2005, the Company reached an agreement with a significant stockholder to repurchase 399,362 shares of the Companys Common Stock for approximately $7.2 million. These shares will be retired. The Board of Directors approved this transaction and increased the number of shares the Company was authorized to repurchase by 399,362.
The continued growth of the Company is dependent, in large part, upon the Companys ability to open and operate new stores on a timely and profitable basis. The Company plans to open eight to ten ALCO stores in the current fiscal year. While the Company believes that adequate sites are currently available, the rate of new store openings is subject to various contingencies, many of which are beyond the Companys control. These contingencies include the availability of acceptable communities for store locations, the Companys ability to secure suitable store sites on a timely basis and on satisfactory terms, the Companys ability to hire, train and retain qualified personnel, the availability of adequate capital resources and the successful integration of new stores into existing operations. There can be no assurance that the Company will be able to continue to successfully identify and obtain new store sites or that once obtained, the new stores will achieve satisfactory sales or profitability.
Impact of Change in Accounting Principle
Effective January 1, 2003, the Company adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. The adoption of this statement had the effect of delaying when the Company records liabilities associated with store closures.
The Company adopted Emerging Issues Task Force Issue 02-16, Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor, (EITF 02-16). EITF 02-16 provides guidance on the income statement classification of amounts received by a customer, including a reseller (including reimbursements for expenses such as cooperative advertising), for transactions entered into after December 31, 2002, and limited guidance regarding timing of recognition for volume rebates, for transactions entered into after November 21, 2002. The adoption of EITF 02-16 did not have a significant impact on the Companys financial statements for the year ended January 30, 2005.
New Accounting Standard
In December 2004, the Financial Accounting Standards Board adopted SFAS No. 123(R), Share-Based Payment, effective in the first quarter of fiscal 2007 for the Company. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Accordingly, the adoption of 123(R)s fair value method will have an impact on our results of operations. The Company expects to adopt 123(R) during the first quarter of fiscal 2007, however, the Company has not yet determined the manner of adoption.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS
Certain statements contained in this Annual Report on Form 10-K that are not statements of historical fact may constitute forward-looking statements within the meaning of Section 21E of the Exchange Act. These statements are subject to risks and uncertainties, as described below. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, store openings, store closings, payment or non-payment of dividends, capital structure and other financial items, (ii) statements of plans and objectives of the Companys management or Board of Directors, including plans or objectives relating to inventory, store development, marketing, competition, business strategy, store environment, merchandising, purchasing, pricing, distribution, transportation, store locations and information systems, (iii) statements of future economic performance, and (iv) statements of assumptions underlying the statements described in (i), (ii) and (iii). Forward-looking statements can often be identified by the use of forward-looking terminology, such as believes, expects, may, will, should, could, intends, plans, estimates, projects or anticipates, variations thereof or similar expressions.
Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. The Companys future results of operations, financial condition and business operations may differ materially from the forward-looking statements or the historical information stated in this Annual Report on Form 10-K. Stockholders and investors are cautioned not to put undue reliance on any forward-looking statement.
There are a number of factors and uncertainties that could cause actual results of operations, financial condition or business contemplated by the forward-looking statements to differ materially from those discussed in the forward-looking statements made herein or elsewhere orally or in writing, by, or on behalf of, the Company, including those factors described below. Other factors not identified herein could also have such an effect. Factors that could cause actual results to differ materially from those discussed in the forward-looking statements and from historical information include, but are not limited to, those factors described below:
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing and cash management activities. The Company maintains a secured line of credit at variable interest rates to meet the short-term needs of its expansion program and seasonal inventory increases. On April 15, 2002, the Company replaced the existing line of credit with a new line of credit 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.
The Companys borrowing arrangement contains no limitation on the change in the variable interest rate paid by the Company. Based on the Companys average borrowing outstanding during the year of approximately $9,281,000, a 1% change either up or down in the LIBOR rate would have changed the Companys interest expense by approximately $93,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statement Schedules:
Report of Independent Registered Public Accounting Firm
The Board of Directors and
We have audited the accompanying consolidated balance sheets of Duckwall-ALCO Stores, Inc. and subsidiaries (the Company) as of January 30, 2005 and February 1, 2004, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the years in the three-year period ended January 30, 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Duckwall-ALCO Stores, Inc. and subsidiaries as of January 30, 2005 and February 1, 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended January 30, 2005 in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 30, 2005 and February 1, 2004
(Dollars in thousands)
See accompanying notes to consolidated financial statements.
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal years ended January 30, 2005; February 1, 2004; and February 2, 2003
(Dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Fiscal years ended January 30, 2005; February 1, 2004; and February 2, 2003
(Dollars in thousands)
See accompanying notes to consolidated financial statements.
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal years ended January 30, 2005; February 1, 2004; and February 2, 2003
(Dollars in thousands)
See accompanying notes to consolidated financial statements.
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 30, 2005, and February 1, 2004, and February 2, 2003
(Dollars in thousands, except per share amounts)
The Company is lessee under long-term capital leases expiring at various dates. The components of property under capital leases as of January 30, 2005 and February 1, 2004 are as follows:
The Companys board of directors has approved a plan to repurchase up to 1,411,000 shares of the Companys common stock (the Stock Repurchase Program). Purchases pursuant to the Stock Repurchase Program are to be made from time to time in the open market or directly from stockholders at prevailing market prices. The Stock Repurchase Program is anticipated to be funded with internally generated cash and borrowings under the credit facility. As of January 30, 2005, the Company had purchased and retired 1,084,600 shares of common stock for $8,869. All shares purchased by the Company under this program are retired.
Income from operations, as reflected in the above segment information, has been determined differently than income from operations in the accompanying consolidated statements of operations as follows:
Intercompany sales represent transfers of merchandise from the warehouse to ALCO Discount Stores and Duckwall variety stores.
Intercompany Expense Allocations
General and administrative expenses incurred at the general office have not been allocated to the ALCO Discount Stores for purposes of determining income from operations for the segment information.
Warehousing and distribution costs, including freight applicable to merchandise purchases, have been allocated to the ALCO Discount Stores segment based on the Companys customary method of allocation for such costs (primarily as a stipulated percentage of merchandise purchases).
InventoriesInventories are based on the FIFO method for segment information purposes and on the LIFO method for the consolidated statements of operations.
All leases are accounted for as operating leases for purposes of determining income from operations for purposes of determining the segment information for the ALCO Discount Stores, whereas capital leases are accounted for as such in the consolidated statements of operations.
Identifiable assets, as reflected in the above segment information, include cash and cash equivalents, receivables, inventory, property and equipment, and property under capital leases.
A reconciliation of the segment information to the amounts reported in the consolidated financial statements is presented below:
ITEM 9A. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the evaluation, our President and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective in all material respects to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There were no changes in our internal control over financial reporting that occurred during the year ended January 30, 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrants Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2005, contains under the caption Election of Directors certain information required by Item 10 of Form 10-K, and such information is incorporated herein by this reference. The information required by Item 10 of Form 10-K as to executive officers is set forth in Item 1 of this Form 10-K. The Registrants Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2005, contains under the caption Section 16(a) Beneficial Ownership Reporting Compliance certain information required by Item 10 of Form 10-K, and such information is incorporated herein by this reference. The Registrants Proxy Statement also contains under the caption Code of Ethics certain information required by Item 10 of Form 10-K, and such information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrants Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2005, contains under the caption Executive Compensation and Other Information the information required by Item 11 of Form 10-K, and such information is incorporated herein by this reference (except that the information set forth under the following subcaptions is expressly excluded from such incorporation: Compensation Committee Report, Audit Committee Report, and Company Performance).
The Registrants Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2005, contains under the caption Ownership of Duckwall Common Stock the information required by Item 12 of Form 10-K and such information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrants Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2005, contains under the caption Compensation Committee Interlocks and Related Party Transactions the information required by Item 13 of Form 10-K and such information is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Registrants Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on May 26, 2005, contains under the caption Ratification of Selection of Independent Accountants the information required by Item 14 of Form 10-K and such information is incorporated herein by this reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 29, 2005
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: