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 November 2, 1996
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
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.
As of November 29, 1996 there were 8,348,923 shares of Common Stock, $0.01
par value, and 2,989,853 shares of Class A Common Stock, $0.01 par value,
outstanding.
THE BON-TON STORES, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands except per share amounts)
November 2, February 3,
1996 1996
(Unaudited)
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,797 $ 6,941
Trade and other accounts receivable, net of
allowance for doubtful accounts of $2,735
and $3,113 in fiscal 1996 and 1995, respectively 19,764 17,445
Merchandise inventories 216,816 141,741
Prepaid expenses and other current assets 18,040 13,562
Income taxes receivable --- 8,549
--------- ---------
Total current assets 263,417 188,238
PROPERTY, FIXTURES AND EQUIPMENT at cost,
less accumulated depreciation and amortization 118,516 120,874
OTHER ASSETS 21,117 22,061
DEFERRED INCOME TAXES 1,124 ---
--------- ---------
Total assets $ 404,174 $ 331,173
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 77,514 $ 55,168
Accrued payroll and benefits 5,649 7,954
Accrued expenses 22,398 32,969
Current portion of long-term debt 726 295
Current portion of obligations under capital leases 344 325
Deferred income taxes 3,996 769
--------- ---------
Total current liabilities 110,627 97,480
LONG-TERM DEBT, less current maturities 189,637 125,069
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 2,565 2,824
OTHER LONG-TERM LIABILITIES 1,183 1,206
DEFERRED INCOME TAXES --- 420
--------- ---------
Total liabilities 304,012 226,999
--------- ---------
SHAREHOLDERS' EQUITY:
Common Stock-authorized 40,000,000 shares at $.01 par
value; issued and outstanding shares of 8,348,923
and 8,351,083 in 1996 and 1995, respectively 83 83
Class A Common Stock-authorized 20,000,000 shares at
$.01 par value; issued and outstanding shares of
2,989,853 30 30
Additional paid-in capital 58,184 58,197
Deferred compensation (1,384) (1,774)
Retained earnings 43,249 47,638
--------- ---------
Total shareholders' equity 100,162 104,174
--------- ---------
Total liabilities and shareholders' equity $ 404,174 $ 331,173
========= =========
The accompanying notes are an integral part of these condensed consolidated
statements.
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
-------------------------- --------------------------
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
----------- ----------- ----------- -----------
NET SALES $ 148,374 $ 138,927 $ 408,434 $ 393,442
OTHER INCOME, NET 497 427 1,519 1,245
----------- ----------- ----------- -----------
148,871 139,354 409,953 394,687
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Costs of merchandise sold 93,514 86,172 255,308 241,788
Selling, general and administrative 48,497 48,499 141,284 145,463
Depreciation and amortization 3,256 2,308 9,329 7,948
Unusual expenses --- 5,471 --- 5,471
----------- ----------- ----------- -----------
145,267 142,450 405,921 400,670
----------- ----------- ----------- -----------
Income (loss) from operations 3,604 (3,096) 4,032 (5,983)
INTEREST EXPENSE, NET 3,979 2,075 10,877 5,701
LOSS BEFORE INCOME TAXES (375) (5,171) (6,845) (11,684)
INCOME TAX BENEFIT (133) (1,862) (2,458) (4,205)
NET LOSS $ (242) $ (3,309) $ (4,387) $ (7,479)
=========== =========== =========== ===========
Net loss per share $ (.02) $ (.30) $ (.40) $ (.68)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 11,064 11,059 11,063 11,038
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
statements.
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
THIRTY-NINE WEEKS ENDED
--------------------------
November 2, October 28,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,387) $ (7,479)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 9,329 7,948
Changes in operating assets and liabilities, net (43,250) (35,602)
----------- -----------
Net cash used in operating activities (38,308) (35,133)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (7,112) (32,876)
Proceeds from sale of property, fixtures and equip. 17 247
Purchase of accounts receivable --- (30,138)
Net proceeds from Accounts Receivable Facility (17,500) 15,000
----------- -----------
Net cash used in investing activities (24,595) (47,767)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease
obligations (143,141) (207,551)
Proceeds from issuance of long-term debt 184,500 294,000
Proceeds from mortgages on Rochester properties 23,400 ---
Exercised stock options --- 646
----------- -----------
Net cash provided by financing activities 64,759 87,095
Net increase in cash equivalents 1,856 4,195
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,941 1,732
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,797 $ 5,927
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
statements.
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated
on January 31, 1996 as a result of the Company's Plan of Division and
currently operates 69 retail department stores primarily located in
Pennsylvania, New York, Maryland, West Virginia, New Jersey and Georgia.
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 the
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 latest annual report.
Certain reclassifications have been made in the 1995 financial
statements to conform to current accounting classifications.
2. PER SHARE AMOUNTS:
Per share amounts were computed by dividing the corresponding net
income or loss amounts by the weighted average number of common shares and
common share equivalents outstanding. Common share equivalents represent
stock options and restricted stock grants computed using the treasury stock
method and are included in the weighted average shares reported on the
income statement when the effect is dilutive.
3. INTEREST COSTS:
Interest and debt costs were:
THIRTY-NINE WEEKS
ENDED
-------------------------
November 2, October 28,
1996 1995
----------- -----------
Interest cost incurred $ 11,054 $ 6,694
Interest income (87) (332)
Capitalized interest, net (90) (661)
----------- -----------
Interest expense, net $ 10,877 $ 5,701
=========== ===========
Interest paid $ 9,673 $ 6,639
=========== ===========
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. UNUSUAL EXPENSES:
In October 1995, the Company recorded unusual expenses of $5,471,
before taxes, and is stated separately as a component of income (loss)
from operations in the Consolidated Statements of Operations. Of this
expense, $2.2 million relates to pre-opening costs incurred for three
stores opened in Rochester, New York and one store in Elmira, New York and
the remainder relates to costs incurred in the hiring of the Chief
Executive Officer in August, 1995 and the cost of litigation associated
with such hiring.
5. SUBSEQUENT EVENT:
On November 20, 1996, the Company completed the announcements
pertaining to the closure of five underperforming stores which are located
in Pennsylvania, New York and West Virginia. Store closing reserves were
previously established as part of the January 1996 restructuring charges
and are considered adequate to cover the closing costs. The store closure
review is now complete and there are no plans to close additional stores in
fiscal 1996.
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 relationships of various income and expense
items to net sales for each period presented:
PERCENT OF NET SALES
-----------------------------------------------------
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
------------------------- -------------------------
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net sales 100.0% 100.0% 100.0% 100.0%
Other income, net 0.3 0.3 0.4 0.3
----------- ----------- ----------- -----------
100.3 100.3 100.4 100.3
Costs and expenses:
Costs and merchandise sold 63.0 62.0 62.5 61.4
Selling, general and
administrative 32.7 34.9 34.6 37.0
Depreciation and amortization 2.2 1.7 2.3 2.0
Unusual expenses --- 3.9 --- 1.4
----------- ----------- ----------- -----------
Income (loss) from operations 2.4 (2.2) 1.0 (1.5)
Interest expense, net 2.7 1.5 2.7 1.5
----------- ----------- ----------- -----------
Loss before income taxes (0.3) (3.7) (1.7) (3.0)
Income tax benefit (0.1) (1.3) (0.6) (1.1)
----------- ----------- ----------- -----------
Net loss (0.2)% (2.4)% (1.1)% (1.9)%
=========== =========== =========== ===========
THE BON-TON STORES, INC. AND SUBSIDIARIES
Thirteen Weeks Ended November 2, 1996 Compared to Thirteen Weeks Ended
October 28, 1995
NET SALES. Net sales were $148.4 million for the thirteen weeks ended
November 2, 1996, an increase of 6.8% over the same period last year.
Comparable store sales increased 3.2% for the period, with the shoes and
total sportswear categories having achieved sales increases greater than
Company average.
OTHER INCOME, NET. Net other income, which consisted mainly of income
from leased departments, remained at 0.3% of net sales in the third quarter
of 1996.
COSTS AND EXPENSES. Gross profit dollars increased $2.1 million over
the third quarter of 1995, due primarily to the increased sales base.
Gross profit as a percentage of net sales decreased by 1.0 percentage
points to 37.0% for the thirteen weeks ended November 2, 1996 from 38.0%
for the comparable period last year. The decline in the margin rate was
mostly attributable to increased promotional activity reflecting the
Company's response to competitive pricing, and the liquidation of seasonal
inventory.
Selling, general and administrative expenses for the third quarter
were lower as a percent of net sales, decreasing to 32.7% from 34.9%
reported in the third quarter of 1995, while remaining constant when
expressed in dollars. The rate decrease principally reflected expense
control efforts of the Company at both the store and corporate levels.
Depreciation and amortization increased to 2.2% of net sales for the
thirteen weeks ended November 2, 1996 from 1.7% in the comparable period
last year. The increase was primarily a result of the addition of four
stores in late 1995 and a new store opened in August, 1996.
INCOME (LOSS) FROM OPERATIONS. Income from operations for the third
quarter of 1996 was $3.6 million or 2.4% of net sales compared to a loss
from operations of $3.1 million or 2.2% of net sales in the comparable
period last year. The improvement for the period was largely attributable
to the continued control of selling, general and administrative expenses,
increased margin dollars and the comparison to last year's unusual expenses
discussed in Note 4.
The Company sells receivables through its accounts receivable purchase
facility to provide additional working capital. The pro-forma effects, as
if the Company had on-balance sheet financing, would have reduced selling,
general and administrative expenses by $1.3 million in the third quarter of
1996 and by $1.5 million in the third quarter of 1995. 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 income from
operations of $5.0 million in the third quarter of 1996 and a loss from
operations of $1.6 million for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense increased to 2.7% of net
sales for the thirteen weeks ended November 2, 1996 compared to 1.5% of net
sales for the thirteen weeks ended October 28, 1995. The increase
reflected the additional borrowing needed to fund the Company's inventory
intensification initiative.
THE BON-TON STORES, INC. AND SUBSIDIARIES
NET LOSS. The net loss for the third quarter of fiscal 1996 amounted
to $242 thousand as compared to a net loss of $3.3 million for the
comparable period last year. Due to the seasonal nature of the Company's
business, the results for the current year third quarter are not
necessarily indicative of the results that may be achieved for the full
fiscal year of 1996.
Thirty-Nine Weeks Ended November 2, 1996 Compared to Thirty-Nine Weeks
Ended October 28, 1995
NET SALES. Net sales increased 3.8% to $408.4 million for the
thirty-nine week period ended November 2, 1996 from $393.4 million for the
comparable period last year. Sales on a comparable store basis increased
1.6% during the period. Shoes, total sportswear, home and intimate apparel
areas constituted a majority of the comparable store sales increase.
OTHER INCOME, NET. Net other income, which consisted primarily of
income from leased departments, increased to 0.4% of net sales in the
current year period from 0.3% for the comparable period last year. The
increase was largely due to the expansion of our leased departments into
additional existing locations and to the Rochester and Elmira openings
in 1995.
COSTS AND EXPENSES. Gross profit dollars increased almost $1.5
million over the same period last year, due to the increased sales. Gross
profit as a percent of net sales decreased by 1.1 percentage points to
37.5% for the thirty-nine weeks ended November 2, 1996 from 38.6% for the
comparable period last year. The decrease in margin primarily reflected
increased promotional activity, liquidation of seasonal inventory and an
increase in the shrinkage reserve rate.
Selling, general and administrative expenses decreased by almost $4.2
million, to 34.6% of net sales for the current year from 37.0% for the
comparable period last year. The rate decrease was predominantly
attributable to expense control efforts at both store and corporate levels,
which began in the first quarter of 1996.
Depreciation and amortization expense increased to 2.3% for the thirty-nine
weeks ended November 2, 1996 from 2.0% for the comparable period last year.
The increase was mostly due to the addition of the Rochester and Elmira
stores in fiscal 1995.
INCOME (LOSS) FROM OPERATIONS. Income from operations for the
thirty-nine weeks ended November 2, 1996 was $4.0 million or 1.0% of net
sales compared to a loss from operations of $6.0 million or 1.5% of net
sales in the same period last year. The improvement was primarily
attributable to an increase in gross profit dollars, a decrease in selling,
general and administrative expenses and the comparison to last year's
unusual expenses discussed in Note 4.
The Company sells its receivables through its accounts receivable
purchase facility to provide additional working capital. The pro-forma
effects, as if the Company had on-balance sheet financing, would have
reduced selling, general and administrative expenses by $4.8 million for
the thirty-nine weeks ended November 2, 1996 and also for the comparable
period last year. The lower selling general and administrative expenses
would have been offset by a corresponding increase in interest expense for
both periods. The pro-forma reclassification would have reflected income
from operations of $8.9 million for the current year period and a loss from
operations of $1.1 million for the comparable period last year.
THE BON-TON STORES, INC. AND SUBSIDIARIES
INTEREST EXPENSE, NET. Net interest expense increased to 2.7% of net
sales for the thirty-nine week period ended November 2, 1996 from 1.5% of
net sales for the comparable period last year. The increase reflected the
additional borrowing needed to fund the Company's continued growth,
including the inventory intensification initiative.
NET LOSS. The net loss for the thirty-nine weeks ended November 2,
1996 amounted to $4.4 million or 1.1% of net sales as compared to a net
loss of $7,5 million or 1.9% of net sales for the comparable period last
year. Due to the seasonality of the Company's business, the results of the
current period are not necessarily indicative of the results that may be
achieved for the full fiscal year of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes material measures of the Company's
liquidity and capital resources (dollars in tenths of millions):
November 2, 1996 October 28, 1995
---------------- ----------------
Working Capital $ 152.8 $ 119.3
Current Ratio 2.38:1 1.94:1
Total Debt to Total Capitalization .66:1 .58:1
Available Lines of Credit $ 12.5 $ 32.0
For the thirty-nine weeks ended November 2, 1996, net cash used in
operating activities amounted to $38.3 million as compared to $35.1 million
for the comparable period last year. The net operating cash outflows for
the thirty-nine weeks ended November 2, 1996 primarily reflected the
increase in working capital over year end levels. The major cause for the
increase in working capital was higher levels of merchandise inventories
needed to support the inventory intensification initiative. The increased
level of merchandise inventories was partially offset by an increase in
accounts payable as well as a decrease in accounts receivable excluding
the effect of reduced proceeds from the accounts receivable facility
mentioned below. Additional working capital requirements also included a
decrease in accrued expenses.
Net cash used in investing activities amounted to $24.6 million for
the thirty-nine weeks ended November 2, 1996, compared to cash used in
investing activities of $47.8 million for the comparable period last year.
The net outflow in the thirty-nine week period ended November 2, 1996 was
basically due to reduced proceeds from the sale of proprietary credit card
receivables.
Net cash provided by financing activities amounted to $64.8 million
for the thirty-nine week period ended November 2, 1996 as compared to cash
provided by financing activities of $87.1 million for the comparable period
last year. The net increase in the current year predominantly reflected
the net borrowings under the Company's revolving credit facility and
completion of mortgage financing on the Rochester properties.
The Company anticipates that its cash flow from operations,
supplemented by borrowings under its revolving credit facility, will be
sufficient to satisfy its operating cash requirements.
THE BON-TON STORES, INC. AND SUBSIDIARIES
"Safe Harbor" Statement
Certain information included in this 10-Q contains statements that are
forward looking. Such forward-looking information involves important risks
and uncertainties that could significantly affect anticipated results in
the future, including, but 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 primary markets
in which the Company's stores are located; and the need for, and costs
associated with, store renovations and other capital expenditures.
Pursuant to the requirements 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.
THE BON-TON STORES, INC.
DATE: December 13, 1996 BY: /s/ Michael L. Gleim
----------------- ----------------------------
Michael L. Gleim
Vice Chairman &
Chief Operating Officer
DATE: December 13, 1996 BY: /s/ James H. Baireuther
----------------- ----------------------------
James H. Baireuther
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer