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EXCEL - IDEA: XBRL DOCUMENT - BON TON STORES INC | Financial_Report.xls |
EX-32.1 - EX-32.1 - BON TON STORES INC | c24011exv32w1.htm |
EX-31.2 - EX-31.2 - BON TON STORES INC | c24011exv31w2.htm |
EX-31.1 - EX-31.1 - BON TON STORES INC | c24011exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
of the Securities Exchange Act of 1934
For the Quarter ended October 29, 2011 | Commission File Number | |
0-19517 |
THE BON-TON STORES, INC.
2801 East Market Street
York, Pennsylvania 17402
(717) 757-7660
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 twelve months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of November 25, 2011, there were 16,750,076 shares of Common Stock, $.01 par value, and
2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.
TABLE OF CONTENTS
Table of Contents
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(In thousands except share and per share data) | October 29, | January 29, | ||||||
(Unaudited) | 2011 | 2011 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 12,808 | $ | 16,339 | ||||
Merchandise inventories |
956,835 | 682,324 | ||||||
Prepaid expenses and other current assets |
66,483 | 78,418 | ||||||
Total current assets |
1,036,126 | 777,081 | ||||||
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization
of $728,831 and $657,541 at October 29, 2011 and January 29, 2011, respectively |
679,021 | 703,432 | ||||||
Deferred income taxes |
11,086 | 9,587 | ||||||
Intangible assets, net of accumulated amortization of $51,718 and $46,245 at
October 29, 2011 and January 29, 2011, respectively |
123,787 | 130,080 | ||||||
Other long-term assets |
29,012 | 36,059 | ||||||
Total assets |
$ | 1,879,032 | $ | 1,656,239 | ||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 389,182 | $ | 175,249 | ||||
Accrued payroll and benefits |
33,272 | 45,769 | ||||||
Accrued expenses |
150,758 | 167,204 | ||||||
Current maturities of long-term debt |
7,311 | 6,978 | ||||||
Current maturities of obligations under capital leases |
4,921 | 5,825 | ||||||
Deferred income taxes |
15,465 | 12,709 | ||||||
Income taxes payable |
42 | 137 | ||||||
Total current liabilities |
600,951 | 413,871 | ||||||
Long-term debt, less current maturities |
984,946 | 856,687 | ||||||
Obligations under capital leases, less current maturities |
57,607 | 61,043 | ||||||
Other long-term liabilities |
145,073 | 141,286 | ||||||
Total liabilities |
1,788,577 | 1,472,887 | ||||||
Contingencies (Note 11) |
||||||||
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 shares of
17,077,876 and 16,520,859 at October 29, 2011 and January 29, 2011, respectively |
171 | 165 | ||||||
Class A Common Stock authorized 20,000,000 shares at $0.01 par value; issued
and outstanding shares of 2,951,490 at October 29, 2011 and January 29, 2011 |
30 | 30 | ||||||
Treasury stock, at cost - 337,800 shares at October 29, 2011 and January 29, 2011 |
(1,387 | ) | (1,387 | ) | ||||
Additional paid-in-capital |
154,134 | 153,331 | ||||||
Accumulated other comprehensive loss |
(37,009 | ) | (36,498 | ) | ||||
(Accumulated deficit) retained earnings |
(25,484 | ) | 67,711 | |||||
Total shareholders equity |
90,455 | 183,352 | ||||||
Total liabilities and shareholders equity |
$ | 1,879,032 | $ | 1,656,239 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Table of Contents
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
(In thousands except per share data) | October 29, | October 30, | October 29, | October 30, | ||||||||||||
(Unaudited) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net sales |
$ | 656,070 | $ | 700,514 | $ | 1,901,431 | $ | 1,970,483 | ||||||||
Other income |
14,498 | 16,423 | 42,888 | 44,285 | ||||||||||||
670,568 | 716,937 | 1,944,319 | 2,014,768 | |||||||||||||
Costs and expenses: |
||||||||||||||||
Costs of merchandise sold |
410,703 | 432,852 | 1,203,888 | 1,224,343 | ||||||||||||
Selling, general and administrative |
234,856 | 235,422 | 676,681 | 687,498 | ||||||||||||
Depreciation and amortization |
23,271 | 24,798 | 74,005 | 77,538 | ||||||||||||
Amortization of lease-related interests |
1,195 | 1,131 | 3,584 | 3,424 | ||||||||||||
Income (loss) from operations |
543 | 22,734 | (13,839 | ) | 21,965 | |||||||||||
Interest expense, net |
21,938 | 28,347 | 68,005 | 85,037 | ||||||||||||
Loss on extinguishment of debt |
| | 9,450 | | ||||||||||||
Loss before income taxes |
(21,395 | ) | (5,613 | ) | (91,294 | ) | (63,072 | ) | ||||||||
Income tax provision (benefit) |
640 | 661 | (971 | ) | 474 | |||||||||||
Net loss |
$ | (22,035 | ) | $ | (6,274 | ) | $ | (90,323 | ) | $ | (63,546 | ) | ||||
Per share amounts |
||||||||||||||||
Basic: |
||||||||||||||||
Net loss |
$ | (1.21 | ) | $ | (0.36 | ) | $ | (5.00 | ) | $ | (3.60 | ) | ||||
Diluted: |
||||||||||||||||
Net loss |
$ | (1.21 | ) | $ | (0.36 | ) | $ | (5.00 | ) | $ | (3.60 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
THIRTY-NINE | ||||||||
WEEKS ENDED | ||||||||
(In thousands) | October 29, | October 30, | ||||||
(Unaudited) | 2011 | 2010 | ||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (90,323 | ) | $ | (63,546 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
74,005 | 77,538 | ||||||
Amortization of lease-related interests |
3,584 | 3,424 | ||||||
Share-based compensation expense |
3,995 | 5,570 | ||||||
Loss on sale of property, fixtures and equipment |
7 | 208 | ||||||
Reclassifications of other comprehensive loss |
2,714 | 5,858 | ||||||
Loss on extinguishment of debt |
9,450 | | ||||||
Amortization of deferred financing costs |
6,506 | 6,959 | ||||||
Amortization of deferred gain on sale of proprietary credit card portfolio |
(1,810 | ) | (1,811 | ) | ||||
Deferred income tax (benefit) provision |
(1,968 | ) | 1,181 | |||||
Changes in operating assets and liabilities: |
||||||||
Increase in merchandise inventories |
(274,511 | ) | (261,201 | ) | ||||
Decrease in prepaid expenses and other current assets |
11,934 | 13,208 | ||||||
Decrease in other long-term assets |
786 | 2,669 | ||||||
Increase in accounts payable |
201,994 | 177,341 | ||||||
Decrease in accrued payroll and benefits and accrued expenses |
(25,691 | ) | (10,577 | ) | ||||
(Decrease) increase in income taxes payable |
(95 | ) | 193 | |||||
Increase (decrease) in other long-term liabilities |
5,986 | (4 | ) | |||||
Net cash used in operating activities |
(73,437 | ) | (42,990 | ) | ||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(51,069 | ) | (36,048 | ) | ||||
Proceeds from sale of property, fixtures and equipment |
2,386 | 77 | ||||||
Net cash used in investing activities |
(48,683 | ) | (35,971 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments on long-term debt and capital lease obligations |
(469,952 | ) | (433,534 | ) | ||||
Proceeds from issuance of long-term debt |
590,440 | 512,285 | ||||||
Cash dividends paid |
(1,910 | ) | | |||||
Restricted shares forfeited in lieu of payroll taxes |
(3,584 | ) | (4,082 | ) | ||||
Proceeds from stock options exercised |
398 | | ||||||
Deferred financing costs paid |
(5,931 | ) | (717 | ) | ||||
Increase in book overdraft balances |
9,128 | 4,453 | ||||||
Net cash provided by financing activities |
118,589 | 78,405 | ||||||
Net decrease in cash and cash equivalents |
(3,531 | ) | (556 | ) | ||||
Cash and cash equivalents at beginning of period |
16,339 | 18,922 | ||||||
Cash and cash equivalents at end of period |
$ | 12,808 | $ | 18,366 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
Accumulated | ||||||||||||||||||||||||||||
Other | (Accumulated | |||||||||||||||||||||||||||
Class A | Additional | Compre- | Deficit) | |||||||||||||||||||||||||
(In thousands except per share data) | Common | Common | Treasury | Paid-in | hensive | Retained | ||||||||||||||||||||||
(Unaudited) | Stock | Stock | Stock | Capital | Loss | Earnings | Total | |||||||||||||||||||||
BALANCE AT JANUARY 29, 2011 |
$ | 165 | $ | 30 | $ | (1,387 | ) | $ | 153,331 | $ | (36,498 | ) | $ | 67,711 | $ | 183,352 | ||||||||||||
Comprehensive loss (Note 12): |
||||||||||||||||||||||||||||
Net loss |
| | | | | (90,323 | ) | (90,323 | ) | |||||||||||||||||||
Pension and postretirement benefit plans |
| | | | 1,507 | | 1,507 | |||||||||||||||||||||
Cash flow derivatives, net of $3,224 tax benefit |
| | | | (2,018 | ) | | (2,018 | ) | |||||||||||||||||||
Total comprehensive loss |
(90,834 | ) | ||||||||||||||||||||||||||
Dividends to shareholders, $0.15 per share |
| | | | | (2,872 | ) | (2,872 | ) | |||||||||||||||||||
Restricted shares forfeited in lieu of payroll taxes |
(2 | ) | | | (3,582 | ) | | | (3,584 | ) | ||||||||||||||||||
Proceeds from stock options exercised |
1 | | | 397 | | | 398 | |||||||||||||||||||||
Share-based compensation expense |
7 | | | 3,988 | | | 3,995 | |||||||||||||||||||||
BALANCE AT OCTOBER 29, 2011 |
$ | 171 | $ | 30 | $ | (1,387 | ) | $ | 154,134 | $ | (37,009 | ) | $ | (25,484 | ) | $ | 90,455 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
1. BASIS OF PRESENTATION
The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as
the successor of a company incorporated on January 31, 1929. As of October 29, 2011, The Bon-Ton
Stores, Inc. operated, through its subsidiaries, 275 stores in 23 states in the Northeast, Midwest
and upper Great Plains under the Bon-Ton, Bergners, Boston Store, Carson Pirie Scott,
Elder-Beerman, Herbergers and Younkers nameplates and, in the Detroit, Michigan area, under the
Parisian nameplate. The Bon-Ton Stores, Inc. conducts its operations through one business segment.
The accompanying unaudited consolidated financial statements include the accounts of The
Bon-Ton Stores, Inc. and its wholly owned subsidiaries (collectively, the Company). Variable
interest entities are consolidated where it has been determined the Company is the primary
beneficiary of those entities operations. 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 in annual
consolidated financial statements prepared in accordance with accounting principles generally
accepted in the United States. In the opinion of management, all adjustments considered necessary
for a fair presentation of interim periods have been included. The Companys business is seasonal
in nature and results of operations for the interim periods presented are not necessarily
indicative of results for the full fiscal year. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto included
in the Companys Annual Report on Form 10-K for the fiscal year ended January 29, 2011.
For purposes of the following discussion, references to the first quarter of 2011 and the
first quarter of 2010 are to the 13 weeks ended April 30, 2011 and May 1, 2010, respectively.
References to the third quarter of 2011 and the third quarter of 2010 are to the 13 weeks ended
October 29, 2011 and October 30, 2010, respectively. References to fiscal 2011 are to the 52
weeks ending January 28, 2012; references to fiscal 2010 are to the 52 weeks ended January 29,
2011.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires that management make estimates and assumptions about future
events. These estimates and assumptions affect the amounts of assets and liabilities reported,
disclosures about contingent assets and liabilities, and the reported amounts of revenues and
expenses. Such estimates include those related to merchandise returns, inventories, long-lived
assets, intangible assets, insurance reserves, contingencies, litigation and assumptions used in
the calculation of income taxes and retirement and other post-employment benefits, among others.
These estimates and assumptions are based on managements best estimates and judgments. Management
evaluates its estimates and assumptions on an ongoing basis using historical experience and other
factors, including the current economic environment, which management believes to be reasonable
under the circumstances. Management adjusts such estimates and assumptions when facts and
circumstances dictate. As future events and their effects cannot be determined with precision,
actual results could differ significantly from these estimates. Changes in estimates resulting
from further changes in the economic environment will be reflected in the financial statements in
future periods.
Recently Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update
No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements (ASU 2010-06), which requires disclosures regarding recurring or
nonrecurring fair value measurements. The Company adopted certain required provisions of ASU
2010-06 in the first quarter of 2010. In the first quarter of 2011, the Company adopted the
remaining provision of ASU 2010-06 requiring companies to provide information on purchases, sales, issuances and settlements on a
gross basis in the reconciliation of Level 3 fair value measurements. As the Company has no
financial assets or liabilities carried at fair value and measured on a recurring basis categorized
as a Level 3 fair value measurement, there are no additional disclosure requirements applicable to
the Company (see Note 3).
6
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
2. PER-SHARE AMOUNTS
The following table presents a reconciliation of net loss and weighted average shares
outstanding used in basic and diluted earnings (loss) per share (EPS) calculations for each
period presented:
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic Loss Per Common Share |
||||||||||||||||
Net loss |
$ | (22,035 | ) | $ | (6,274 | ) | $ | (90,323 | ) | $ | (63,546 | ) | ||||
Less: Income allocated to participating securities |
| | | | ||||||||||||
Net loss available to common shareholders |
$ | (22,035 | ) | $ | (6,274 | ) | $ | (90,323 | ) | $ | (63,546 | ) | ||||
Weighted average common shares outstanding |
18,151,401 | 17,627,630 | 18,068,224 | 17,646,088 | ||||||||||||
Basic loss per common share |
$ | (1.21 | ) | $ | (0.36 | ) | $ | (5.00 | ) | $ | (3.60 | ) | ||||
Diluted Loss Per Common Share |
||||||||||||||||
Net loss |
$ | (22,035 | ) | $ | (6,274 | ) | $ | (90,323 | ) | $ | (63,546 | ) | ||||
Less: Income allocated to participating securities |
| | | | ||||||||||||
Net loss available to common shareholders |
$ | (22,035 | ) | $ | (6,274 | ) | $ | (90,323 | ) | $ | (63,546 | ) | ||||
Weighted average common shares outstanding |
18,151,401 | 17,627,630 | 18,068,224 | 17,646,088 | ||||||||||||
Common shares issuable stock options |
| | | | ||||||||||||
Weighted average common shares outstanding
assuming dilution |
18,151,401 | 17,627,630 | 18,068,224 | 17,646,088 | ||||||||||||
Diluted loss per common share |
$ | (1.21 | ) | $ | (0.36 | ) | $ | (5.00 | ) | $ | (3.60 | ) | ||||
Due to the Companys net loss position, weighted average unvested restricted shares
(participating securities) of 1,409,442 and 1,373,480 for the third quarter in each of 2011 and
2010, respectively, and 1,392,840 and 1,241,438 for the 39 weeks ended October 29, 2011 and October
30, 2010, respectively, were not considered in the calculation of net loss available to common
shareholders used for both basic and diluted EPS.
In addition, weighted average stock option shares (non-participating securities) of 973,659
and 1,056,322 for the third quarter in each of 2011 and 2010, respectively, and 993,475 and
1,059,750 for the 39 weeks ended October 29, 2011 and October 30, 2010, respectively, were excluded
from the calculation of diluted EPS as they would have been antidilutive. Certain of these stock
option shares were excluded solely due to the Companys net loss position. Had the Company
reported net income for the third quarter in each
of 2011 and 2010, these shares would have had an effect of 64,413 and 204,653 dilutive shares,
respectively, for purposes of calculating diluted EPS. Had the Company reported net income for the
39 weeks ended October 29, 2011 and October 30, 2010, these shares would have had an effect of
197,051 and 243,487 dilutive shares, respectively, for purposes of calculating diluted EPS.
7
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
3. FAIR VALUE MEASUREMENTS
Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures
(ASC 820) defines fair value and establishes a framework for measuring fair value. ASC 820
establishes fair value hierarchy levels that prioritize the inputs used in valuations determining
fair value. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or
liabilities. Level 2 inputs are primarily quoted prices for similar assets or liabilities in
active markets or inputs that are observable for the asset or liability, either directly or
indirectly. Level 3 inputs are unobservable inputs based on the Companys own assumptions.
Prior to their maturity on July 14, 2011, the Company held two interest rate swap contracts
required to be measured at fair value on a recurring basis (see Note 4). The fair values of these
interest rate swap contracts were derived from discounted cash flow analysis utilizing an interest
rate yield curve that was readily available to the public or could be derived from information
available in publicly quoted markets. Therefore, the Company had categorized these interest rate
swap contracts as a Level 2 fair value measurement. There was no change in the valuation technique
used to determine the fair value of the interest rate swap contracts.
The interest rate swap contracts liability comprised the entirety of the Companys financial
assets and liabilities carried at fair value and measured on a recurring basis. The carrying value
of the interest rate swap contracts liability prior to their maturity on July 14, 2011 is as
follows:
Significant | ||||||||||||||||
Quoted Prices | Other | Significant | ||||||||||||||
in Active | Observable | Unobservable | ||||||||||||||
Markets | Inputs | Inputs | ||||||||||||||
Carrying Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
January 29, 2011 |
$ | 2,288 | $ | | $ | 2,288 | $ | |
The carrying values of the Companys cash and cash equivalents, accounts payable and financial
instruments reported within prepaid expenses and other current assets and other long-term assets
approximate fair value. The carrying value of the Companys long-term debt, including current
maturities but excluding capital leases, was $992,257 and $863,665 at October 29, 2011 and January
29, 2011, respectively, and the estimated fair value was $940,803 and $869,539 at October 29, 2011
and January 29, 2011, respectively. The fair value estimate of the Companys long-term debt is
based on quoted market rates available to the Company or discounted cash flow analysis as
appropriate.
4. INTEREST RATE DERIVATIVES
It is the policy of the Company to identify on a continuing basis the need for debt capital
and evaluate financial risks inherent in funding the Company with debt capital. In conjunction
with this ongoing review, the debt portfolio and hedging program of the Company is managed to: (1)
reduce funding risk with respect to borrowings made or to be made by the Company to preserve the
Companys access to debt capital and provide debt capital as required for funding and liquidity
purposes, and (2) control the aggregate interest rate risk of the debt portfolio. The Company has
previously entered and may in the future enter into interest rate swap agreements to change the
fixed/variable interest rate mix of the debt portfolio in order to maintain an appropriate balance
of fixed-rate and variable-rate debt and to mitigate the impact of volatile interest rates. These
derivatives are accounted for in accordance with ASC 815, Derivatives and Hedging (ASC 815).
8
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
On the date the derivative instrument is entered into, the Company designates the derivative
as a hedge 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
required criteria for, a cash flow hedge are recorded in other comprehensive income or loss and
reclassified into the statement of operations as the underlying hedged item affects earnings, such
as when quarterly settlements are made on the hedged forecasted transaction. 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, if any, is recorded in
the current statement of operations. Also, changes in the fair value of a derivative that is not
designated as a hedge, if any, are entirely recorded in the statement of operations. 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 balance sheet
assets or liabilities. 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 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 for the respective derivative. In addition, if the forecasted transaction
is no longer probable of occurring, any amounts in accumulated other comprehensive income or loss
(AOCI) related to the derivative are recorded in the statement of operations for the current
period.
The Company had two interest rate swap contracts to effectively convert a portion of its
variable-rate debt to fixed-rate debt, both of which were entered into on July 14, 2006 and expired
on July 14, 2011. These contracts entailed the exchange of fixed-rate and floating-rate interest
payments periodically over the life of the agreement. The floating-rate interest payments were
based on three-month LIBOR rates. The following indicates the notional amounts and the range of
fixed-rates associated with these expired interest rate swap contracts:
Fixed swaps (notional amount) |
$ | 100,000 | ||
Range of pay rate |
5.48%-5.49 | % |
The following table summarizes the fair value (see Note 3) and presentation of the interest
rate swap contracts in the consolidated balance sheet prior to their expiration on July 14, 2011:
Balance Sheet Location | Derivative Assets | Derivative Liabilities | ||||||||||
January 29, 2011 |
Accrued expenses | $ | | $ | 2,288 |
On December 4, 2009, the Company amended and restated its prior senior secured credit
facility, at which time the Company de-designated and re-measured its two interest rate swaps and
discontinued hedge accounting prospectively in accordance with ASC 815. Specifically, ASC 815
requires the immediate recognition of the expected cumulative ineffectiveness, with the remaining
amount to remain in AOCI and be reclassified into the statement of operations as the originally
hedged forecasted transactions affect the statement of operations. All changes in fair value after
December 4, 2009 were recognized in interest expense.
9
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The following table summarizes the effect of the interest rate swaps on the consolidated
statement of operations and AOCI, after being de-designated on December 4, 2009:
Amount of | ||||||||||||||||
Location of Loss | Amount of Loss | Loss | ||||||||||||||
Reclassified from | Reclassified | Location of Loss | Recognized | |||||||||||||
AOCI to the | from AOCI to | Recognized in | in the | |||||||||||||
Statement of | the Statement of | the Statement of | Statement of | |||||||||||||
Operations | Operations | Operations | Operations | |||||||||||||
13 Weeks Ended October 29, 2011 |
Interest expense, net | $ | | Interest expense, net | $ | | ||||||||||
13 Weeks Ended October 30, 2010 |
Interest expense, net | $ | 982 | Interest expense, net | $ | 245 | ||||||||||
39 Weeks Ended October 29, 2011 |
Interest expense, net | $ | 1,206 | Interest expense, net | $ | 93 | ||||||||||
39 Weeks Ended October 30, 2010 |
Interest expense, net | $ | 2,948 | Interest expense, net | $ | 1,088 | ||||||||||
Due to the interest rate swap contracts expiring on July 14, 2011, there is no remaining
balance in AOCI related to the swaps.
5. SUPPLEMENTAL BALANCE SHEET INFORMATION
Prepaid expenses and other current assets were comprised of the following:
October 29, | January 29, | |||||||
2011 | 2011 | |||||||
Prepaid expenses |
$ | 39,636 | $ | 28,367 | ||||
Other receivables |
26,847 | 50,051 | ||||||
Total |
$ | 66,483 | $ | 78,418 | ||||
6. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for the periods reported:
THIRTY-NINE | ||||||||
WEEKS ENDED | ||||||||
October 29, | October 30, | |||||||
2011 | 2010 | |||||||
Cash paid for: |
||||||||
Interest, net of amounts capitalized |
$ | 78,743 | $ | 91,140 | ||||
Income taxes, net of refunds received |
690 | (6,598 | ) | |||||
Non-cash investing and financing activities: |
||||||||
Property, fixtures and equipment included in accrued expenses |
$ | 3,083 | $ | 2,358 | ||||
Assets acquired under capital leases |
| 1,724 | ||||||
Declared dividends to shareholders included in accrued expenses |
962 | |
10
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
7. EXIT OR DISPOSAL ACTIVITIES
The following table summarizes exit or disposal activities during the 39 weeks ended October
29, 2011 related to involuntary associate termination costs and other closing costs associated with
the Companys store closings in fiscal 2010; the lease termination costs associated with the
relocation of a store in fiscal 2011; involuntary associate termination costs associated with the
announced closings of a Bon-Ton store in York, Pennsylvania and an Elder-Beerman store in Dayton,
Ohio in January 2012 and February 2012, respectively; and involuntary associate termination costs
associated with the announced sale of the Companys three Bon-Ton stores in Rochester, New York,
two of which are scheduled for closing in March 2012 and the third slated for completion by March
2014:
Termination | Other | |||||||||||
Benefits | Costs | Total | ||||||||||
Balance as of January 29, 2011 |
$ | 109 | $ | 88 | $ | 197 | ||||||
Provision: |
||||||||||||
Thirteen weeks ended April 30, 2011 |
(10 | ) | 922 | 912 | ||||||||
Thirteen weeks ended July 30, 2011 |
| | | |||||||||
Thirteen weeks ended October 29, 2011 |
403 | | 403 | |||||||||
Payments: |
||||||||||||
Thirteen weeks ended April 30, 2011 |
(99 | ) | (83 | ) | (182 | ) | ||||||
Thirteen weeks ended July 30, 2011 |
| | | |||||||||
Thirteen weeks ended October 29, 2011 |
| | | |||||||||
Balance as of October 29, 2011 |
$ | 403 | $ | 927 | $ | 1,330 | ||||||
The above provisions were included within selling, general and administrative expense.
8. EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS
The Company provides benefits to certain current and former associates who are eligible under
a defined benefit pension plan and various supplemental pension plans (collectively, the Pension
Plans). Net periodic benefit expense for the Pension Plans includes the following (income) and
expense components:
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest cost |
$ | 2,373 | $ | 2,543 | $ | 7,120 | $ | 7,629 | ||||||||
Expected return on plan assets |
(2,359 | ) | (1,977 | ) | (7,076 | ) | (5,931 | ) | ||||||||
Recognition of net actuarial loss |
628 | 970 | 1,883 | 2,910 | ||||||||||||
Net periodic benefit expense |
$ | 642 | $ | 1,536 | $ | 1,927 | $ | 4,608 | ||||||||
During the 39 weeks ended October 29, 2011, contributions of $636 were made to the Pension
Plans. The Company anticipates contributing an additional $182 to fund the Pension Plans in fiscal
2011 for an annual total of $818.
11
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Company also provides medical and life insurance benefits to certain former associates
under a postretirement benefit plan (Postretirement Benefit Plan). Net periodic benefit (income)
expense for the Postretirement Benefit Plan includes the following (income) and expense components:
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest cost |
$ | 45 | $ | 81 | $ | 136 | $ | 244 | ||||||||
Recognition of net actuarial gain |
(125 | ) | | (375 | ) | | ||||||||||
Net periodic benefit (income) expense |
$ | (80 | ) | $ | 81 | $ | (239 | ) | $ | 244 | ||||||
During the 39 weeks ended October 29, 2011, the Company contributed $253 to fund the
Postretirement Benefit Plan, and anticipates contributing an additional $353 in fiscal 2011 for a
net annual total of $606.
9. LONG-TERM DEBT
On January 31, 2011, the Company voluntarily prepaid its outstanding indebtedness under its
Second Lien Loan and Security Agreement that provided for $75,000 of term loans expiring November
18, 2013 (the Term Loan Facility). As a result of such prepayment, the Term Loan Facility was
terminated. As provided in the Term Loan Facility, the Company paid an early termination fee of
$3,750 (5.0% of the principal amount repaid) and $14 in legal fees simultaneously with the
prepayment of the outstanding indebtedness. In addition, $4,415 of unamortized deferred financing
fees related to the facility was accelerated on the date of termination. Fees paid and deferred
financing fees accelerated were recognized in loss on extinguishment of debt.
On March 21, 2011, The Bon-Ton Department Stores, Inc.; The Elder-Beerman Stores Corp.; Carson
Pirie Scott II, Inc.; Bon-Ton Distribution, Inc.; and McRIL, LLC, as borrowers (the Borrowers),
and the Company and certain other subsidiaries as obligors (together with the Borrowers and the
Company, the Obligors) entered into a $625,000 senior secured asset-based Second Amended and
Restated Loan and Security Agreement (the Second Amended Revolving Credit Facility) that expires
on the earlier of (a) March 21, 2016 and (b) the date that is 60 days prior to the earlier of the
maturity date of the senior unsecured notes and the mortgage loan facility. The Second Amended
Revolving Credit Facility replaced the Companys prior $675,000 revolving credit facility, which
was scheduled to mature on June 4, 2013. The proceeds of the Second Amended Revolving Credit
Facility were used to pay the outstanding balance under the pre-existing revolving credit facility
and will be used for other general corporate purposes. Unamortized deferred financing fees of
$1,271 related to the prior facility were accelerated on the date of the agreement and recognized
in loss on extinguishment of debt.
All borrowings under the Second Amended Revolving Credit Facility are limited by amounts
available pursuant to a borrowing base calculation, which is based on percentages of eligible
inventory, real estate and credit card receivables, in each case subject to reductions for
applicable reserves. Borrowings will be at either (1) adjusted LIBOR (based on the British Bankers
Association per annum LIBOR Rate for an interest period selected by the Company) plus an applicable
margin or (2) a base rate (based on the highest of (a) the Federal Funds Rate plus 0.5%, (b) the
Bank of America prime rate, and (c) Adjusted LIBOR based on an interest period of one month plus
1.0%) plus the applicable margin. The applicable margin is determined based upon the excess
availability under the Second Amended Revolving Credit Facility. The Borrowers are required to pay
an unused line fee to the lenders for unused commitments at a rate of 0.375% to 0.50% per annum,
based upon the unused portion of the total commitment under the Second Amended Revolving Credit
Facility.
12
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Second Amended Revolving Credit Facility is secured by a first priority security position
on substantially all of the current and future assets of the Company, including, but not limited
to, inventory, general intangibles, trademarks, equipment, certain real estate and proceeds from
any of the foregoing, subject to certain exceptions and liens.
The financial covenant contained in the Second Amended Revolving Credit Facility requires that
the minimum excess availability be an amount greater than or equal to the greater of (1) 10% of the
lesser of: (a) the aggregate commitments at such time and (b) the aggregate borrowing base at such
time and (2) $50,000. Other covenants continue the requirements of the prior revolving credit
facility and require that the Company provide the lenders with certain financial statements,
forecasts and other reports, borrowing base certificates and notices, and comply with various
federal, state and local rules and regulations. In addition, there are certain limitations on the
Obligors and their subsidiaries, including limitations on: any debt the Obligors may have in
addition to the existing debt and the terms of that additional debt; acquisitions, joint ventures
and investments; mergers and consolidations; dispositions of property; dividends by the Obligors or
their subsidiaries (dividends paid may not exceed $10,000 in any year or $30,000 during the term of
the agreement; however, additional dividends may be paid subject to meeting other requirements);
transactions with affiliates; changes in the business or corporate structure of the Obligors or
their subsidiaries; prepaying, redeeming or repurchasing certain debt; changes in accounting
policies or reporting practices, unless required by generally accepted accounting principles; and
speculative transactions.
As of October 29, 2011, the Company had borrowings of $241,595 under the Second Amended
Revolving Credit Facility, with $379,514 of borrowing availability (before taking into account the
minimum borrowing availability covenant).
10. INCOME TAXES
The provisions codified within ASC Topic 740, Income Taxes (ASC 740), require companies to
assess whether valuation allowances should be established against their deferred tax assets based
on consideration of all available evidence using a more likely than not standard. In accordance
with ASC 740, the Company maintained a full valuation allowance throughout fiscal 2010 and the 39
weeks ended October 29, 2011 on all the Companys net deferred tax assets. The Companys deferred
tax asset valuation allowance totaled $164,134 and $126,333 at October 29, 2011 and January 29,
2011, respectively.
Given the Companys valuation allowance position, no tax benefit was recognized on the
Companys loss before income taxes in the 13 and 39 weeks ended October 29, 2011 and October 30,
2010. The income tax benefit of $971 recorded in the 39 weeks ended October 29, 2011 reflects a
$3,224 benefit resulting from reclassifying from accumulated other comprehensive loss the residual
tax effect associated with certain interest rate swap contracts which expired on July 14, 2011,
partially offset by certain state income tax expense and recognition of deferred tax liabilities
associated with indefinite-lived assets. The income tax provision of $474 recorded in the 39 weeks
ended October 30, 2010 includes certain state income tax expense and recognition of deferred tax
liabilities associated with indefinite-lived assets, partially offset by a $1,507 tax benefit
resulting from recognition of uncertain tax positions due to a statute of limitations expiration.
As of October 29, 2011, it is reasonably possible that gross unrecognized tax benefits could
decrease by $17 within the next 12 months due to the expiration of certain statutes of limitations.
13
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
11. CONTINGENCIES
In October 2010, the Company became aware that a third-party it had contracted with as its
agent to receive, monitor and pay utility bills for the Companys properties was delinquent in its
payment of the Companys utility bills, despite timely receipt of funds from the Company. On November 3, 2010,
the Company filed suit against this third-party agent, Utility Account Billing Services, Inc., and
its affiliate Synergy Energy Holdings, LLC, in Supreme Court, State of New York, County of Erie.
In June 2011, summary judgment was granted in favor of the Company for the full amount of the claim
of $3,117, and the Company has initiated efforts to collect on that judgment. Additionally, the
Company filed a claim with one of its insurance carriers, and in July 2011 entered into a
settlement agreement with the insurance carrier, payment for which has been received. Per the
settlement agreement, the insurance carrier will be reimbursed by the Company for collections from
the judgment that exceed the difference between the full amount of the claim under the lawsuit and
the insurance payment received.
The Company is party to legal proceedings and claims that arise during the ordinary course of
business. In the opinion of management, the ultimate outcome of any such litigation and claims
will not have a material adverse effect on the Companys financial position, results of operations
or liquidity.
12. COMPREHENSIVE LOSS
Comprehensive loss was determined as follows:
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss |
$ | (22,035 | ) | $ | (6,274 | ) | $ | (90,323 | ) | $ | (63,546 | ) | ||||
Other comprehensive income (loss): |
||||||||||||||||
Amortization of pension and
postretirement benefit plans |
502 | 970 | 1,507 | 2,910 | ||||||||||||
Amortization of cash flow
derivatives, net of tax
benefit in the current year |
| 982 | (2,018 | ) | 2,948 | |||||||||||
Comprehensive loss |
$ | (21,533 | ) | $ | (4,322 | ) | $ | (90,834 | ) | $ | (57,688 | ) | ||||
As a result of the deferred tax asset valuation allowance maintained throughout fiscal 2010
and the 39 weeks ended October 29, 2011, the changes recognized within other comprehensive income
were recorded on a gross basis for all periods presented with regard to the pension and
postretirement benefit plans and the 13 and 39 weeks ended October 30, 2010 with regard to the cash
flow derivatives. The changes recognized within other comprehensive loss for the 39 weeks ended
October 29, 2011 with regard to the cash flow derivatives are net of a $3,224 tax benefit resulting
from the reclassification of the residual tax effect associated with certain interest rate swap
contracts which expired on July 14, 2011 (see Note 10).
14
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
13. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
On March 6, 2006, The Bon-Ton Department Stores, Inc. (the Issuer), a wholly owned
subsidiary of the Company, entered into an Indenture with The Bank of New York, as trustee, under
which the Issuer issued $510,000 aggregate principal amount of its 10-1/4% Senior Notes due 2014
(the Senior Notes). The Senior Notes are guaranteed on a senior unsecured basis by the Company
and by each of the Companys subsidiaries, other than the Issuer, that is an Obligor under the
Companys senior secured credit facility. Separate financial statements of the Company, the Issuer
and such subsidiary guarantors are not presented because the guarantees by the Company and each
wholly owned subsidiary guarantor are joint and several, full and unconditional, except for certain
customary limitations. These customary limitations include releases of a guarantee (i) if the
guarantor no longer guarantees other indebtedness of the Issuer; (ii) if there is a sale or other
disposition of the capital stock of a guarantor and if such sale complies with the covenant
regarding
asset sales in the Indenture; and (iii) if the Company properly designates a subsidiary
guarantor as an unrestricted subsidiary under the terms of the Indenture.
The condensed consolidating financial information for the Company, the Issuer and the
Companys guarantor and non-guarantor subsidiaries as of October 29, 2011 and January 29, 2011 and
for the third quarter in each of 2011 and 2010 and the 39 weeks ended October 29, 2011 and October
30, 2010 as presented below has been prepared from the books and records maintained by the Company,
the Issuer and the guarantor and non-guarantor subsidiaries. The condensed financial information
may not necessarily be indicative of the results of operations or financial position had the
guarantor and non-guarantor subsidiaries operated as independent entities. Certain intercompany
revenues and expenses included in the subsidiary records are eliminated in consolidation. As a
result of this activity, an amount due to/due from affiliates will exist at any time.
15
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
October 29, 2011
Condensed Consolidating Balance Sheet
October 29, 2011
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | 3,396 | $ | 9,411 | $ | | $ | | $ | 12,808 | ||||||||||||
Merchandise inventories |
| 491,282 | 465,553 | | | 956,835 | ||||||||||||||||||
Prepaid expenses and other current assets |
| 53,985 | 12,452 | 508 | (462 | ) | 66,483 | |||||||||||||||||
Total current assets |
1 | 548,663 | 487,416 | 508 | (462 | ) | 1,036,126 | |||||||||||||||||
Property, fixtures and equipment at cost, net |
| 180,418 | 228,711 | 269,892 | | 679,021 | ||||||||||||||||||
Deferred income taxes |
| 4,669 | 6,417 | | | 11,086 | ||||||||||||||||||
Intangible assets, net |
| 51,842 | 71,945 | | | 123,787 | ||||||||||||||||||
Investment in and advances to affiliates |
90,454 | 590,571 | 67,983 | 1,141 | (750,149 | ) | | |||||||||||||||||
Other long-term assets |
| 24,429 | 1,183 | 3,400 | | 29,012 | ||||||||||||||||||
Total assets |
$ | 90,455 | $ | 1,400,592 | $ | 863,655 | $ | 274,941 | $ | (750,611 | ) | $ | 1,879,032 | |||||||||||
Liabilities and Shareholders Equity
|
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | 389,182 | $ | | $ | | $ | | $ | 389,182 | ||||||||||||
Accrued payroll and benefits |
| 21,920 | 11,352 | | | 33,272 | ||||||||||||||||||
Accrued expenses |
| 68,364 | 80,800 | 2,056 | (462 | ) | 150,758 | |||||||||||||||||
Current maturities of long-term debt and obligations
under capital leases |
| 2,175 | 2,746 | 7,311 | | 12,232 | ||||||||||||||||||
Deferred income taxes |
| 7,270 | 8,195 | | | 15,465 | ||||||||||||||||||
Income taxes payable |
| 28 | 14 | | | 42 | ||||||||||||||||||
Total current liabilities |
| 488,939 | 103,107 | 9,367 | (462 | ) | 600,951 | |||||||||||||||||
Long-term debt and obligations under capital leases,
less current maturities |
| 758,928 | 50,274 | 233,351 | | 1,042,553 | ||||||||||||||||||
Other long-term liabilities |
| 90,463 | 53,158 | 1,452 | | 145,073 | ||||||||||||||||||
Total liabilities |
| 1,338,330 | 206,539 | 244,170 | (462 | ) | 1,788,577 | |||||||||||||||||
Shareholders equity |
90,455 | 62,262 | 657,116 | 30,771 | (750,149 | ) | 90,455 | |||||||||||||||||
Total liabilities and shareholders equity |
$ | 90,455 | $ | 1,400,592 | $ | 863,655 | $ | 274,941 | $ | (750,611 | ) | $ | 1,879,032 | |||||||||||
16
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
January 29, 2011
Condensed Consolidating Balance Sheet
January 29, 2011
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | 5,841 | $ | 10,497 | $ | | $ | | $ | 16,339 | ||||||||||||
Merchandise inventories |
| 340,649 | 341,675 | | | 682,324 | ||||||||||||||||||
Prepaid expenses and other current assets |
| 65,500 | 12,752 | 628 | (462 | ) | 78,418 | |||||||||||||||||
Total current assets |
1 | 411,990 | 364,924 | 628 | (462 | ) | 777,081 | |||||||||||||||||
Property, fixtures and equipment at cost, net |
| 194,874 | 230,138 | 278,420 | | 703,432 | ||||||||||||||||||
Deferred income taxes |
| 3,705 | 5,882 | | | 9,587 | ||||||||||||||||||
Intangible assets, net |
| 54,954 | 75,126 | | | 130,080 | ||||||||||||||||||
Investment in and advances to affiliates |
183,351 | 480,419 | 208,096 | 316 | (872,182 | ) | | |||||||||||||||||
Other long-term assets |
| 30,337 | 1,594 | 4,128 | | 36,059 | ||||||||||||||||||
Total assets |
$ | 183,352 | $ | 1,176,279 | $ | 885,760 | $ | 283,492 | $ | (872,644 | ) | $ | 1,656,239 | |||||||||||
Liabilities and Shareholders Equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | 175,249 | $ | | $ | | $ | | $ | 175,249 | ||||||||||||
Accrued payroll and benefits |
| 37,796 | 7,973 | | | 45,769 | ||||||||||||||||||
Accrued expenses |
| 77,743 | 88,663 | 1,260 | (462 | ) | 167,204 | |||||||||||||||||
Current maturities of long-term debt and
obligations under capital leases |
| 3,229 | 2,596 | 6,978 | | 12,803 | ||||||||||||||||||
Deferred income taxes |
| 5,748 | 6,961 | | | 12,709 | ||||||||||||||||||
Income taxes payable |
| 46 | 91 | | | 137 | ||||||||||||||||||
Total current liabilities |
| 299,811 | 106,284 | 8,238 | (462 | ) | 413,871 | |||||||||||||||||
Long-term debt and obligations under capital leases,
less current maturities |
| 626,475 | 52,353 | 238,902 | | 917,730 | ||||||||||||||||||
Other long-term liabilities |
| 94,425 | 45,487 | 1,374 | | 141,286 | ||||||||||||||||||
Total liabilities |
| 1,020,711 | 204,124 | 248,514 | (462 | ) | 1,472,887 | |||||||||||||||||
Shareholders equity |
183,352 | 155,568 | 681,636 | 34,978 | (872,182 | ) | 183,352 | |||||||||||||||||
Total liabilities and shareholders equity |
$ | 183,352 | $ | 1,176,279 | $ | 885,760 | $ | 283,492 | $ | (872,644 | ) | $ | 1,656,239 | |||||||||||
17
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended October 29, 2011
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended October 29, 2011
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 286,513 | $ | 369,557 | $ | | $ | | $ | 656,070 | ||||||||||||
Other income |
| 6,048 | 8,450 | | | 14,498 | ||||||||||||||||||
| 292,561 | 378,007 | | | 670,568 | |||||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Costs of merchandise sold |
| 179,528 | 231,175 | | | 410,703 | ||||||||||||||||||
Selling, general and administrative |
| 107,164 | 136,283 | 26 | (8,617 | ) | 234,856 | |||||||||||||||||
Depreciation and amortization |
| 8,870 | 11,608 | 2,793 | | 23,271 | ||||||||||||||||||
Amortization of lease-related interests |
| 617 | 578 | | | 1,195 | ||||||||||||||||||
(Loss) income from operations |
| (3,618 | ) | (1,637 | ) | (2,819 | ) | 8,617 | 543 | |||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Intercompany rental and royalty income |
| | 1,574 | 7,043 | (8,617 | ) | | |||||||||||||||||
Equity in losses of subsidiaries |
(21,395 | ) | (2,537 | ) | | | 23,932 | | ||||||||||||||||
Interest expense, net |
| (15,240 | ) | (2,751 | ) | (3,947 | ) | | (21,938 | ) | ||||||||||||||
(Loss) income before income taxes |
(21,395 | ) | (21,395 | ) | (2,814 | ) | 277 | 23,932 | (21,395 | ) | ||||||||||||||
Income tax provision |
640 | 640 | 320 | | (960 | ) | 640 | |||||||||||||||||
Net (loss) income |
$ | (22,035 | ) | $ | (22,035 | ) | $ | (3,134 | ) | $ | 277 | $ | 24,892 | $ | (22,035 | ) | ||||||||
18
Table of Contents
THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended October 30, 2010
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended October 30, 2010
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 303,955 | $ | 396,559 | $ | | $ | | $ | 700,514 | ||||||||||||
Other income |
| 6,803 | 9,620 | | | 16,423 | ||||||||||||||||||
| 310,758 | 406,179 | | | 716,937 | |||||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Costs of merchandise sold |
| 187,748 | 245,104 | | | 432,852 | ||||||||||||||||||
Selling, general and administrative |
| 107,908 | 136,273 | 24 | (8,783 | ) | 235,422 | |||||||||||||||||
Depreciation and amortization |
| 9,662 | 12,342 | 2,794 | | 24,798 | ||||||||||||||||||
Amortization of lease-related interests |
| 647 | 484 | | | 1,131 | ||||||||||||||||||
Income (loss) from operations |
| 4,793 | 11,976 | (2,818 | ) | 8,783 | 22,734 | |||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Intercompany rental and royalty income |
| | 1,740 | 7,043 | (8,783 | ) | | |||||||||||||||||
Equity in (losses) earnings of subsidiaries |
(5,613 | ) | 10,127 | | | (4,514 | ) | | ||||||||||||||||
Interest expense, net |
| (20,533 | ) | (3,750 | ) | (4,064 | ) | | (28,347 | ) | ||||||||||||||
(Loss) income before income taxes |
(5,613 | ) | (5,613 | ) | 9,966 | 161 | (4,514 | ) | (5,613 | ) | ||||||||||||||
Income tax provision |
661 | 661 | 330 | | (991 | ) | 661 | |||||||||||||||||
Net (loss) income |
$ | (6,274 | ) | $ | (6,274 | ) | $ | 9,636 | $ | 161 | $ | (3,523 | ) | $ | (6,274 | ) | ||||||||
19
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirty-Nine Weeks Ended October 29, 2011
Condensed Consolidating Statement of Operations
Thirty-Nine Weeks Ended October 29, 2011
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 827,197 | $ | 1,074,234 | $ | | $ | | $ | 1,901,431 | ||||||||||||
Other income |
| 17,703 | 25,185 | | | 42,888 | ||||||||||||||||||
| 844,900 | 1,099,419 | | | 1,944,319 | |||||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Costs of merchandise sold |
| 523,997 | 679,891 | | | 1,203,888 | ||||||||||||||||||
Selling, general and administrative |
| 308,328 | 394,270 | 78 | (25,995 | ) | 676,681 | |||||||||||||||||
Depreciation and amortization |
| 28,275 | 37,202 | 8,528 | | 74,005 | ||||||||||||||||||
Amortization of lease-related interests |
| 1,851 | 1,733 | | | 3,584 | ||||||||||||||||||
Loss from operations |
| (17,551 | ) | (13,677 | ) | (8,606 | ) | 25,995 | (13,839 | ) | ||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Intercompany rental and royalty income |
| | 4,649 | 21,346 | (25,995 | ) | | |||||||||||||||||
Equity in losses of subsidiaries |
(91,294 | ) | (16,912 | ) | | | 108,206 | | ||||||||||||||||
Interest expense, net |
| (47,381 | ) | (8,693 | ) | (11,931 | ) | | (68,005 | ) | ||||||||||||||
Loss on extinguishment of debt |
| (9,450 | ) | | | | (9,450 | ) | ||||||||||||||||
(Loss) income before income taxes |
(91,294 | ) | (91,294 | ) | (17,721 | ) | 809 | 108,206 | (91,294 | ) | ||||||||||||||
Income tax (benefit) provision |
(971 | ) | (971 | ) | 1,024 | | (53 | ) | (971 | ) | ||||||||||||||
Net (loss) income |
$ | (90,323 | ) | $ | (90,323 | ) | $ | (18,745 | ) | $ | 809 | $ | 108,259 | $ | (90,323 | ) | ||||||||
20
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirty-Nine Weeks Ended October 30, 2010
Condensed Consolidating Statement of Operations
Thirty-Nine Weeks Ended October 30, 2010
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 855,121 | $ | 1,115,362 | $ | | $ | | $ | 1,970,483 | ||||||||||||
Other income |
| 18,126 | 26,159 | | | 44,285 | ||||||||||||||||||
| 873,247 | 1,141,521 | | | 2,014,768 | |||||||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Costs of merchandise sold |
| 530,153 | 694,190 | | | 1,224,343 | ||||||||||||||||||
Selling, general and administrative |
| 314,970 | 398,774 | 73 | (26,319 | ) | 687,498 | |||||||||||||||||
Depreciation and amortization |
| 30,509 | 38,391 | 8,638 | | 77,538 | ||||||||||||||||||
Amortization of lease-related interests |
| 1,970 | 1,454 | | | 3,424 | ||||||||||||||||||
(Loss) income from operations |
| (4,355 | ) | 8,712 | (8,711 | ) | 26,319 | 21,965 | ||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Intercompany rental and royalty income |
| | 4,973 | 21,346 | (26,319 | ) | | |||||||||||||||||
Equity in (losses) earnings of subsidiaries |
(63,072 | ) | 3,037 | | | 60,035 | | |||||||||||||||||
Interest expense, net |
| (61,754 | ) | (11,001 | ) | (12,282 | ) | | (85,037 | ) | ||||||||||||||
(Loss) income before income taxes |
(63,072 | ) | (63,072 | ) | 2,684 | 353 | 60,035 | (63,072 | ) | |||||||||||||||
Income tax provision |
474 | 474 | 984 | | (1,458 | ) | 474 | |||||||||||||||||
Net (loss) income |
$ | (63,546 | ) | $ | (63,546 | ) | $ | 1,700 | $ | 353 | $ | 61,493 | $ | (63,546 | ) | |||||||||
21
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Cash Flows
Thirty-Nine Weeks Ended October 29, 2011
Condensed Consolidating Statement of Cash Flows
Thirty-Nine Weeks Ended October 29, 2011
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 5,494 | $ | (106,126 | ) | $ | 30,063 | $ | 10,235 | $ | (13,103 | ) | $ | (73,437 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| (25,368 | ) | (25,701 | ) | | | (51,069 | ) | |||||||||||||||
Intercompany investing activity |
(398 | ) | (4 | ) | | | 402 | | ||||||||||||||||
Proceeds from sale of property, fixtures
and equipment |
| 131 | 2,255 | | | 2,386 | ||||||||||||||||||
Net cash used in investing activities |
(398 | ) | (25,241 | ) | (23,446 | ) | | 402 | (48,683 | ) | ||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Payments on long-term debt and capital
lease obligations |
| (462,805 | ) | (1,929 | ) | (5,218 | ) | | (469,952 | ) | ||||||||||||||
Proceeds from issuance of long-term debt |
| 590,440 | | | | 590,440 | ||||||||||||||||||
Intercompany financing activity |
| (1,910 | ) | (5,774 | ) | (5,017 | ) | 12,701 | | |||||||||||||||
Cash dividends paid |
(1,910 | ) | | | | | (1,910 | ) | ||||||||||||||||
Restricted shares forfeited in lieu of payroll taxes |
(3,584 | ) | | | | | (3,584 | ) | ||||||||||||||||
Proceeds from stock options exercised |
398 | | | | | 398 | ||||||||||||||||||
Deferred financing costs paid |
| (5,931 | ) | | | | (5,931 | ) | ||||||||||||||||
Increase in book overdraft balances |
| 9,128 | | | | 9,128 | ||||||||||||||||||
Net cash (used in) provided by financing
activities |
(5,096 | ) | 128,922 | (7,703 | ) | (10,235 | ) | 12,701 | 118,589 | |||||||||||||||
Net decrease in cash and cash equivalents |
| (2,445 | ) | (1,086 | ) | | | (3,531 | ) | |||||||||||||||
Cash and cash equivalents at beginning
of period |
1 | 5,841 | 10,497 | | | 16,339 | ||||||||||||||||||
Cash and cash equivalents at end of period |
$ | 1 | $ | 3,396 | $ | 9,411 | $ | | $ | | $ | 12,808 | ||||||||||||
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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Cash Flows
Thirty-Nine Weeks Ended October 30, 2010
Condensed Consolidating Statement of Cash Flows
Thirty-Nine Weeks Ended October 30, 2010
Bon-Ton | ||||||||||||||||||||||||
(Parent | Guarantor | Non-Guarantor | Consolidating | Company | ||||||||||||||||||||
Company) | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 4,082 | $ | (71,404 | ) | $ | 25,495 | $ | 11,617 | $ | (12,780 | ) | $ | (42,990 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Capital expenditures |
| (17,376 | ) | (18,672 | ) | | | (36,048 | ) | |||||||||||||||
Intercompany Investing activity |
| (29 | ) | | | 29 | | |||||||||||||||||
Proceeds from sale of property, fixtures
and equipment |
| 46 | 31 | | | 77 | ||||||||||||||||||
Net cash used in investing activities |
| (17,359 | ) | (18,641 | ) | | 29 | (35,971 | ) | |||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Payments on long-term debt and capital
lease obligations |
| (426,874 | ) | (1,790 | ) | (4,870 | ) | | (433,534 | ) | ||||||||||||||
Proceeds from issuance of long-term debt |
| 512,285 | | | | 512,285 | ||||||||||||||||||
Intercompany financing activity |
| | (6,004 | ) | (6,747 | ) | 12,751 | | ||||||||||||||||
Restricted shares forfeited in lieu of payroll taxes |
(4,082 | ) | | | | | (4,082 | ) | ||||||||||||||||
Deferred financing costs paid |
| (717 | ) | | | | (717 | ) | ||||||||||||||||
Increase in book overdraft balances |
| 4,453 | | | | 4,453 | ||||||||||||||||||
Net cash (used in) provided by financing activities |
(4,082 | ) | 89,147 | (7,794 | ) | (11,617 | ) | 12,751 | 78,405 | |||||||||||||||
Net increase (decrease) in cash and cash
equivalents |
| 384 | (940 | ) | | | (556 | ) | ||||||||||||||||
Cash and cash equivalents at beginning
of period |
1 | 9,962 | 8,959 | | | 18,922 | ||||||||||||||||||
Cash and cash equivalents at end of period |
$ | 1 | $ | 10,346 | $ | 8,019 | $ | | $ | | $ | 18,366 | ||||||||||||
14. SUBSEQUENT EVENTS
On November 28, 2011 and November 29, 2011, the Company repurchased, in open market
transactions, a total of $30,000 principal amount of the $510,000 aggregate principal outstanding
of its 101/4% Senior Notes. The repurchase totaled $18,675, plus accrued interest of $628. In
addition, unamortized deferred financing fees totaling $334 related to the Senior Notes were
accelerated on the dates of the respective repurchases.
On December 6, 2011, the Company declared a quarterly cash dividend of $0.05 per share on
shares of Class A common stock and common stock, payable February 1, 2012 to shareholders of record
as of January 13, 2012.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
For purposes of the following discussion, references to the first quarter of 2011 are to the
13 weeks ended April 30, 2011. References to the third quarter of 2011 and the third quarter of
2010 are to the 13 weeks ended October 29, 2011 and October 30, 2010, respectively. References to
2011 and 2010 are to the 39 weeks ended October 29, 2011 and October 30, 2010, respectively.
References to fiscal 2011 are to the 52-week period ending January 28, 2012; references to
fiscal 2010 are to the 52-week period ended January 29, 2011. References to the Company, we,
us, and our refer to The Bon-Ton Stores, Inc. and its subsidiaries.
Overview
General
The Company, a Pennsylvania corporation, is one of the largest regional department store
operators in the United States, offering a broad assortment of brand-name fashion apparel and
accessories for women, men and children. Our merchandise offerings also include cosmetics, home
furnishings and other goods. We currently operate 276 stores in 23 states in the Northeast, Midwest
and upper Great Plains under the Bon-Ton, Bergners, Boston Store, Carson Pirie Scott,
Elder-Beerman, Herbergers and Younkers nameplates and, in the Detroit, Michigan area, under the
Parisian nameplate, encompassing a total of approximately 26 million square feet.
We operate in the department store segment of the U.S. retail industry, a highly competitive
and fragmented environment. The department store industry continues to evolve in response to the
evolution of competitive retail formats mass merchandisers, national chain retailers, specialty
retailers and online retailers and the advent of mobile technology and social media.
Fiscal 2011 Guidance
We have identified near-term opportunities for growth and resource optimization, as well as
challenges, including general macroeconomic conditions that may affect our customers and our
business. As the consumer environment remains uncertain, we are continuing to plan our business
conservatively. On November 3, 2011, we revised our earnings per diluted share guidance to a range
of $(0.65) to $0.25 and on November 17, 2011 provided the following assumptions with respect to our
revised fiscal 2011 guidance:
| a comparable store sales performance ranging from 3.3% to 1.6% below fiscal 2010 levels; |
| a gross margin rate 80 basis points lower than the fiscal 2010 rate of 37.6%; |
| a $10.0 million to $12.0 million reduction in SG&A expense from the fiscal 2010 expense
of $942.7 million; |
| an immaterial tax impact; |
| capital expenditures not to exceed $70.0 million, net of external contributions; and |
| an estimated 18.0 million to 20.0 million average diluted shares outstanding. |
Earnings per share guidance does not reflect the potential (non-cash) income tax benefit of
reducing the valuation allowance currently recorded for deferred tax assets. The amount of
adjustment, if any, cannot be determined until our fiscal 2011 results are final. Similarly,
earnings per share guidance does not reflect the potential impairment of long-lived and intangible
assets as, given the seasonality of our operations, impairment is not conclusive, in many cases,
until the results for the fourth fiscal quarter are determined. In addition, the gain on the
repurchase by the Company of $30.0 million of its 101/4% Senior Notes due March 15, 2014 (the Senior
Notes) is not included in the earnings per share guidance (see Note 14).
24
Table of Contents
THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Terminated and Amended Credit Facilities
On January 31, 2011, we voluntarily prepaid our outstanding indebtedness under our Second Lien
Loan and Security Agreement that provided for $75.0 million of term loans expiring November 18,
2013 (the Term Loan Facility). As a result of such prepayment, the Term Loan Facility was
terminated.
On March 21, 2011, we entered into a $625.0 million senior secured Second Amended and Restated
Loan and Security Agreement that expires on the earlier of (a) March 21, 2016 and (b) the date that
is 60 days prior to the earlier of the maturity date of the senior unsecured notes and the mortgage
loan facility (the Second Amended Revolving Credit Facility). The Second Amended Revolving
Credit Facility replaced our prior $675.0 million asset-based revolving credit facility (the 2009
Revolving Credit Facility), which was scheduled to mature on June 4, 2013. The proceeds of the
Second Amended Revolving Credit Facility were used to pay the outstanding balance under the 2009
Revolving Credit Facility and will be used for other general corporate purposes. The Second
Amended Revolving Credit Facility implemented interest rate reductions and generally favorable
revisions regarding the facility requirements and financial covenant. See Note 9 of the Notes to
Consolidated Financial Statements for further discussion of the Second Amended Revolving Credit
Facility.
Results of Operations
The following table summarizes changes in selected operating indicators of the Company,
illustrating the relationship of various income and expense items to net sales for the respective
periods presented (components may not add or subtract to totals due to rounding):
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
October 29, | October 30, | October 29, | October 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Other income |
2.2 | 2.3 | 2.3 | 2.2 | ||||||||||||
102.2 | 102.3 | 102.3 | 102.2 | |||||||||||||
Costs and expenses: |
||||||||||||||||
Costs of merchandise sold |
62.6 | 61.8 | 63.3 | 62.1 | ||||||||||||
Selling, general and administrative |
35.8 | 33.6 | 35.6 | 34.9 | ||||||||||||
Depreciation and amortization |
3.5 | 3.5 | 3.9 | 3.9 | ||||||||||||
Amortization of lease-related interests |
0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||
Income (loss) from operations |
0.1 | 3.2 | (0.7 | ) | 1.1 | |||||||||||
Interest expense, net |
3.3 | 4.0 | 3.6 | 4.3 | ||||||||||||
Loss on extinguishment of debt |
| | 0.5 | | ||||||||||||
Loss before income taxes |
(3.3 | ) | (0.8 | ) | (4.8 | ) | (3.2 | ) | ||||||||
Income tax provision (benefit) |
0.1 | 0.1 | (0.1 | ) | | |||||||||||
Net loss |
(3.4) | % | (0.9) | % | (4.8) | % | (3.2) | % | ||||||||
Third Quarter of 2011 Compared with Third Quarter of 2010
Net sales: Net sales in the third quarter of 2011 were $656.1 million, compared with $700.5
million in the third quarter of 2010, reflecting a decrease of 6.3%. Comparable store sales
decreased 5.9%. Sales in merchandise categories with more traditional goods were particularly
challenged, as our customer is expressing an unwillingness to accept price increases in these categories and a preference for
updated styling. We have significantly expanded our stronger selling updated categories throughout
our families of business to increase representation of these goods. In addition, certain changes
in our marketing efforts did not drive sales as we had anticipated. Investments in our eCommerce business resulted in
significantly higher eCommerce sales in the period.
25
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Merchandise categories with sales increases in the third quarter of 2011 included Cosmetics,
Hard Home (included in Home) and Footwear. Sales in Cosmetics were driven by strength in treatment
lines, where new technology in skin care and makeup yielded positive results. Hard Home achieved
success in sales of small electronics. Our strategic initiative of growing the update business
yielded increased sales in Footwear, with favorable customer response to new vendor and style
assortments. Additionally, Footwear performance at select stores in which square footage and
updated assortments were recently expanded exceeded that of the Company.
The poorest performing categories in the period were Moderate Sportswear and Coats (both
included in Womens Apparel) and Furniture (included in Home). Difficult sales in Moderate
Sportswear reflect our ongoing efforts to establish the proper balance of updated and traditional
merchandise offerings. Unseasonably warm weather, which adversely impacted all cold-weather
merchandise, and price increases in an important merchandise category contributed to the poor
performance in Coats. We believe discretionary spending for big-ticket items remains under
significant pressure, challenging the sales of Furniture, particularly higher-priced bedding.
Other income: Other income, which includes income from revenues received under a credit card
program agreement with HSBC Bank Nevada, N.A., leased departments and other customer revenues, was
$14.5 million in the third quarter of 2011 as compared with $16.4 million in the third quarter of
2010. The decrease is primarily due to reduced income associated with the Companys proprietary
credit card, which is largely a function of the reduced sales volume in the period.
Costs and expenses: Gross margin in the third quarter of 2011 decreased $22.3 million to
$245.4 million as compared with $267.7 million in the comparable prior year period. The decrease is
attributable to both reductions in sales volume and gross margin rate. Gross margin as a
percentage of net sales decreased 80 basis points to 37.4% in the third quarter of 2011 from 38.2%
in the same period last year, largely the result of an increased net markdown rate.
SG&A expense in the third quarter of 2011 was $234.9 million as compared with $235.4 million
in the third quarter of 2010, a decrease of $0.6 million. The expense reduction is primarily due
to ongoing cost control efforts and reduced incentive compensation accruals, partially offset by
increased marketing expenditures. The current year SG&A expense rate increased 220 basis points to
35.8% of net sales from 33.6% in the comparable prior year period due to the reduced sales volume.
Depreciation and amortization expense and amortization of lease-related interests decreased
$1.5 million to $24.5 million in the third quarter of 2011 from $25.9 million in the third quarter
of 2010, primarily due to a reduced asset base.
Interest expense, net: Net interest expense was $21.9 million, or 3.3% of net sales, in the
third quarter of 2011 as compared with $28.3 million, or 4.0% of net sales, in the third quarter of
2010. The $6.4 million decrease primarily reflects reduced borrowings and lower borrowing rates
pursuant to the prepayment of our Term Loan Facility and the amendment of our 2009 Revolving Credit
Facility.
Income tax provision: The effective income tax rate in the third quarter in each of 2011 and
2010 largely reflects the Companys valuation allowance position against all net deferred tax
assets. The net income tax provision of $0.6 million and $0.7 million in the third quarter in each
of 2011 and 2010, respectively, was primarily due to certain state income tax expense and recognition of
deferred tax liabilities associated with indefinite-lived assets.
26
Table of Contents
THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2011 Compared with 2010
Net sales: Net sales in 2011 were $1,901.4 million, compared with $1,970.5 million in 2010, a
decrease of 3.5%. Comparable store sales decreased 3.0% in the 39 weeks. Sales in merchandise
categories with more traditional goods were particularly challenged, as our customer is expressing
a preference for updated styling. We have significantly expanded our stronger selling updated
categories throughout our families of business to increase representation of these goods.
Investments in our eCommerce business resulted in significantly higher eCommerce sales in the
period.
The best performing merchandise categories in 2011 were Hard Home (included in Home),
Cosmetics and Better Sportswear (included in Womens Apparel). Increases in Hard Home were largely
due to sales of luggage and small electronics. The introduction of innovative treatment products
and new fragrances fueled the sales performance in Cosmetics. Better Sportswear sales increased
due to favorable response to expanded offerings of trend-right fashions from key national and
private brands.
The poorest performing categories in 2011 were Moderate Sportswear and Petites (both included
in Womens Apparel) and Juniors Apparel. Sales in Moderate Sportswear and Petites were adversely
impacted by substantial inventory investment in traditional product from private brand as well as
domestic resources, particularly in the spring season. Inventory investment in updated, modern
product has been increased to better align with customer preference. The performance in Juniors
Apparel reflects lower sales in tops.
Other income: Other income was $42.9 million in 2011 as compared with $44.3 million in 2010.
The decrease primarily reflects reduced net income associated with our proprietary credit card
program.
Costs and expenses: Gross margin in 2011 was $697.5 million as compared with $746.1 million in
2010, reflecting a decrease of $48.6 million. The decrease in gross margin dollars was due to the
reduced sales volume and the decreased margin rate in the period. Gross margin as a percentage of
net sales decreased 120 basis points to 36.7% in the current year from 37.9% last year, primarily
due to increased net markdowns.
SG&A expense in 2011 was $676.7 million as compared with $687.5 million in 2010. The $10.8
million decrease was the result of continued cost control efforts, a favorable insurance receipt
and reduced incentive compensation accruals, partially offset by increased marketing, eCommerce and
private brand expenditures. The expense rate in 2011 increased 70 basis points to 35.6% of net
sales due to the reduced sales volume.
Depreciation and amortization expense and amortization of lease-related interests decreased
$3.4 million to $77.6 million in 2011, primarily due to a reduced asset base.
Interest expense, net: Net interest expense was $68.0 million, or 3.6% of net sales, in 2011
as compared with $85.0 million, or 4.3% of net sales, in 2010. The $17.0 million reduction is
largely due to reduced borrowing levels and lower borrowing rates pursuant to the prepayment of our
Term Loan Facility and the amendment of our 2009 Revolving Credit Facility.
Loss on extinguishment of debt: In the first quarter of 2011, we recorded a $9.5 million loss
on extinguishment of debt for fees associated with the voluntary prepayment of our Term Loan
Facility and the amendment of our 2009 Revolving Credit Facility.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Income tax (benefit) provision: The effective tax rate in each of 2011 and 2010 largely
reflects the Companys valuation allowance position against all net deferred tax assets. The $1.0
million income tax benefit in 2011 includes a $3.2 million benefit resulting from reclassifying from accumulated
other comprehensive loss the residual tax effect associated with certain interest rate
swap contracts which expired on July 14, 2011, partially offset by certain state income tax expense and recognition of
deferred tax liabilities associated with indefinite-lived assets. The $0.5 million income tax
provision in 2010 includes certain state income tax expense and recognition of deferred tax
liabilities associated with indefinite-lived assets, partially offset by a $1.5 million benefit
resulting from recognition of uncertain tax positions due to a statute of limitations expiration.
Non-GAAP Financial Measure EBITDA
We have prepared our consolidated financial statements in accordance with accounting
principles generally accepted in the United States (GAAP). In addition, the non-GAAP financial
performance measure of EBITDA (defined as earnings before interest, income taxes, depreciation and
amortization, including amortization of lease-related interests, and loss on extinguishment of
debt) is as follows:
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
(In thousands) | October 29, | October 30, | October 29, | October 30, | ||||||||||||
(Unaudited) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
EBITDA |
$ | 25,009 | $ | 48,663 | $ | 63,750 | $ | 102,927 |
We consider EBITDA to be an important supplemental measure of our performance. It is
frequently used by securities analysts, investors and other interested parties to evaluate the
performance of companies in our industry and by some investors to determine a companys ability to
service or incur debt. In addition, our management uses EBITDA internally to compare the
profitability of our stores. EBITDA is not calculated in the same manner by all companies and,
accordingly, is not necessarily comparable to similarly entitled measures of other companies and
may not be an appropriate measure for performance relative to other companies. EBITDA should not
be assessed in isolation from or construed as a substitute for net income or cash flows from
operations, which are prepared in accordance with GAAP. EBITDA has limitations as an analytical
tool and is not intended to represent, and should not be considered to be a more meaningful measure
than, or an alternative to, measures of operating performance as determined in accordance with
GAAP.
The following table reconciles EBITDA to net loss as presented in our consolidated statements
of operations (prepared in accordance with GAAP):
THIRTEEN | THIRTY-NINE | |||||||||||||||
WEEKS ENDED | WEEKS ENDED | |||||||||||||||
(In thousands) | October 29, | October 30, | October 29, | October 30, | ||||||||||||
(Unaudited) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net loss |
$ | (22,035 | ) | $ | (6,274 | ) | $ | (90,323 | ) | $ | (63,546 | ) | ||||
Adjustments: |
||||||||||||||||
Income tax provision (benefit) |
640 | 661 | (971 | ) | 474 | |||||||||||
Loss on extinguishment of debt |
| | 9,450 | | ||||||||||||
Interest expense, net |
21,938 | 28,347 | 68,005 | 85,037 | ||||||||||||
Depreciation and amortization |
23,271 | 24,798 | 74,005 | 77,538 | ||||||||||||
Amortization of lease-related interests |
1,195 | 1,131 | 3,584 | 3,424 | ||||||||||||
EBITDA |
$ | 25,009 | $ | 48,663 | $ | 63,750 | $ | 102,927 | ||||||||
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Seasonality
Our business, like that of most retailers, is subject to seasonal fluctuations, with the major
portion of sales and income realized during the second half of each fiscal year, which includes the
holiday season. Due to the fixed nature of certain costs, SG&A expense is typically higher as a
percentage of net sales during the first half of each fiscal year. We typically finance working
capital increases in the second half of each fiscal year through additional borrowings under our
Second Amended Revolving Credit Facility.
Because of the seasonality of our business, results for any quarter are not necessarily
indicative of results that may be achieved for a full fiscal year.
Liquidity and Capital Resources
On January 31, 2011, we utilized $75.0 million of excess availability under our 2009 Revolving
Credit Facility to pay in full our Term Loan Facility, which was scheduled to mature on November
18, 2013. On March 21, 2011, we entered into a $625.0 million senior secured Second Amended
Revolving Credit Facility that expires on the earlier of (a) March 21, 2016 and (b) the date that
is 60 days prior to the earlier of the maturity date of the senior unsecured notes and the mortgage
loan facility. The Second Amended Revolving Credit Facility replaced our prior $675.0 million 2009
Revolving Credit Facility, which was scheduled to mature on June 4, 2013. The proceeds of the
Second Amended Revolving Credit Facility were used to pay the outstanding balance under the 2009
Revolving Credit Facility and will be used for other general corporate purposes. The Second
Amended Revolving Credit Facility has interest rate reductions and generally favorable revisions
regarding the facility requirements and financial covenant. See Note 9 of the Notes to
Consolidated Financial Statements for further discussion of the Second Amended Revolving Credit
Facility.
At October 29, 2011, we had $12.8 million in cash and cash equivalents and $379.5 million
available under our Second Amended Revolving Credit Facility (before taking into account the
minimum borrowing availability covenant under such facility). Excess availability was $461.6
million as of the comparable prior year period. As noted above, in early fiscal 2011 we reduced
our revolving credit facility by $50.0 million (which impacts only October and November borrowing
capacity) and paid in full our Term Loan Facility of $75.0 million, resulting in a planned
reduction to our availability of $125.0 million.
Typically, cash flows from operations are impacted by the effect on sales of (1) consumer
confidence, (2) weather in the geographic markets served by the Company, (3) general economic
conditions and (4) competitive conditions existing in the retail industry. A downturn in any
single factor or a combination of factors could have a material adverse impact upon our ability to
generate sufficient cash flows to operate our business. While the current economic uncertainty
affects our assessment of short-term liquidity, and while there can be no assurances, we consider
our resources (cash flows from operations supplemented by borrowings under the Second Amended
Revolving Credit Facility) adequate to satisfy our cash needs for at least the next 12 months.
Our primary sources of working capital are cash flows from operations and borrowings under our
Second Amended Revolving Credit Facility, which provides for up to $625.0 million in borrowings
(limited by amounts available pursuant to a borrowing base calculation). Our business follows a
seasonal pattern; working capital fluctuates with seasonal variations, reaching its highest level
in October or November to fund the purchase of merchandise inventories prior to the holiday season.
The seasonality of our business historically provides greatest cash flow from operations during the holiday season, with
fiscal fourth quarter net sales generating the strongest profits of our fiscal year. As holiday
sales significantly reduce inventory levels, this reduction, combined with net income, historically provides us with strong cash
flow from operations at the end of our fiscal year.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cash provided by (used in) our operating, investing and financing activities is summarized as
follows:
THIRTY-NINE | ||||||||
WEEKS ENDED | ||||||||
October 29, | October 30, | |||||||
(Dollars in millions) | 2011 | 2010 | ||||||
Operating activities |
$ | (73.4 | ) | $ | (43.0 | ) | ||
Investing activities |
(48.7 | ) | (36.0 | ) | ||||
Financing activities |
118.6 | 78.4 |
Net cash used in operating activities was $73.4 million and $43.0 million in 2011 and 2010,
respectively. The increase in cash used in the current year primarily reflects a decline in
business performance, resulting in an increase in the current year loss; this loss was partially
offset by an adjustment for the loss on extinguishment of debt.
Net cash used in investing activities in the current year primarily reflects capital
expenditures for store renovations, information technology, private brand fixtures and the
expansion of a distribution center to support further growth of our eCommerce operations. Capital
expenditures totaled $51.1 million and $36.0 million in 2011 and 2010, respectively; these
expenditures do not reflect reductions for external contributions of $11.4 million and $4.6 million
in 2011 and 2010, respectively. We anticipate our fiscal 2011 capital expenditures will not exceed
$86.0 million (which does not reflect external contributions of $16.0 million, reducing forecasted
net capital investments to $70.0 million), an increase over our fiscal 2010 capital expenditures of
$46.3 million (which does not reflect external contributions of $6.8 million, reducing fiscal 2010
net capital investments to $39.5 million).
Net cash provided by financing activities was $118.6 million and $78.4 million in 2011 and
2010, respectively. The increase in net cash provided primarily reflects an increase in current
year net borrowings due to increased cash used in operating activities, increased capital
expenditures and financing fees incurred for the amendment of the Second Amended Revolving Credit
Facility.
Aside from planned capital expenditures, the Companys primary cash requirements will be to
service debt and finance working capital increases during peak selling seasons.
As of October 29, 2011, our long-term debt included $510.0 million aggregate principal amount
of 101/4% Senior Notes. In November 2011, we repurchased a total of $30.0 million principal amount
of the outstanding balance of the Senior Notes (see Note 14). We may from time to time seek to
repurchase additional outstanding Senior Notes through cash purchases in open market transactions,
privately negotiated transactions or otherwise. Such repurchases, if any, will depend on
prevailing market conditions, our liquidity requirements, contractual restrictions and other
factors. The amounts involved may be material.
We paid a quarterly cash dividend of $0.05 per share on shares of Class A common stock and
common stock on May 2, 2011, August 1, 2011 and November 1, 2011 to shareholders of record as of
April 15, 2011, July 15, 2011 and October 14, 2011, respectively. Additionally, a quarterly cash
dividend of $0.05 per share was declared on December 6, 2011, payable February 1, 2012 to
shareholders of record as of January 13, 2012. Our Board of Directors will consider dividends in subsequent periods as it deems
appropriate.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations are based upon
our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. Preparation of these financial statements
required us to make estimates and judgments that affected reported amounts of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at
the date of our financial statements. Such estimates include those related to merchandise returns,
inventories, long-lived assets, intangible assets, insurance reserves, contingencies, litigation
and assumptions used in the calculation of income taxes and retirement and other post-employment
benefits, among others. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments
and uncertainties, and could potentially lead to materially different results under different
assumptions and conditions. We believe our critical accounting policies are as described below:
Inventory
Inventories are stated at the lower of cost or market with cost determined by the retail
inventory method. Under the retail inventory method, the valuation of inventories at cost and the
resulting gross margin is derived by applying a calculated cost-to-retail ratio to the retail value
of inventories. The retail inventory method is an averaging method that has been widely used in
the retail industry. Use of the retail inventory method will result in valuing inventories at the
lower of cost or market if markdowns are taken timely as a reduction of the retail value of
inventories.
Inherent in the retail inventory method calculation are certain significant management
judgments and estimates including, among others, merchandise markups, markdowns and shrinkage,
which significantly impact both the ending inventory valuation at cost and the resulting gross
margin. These significant estimates, coupled with the fact that the retail inventory method is an
averaging process, can, under certain circumstances, result in individual inventory components with
cost above related net realizable value. Factors that can lead to this result include applying the
retail inventory method to a group of products that is not fairly uniform in terms of its cost,
selling price relationship and turnover; or applying the retail inventory method to transactions
over a period of time that include different rates of gross profit, such as those relating to
seasonal merchandise. In addition, failure to take timely markdowns can result in an overstatement
of inventory under the lower of cost or market principle. We believe the retail inventory method
we use provides an inventory valuation that approximates cost and results in carrying inventory in
the aggregate at the lower of cost or market.
We regularly review inventory quantities on-hand and record an adjustment for excess or old
inventory based primarily on an estimated forecast of merchandise demand for the selling season.
Demand for merchandise can fluctuate greatly. A significant increase in the demand for merchandise
could result in a short-term increase in the cost of inventory purchases while a significant
decrease in demand could result in an increase in the amount of excess inventory quantities
on-hand. Additionally, estimates of merchandise demand may prove to be inaccurate, in which case
we may have understated or overstated the adjustment required for excess or old inventory. If our
inventory is determined to be overvalued in the future, we would be required to recognize such
costs in costs of goods sold and reduce operating income at the time of such determination.
Likewise, if inventory is later determined to be undervalued, we may have overstated the
costs of goods sold in previous periods and would recognize additional operating income when
such inventory is sold. Therefore, although every effort is made to ensure the accuracy of
forecasts of merchandise demand, any significant unanticipated changes in demand or in economic
conditions within our markets could have a significant impact on the value of our inventory and
reported operating results.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As of January 29, 2011, approximately 33% of our inventories were valued using a first-in,
first-out cost basis and approximately 67% of our inventories were valued using a last-in,
first-out (LIFO) cost basis. As is currently the case with many companies in the retail
industry, our LIFO calculations yielded inventory increases in recent prior years due to deflation
reflected in price indices used. The LIFO method values merchandise sold at the cost of more
recent inventory purchases (which the deflationary indices indicated to be lower), resulting in the
general inventory on-hand being carried at the older, higher costs. Given these higher values and
the promotional retail environment, we have reduced the carrying value of our LIFO inventories to
an estimated realizable value. These reductions totaled $46.1 million as of October 29, 2011 and
January 29, 2011. Inherent in the valuation of inventories are significant management judgments
and estimates regarding future merchandise selling costs and pricing. Should these estimates prove
to be inaccurate, we may have overstated or understated our inventory carrying value. In such
cases, operating results would ultimately be impacted.
Vendor Allowances
As is standard industry practice, allowances from merchandise vendors are received as
reimbursement for charges incurred on marked-down merchandise. Vendor allowances are recorded when
determined to be collectable and authorized by management. Allowances are credited to costs of
goods sold, provided the allowance is: (1) for merchandise permanently marked down or sold, (2) not
predicated on a future purchase, and (3) not predicated on a future increase in the purchase price
from the vendor. If the aforementioned criteria are not met, the allowances are recorded as an
adjustment to the cost of merchandise capitalized in inventory and reflected as a reduction of
costs of merchandise sold when the related merchandise is sold.
Additionally, allowances are received from vendors in connection with cooperative advertising
programs and for reimbursement of certain payroll expenses. These allowances are reviewed to ensure
reimbursements are for specific, incremental and identifiable advertising or payroll costs incurred
to sell the vendors products. If a vendor reimbursement exceeds the costs incurred, the excess
reimbursement is recorded as a reduction of cost purchases from the vendor and reflected as a
reduction of costs of merchandise sold when the related merchandise is sold. All other amounts are
recognized as a reduction of the related advertising or payroll costs that have been incurred and
reflected in SG&A expense.
Income Taxes
Significant management judgment is required in determining the provision for income taxes,
deferred tax assets and liabilities, and the valuation allowance recorded against net deferred tax
assets. The process involves summarizing temporary differences resulting from differing treatment
of items for tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within the consolidated balance sheet. In addition, we are
required to assess whether valuation allowances should be established against our deferred tax
assets based on consideration of all available evidence using a more likely than not standard.
To the extent a valuation allowance is established in a period, an expense must generally be
recorded within the income tax provision in the statement of operations.
We reported net deferred tax liabilities of $4.4 million and $3.1 million at October 29, 2011
and January 29, 2011, respectively. In assessing the realizability of our deferred tax assets, we
considered whether it is more likely than not that our deferred tax assets will be realized based
upon all available evidence, including scheduled reversal of deferred tax liabilities, historical
operating results, projected future operating results, tax carry-back availability and limitations
pursuant to Section 382 of the Internal Revenue Code, among others. Significant weight is given to
evidence that can be objectively verified. As a result, current or previous losses are given more weight than any projected future taxable income. In
addition, a recent three-year historical cumulative loss is considered a significant element of
negative evidence that is difficult to overcome.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We evaluate our deferred tax assets each reporting period, including assessment of the
Companys cumulative income or loss over the prior three-year period, to determine if valuation
allowances are required. With respect to our reviews during fiscal 2010, our three-year
historical cumulative loss and the continuation of uncertain near-term economic conditions impeded
our ability to rely on our projections of future taxable income in assessing valuation allowance
requirements. As such, we concluded it was necessary to maintain a full valuation allowance on our
net deferred tax assets. With respect to our three quarterly reviews in 2011, we concluded it was
necessary to continue the position of a full valuation allowance on our net deferred tax assets.
Our deferred tax asset valuation allowance totaled $164.1 million and $126.3 million at
October 29, 2011 and January 29, 2011, respectively. If actual results differ from these estimates
or these estimates are adjusted in future periods, the valuation allowance may need to be adjusted,
which could materially impact our financial position and results of operations. If sufficient
positive evidence arises in the future indicating that all or a portion of the deferred tax assets
meet the more likely than not standard for realization, the valuation allowance would be reduced
accordingly in the period that such a conclusion is reached. If reduced, a maximum of $1.6 million
of the valuation allowance reduction would result in an increase to paid in capital rather than an
income tax benefit.
We recognize the effect of income tax positions only if those positions are more likely than
not of being sustained. Recognized income tax positions are measured at the largest amount that is
greater than 50% likely of being realized. Changes in recognition or measurement are reflected in
the period in which the change in judgment occurs. Interpretations and guidance surrounding income
tax laws and regulations change over time, and changes to our assumptions and judgments could
materially impact our financial position and results of operations.
Long-lived Assets
Property, fixtures and equipment are recorded at cost and are depreciated on a straight-line
basis over the estimated useful lives of such assets. Changes in our business model or capital
strategy can result in the actual useful lives differing from estimates. In cases where we
determined that the useful life of property, fixtures and equipment should be shortened, we
depreciated the net book value in excess of the salvage value over the revised remaining useful
life, thereby increasing depreciation expense. Factors such as changes in the planned use of
fixtures or leasehold improvements could also result in shortened useful lives. Our net property,
fixtures and equipment totaled $679.0 million and $703.4 million at October 29, 2011 and January
29, 2011, respectively.
We are required to test a long-lived asset for recoverability whenever events or changes in
circumstances indicate that its carrying value may not be recoverable. Factors that could trigger
an impairment review include the following:
| Significant underperformance of stores relative to historical or projected future
operating results, |
| Significant changes in the manner of our use of assets or overall business
strategy, and |
| Significant negative industry or economic trends for a sustained period. |
If the undiscounted cash flows associated with the asset are insufficient to support the
recorded asset, an impairment loss is recognized for the amount (if any) by which the carrying
amount of the asset exceeds the fair value of the asset. Cash flow estimates are based on
historical results, adjusted to reflect our best estimate of future market and operating conditions. Estimates of fair value are
determined through various techniques, including discounted cash flow models and market approaches,
as considered necessary. Should cash flow estimates differ significantly from actual results, an
impairment could arise and materially impact our financial position and results of operations.
Given the seasonality of operations, impairment is not conclusive, in many cases, until after the
holiday period in the fourth quarter is concluded.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Newly opened stores may take time to generate positive operating and cash flow results.
Factors such as store type, store location, current marketplace awareness of private label brands,
local customer demographic data and current fashion trends are all considered in determining the
time-frame required for a store to achieve positive financial results. If conditions prove to be
substantially different from expectations, the carrying value of new stores long-lived assets may
ultimately become impaired.
Intangible Assets
Net intangible assets totaled $123.8 million and $130.1 million at October 29, 2011 and
January 29, 2011, respectively. Our intangible assets at October 29, 2011 are principally
comprised of $59.3 million of lease interests that relate to below-market-rate leases and $64.5
million associated with trade names, private label brand names and customer lists. The
lease-related interests are being amortized using a straight-line method. The customer lists are
being amortized using a declining-balance method. At October 29, 2011, trade names and private
label brand names of $54.0 million have been deemed as having indefinite lives.
Intangible assets that have indefinite lives are reviewed for impairment at least annually or
when events or changes in circumstances indicate the carrying value of these assets might exceed
their current fair values. Fair value is determined using a discounted cash flow analysis, which
requires certain assumptions and estimates regarding industry economic factors. Our policy is to
conduct impairment testing based on our most current business plans, which reflect anticipated
changes in the economy and the industry.
Should significant changes in the manner of our use of assets or overall business strategy,
future results or economic events cause us to adjust our projected cash flows, future estimates of
fair value may not support the carrying amount of these assets. If actual results prove
inconsistent with our assumptions and judgments, we could be exposed to a material impairment
charge.
Insurance Reserve Estimates
We use a combination of insurance and self-insurance for a number of risks, including workers
compensation, general liability and employee-related health care benefits, a portion of which is
paid by our associates. We determine the estimates for the liabilities associated with these risks
by considering historical claims experience, demographic factors, severity factors and other
actuarial assumptions. A change in claims frequency and severity of claims from historical
experience as well as changes in state statutes and the mix of states in which we operate could
result in a change to the required reserve levels.
Pension and Supplementary Retirement Plans
We provide an unfunded supplementary pension plan to certain key executives. Through
acquisitions, we acquired a defined benefit pension plan and assumed the liabilities of
supplementary pension plans and a postretirement benefit plan. Major assumptions used in
accounting for these plans include the discount rate and the expected long-term rate of return on
the defined benefit plans assets.
The discount rate assumption is evaluated annually. We utilize the Citibank Pension Discount
Curve (CPDC) to develop the discount rate assumption. The CPDC is developed from a U.S. Treasury
par curve that reflects the Treasury Coupon and Strips market. Option-adjusted spreads drawn from
the double-A corporate bond sector are layered in to develop a double-A corporate par curve, from
which the CPDC spot rates are developed. The CPDC spot rates are applied to expected benefit payments, from which
a single constant discount rate can then be developed based on the expected timing of these benefit
payments.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We base our asset return assumption on current and expected allocations of assets, as well as
a long-term view of expected returns on the plan asset categories. We assess the appropriateness
of the expected rate of return on an annual basis and, when necessary, revise the assumption.
Changes in the assumptions regarding the discount rate and expected return on plan assets may
result in materially different expense and liability amounts. Actuarial estimations may differ
materially from actual results, reflecting many factors including changing market and economic
conditions, changes in investment strategies, higher or lower withdrawal rates and longer or
shorter life-spans of participants. In addition, while we are not required to make any mandatory
contributions to the defined benefit pension plan in fiscal 2011, the funded status of this plan
and the related cost reflected in our financial statements are affected by various factors that are
subject to an inherent degree of uncertainty, particularly in the current economic environment.
Under the Pension Protection Act of 2006, losses of asset values may necessitate increased funding
of the defined benefit pension plan in the future to meet minimum federal government requirements.
Downward pressure on the asset values of the defined benefit pension plan may require us to fund
obligations earlier than we forecasted, which would have a negative impact on cash flows from
operations.
Recently Issued Accounting Standards
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05), which amends FASB
Codification Topic 220 on comprehensive income disclosures. The new guidance allows an entity to
present components of net income and other comprehensive income in one continuous statement,
referred to as the statement of comprehensive income, or in two separate, but consecutive
statements. The new guidance eliminates the current option to report other comprehensive income and
its components in the statement of changes in equity. While the new guidance changes the
presentation of comprehensive income, there are no changes to the components that are recognized in
net income or other comprehensive income under current accounting guidance. This new guidance is
effective for interim and annual periods beginning after December 15, 2011. We do not expect the
adoption of ASU 2011-05 to have an impact on our consolidated financial position, results of
operations or cash flows as it requires only a change in the format of presentation.
In May 2011, ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04), was issued, amending FASB
Codification Topic 820 (ASC 820) on fair value measurements and disclosures. The amendments (1)
clarify the Boards intent regarding application of existing fair value measurement guidance, (2)
revise certain measurement and disclosure requirements that change or modify a principle to achieve
convergence with international accounting standards and (3) expand the information required to be
disclosed with respect to fair value measurements categorized in Level 3 fair value measurements.
The amendments to ASC 820 made by ASU 2011-04 are effective for interim and annual periods
beginning after December 15, 2011. We do not expect the adoption of ASU 2011-04 to have a
material impact on our consolidated financial statements.
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THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
Certain information included in this report and other materials filed or to be filed by the
Company with the Securities and Exchange Commission contain 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, could, will, plan, expect,
anticipate, estimate, project, intend or other similar expressions, involve important risks
and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. Factors that could cause such
differences include, but are not limited to, risks related to retail businesses generally; a
significant and prolonged deterioration of general economic conditions which could negatively
impact the Company, including the potential write-down of the current valuation of intangible
assets and deferred taxes; changes in the terms of the Companys proprietary credit card program;
potential increase in pension obligations; consumer spending patterns, debt levels, and the
availability and cost of consumer credit; additional competition from existing and new competitors;
inflation; deflation; changes in the costs of fuel and other energy and transportation costs;
weather conditions that could negatively impact sales; uncertainties associated with expanding or
remodeling existing stores; the ability to attract and retain qualified management; the dependence
upon relationships with vendors and their factors; a data security breach or system failure; the
ability to reduce or control SG&A expenses; the incurrence of unplanned capital expenditures; the
ability to obtain financing for working capital, capital expenditures and general corporate
purpose; the impact of new regulatory requirements including the Credit Card Accountability
Responsibility and Disclosure Act of 2009 and the Health Care Reform Act; the inability or
limitations on the Companys ability to favorably adjust the valuation allowance on deferred tax
assets; the financial condition of mall operators; Mr. Bergrens continued willingness to serve as
chief executive officer; and the successful search for a new chief executive officer. Additional
factors that could cause the Companys actual results to differ from those contained in these
forward-looking statements are discussed in greater detail under Item 1A of the Companys Form 10-K
filed with the Securities and Exchange Commission.
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THE BON-TON STORES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Financial Instruments
Refer to disclosures contained on page 35 of our 2010 Annual Report on Form 10-K. There have
been no material changes in our exposures, risk management strategies, or hedging positions since
January 29, 2011.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in reports filed pursuant to the Securities Exchange Act of 1934, as
amended (the Exchange Act), is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report
and, based on this evaluation, concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
Except as discussed below, there were no changes to our internal control over financial
reporting that occurred during the thirteen weeks ended October 29, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
The Company made certain changes to its internal control over financial reporting in
connection with implementation of a new merchandise accounts payable computer system, which was
implemented pursuant to the Companys ongoing technology improvements. Management believes the new
controls are effective.
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THE BON-TON STORES, INC.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS
10.1
|
Sixth Amendment to Employment Agreement with Byron L. Bergren (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 15, 2011) | |
31.1*
|
Certification of Byron L. Bergren | |
31.2*
|
Certification of Keith E. Plowman | |
32.1**
|
Certification Pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934 | |
101***
|
The following financial statements from The Bon-Ton Stores, Inc.s Quarterly Report on Form 10-Q for the quarter ended October 29, 2011, filed on December 7, 2011, formatted in XBRL: | |
(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statement of Shareholders Equity and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text. |
* | Filed herewith. |
|
** | Furnished herewith. |
|
*** | As provided in Rule 406T of Regulation S-T, these interactive data files are deemed furnished
and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18
of the Securities Exchange Act of 1934. |
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THE BON-TON STORES, INC.
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: December 7, 2011 | BY: | /s/ Byron L. Bergren | |||
Byron L. Bergren | |||||
President and Chief Executive Officer | |||||
DATE: December 7, 2011 | BY: | /s/ Keith E. Plowman | |||
Keith E. Plowman | |||||
Executive Vice President,
Chief Financial Officer and Principal Accounting Officer |
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