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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 August 2, 1997 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
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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
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As of August 29, 1997 there were 8,348,219 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
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AUGUST 2, FEBRUARY 1,
1997 1997
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,645 $ 6,516
Trade and other accounts receivable, net of allowance for doubtful
accounts of $1,782 and $2,769 at August 2, 1997 and February 1, 1997, respectively 20,013 16,306
Merchandise inventories 166,759 161,191
Prepaid expenses and other current assets 9,055 18,389
- -------------------------------------------------------------------------------------- -------- --------
Total current assets 205,472 202,402
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PROPERTY, FIXTURES AND EQUIPMENT at cost, less accumulated
depreciation and amortization 106,717 117,716
OTHER ASSETS 20,894 21,134
DEFERRED INCOME TAXES 273 ---
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TOTAL ASSETS $333,356 $341,252
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 60,798 $ 51,626
Accrued payroll and benefits 5,984 7,135
Accrued expenses 18,507 25,209
Current portion of long-term debt 640 9,763
Current portion of obligations under capital leases 364 351
Deferred income taxes 1,162 1,628
Income taxes payable 1,613 3,837
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Total current liabilities 89,068 99,549
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LONG-TERM DEBT, less current maturities 129,438 125,620
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 2,375 2,478
OTHER LONG-TERM LIABILITIES 3,949 946
DEFERRED INCOME TAXES --- 1,174
COMMITMENTS AND CONTINGENCIES --- ---
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Total liabilities 224,830 229,767
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SHAREHOLDERS' EQUITY:
Common Stock-authorized 40,000,000 shares at $0.01 par value; issued and outstanding
shares of 8,348,219 and 8,349,699 at August 2, 1997 and February 1, 1997, respectively 83 83
Class A Common Stock-authorized 20,000,000 shares at $0.01 par value; issued
and outstanding shares of 2,989,853 at August 2, 1997 and February 1, 1997 30 30
Additional paid-in capital 58,179 58,182
Deferred compensation (996) (1,259)
Retained earnings 51,230 54,449
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Total shareholders' equity 108,526 111,485
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $333,356 $341,252
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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
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THIRTEEN TWENTY-SIX
WEEKS ENDED WEEKS ENDED
---------------------- ----------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
NET SALES $137,994 $130,740 $272,245 $260,060
OTHER INCOME, NET 472 500 963 1,022
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138,466 131,240 273,208 261,082
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COSTS AND EXPENSES:
Costs of merchandise sold 86,152 81,276 171,088 161,794
Selling, general and administrative 47,457 46,172 93,459 92,787
Depreciation and amortization 3,196 3,025 6,362 6,073
- ------------------------------------------------------------- -------- -------- -------- --------
INCOME FROM OPERATIONS 1,661 767 2,299 428
INTEREST EXPENSE, NET 3,223 3,801 6,772 6,898
- ------------------------------------------------------------- -------- -------- -------- --------
LOSS BEFORE INCOME TAXES (1,562) (3,034) (4,473) (6,470)
INCOME TAX BENEFIT (594) (1,088) (1,702) (2,325)
- ------------------------------------------------------------- -------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM (968) (1,946) (2,771) (4,145)
EXTRAORDINARY ITEM - loss on early extinguishment of debt,
net of income tax benefit of $251 --- --- (446) ---
- ------------------------------------------------------------- -------- -------- -------- --------
NET LOSS $ (968) $ (1,946) $ (3,217) $ (4,145)
- ------------------------------------------------------------- ======== ======== ======== ========
PER SHARE AMOUNTS:
Loss before extraordinary item $ (0.09) $ (0.18) $ (0.25) $ (0.37)
Effect of extraordinary item --- --- (0.04) ---
Net loss per share $ (0.09) $ (0.18) $ (0.29) $ (0.37)
WEIGHTED AVERAGE SHARES OUTSTANDING 11,075 11,064 11,074 11,063
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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
(DOLLARS IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX
WEEKS ENDED
--------------------------
AUGUST 2, AUGUST 3,
1997 1996
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OPERATING ACTIVITIES:
Net loss $ (3,217) $ (4,145)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,362 6,073
Changes in operating assets and liabilities, net 2,302 (10,815)
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Net cash provided by (used in) operating activities 5,447 (8,887)
INVESTING ACTIVITIES:
Capital expenditures, net (2,972) (3,854)
Proceeds from sale of property, fixtures and equipment 15 2
Payments on accounts receivable facility (5,000) (20,000)
Proceeds from sale and leaseback arrangement, net 11,034 ---
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Net cash provided by (used in) investing activities 3,077 (23,852)
FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (181,397) (108,365)
Proceeds from issuance of long-term debt 176,002 121,000
Proceeds from mortgages on Rochester properties --- 23,400
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Net cash (used in) provided by financing activities (5,395) 36,035
Net increase in cash and cash equivalents 3,129 3,296
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,516 6,941
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,645 $ 10,237
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,686 $ 5,448
Income taxes paid (refunded) $ 2,183 $ (8,643)
The accompanying notes are an integral part of these consolidated statements.
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THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, through its subsidiaries, 64 retail department stores
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 Annual Report on Form 10-K for the
year ended February 1, 1997 (the "1996 Annual Report").
2. PER SHARE AMOUNTS:
Per share amounts were computed by dividing the corresponding net loss amounts
by the weighted average number of common shares outstanding.
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THE BON-TON STORES, INC. AND SUBSIDIARIES
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 TWENTY-SIX
WEEKS ENDED WEEKS ENDED
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AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
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Net sales 100.0% 100.0% 100.0% 100.0%
Other income, net 0.3 0.4 0.4 0.4
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100.3 100.4 100.4 100.4
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Costs and expenses:
Costs of merchandise sold 62.4 62.2 62.8 62.2
Selling, general and administrative 34.4 35.3 34.4 35.7
Depreciation and amortization 2.3 2.3 2.3 2.3
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Income from operations 1.2 0.6 0.9 0.2
Interest expense, net 2.3 2.9 2.5 2.7
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Loss before income taxes (1.1) (2.3) (1.6) (2.5)
Income tax benefit (0.4) (0.8) (0.6) (0.9)
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Loss before extraordinary item (0.7) (1.5) (1.0) (1.6)
Extraordinary item - loss on early extinguishment of debt, net of tax --- --- (0.2) ---
- ----------------------------------------------------------------------- ----- ----- ----- -----
Net loss (0.7)% (1.5)% (1.2)% (1.6)%
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THIRTEEN WEEKS ENDED AUGUST 2, 1997 COMPARED TO THIRTEEN WEEKS ENDED AUGUST 3,
1996
For the purpose of the following discussions, all references to "second quarter
of 1997" and "second quarter of 1996" are to the Company's thirteen week period
ended August 2, 1997 and August 3, 1996, respectively.
NET SALES. Net sales were $138.0 million for the thirteen weeks ended August 2,
1997, an increase of 5.5% over the same period last year. Comparable store
sales increased 6.9% for the period, with shoes, juniors, cosmetics, dresses and
ladies' sportswear categories achieving sales increases greater than Company
average.
OTHER INCOME, NET. Net other income, which consisted mainly of income from
leased departments, decreased to 0.3% of net sales in the second quarter of 1997
compared to 0.4% in the second quarter of 1996.
COSTS AND EXPENSES. Gross profit dollars in the second quarter of 1997
increased $2.4 million over the second quarter of 1996 due to the increased
sales base. Gross profit as a percentage of net sales decreased by 0.2
percentage points to 37.6% for the thirteen weeks ended August 2, 1997 from
37.8% for the comparable period last year. The decline in the margin rate was
largely attributable to a lower initial markup strategy initiated by management.
Selling, general and administrative expenses for the second quarter of 1997
increased $1.3 million to 34.4% of net sales from 35.3% of net sales in the
prior year. The rate decrease was due primarily to expense control efforts and
continued operating leverage achieved by the Company in store and corporate
expense categories as a result of higher sales volume.
Depreciation and amortization remained constant at 2.3% of net sales for the
thirteen weeks ended August 2, 1997 and August 3, 1996.
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THE BON-TON STORES, INC. AND SUBSIDIARIES
INCOME FROM OPERATIONS. Income from operations for the second quarter of 1997
was $1.7 million, or 1.2% of net sales, compared to income from operations of
$0.8 million, or 0.6% of net sales, in the comparable period last year. The
improvement for the period was achieved through the continued control of
selling, general and administrative expenses and increased gross margin dollars.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. Pro-forma effects, as if the Company had on-
balance sheet financing, would have reduced selling, general and administrative
expenses by $1.7 million in the second quarter of 1997 and $1.4 million in the
second quarter of 1996. 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 $3.4 million in the second quarter of 1997 and $2.2 million
for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense decreased to 2.3% of net sales for
the thirteen weeks ended August 2, 1997 compared to 2.9% of net sales for the
thirteen weeks ended August 3, 1996. The decrease is primarily attributed to
the lower borrowing levels in the second quarter of 1997 compared to the second
quarter of 1996.
NET LOSS. The net loss for the second quarter of 1997 amounted to $1.0 million
compared to a net loss of $1.9 million in the second quarter of 1996.
Due to the seasonal nature of the Company's business, the results for the
current year second quarter are not necessarily indicative of the results that
may be achieved for the full fiscal year of 1997.
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED AUGUST
3, 1996
For the purpose of the following discussions, all references to "1997" and
"1996" are to the Company's twenty-six week period ended August 2, 1997 and
August 3, 1996, respectively.
NET SALES. Net sales were $272.2 million for 1997, an increase of 4.7% over the
same period last year. Comparable store sales increased 6.0% for the period,
with shoes, ladies' sportswear categories, cosmetics and dresses achieving sales
increases greater than Company average.
OTHER INCOME, NET. Net other income, which consisted mainly of income from
leased departments, remained constant at 0.4% of net sales in 1997 and 1996.
COSTS AND EXPENSES. Gross profit dollars in 1997 increased $2.9 million over
1996 due primarily to the increased sales base, partially offset by the decrease
in gross profit as a percentage of net sales to 37.2% for the twenty-six week
period ended August 2, 1997 from 37.8% for the comparable period last year. The
decline in the margin rate was largely attributable to a lower initial markup
strategy initiated by management.
Selling, general and administrative expenses for 1997 increased $0.7 million to
34.4% of net sales from 35.7% of net sales in the prior year. The rate decrease
principally reflected expense control efforts and operating leverage achieved by
the Company in both store and corporate expense categories as a result of the
improvement in the Company's sales base.
Depreciation and amortization remained constant at 2.3% of net sales for the
twenty-six weeks ended August 2, 1997 and August 3, 1996.
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THE BON-TON STORES, INC. AND SUBSIDIARIES
INCOME FROM OPERATIONS. Income from operations for 1997 was $2.3 million, or
0.9% of net sales, compared to income from operations of $0.4 million, or 0.2%
of net sales, in the comparable period last year. The improvement for the
period was achieved through the continued control of selling, general and
administrative expenses and increased margin dollars.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. Pro-forma effects, as if the Company had on-
balance sheet financing, would have reduced selling, general and administrative
expenses by $3.3 million in 1997 and $3.5 million in 1996. 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 $5.6 million in 1997
and $3.9 million for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense decreased to 2.5% of net sales in
1997 compared to 2.7% of net sales in 1996. The decrease was a result of lower
borrowing levels incurred by the Company as compared to the same period last
year and the achievement of a higher sales base in 1997.
LOSS BEFORE EXTRAORDINARY ITEM. The net loss before the extraordinary item was
$2.8 million in 1997, a 33% improvement compared to a loss of $4.1 million in
1996.
EXTRAORDINARY ITEM. The Company entered into a new asset based borrowing
agreement on April 10, 1997 (see Note 4 of the Company's Form 10-Q for the
quarter ended May 3, 1997). As a result of this transaction, the Company
incurred an extraordinary charge of $0.4 million (net of $0.3 million income tax
benefit) relating to early extinguishment of existing debt.
NET LOSS. The net loss for 1997, after the impact of the extraordinary item,
amounted to $3.2 million compared to a net loss of $4.1 million in 1996.
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 1997.
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:
(dollars in millions)
August 2, August 3,
1997 1996
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Working Capital $ 116.4 $ 125.3
Current Ratio 2.31:1 2.30:1
Total Debt to Total Capitalization 0.55:1 0.62:1
Available Lines of Credit $ 24.0 $ 19.2
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THE BON-TON STORES, INC. AND SUBSIDIARIES
For the twenty-six weeks ended August 2, 1997, net cash provided by operating
activities amounted to $5.4 million, as compared to net cash used in operating
activities of $8.9 million for the comparable period last year. Net cash
provided by operating activities for 1997, supplemented by a $4.6 million
pension asset reversion (net of federal excise tax payment), improved compared
to the same period last year when additional working capital was employed to
increase merchandise inventory to support the Company's inventory
intensification initiative.
Net cash provided by investing activities amounted to $3.1 million for the
twenty-six weeks ended August 2, 1997, compared to cash used in investing
activities of $23.9 million for the comparable period last year. The net cash
provided during the twenty-six week period ended August 2, 1997 was primarily a
result of the proceeds received from the sale and leaseback arrangement (see
Note 4 of the Company's Form 10-Q for the quarter ended May 3, 1997).
Net cash used in financing activities amounted to $5.4 million for the twenty-
six week period ended August 2, 1997, as compared to cash provided by financing
activities of $36.0 million for the comparable period last year. The reduction
in the cash provided by financing activities in 1997 was a result of the
Company's improved 1997 operating results and the application of proceeds
received from the Company's sale and leaseback arrangement. The cash provided
during the twenty-six weeks ended August 3, 1996 was primarily the result of the
proceeds the Company received from mortgages on the Rochester properties (as
discussed in Note 2 of the 1996 Annual Report).
The Company anticipates that its cash flow 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:
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Certain information included in this Form 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.
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THE BON-TON STORES, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 17, 1997, the Company held its Annual Meeting of Shareholders. The
following matters were submitted for vote:
1. The following individuals were nominated and elected to serve as the directors of the Company:
M. Thomas Grumbacher For: 36,206,087
Withhold Authority: 532,367
Heywood L. Wilansky For: 36,205,687
Withhold Authority: 532,767
Samuel J. Gerson For: 36,207,287
Withhold Authority: 531,167
Michael L. Gleim For: 36,207,087
Withhold Authority: 531,367
Roger S. Hillas For: 36,206,687
Withhold Authority: 531,767
Lawrence J. Ring For: 36,207,287
Withhold Authority: 531,167
Leon D. Starr For: 36,206,287
Withhold Authority: 532,167
Leon F. Winbigler For: 36,206,887
Withhold Authority: 531,567
2. The holders of 35,230,682 shares voted in favor of, the holders of 845,303
shares voted against, the holders of 9,115 shares abstained with respect to
the adoption of the following matter:
The amendment to the Company's 1991 Amended and Restated Stock Option and
Restricted Stock Plan (the "Plan") to increase the maximum number of shares
available to be issued pursuant to the exercise of options granted
thereunder from 1,350,000 to 1,900,000 and to make available shares subject
to options granted pursuant to the Plan to all directors.
3. The holders of 35,986,553 shares voted in favor of, the holders of 647,027
shares voted against, the holders of 24,919 shares abstained with respect
to the approval of The Bon-Ton Stores, Inc. Long-Term Incentive Plan for
Principals.
4. The holders of 36,491,376 shares voted in favor of, the holders of 143,404
shares voted against, and the holders of 23,719 shares abstained with
respect to the adoption of the following matter:
The amendment of the Company's Management Incentive Plan to permit
participants to elect to receive a portion of their annual bonus in shares
of Common Stock of the Company.
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THE BON-TON STORES, INC. AND SUBSIDIARIES
5. The holders of 36,732,138 shares voted in favor of, the holders of 4,334
shares voted against, and the holders of 1,982 shares abstained with
respect to the ratification of the selection of Arthur Andersen LLP to
serve as independent accountants for the Company.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed pursuant to the requirements of Item 601
of Regulation S-K:
Exhibit No. Description
27 Financial Data Schedule
(b) The Company did not file Current Reports on Form 8-K during the thirteen
week period ended August 2, 1997.
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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: September 15,1997 By: /s/ Michael L. Gleim
--------------------- -------------------------------
Michael L. Gleim
Vice Chairman and
Chief Operating Officer
Date: September 15, 1997 By: /s/ James H. Baireuther
--------------------- --------------------------------
James H. Baireuther
Senior Vice President and
Chief Financial Officer
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