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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.
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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.
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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.
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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.
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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.
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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
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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
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100.4 100.4
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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)%
----- -----
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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.
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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
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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.
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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
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