-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AaXbfcrXnSL4071S6UQnBtwjQj9Pr4QPHpjePkK21SheQJV9WuN7sizv1euhbTRU +tnr3EFEVUrJ/WmACd4u3A== 0000893220-01-500381.txt : 20010618 0000893220-01-500381.hdr.sgml : 20010618 ACCESSION NUMBER: 0000893220-01-500381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010505 FILED AS OF DATE: 20010615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BON TON STORES INC CENTRAL INDEX KEY: 0000878079 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 232835229 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19517 FILM NUMBER: 1661782 BUSINESS ADDRESS: STREET 1: 2801 E MARKET ST CITY: YORK STATE: PA ZIP: 17402-2406 BUSINESS PHONE: 7177577660 MAIL ADDRESS: STREET 1: P O BOX 2821 CITY: YORK STATE: PA ZIP: 17405-2821 10-Q 1 w50443e10-q.txt FORM 10-Q FOR BON-TON STORES, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended May 5, 2001 Commission File Number 0-19517 THE BON-TON STORES, INC. 2801 EAST MARKET STREET YORK, PENNSYLVANIA 17402 (717) 757-7660 INCORPORATED IN PENNSYLVANIA IRS NO. 23-2835229 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of June 1, 2001 there were 12,494,456 shares of Common Stock, $0.01 par value, and 2,989,853 shares of Class A Common Stock, $0.01 par value, outstanding. 2 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
May 5, February 3, (In thousands except share and per share data) 2001 2001 - ------------------------------------------------------------------------------------------------------------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,444 $ 14,067 Trade and other accounts receivable, net of allowance for doubtful accounts of $2,631 and $3,445 at May 5, 2001 and February 3, 2001, respectively 26,134 24,052 Merchandise inventories 198,411 192,547 Prepaid expenses and other current assets 10,331 8,503 Deferred income taxes 2,176 2,318 --------- --------- Total current assets 251,496 241,487 --------- --------- PROPERTY, FIXTURES AND EQUIPMENT AT COST, less accumulated depreciation and amortization 145,174 147,415 DEFERRED INCOME TAXES 2,225 1,163 OTHER ASSETS 14,715 14,973 --------- --------- TOTAL ASSETS $ 413,610 $ 405,038 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 58,032 $ 57,184 Accrued payroll and benefits 8,046 8,588 Accrued expenses 22,377 21,919 Current portion of long-term debt 599 584 Current portion of obligations under capital leases 464 479 Income taxes payable 2,622 10,422 --------- --------- Total current liabilities 92,140 99,176 --------- --------- LONG-TERM DEBT, LESS CURRENT MATURITIES 119,899 97,805 OBLIGATIONS UNDER CAPITAL LEASES, LESS CURRENT MATURITIES 853 953 OTHER LONG-TERM LIABILITIES 7,962 8,242 --------- --------- TOTAL LIABILITIES 220,854 206,176 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred Stock - authorized 5,000,000 shares at $0.01 par value; no shares issued -- -- Common Stock - authorized 40,000,000 shares at $0.01 par value; issued and outstanding shares of 12,494,456 and 12,225,501 at May 5, 2001 and February 3, 2001, respectively 125 122 Class A Common Stock - authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,989,853 30 30 Additional paid-in-capital 107,551 106,882 Deferred compensation (967) (347) Accumulated other comprehensive income (1,176) -- Retained earnings 87,193 92,175 --------- --------- Total shareholders' equity 192,756 198,862 --------- --------- Total liabilities and shareholders' equity $ 413,610 $ 405,038 ========= =========
The accompanying notes are an integral part of these consolidated statements. 2 3 THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN WEEKS ENDED ------------------------ (In thousands except per share data) May 5, April 29, (Unaudited) 2001 2000 - --------------------------------------------------------------------- NET SALES $ 149,719 $ 152,135 OTHER INCOME, NET 524 572 --------- --------- 150,243 152,707 --------- --------- COSTS AND EXPENSES: Costs of merchandise sold 98,740 100,449 Selling, general and administrative 53,106 54,025 Depreciation and amortization 4,450 4,121 --------- --------- LOSS FROM OPERATIONS (6,053) (5,888) INTEREST EXPENSE, NET 1,917 2,339 --------- --------- LOSS BEFORE INCOME TAXES (7,970) (8,227) INCOME TAX BENEFIT (2,989) (3,127) --------- --------- NET LOSS $ (4,981) $ (5,100) ========= ========= PER SHARE AMOUNTS: BASIC: Net loss $ (0.33) $ (0.34) ========= ========= BASIC SHARES OUTSTANDING 15,150 14,802 DILUTED: Net loss $ (0.33) $ (0.34) ========= ========= DILUTED SHARES OUTSTANDING 15,150 14,802
The accompanying notes are an integral part of these consolidated statements. 3 4 THE BON-TON STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED ---------------------- (In thousands) May 5, April 29, (Unaudited) 2001 2000 - ------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,981) $ (5,100) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,450 4,121 Changes in operating assets and liabilities, net (19,064) (31,857) -------- -------- Net cash used in operating activities (19,595) (32,836) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (2,029) (2,499) Proceeds from sale of property, fixtures and equipment 8 -- -------- -------- Net cash used in investing activities (2,021) (2,499) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt and capital lease obligations (28,607) (59,518) Proceeds from issuance of long-term debt 50,600 97,150 Exercised stock options -- 1 -------- -------- Net cash provided by financing activities 21,993 37,633 Net increase in cash and cash equivalents 377 2,298 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,067 10,807 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,444 $ 13,105 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 1,588 $ 2,534 Income taxes paid $ 7,813 $ 7,567
The accompanying notes are an integral part of these consolidated statements. 4 5 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company established on January 31, 1929 and currently operates, as one business segment, 73 retail department stores located in Pennsylvania, New York, New Jersey, Maryland, Connecticut, Massachusetts, New Hampshire, Vermont and West Virginia. 1. BASIS OF PRESENTATION: The accompanying unaudited consolidated financial statements include accounts of The Bon-Ton Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All intercompany transactions and balances have been eliminated in consolidation. The unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair presentation for interim periods have been included. The Company's business is seasonal in nature and the results of operations for the interim periods presented are not necessarily indicative of the results for the full fiscal year. It is suggested these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2001 (the "2000 Annual Report"). Certain prior year balances have been reclassified to conform with the current year presentation. 2. PER SHARE AMOUNTS: The presentation of earnings per share (EPS) requires a reconciliation of the numerators and denominators used in the basic and diluted EPS calculations. The numerator, net loss, is identical in both calculations. The following table presents a reconciliation of the shares outstanding for the respective calculations for each period presented on the accompanying Consolidated Statements of Operations:
May 5, April 29, 2001 2000 ---------- ---------- Basic Calculation 15,150,000 14,802,000 Dilutive Securities -- Restricted Shares -- -- Options -- -- ---------- ---------- Diluted Calculation 15,150,000 14,802,000 ---------- ---------- Antidilutive shares and options -- Restricted Shares 117,000 457,000 Options 928,000 1,424,000
Antidilutive shares and options, consisting of restricted shares and options to purchase shares outstanding, were excluded from the computation of dilutive securities due to the Company's net loss position in the first quarter of 2001 and 2000. 5 6 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Had the Company reported a profit for the first quarter of 2001 and 2000, dilutive securities calculated under the treasury stock method would have been zero, as the exercise prices on all options exceeded the average market price and would be antidilutive. Options to purchase shares with exercise prices greater than the average market price were approximately 928,000 and 1,424,000 for the first quarter of 2001 and the first quarter of 2000, respectively. 3. ADOPTION OF SFAS NOS. 133 AND 138: The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133," on February 5, 2001. SFAS No. 133 requires the transition adjustment, net of the tax effect, resulting from adopting these Statements to be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle. The amount of the net-of-tax transition adjustment recorded in accumulated other comprehensive income as a result of recognizing all derivatives that are designated as cash flow hedging instruments at fair value amounted to a net loss of $426,000. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company recognizes all derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into, the Company generally designates the derivative as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"). Changes in the fair value of a derivative that is designated as, and meets all the required criteria for, a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings as the underlying hedged item affects earnings. The portion of the change in fair value of a derivative associated with hedge ineffectiveness or the component of a derivative instrument excluded from the assessment of hedge effectiveness is recorded currently in earnings. Also, changes in the entire fair value of a derivative that is not designated as a hedge are recorded immediately in earnings. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes relating all derivatives that are designated as cash flow hedges to specific assets and liabilities on the balance sheet. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively. DEBT PORTFOLIO MANAGEMENT It is the policy of the Company to identify on a continuing basis the need for debt capital and evaluate the financial risks inherent in funding the Company with debt capital. Reflecting the result of this ongoing review, the debt portfolio and hedging program of the Company is managed with the objectives and intent to (1) reduce funding risk with respect to borrowings made or to be made by the Company to preserve the Company's access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) reduce the aggregate interest rate risk of the debt portfolio in accordance with certain debt management 6 7 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) parameters. The Company enters into interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio in order to maintain the percentage of fixed- and variable-rate debt within the parameters set by management. In accordance with these parameters, the agreements are used to reduce interest rate risks and costs inherent in the Company's debt portfolio. Accordingly, the Company currently has interest rate swap contracts outstanding to effectively convert variable-rate debt to fixed-rate debt. These contracts entail the exchange of fixed- and floating-rate interest payments periodically over the life of the agreements. CASH FLOW HEDGES Interest expense for the three months ended May 5, 2001 includes $50,000 of net losses related to hedge ineffectiveness. Changes in the fair value of derivatives qualifying as cash flow hedges are reported in accumulated other comprehensive income. The gains and losses are reclassified into earnings as the underlying hedged item affects earnings, such as when quarterly settlements are made on the hedged forecasted transaction. It is expected that approximately $300,000 to $400,000 of net-of-tax losses in accumulated other comprehensive income will be reclassified into earnings within the next twelve months. There was no gain or loss reclassified from accumulated other comprehensive income into earnings during the three month period ended May 5, 2001 as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. As of May 5, 2001, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is 57 months. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table summarizes the changes in selected operating indicators, illustrating the relationship of various income and expense items expressed as a percentage of net sales for each period presented:
THIRTEEN WEEKS ENDED ---------------------- May 5, April 29, 2001 2000 - ---------------------------------------------------------------------- NET SALES 100.0% 100.0% OTHER INCOME, NET 0.4 0.4 ----- ----- 100.4 100.4 ----- ----- COSTS AND EXPENSES: Costs of merchandise sold 65.9 66.0 Selling, general and administrative 35.5 35.5 Depreciation and amortization 3.0 2.7 ----- ----- LOSS FROM OPERATIONS (4.0) (3.9) INTEREST EXPENSE, NET 1.3 1.5 ----- ----- LOSS BEFORE INCOME TAXES (5.3) (5.4) INCOME TAX BENEFIT (2.0) (2.1) ----- ----- NET LOSS (3.3)% (3.4)% ----- -----
7 8 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) THIRTEEN WEEKS ENDED MAY 5, 2001 COMPARED TO THIRTEEN WEEKS ENDED APRIL 29, 2000 For the purposes of the following discussions, all references to "first quarter of 2001" and "first quarter of 2000" are to the Company's thirteen week period ended May 5, 2001 and April 29, 2000, respectively. NET SALES. Net sales were $149.7 million for the thirteen weeks ended May 5, 2001, a decrease of 1.6% from the same period last year. Comparable store sales decreased 2.6% for the period. Areas of business recording sales increases for the first quarter of 2001 were coats, home, misses sportswear, cosmetics, juniors, womens, shoes and accessories. Weak sales results were recorded in mens and childrens. OTHER INCOME, NET. Net other income, which consisted mainly of income from leased departments, remained constant at 0.4% of net sales in the first quarter of 2001 and 2000. COSTS AND EXPENSES. Gross profit as a percentage of net sales increased 0.1 percentage point to 34.1% for the thirteen week period ended May 5, 2001, primarily due to better inventory management and an improvement in the markdown rate. Gross margin dollars decreased $0.7 million to $51.0 million, reflecting the decrease in sales during the period. Selling, general and administrative expenses decreased $0.9 million to $53.1 million in the first quarter of 2001 from $54.0 million in the comparable prior year period, while the rate remained even with last year at 35.5% of net sales. The corporate expense rate decreased 0.9 percentage point during the period due to reduced payroll and increased finance charge income from the Company's proprietary credit card. The stores' selling, general and administrative rate increased 0.9 percentage point due to increases in payroll, utilities, insurance and rent. Depreciation and amortization increased to 3.0% of net sales in the first quarter of 2001 from 2.7% of net sales in the first quarter of 2000. The increase was primarily due to $29.6 million of fixed asset additions in fiscal 2000. LOSS FROM OPERATIONS. The loss from operations in the first quarter of 2001 amounted to $6.1 million, or 4.0% of net sales, compared to a loss from operations of $5.9 million, or 3.9% of net sales, in the first quarter of 2000. The Company sells receivables through its accounts receivable facility to provide additional working capital. On a pro-forma basis, if the Company had on-balance sheet financing, it would have reduced selling, general and administrative expenses by $2.1 million in the first quarter of 2001 and $2.2 million in the first quarter of 2000. The lower selling, general and administrative expenses would have been offset by a corresponding increase in interest expense for both periods. The net result of the pro-forma reclassification would reflect a loss from operations of $4.0 million in the first quarter of 2001 and loss from operations of $3.7 million in the first quarter of 2000. INTEREST EXPENSE, NET. Net interest expense decreased $0.4 million to $1.9 million, or 1.3% of net sales, in the first quarter of 2001 from $2.3 million, or 1.5% of net sales, in the first quarter of 2000. The interest savings reflect the impact of decreased debt as a result of the Company's lower inventory levels and reduced average rates on outstanding debt. 8 9 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) NET LOSS. The net loss in the first quarter of 2001 amounted to $5.0 million, or 3.3% of net sales, compared to a net loss of $5.1 million, or 3.4% of net sales, in the first quarter of 2000. Due to the seasonal nature of the Company's business, the results for the current period are not necessarily indicative of the results that may be achieved for the full fiscal year of 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital requirements are currently met through a combination of cash, borrowings under its revolving credit facility and proceeds from its accounts receivable facility. The following table summarizes material measures of the Company's liquidity and capital resources:
May 5, April 29, (Dollars in millions) 2001 2000 - ---------------------------------------------------------------------- Working capital $ 159.4 $ 176.1 Current ratio 2.73:1 2.90:1 Funded debt to total capitalization 0.39:1 0.44:1 Unused availability under lines of credit $ 52.0 $ 38.6
For the thirteen weeks ended May 5, 2001, net cash used in operating activities amounted to $19.6 million as compared to $32.8 million for the comparable prior year period. The reduction in net cash used in the first quarter of 2001 as compared to the first quarter of 2000 was primarily attributable to decreased working capital requirements reflecting the targeted inventory reduction and a decrease in the cash required for accrued expenses in 2001 as compared to 2000. Net cash used in investing activities amounted to $2.0 million in the first quarter of 2001 compared to $2.5 million for the comparable period last year, reflecting decreased capital expenditures in the current year. Net cash provided by financing activities amounted to $22.0 million for the first quarter of 2001 compared to $37.6 million for the comparable period of 2000. The decrease in cash provided by financing activities in the first quarter of 2001 was primarily attributable to reduced borrowings under the Company's revolving credit facility. The Company anticipates its cash flows from operations, supplemented by borrowings under its revolving credit facility and proceeds from its accounts receivable facility, will be sufficient to satisfy its operating cash requirements. "SAFE HARBOR" STATEMENT Certain information included in this report and other materials filed or to be filed by the Company with the Securities and Exchange Commission contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which may be identified by words such as "may," "will," "plan," "expect," "anticipate," "estimate," "project," "intend" or other similar expressions, involve important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made 9 10 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) by or on behalf of the Company. These risks and uncertainties include, but are not limited to, uncertainties affecting retail in general, such as consumer confidence and demand for soft goods; risks relating to leverage and debt service; competition within markets in which the Company's stores are located; and the need for, and costs associated with, store renovations and other capital expenditures. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not believe its interest rate risks, as described in its 2000 Annual Report, have changed materially other than as noted in Note 3. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no material developments in any legal proceedings since the Company's disclosure in its 2000 Annual Report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed pursuant to the requirements of Item 601 of Regulation S-K: None. (b) Reports on Form 8-K filed during the quarter: None. 10 11 THE BON-TON STORES, INC. AND SUBSIDIARIES 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. THE BON-TON STORES, INC. DATE: June 15, 2001 BY: /s/ Michael L. Gleim ----------------- -------------------------------- Michael L. Gleim Vice Chairman and Chief Operating Officer DATE: June 15, 2001 BY: /s/ James H. Baireuther ----------------- -------------------------------- James H. Baireuther Executive Vice President and Chief Financial Officer 11 -----END PRIVACY-ENHANCED MESSAGE-----