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EX-10.2 - EX-10.2 - BON TON STORES INCa14-21465_1ex10d2.htm
EX-31.2 - EX-31.2 - BON TON STORES INCa14-21465_1ex31d2.htm
EX-10.1 - EX-10.1 - BON TON STORES INCa14-21465_1ex10d1.htm
EX-32.1 - EX-32.1 - BON TON STORES INCa14-21465_1ex32d1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarter ended November 1, 2014

 

Commission File Number

 

 

0-19517

 

THE BON-TON STORES, INC.

2801 East Market Street

York, Pennsylvania 17402

(717) 757-7660

 

Incorporated in Pennsylvania

IRS No. 23-2835229

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 x 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 x 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 x

Non-accelerated filer o
(Do not check if a smaller
reporting company)

Smaller reporting
company
o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

 

As of November 28, 2014, there were 17,480,523 shares of Common Stock, $.01 par value, and 2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.

 

 

 



 

PART I:  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

THE BON-TON STORES, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

 

November 1,

 

November 2,

 

February 1,

 

(In thousands, except share and per share data)

 

2014

 

2013

 

2014

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,516

 

$

8,082

 

$

7,058

 

Merchandise inventories

 

970,649

 

914,603

 

709,733

 

Prepaid expenses and other current assets

 

79,059

 

91,120

 

76,285

 

Total current assets

 

1,057,224

 

1,013,805

 

793,076

 

Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $922,608, $867,012 and $865,111 at November 1, 2014, November 2, 2013 and February 1, 2014, respectively

 

637,217

 

649,966

 

640,004

 

Deferred income taxes

 

20,486

 

16,659

 

15,765

 

Intangible assets, net of accumulated amortization of $62,811, $62,657 and $62,068 at November 1, 2014, November 2, 2013 and February 1, 2014, respectively

 

91,891

 

104,932

 

102,800

 

Other long-term assets

 

23,162

 

23,139

 

25,584

 

Total assets

 

$

1,829,980

 

$

1,808,501

 

$

1,577,229

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

376,070

 

$

351,281

 

$

200,465

 

Accrued payroll and benefits

 

24,248

 

25,369

 

28,343

 

Accrued expenses

 

157,462

 

161,224

 

150,595

 

Current maturities of long-term debt

 

7,286

 

7,247

 

7,363

 

Current maturities of obligations under capital leases

 

3,888

 

3,878

 

3,797

 

Deferred income taxes

 

28,784

 

23,222

 

22,744

 

Income taxes payable

 

 

4

 

 

Total current liabilities

 

597,738

 

572,225

 

413,307

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

971,608

 

931,776

 

804,372

 

Obligations under capital leases, less current maturities

 

46,034

 

49,609

 

48,977

 

Other long-term liabilities

 

165,897

 

206,017

 

182,617

 

Total liabilities

 

1,781,277

 

1,759,627

 

1,449,273

 

 

 

 

 

 

 

 

 

Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 17,818,323, 17,857,457 and 17,846,457 at November 1, 2014, November 2, 2013 and February 1, 2014, respectively

 

178

 

179

 

178

 

Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at November 1, 2014, November 2, 2013 and February 1, 2014

 

30

 

30

 

30

 

Treasury stock, at cost — 337,800 shares at November 1, 2014, November 2, 2013 and February 1, 2014

 

(1,387

)

(1,387

)

(1,387

)

Additional paid-in capital

 

160,759

 

160,185

 

160,772

 

Accumulated other comprehensive loss

 

(48,006

)

(68,589

)

(50,448

)

(Accumulated deficit) retained earnings

 

(62,871

)

(41,544

)

18,811

 

Total shareholders’ equity

 

48,703

 

48,874

 

127,956

 

Total liabilities and shareholders’ equity

 

$

1,829,980

 

$

1,808,501

 

$

1,577,229

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

(In thousands, except per share data)

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

(Unaudited)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

642,735

 

$

651,161

 

$

1,813,647

 

$

1,855,205

 

Other income

 

16,022

 

15,412

 

45,780

 

44,236

 

 

 

658,757

 

666,573

 

1,859,427

 

1,899,441

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

409,484

 

412,932

 

1,159,846

 

1,185,528

 

Selling, general and administrative

 

220,901

 

215,204

 

659,027

 

651,553

 

Depreciation and amortization

 

22,073

 

21,149

 

67,678

 

65,248

 

Amortization of lease-related interests

 

1,101

 

1,117

 

3,442

 

3,388

 

Impairment charges

 

273

 

321

 

447

 

452

 

Income (loss) from operations

 

4,925

 

15,850

 

(31,013

)

(6,728

)

Interest expense, net

 

15,506

 

16,492

 

46,224

 

52,747

 

Loss on extinguishment of debt

 

 

20

 

153

 

4,297

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(10,581

)

(662

)

(77,390

)

(63,772

)

Income tax provision

 

427

 

269

 

1,322

 

1,123

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

 

 

 

 

 

 

 

 

 

 

Per share amounts —

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

(In thousands)

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

(Unaudited)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

814

 

1,551

 

2,442

 

4,653

 

Comprehensive (loss) income

 

$

(10,194

)

$

620

 

$

(76,270

)

$

(60,242

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

(In thousands)

 

November 1,

 

November 2,

 

(Unaudited)

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(78,712

)

$

(64,895

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

67,678

 

65,248

 

Amortization of lease-related interests

 

3,442

 

3,388

 

Impairment charges

 

447

 

452

 

Share-based compensation expense

 

1,902

 

3,000

 

Gain on sale of property, fixtures and equipment

 

(2,542

)

(403

)

Reclassifications of accumulated other comprehensive loss

 

2,442

 

4,653

 

Loss on extinguishment of debt

 

153

 

4,297

 

Amortization of deferred financing costs

 

2,195

 

3,029

 

Deferred income tax provision

 

1,318

 

1,317

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in merchandise inventories

 

(260,915

)

(156,203

)

Increase in prepaid expenses and other current assets

 

(2,774

)

(20,520

)

Decrease (increase) in other long-term assets

 

296

 

(1,159

)

Increase in accounts payable

 

169,757

 

151,986

 

Increase (decrease) in accrued payroll and benefits and accrued expenses

 

1,793

 

(13,953

)

Decrease in income taxes payable

 

 

(735

)

Decrease in other long-term liabilities

 

(13,676

)

(2,893

)

Net cash used in operating activities

 

(107,196

)

(23,391

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(63,961

)

(60,780

)

Proceeds from sale of property, fixtures and equipment

 

5,297

 

1,274

 

Net cash used in investing activities

 

(58,664

)

(59,506

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

(411,051

)

(917,791

)

Proceeds from issuance of long-term debt

 

575,231

 

1,007,791

 

Cash dividends paid

 

(1,981

)

(1,966

)

Restricted shares forfeited in lieu of payroll taxes

 

(1,937

)

(2,134

)

Proceeds from stock options exercised

 

22

 

595

 

Deferred financing costs paid

 

(69

)

(8,712

)

Increase in book overdraft balances

 

6,103

 

5,270

 

Net cash provided by financing activities

 

166,318

 

83,053

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

458

 

156

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

7,058

 

7,926

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

7,516

 

$

8,082

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

(Accumulated

 

 

 

 

 

 

 

Class A

 

 

 

Additional

 

Other

 

Deficit)

 

 

 

(In thousands, except per share data)

 

Common

 

Common

 

Treasury

 

Paid-in

 

Comprehensive

 

Retained

 

 

 

(Unaudited)

 

Stock

 

Stock

 

Stock

 

Capital

 

Loss

 

Earnings

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT FEBRUARY 2, 2013

 

$

175

 

$

30

 

$

(1,387

)

$

158,728

 

$

(73,242

)

$

26,302

 

$

110,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

(64,895

)

(64,895

)

Other comprehensive income

 

 

 

 

 

4,653

 

 

4,653

 

Dividends to shareholders, $0.15 per share

 

 

 

 

 

 

(2,951

)

(2,951

)

Restricted shares forfeited in lieu of payroll taxes

 

(2

)

 

 

(2,132

)

 

 

(2,134

)

Proceeds from stock options exercised

 

1

 

 

 

594

 

 

 

595

 

Share-based compensation expense

 

5

 

 

 

2,995

 

 

 

3,000

 

BALANCE AT NOVEMBER 2, 2013

 

$

179

 

$

30

 

$

(1,387

)

$

160,185

 

$

(68,589

)

$

(41,544

)

$

48,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT FEBRUARY 1, 2014

 

$

178

 

$

30

 

$

(1,387

)

$

160,772

 

$

(50,448

)

$

18,811

 

$

127,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

(78,712

)

(78,712

)

Other comprehensive income

 

 

 

 

 

2,442

 

 

2,442

 

Dividends to shareholders, $0.15 per share

 

 

 

 

 

 

(2,970

)

(2,970

)

Restricted shares forfeited in lieu of payroll taxes

 

(2

)

 

 

(1,935

)

 

 

(1,937

)

Proceeds from stock options exercised

 

 

 

 

22

 

 

 

22

 

Share-based compensation expense

 

2

 

 

 

1,900

 

 

 

1,902

 

BALANCE AT NOVEMBER 1, 2014

 

$

178

 

$

30

 

$

(1,387

)

$

160,759

 

$

(48,006

)

$

(62,871

)

$

48,703

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per 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 November 1, 2014, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 273 stores, including ten furniture galleries and four clearance centers, in 26 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates.

 

The accompanying unaudited consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. (the “Parent”) and its 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 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 Company’s 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 Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2014.

 

For purposes of the following discussion, references to the “third quarter of 2014” and the “third quarter of 2013” are to the 13 weeks ended November 1, 2014 and November 2, 2013, respectively.  References to “fiscal 2014” are to the 52 weeks ending January 31, 2015; references to “fiscal 2013” are to the 52 weeks ended February 1, 2014.

 

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, the valuation of 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 management’s 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 those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

 

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:

 

7



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Basic Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

19,470,674

 

19,202,416

 

19,393,072

 

19,066,734

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

 

 

 

 

 

 

 

 

 

Diluted Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

19,470,674

 

19,202,416

 

19,393,072

 

19,066,734

 

Common shares issuable - stock options

 

 

 

 

 

Weighted average common shares outstanding assuming dilution

 

19,470,674

 

19,202,416

 

19,393,072

 

19,066,734

 

 

 

 

 

 

 

 

 

 

 

Diluted loss per common share

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 715,140 and 857,754 for the third quarter in each of 2014 and 2013, respectively, and 710,101 and 939,333 for the 39 weeks ended November 1, 2014 and November 2, 2013, 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) totaling 197,593 and 300,523 for the third quarter in each of 2014 and 2013, respectively, and 218,184 and 388,758 for the 39 weeks ended November 1, 2014 and November 2, 2013, respectively, were excluded from the computation of diluted weighted average common shares outstanding, as their effect would have been antidilutive.  Certain of these stock option shares were excluded solely due to the Company’s net loss position.  Had the Company reported net income for the third quarter in each of 2014 and 2013, these shares would have increased diluted weighted average common shares outstanding by 86,974 and 114,837, respectively.  Had the Company reported net income for the 39 weeks ended November 1, 2014 and November 2, 2013, these shares would have increased diluted weighted average common shares outstanding by 96,646 and 145,748, respectively.

 

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

 

8



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

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 Company’s own assumptions.

 

The carrying values of the Company’s 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 and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of November 1, 2014 are as follows:

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying
Value

 

Estimated
Fair Value

 

Quoted
Prices in
Active Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Second lien senior secured notes

 

$

407,292

 

$

360,792

 

$

360,792

 

$

 

$

 

Mortgage facilities

 

213,292

 

215,552

 

 

 

215,552

 

Senior secured credit facility

 

358,310

 

358,310

 

 

 

358,310

 

Total

 

$

978,894

 

$

934,654

 

$

360,792

 

$

 

$

573,862

 

 

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of November 2, 2013 are as follows:

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying
Value

 

Estimated
Fair Value

 

Quoted
Prices in
Active Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Second lien senior secured notes

 

$

407,292

 

$

394,267

 

$

394,267

 

$

 

$

 

Mortgage facilities

 

221,270

 

224,628

 

 

 

224,628

 

Senior secured credit facility

 

310,461

 

310,461

 

 

 

310,461

 

Total

 

$

939,023

 

$

929,356

 

$

394,267

 

$

 

$

535,089

 

 

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of February 1, 2014 are as follows:

 

9



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying
Value

 

Estimated
Fair Value

 

Quoted
Prices in
Active Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Second lien senior secured notes

 

$

407,292

 

$

398,972

 

$

398,972

 

$

 

$

 

Mortgage facilities

 

219,564

 

222,168

 

 

 

222,168

 

Senior secured credit facility

 

184,879

 

184,879

 

 

 

184,879

 

Total

 

$

811,735

 

$

806,019

 

$

398,972

 

$

 

$

407,047

 

 

The Level 3 fair value estimates are determined by a discounted cash flow analysis utilizing a discount rate the Company believes is appropriate and would be used by market participants.  There was no change in the valuation technique used to determine the Level 3 fair value estimates.

 

4.                                      SUPPLEMENTAL BALANCE SHEET INFORMATION

 

Prepaid expenses and other current assets were comprised of the following:

 

 

 

November 1,

 

November 2,

 

February 1,

 

 

 

2014

 

2013

 

2014

 

Other receivables

 

$

35,264

 

$

45,461

 

$

39,569

 

Prepaid expenses

 

43,795

 

45,659

 

36,716

 

Total

 

$

79,059

 

$

91,120

 

$

76,285

 

 

5.                                      SUPPLEMENTAL CASH FLOW INFORMATION

 

The following supplemental cash flow information is provided for the periods reported:

 

 

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest, net of amounts capitalized

 

$

38,439

 

$

55,457

 

Income taxes, net of refunds received

 

(3

)

691

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Property, fixtures and equipment included in accrued expenses

 

$

6,140

 

$

7,082

 

Declared dividends to shareholders included in accrued expenses

 

989

 

985

 

 

10



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

6.                                      EXIT OR DISPOSAL ACTIVITIES

 

The following table summarizes exit or disposal activities during the 39 weeks ended November 1, 2014 related to store closings in fiscal 2013, the consolidation of eCommerce fulfillment activities in advance of the Company’s new eCommerce fulfillment center and the Company’s expense efficiency initiative:

 

 

 

Termination
Benefits

 

Other
Costs

 

Total

 

Accrued balance as of February 1, 2014

 

$

232

 

$

188

 

$

420

 

Provisions:

 

 

 

 

 

 

 

Thirteen weeks ended May 3, 2014

 

319

 

125

 

444

 

Thirteen weeks ended August 2, 2014

 

1,148

 

18

 

1,166

 

Thirteen weeks ended November 1, 2014

 

245

 

 

245

 

Payments:

 

 

 

 

 

 

 

Thirteen weeks ended May 3, 2014

 

(217

)

(313

)

(530

)

Thirteen weeks ended August 2, 2014

 

(377

)

(18

)

(395

)

Thirteen weeks ended November 1, 2014

 

(417

)

 

(417

)

Accrued balance as of November 1, 2014

 

$

933

 

$

 

$

933

 

 

The above provisions were included within selling, general and administrative expense.

 

7.                                      EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS

 

The Company provides benefits to certain current and former associates who are eligible under a qualified defined benefit pension plan and various non-qualified 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

 

 

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

2014

 

2013

 

Interest cost

 

$

1,998

 

$

1,997

 

$

5,993

 

$

5,994

 

Expected return on plan assets

 

(2,490

)

(2,235

)

(7,470

)

(6,706

)

Recognition of net actuarial loss

 

943

 

1,642

 

2,831

 

4,925

 

Net periodic benefit expense

 

$

451

 

$

1,404

 

$

1,354

 

$

4,213

 

 

During the 39 weeks ended November 1, 2014, contributions of $11,287 were made to the Pension Plans.  The Company anticipates contributing an additional $1,682 to fund the Pension Plans in fiscal 2014 for an annual total of $12,969.

 

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 for the Postretirement Benefit Plan includes the following (income) and expense components:

 

11



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

2014

 

2013

 

Interest cost

 

$

23

 

$

30

 

$

67

 

$

91

 

Recognition of net actuarial gain

 

(129

)

(91

)

(389

)

(272

)

Net periodic benefit income

 

$

(106

)

$

(61

)

$

(322

)

$

(181

)

 

During the 39 weeks ended November 1, 2014, the Company contributed $114 to fund the Postretirement Benefit Plan, and anticipates contributing an additional $297 to fund the Postretirement Benefit Plan in fiscal 2014, for a net annual total of $411.

 

8.                                      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 2013 and the 39 weeks ended November 1, 2014 on all of the Company’s net deferred tax assets.  The Company’s deferred tax asset valuation allowance totaled $176,495, $178,106 and $144,908 as of November 1, 2014, November 2, 2013 and February 1, 2014, respectively.

 

Given the Company’s valuation allowance position, no tax benefit was recognized on the Company’s loss before income taxes in the 13 and 39 weeks ended in each of November 1, 2014 and November 2, 2013.  The income tax provision recorded in the 13 and 39 weeks ended in each of November 1, 2014 and November 2, 2013 primarily reflects the recognition of deferred tax liabilities associated with indefinite-lived assets.

 

As of November 1, 2014, it is reasonably possible that gross unrecognized tax benefits could decrease by $78 within the next 12 months due to the expiration of certain statutes of limitations.

 

9.                                      CONTINGENCIES

 

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 Company’s financial position, results of operations or liquidity.

 

10.       COMPREHENSIVE LOSS

 

Accumulated other comprehensive loss is comprised of the net actuarial loss associated with the Pension Plans and Postretirement Benefit Plan.  Other comprehensive income is comprised entirely of the amortization of the net actuarial loss (gain) associated with the Pension Plans and Postretirement Benefit Plan.

 

As a result of the deferred tax asset valuation allowance maintained throughout fiscal 2013 and the 39 weeks ended November 1, 2014 (see Note 8), no tax effect was recorded on the changes recognized within other comprehensive income for all periods presented.

 

12



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The before-tax amount of amortization of net actuarial loss (gain) (see Note 7) was recorded within selling, general and administrative expense.

 

11.     GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

 

Certain debt obligations of the Company, which constitute debt obligations of The Bon-Ton Department Stores, Inc. (the “Issuer”), are guaranteed by the Parent and by each of its subsidiaries, other than the Issuer, that is an obligor under the Company’s senior secured credit facility.  Separate financial statements of the Parent, the Issuer and such subsidiary guarantors are not presented because the guarantees by the Parent and each 100% owned subsidiary guarantor are joint and several, full and unconditional, except for certain customary limitations which are applicable only to a subsidiary guarantor.  These customary limitations include releases of a guarantee (1) if the subsidiary guarantor no longer guarantees other indebtedness of the Issuer; (2) if there is a sale or other disposition of the capital stock of a subsidiary guarantor and if such sale complies with the covenant regarding asset sales; and (3) if the subsidiary guarantor is properly designated as an “unrestricted subsidiary.”

 

The condensed consolidating financial information for the Parent, the Issuer and the guarantor and non-guarantor subsidiaries as of November 1, 2014, November 2, 2013 and February 1, 2014 and for the third quarter in each of 2014 and 2013 and the 39 weeks ended November 1, 2014 and November 2, 2013 as presented below has been prepared from the books and records maintained by the Parent, 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.

 

13



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

November 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

2,879

 

$

4,636

 

$

 

$

 

$

7,516

 

Merchandise inventories

 

 

628,017

 

342,632

 

 

 

970,649

 

Prepaid expenses and other current assets

 

 

69,415

 

6,311

 

3,839

 

(506

)

79,059

 

Total current assets

 

1

 

700,311

 

353,579

 

3,839

 

(506

)

1,057,224

 

Property, fixtures and equipment at cost, net

 

 

259,079

 

148,437

 

229,701

 

 

637,217

 

Deferred income taxes

 

 

3,392

 

17,094

 

 

 

20,486

 

Intangible assets, net

 

 

25,365

 

66,526

 

 

 

91,891

 

Investment in and advances to affiliates

 

48,702

 

421,602

 

299,047

 

 

(769,351

)

 

Other long-term assets

 

 

22,273

 

403

 

486

 

 

23,162

 

Total assets

 

$

48,703

 

$

1,432,022

 

$

885,086

 

$

234,026

 

$

(769,857

)

$

1,829,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

376,070

 

$

 

$

 

$

 

$

376,070

 

Accrued payroll and benefits

 

 

19,622

 

4,626

 

 

 

24,248

 

Accrued expenses

 

 

87,858

 

70,074

 

36

 

(506

)

157,462

 

Current maturities of long-term debt and obligations under capital leases

 

 

451

 

3,436

 

7,287

 

 

11,174

 

Deferred income taxes

 

 

8,382

 

20,402

 

 

 

28,784

 

Total current liabilities

 

 

492,383

 

98,538

 

7,323

 

(506

)

597,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and obligations under capital leases, less current maturities

 

 

770,946

 

40,690

 

206,006

 

 

1,017,642

 

Other long-term liabilities

 

 

120,767

 

43,327

 

1,803

 

 

165,897

 

Total liabilities

 

 

1,384,096

 

182,555

 

215,132

 

(506

)

1,781,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

48,703

 

47,926

 

702,531

 

18,894

 

(769,351

)

48,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

48,703

 

$

1,432,022

 

$

885,086

 

$

234,026

 

$

(769,857

)

$

1,829,980

 

 

14



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

November 2, 2013

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,038

 

$

5,043

 

$

 

$

 

$

8,082

 

Merchandise inventories

 

 

590,837

 

323,766

 

 

 

914,603

 

Prepaid expenses and other current assets

 

 

83,315

 

4,439

 

3,944

 

(578

)

91,120

 

Total current assets

 

1

 

677,190

 

333,248

 

3,944

 

(578

)

1,013,805

 

Property, fixtures and equipment at cost, net

 

 

234,300

 

172,501

 

243,165

 

 

649,966

 

Deferred income taxes

 

 

6,114

 

10,545

 

 

 

16,659

 

Intangible assets, net

 

 

34,102

 

70,830

 

 

 

104,932

 

Investment in and advances to (from) affiliates

 

48,873

 

429,589

 

272,151

 

(52

)

(750,561

)

 

Other long-term assets

 

 

21,711

 

504

 

924

 

 

23,139

 

Total assets

 

$

48,874

 

$

1,403,006

 

$

859,779

 

$

247,981

 

$

(751,139

)

$

1,808,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

351,281

 

$

 

$

 

$

 

$

351,281

 

Accrued payroll and benefits

 

 

21,115

 

4,254

 

 

 

25,369

 

Accrued expenses

 

 

92,851

 

68,875

 

76

 

(578

)

161,224

 

Current maturities of long-term debt and obligations under capital leases

 

 

669

 

3,209

 

7,247

 

 

11,125

 

Deferred income taxes

 

 

10,290

 

12,932

 

 

 

23,222

 

Income taxes payable

 

 

4

 

 

 

 

4

 

Total current liabilities

 

 

476,210

 

89,270

 

7,323

 

(578

)

572,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and obligations under capital leases, less current maturities

 

 

723,512

 

43,850

 

214,023

 

 

981,385

 

Other long-term liabilities

 

 

154,633

 

49,707

 

1,677

 

 

206,017

 

Total liabilities

 

 

1,354,355

 

182,827

 

223,023

 

(578

)

1,759,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

48,874

 

48,651

 

676,952

 

24,958

 

(750,561

)

48,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

48,874

 

$

1,403,006

 

$

859,779

 

$

247,981

 

$

(751,139

)

$

1,808,501

 

 

15



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

February 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

2,889

 

$

4,168

 

$

 

$

 

$

7,058

 

Merchandise inventories

 

 

454,718

 

255,015

 

 

 

709,733

 

Prepaid expenses and other current assets

 

 

67,670

 

4,437

 

4,726

 

(548

)

76,285

 

Total current assets

 

1

 

525,277

 

263,620

 

4,726

 

(548

)

793,076

 

Property, fixtures and equipment at cost, net

 

 

232,869

 

166,720

 

240,415

 

 

640,004

 

Deferred income taxes

 

 

4,076

 

11,689

 

 

 

15,765

 

Intangible assets, net

 

 

33,260

 

69,540

 

 

 

102,800

 

Investment in and advances to (from) affiliates

 

127,955

 

344,188

 

387,556

 

(90

)

(859,609

)

 

Other long-term assets

 

 

24,169

 

533

 

882

 

 

25,584

 

Total assets

 

$

127,956

 

$

1,163,839

 

$

899,658

 

$

245,933

 

$

(860,157

)

$

1,577,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

200,465

 

$

 

$

 

$

 

$

200,465

 

Accrued payroll and benefits

 

 

22,567

 

5,776

 

 

 

28,343

 

Accrued expenses

 

 

74,115

 

76,981

 

47

 

(548

)

150,595

 

Current maturities of long-term debt and obligations under capital leases

 

 

548

 

3,249

 

7,363

 

 

11,160

 

Deferred income taxes

 

 

8,451

 

14,293

 

 

 

22,744

 

Total current liabilities

 

 

306,146

 

100,299

 

7,410

 

(548

)

413,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and obligations under capital leases, less current maturities

 

 

597,857

 

43,291

 

212,201

 

 

853,349

 

Other long-term liabilities

 

 

132,690

 

48,220

 

1,707

 

 

182,617

 

Total liabilities

 

 

1,036,693

 

191,810

 

221,318

 

(548

)

1,449,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

127,956

 

127,146

 

707,848

 

24,615

 

(859,609

)

127,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

127,956

 

$

1,163,839

 

$

899,658

 

$

245,933

 

$

(860,157

)

$

1,577,229

 

 

16



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirteen Weeks Ended November 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

378,279

 

$

264,456

 

$

 

$

 

$

642,735

 

Other income

 

 

9,457

 

6,565

 

 

 

16,022

 

 

 

 

387,736

 

271,021

 

 

 

658,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

243,019

 

166,465

 

 

 

409,484

 

Selling, general and administrative

 

 

135,706

 

92,366

 

32

 

(7,203

)

220,901

 

Depreciation and amortization

 

 

11,130

 

8,221

 

2,722

 

 

22,073

 

Amortization of lease-related interests

 

 

495

 

606

 

 

 

1,101

 

Impairment charges

 

 

273

 

 

 

 

273

 

(Loss) income from operations

 

 

(2,887

)

3,363

 

(2,754

)

7,203

 

4,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany income

 

 

460

 

3,289

 

6,525

 

(10,274

)

 

Equity in (losses) earnings of subsidiaries

 

(10,581

)

6,145

 

 

 

4,436

 

 

Interest expense, net

 

 

(14,299

)

(833

)

(3,445

)

3,071

 

(15,506

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(10,581

)

(10,581

)

5,819

 

326

 

4,436

 

(10,581

)

Income tax provision

 

427

 

427

 

234

 

 

(661

)

427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(11,008

)

$

(11,008

)

$

5,585

 

$

326

 

$

5,097

 

$

(11,008

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended November 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(11,008

)

$

(11,008

)

$

5,585

 

$

326

 

$

5,097

 

$

(11,008

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

814

 

814

 

 

 

(814

)

814

 

Comprehensive (loss) income

 

$

(10,194

)

$

(10,194

)

$

5,585

 

$

326

 

$

4,283

 

$

(10,194

)

 

17



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirteen Weeks Ended November 2, 2013

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

376,348

 

$

274,813

 

$

 

$

 

$

651,161

 

Other income

 

 

8,881

 

6,531

 

 

 

15,412

 

 

 

 

385,229

 

281,344

 

 

 

666,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

240,501

 

172,431

 

 

 

412,932

 

Selling, general and administrative

 

 

131,649

 

90,831

 

30

 

(7,306

)

215,204

 

Depreciation and amortization

 

 

9,913

 

8,484

 

2,752

 

 

21,149

 

Amortization of lease-related interests

 

 

425

 

692

 

 

 

1,117

 

Impairment charges

 

 

321

 

 

 

 

321

 

Income (loss) from operations

 

 

2,420

 

8,906

 

(2,782

)

7,306

 

15,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany income

 

 

439

 

4,898

 

6,651

 

(11,988

)

 

Equity in (losses) earnings of subsidiaries

 

(662

)

13,194

 

 

 

(12,532

)

 

Interest expense, net

 

 

(16,695

)

(891

)

(3,588

)

4,682

 

(16,492

)

Loss on extinguishment of debt

 

 

(20

)

 

 

 

(20

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(662

)

(662

)

12,913

 

281

 

(12,532

)

(662

)

Income tax provision (benefit)

 

269

 

269

 

(8

)

 

(261

)

269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(931

)

$

(931

)

$

12,921

 

$

281

 

$

(12,271

)

$

(931

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive Income

Thirteen Weeks Ended November 2, 2013

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(931

)

$

(931

)

$

12,921

 

$

281

 

$

(12,271

)

$

(931

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

1,551

 

1,551

 

 

 

(1,551

)

1,551

 

Comprehensive income

 

$

620

 

$

620

 

$

12,921

 

$

281

 

$

(13,822

)

$

620

 

 

18



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirty-Nine Weeks Ended November 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

1,070,319

 

$

743,328

 

$

 

$

 

$

1,813,647

 

Other income

 

 

27,137

 

18,643

 

 

 

45,780

 

 

 

 

1,097,456

 

761,971

 

 

 

1,859,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

688,176

 

471,670

 

 

 

1,159,846

 

Selling, general and administrative

 

 

409,091

 

274,152

 

(2,307

)

(21,909

)

659,027

 

Depreciation and amortization

 

 

34,642

 

24,811

 

8,225

 

 

67,678

 

Amortization of lease-related interests

 

 

1,623

 

1,819

 

 

 

3,442

 

Impairment charges

 

 

447

 

 

 

 

447

 

Loss from operations

 

 

(36,523

)

(10,481

)

(5,918

)

21,909

 

(31,013

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany income

 

 

1,373

 

12,824

 

19,792

 

(33,989

)

 

Equity in (losses) earnings of subsidiaries

 

(77,390

)

3,103

 

 

 

74,287

 

 

Interest expense, net

 

 

(45,343

)

(2,544

)

(10,417

)

12,080

 

(46,224

)

Loss on extinguishment of debt

 

 

 

 

(153

)

 

(153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(77,390

)

(77,390

)

(201

)

3,304

 

74,287

 

(77,390

)

Income tax provision

 

1,322

 

1,322

 

704

 

 

(2,026

)

1,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(78,712

)

$

(78,712

)

$

(905

)

$

3,304

 

$

76,313

 

$

(78,712

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirty-Nine Weeks Ended November 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(78,712

)

$

(78,712

)

$

(905

)

$

3,304

 

$

76,313

 

$

(78,712

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

2,442

 

2,442

 

 

 

(2,442

)

2,442

 

Comprehensive (loss) income

 

$

(76,270

)

$

(76,270

)

$

(905

)

$

3,304

 

$

73,871

 

$

(76,270

)

 

19



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirty-Nine Weeks Ended November 2, 2013

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

1,076,195

 

$

779,010

 

$

 

$

 

$

1,855,205

 

Other income

 

 

25,325

 

18,911

 

 

 

44,236

 

 

 

 

1,101,520

 

797,921

 

 

 

1,899,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

691,896

 

493,632

 

 

 

1,185,528

 

Selling, general and administrative

 

 

397,545

 

276,271

 

90

 

(22,353

)

651,553

 

Depreciation and amortization

 

 

31,200

 

25,794

 

8,254

 

 

65,248

 

Amortization of lease-related interests

 

 

1,312

 

2,076

 

 

 

3,388

 

Impairment charges

 

 

452

 

 

 

 

452

 

(Loss) income from operations

 

 

(20,885

)

148

 

(8,344

)

22,353

 

(6,728

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany income

 

 

1,407

 

13,980

 

20,170

 

(35,557

)

 

Equity in (losses) earnings of subsidiaries

 

(63,772

)

12,405

 

 

 

51,367

 

 

Interest expense, net

 

 

(52,402

)

(2,718

)

(10,831

)

13,204

 

(52,747

)

Loss on extinguishment of debt

 

 

(4,297

)

 

 

 

(4,297

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(63,772

)

(63,772

)

11,410

 

995

 

51,367

 

(63,772

)

Income tax provision

 

1,123

 

1,123

 

461

 

 

(1,584

)

1,123

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(64,895

)

$

(64,895

)

$

10,949

 

$

995

 

$

52,951

 

$

(64,895

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirty-Nine Weeks Ended November 2, 2013

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(64,895

)

$

(64,895

)

$

10,949

 

$

995

 

$

52,951

 

$

(64,895

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

4,653

 

4,653

 

 

 

(4,653

)

4,653

 

Comprehensive (loss) income

 

$

(60,242

)

$

(60,242

)

$

10,949

 

$

995

 

$

48,298

 

$

(60,242

)

 

20



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Cash Flows

Thirty-Nine Weeks Ended November 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net cash provided by (used in) operating activities

 

$

3,918

 

$

(122,314

)

$

12,423

 

$

6,644

 

$

(7,867

)

$

(107,196

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(54,132

)

(9,829

)

 

 

(63,961

)

Intercompany investing activity

 

(22

)

(618

)

 

 

640

 

 

Proceeds from sale of property, fixtures and equipment

 

 

9

 

288

 

5,000

 

 

5,297

 

Net cash (used in) provided by investing activities

 

(22

)

(54,741

)

(9,541

)

5,000

 

640

 

(58,664

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

 

(402,239

)

(2,414

)

(6,398

)

 

(411,051

)

Proceeds from issuance of long-term debt

 

 

575,231

 

 

 

 

575,231

 

Intercompany financing activity

 

 

(1,981

)

 

(5,246

)

7,227

 

 

Deferred financing costs paid

 

 

(69

)

 

 

 

(69

)

Cash dividends paid

 

(1,981

)

 

 

 

 

(1,981

)

Restricted shares forfeited in lieu of payroll taxes

 

(1,937

)

 

 

 

 

(1,937

)

Proceeds from stock options exercised

 

22

 

 

 

 

 

22

 

Increase in book overdraft balances

 

 

6,103

 

 

 

 

6,103

 

Net cash (used in) provided by financing activities

 

(3,896

)

177,045

 

(2,414

)

(11,644

)

7,227

 

166,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(10

)

468

 

 

 

458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

1

 

2,889

 

4,168

 

 

 

7,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

1

 

$

2,879

 

$

4,636

 

$

 

$

 

$

7,516

 

 

21



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Cash Flows

Thirty-Nine Weeks Ended November 2, 2013

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net cash provided by (used in) operating activities

 

$

4,100

 

$

(44,641

)

$

14,984

 

$

9,534

 

$

(7,368

)

$

(23,391

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(48,580

)

(12,200

)

 

 

(60,780

)

Intercompany investing activity

 

(595

)

(437

)

 

 

1,032

 

 

Proceeds from sale of property, fixtures and equipment

 

 

1,272

 

2

 

 

 

1,274

 

Net cash used in investing activities

 

(595

)

(47,745

)

(12,198

)

 

1,032

 

(59,506

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

 

(910,373

)

(2,254

)

(5,164

)

 

(917,791

)

Proceeds from issuance of long-term debt

 

 

1,007,791

 

 

 

 

1,007,791

 

Intercompany financing activity

 

 

(1,966

)

 

(4,370

)

6,336

 

 

Deferred financing costs paid

 

 

(8,712

)

 

 

 

(8,712

)

Cash dividends paid

 

(1,966

)

 

 

 

 

(1,966

)

Restricted shares forfeited in lieu of payroll taxes

 

(2,134

)

 

 

 

 

(2,134

)

Proceeds from stock options exercised

 

595

 

 

 

 

 

595

 

Increase in book overdraft balances

 

 

5,270

 

 

 

 

5,270

 

Net cash (used in) provided by financing activities

 

(3,505

)

92,010

 

(2,254

)

(9,534

)

6,336

 

83,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(376

)

532

 

 

 

156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

1

 

3,414

 

4,511

 

 

 

7,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

1

 

$

3,038

 

$

5,043

 

$

 

$

 

$

8,082

 

 

12.     RECENTLY ISSUED ACCOUNTING STANDARDS

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).  The new standard provides a single revenue recognition model which is intended to enhance disclosures and improve comparability over a range of industries, companies and geographical boundaries.  ASU 2014-09 creates a five-step model that requires companies to exercise judgment when considering all relevant facts and circumstances in the determination of when and how revenue is recognized.  The guidance is effective for fiscal years beginning after December 15, 2016.  The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

 

In August 2014, ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), was issued, amending FASB Accounting Standards Subtopic 205-40 to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  Specifically, the amendments (1) provide a definition of the term “substantial doubt,” (2) require an evaluation every reporting period, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain

 

22



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that financial statements are issued.  ASU 2014-15 is effective for fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter.  The Company is currently reviewing the guidance and assessing the potential impact on its consolidated financial statements.

 

13.     SUBSEQUENT EVENT

 

On November 18, 2014, the Company declared a quarterly cash dividend of $0.05 per share on shares of Class A common stock and common stock, payable February 2, 2015 to shareholders of record as of January 16, 2015.

 

23



 

THE BON-TON STORES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

ITEM 2.                                    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

For purposes of the following discussion, references to the “third quarter of 2014” and the “third quarter of 2013” are to the 13 weeks ended November 1, 2014 and November 2, 2013, respectively.  References to “2014” and “2013” are to the 39 weeks ended November 1, 2014 and November 2, 2013, respectively.  References to “fiscal 2014” are to the 52-week period ending January 31, 2015; references to “fiscal 2013” are to the 52-week period ended February 1, 2014.  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 273 stores, including ten furniture galleries and four clearance centers, in 26 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates, encompassing a total of approximately 25 million square feet.

 

We operate in the department store segment of the U.S. retail industry, a highly competitive environment. The department store industry continues to evolve in response to competitive retail formats—mass merchandisers, national chain retailers, specialty retailers and online retailers—and the expansion of mobile technology and social media.

 

Performance Summary and Fiscal 2014 Guidance

 

In the third quarter of 2014, we were disappointed in the slowing of store traffic in our markets and the ensuing sales weakness, particularly in light of having solid momentum through mid-October when we saw unseasonably warm weather.  While our subsequent performance did not meet our expectations, we did achieve numerous measurable successes that bode well for ongoing business.  Our eCommerce operations continued its double-digit sales growth in the period, fueled by a meaningful increase in conversion due to new product offerings, additional online promotions and targeted marketing efforts.  We increased the sales penetration of our Let Us Find It initiative, a customer service tool that links our point-of-sale ordering system with real-time inventory, allowing our sales associates to sell a product that may be unavailable locally by selecting merchandise from other stores or online fulfillment centers for shipment to the customer’s home.  Our revenues in the period benefited from increased proprietary credit card sales; we believe the continued growth of our Your Rewards credit card customer loyalty program confirms our meaningful engagement with this core customer.

 

We continued our focus on our localization initiative, tailoring merchandise assortments and marketing programs to better align with customer preferences in a market, using insights obtained from customer surveys, sophisticated analytical tools and regional field-personnel whose time is dedicated to identifying and communicating merchandise needs of local customers.  Our regional planning organizations are working to build competitive and impactful merchandise presentations by door with the goal of accelerating sales growth in our existing stores.

 

On November 20, 2014, based on our results for the third quarter of 2014 and muted expectations for the remainder of the fiscal year, we revised our fiscal 2014 earnings per diluted share guidance to a range of a loss of $0.20 to earnings of $0.10.  We provided the following assumptions with respect to our revised guidance:

 

·                  a comparable store sales performance ranging from flat to a 0.5% increase;

·                  a gross margin rate ranging from 10 to 20 basis points lower than the fiscal 2013 rate of 36.2%;

 

24



 

·                  a selling, general and administrative (“SG&A”) expense rate ranging from a 30- to 50-basis-point increase over the fiscal 2013 rate of 32.5%, reflecting the inclusion of approximately $8 million of implementation costs associated with our ongoing expense efficiency initiative;

·                  capital expenditures not to exceed $70 million, net of external contributions; and

·                  an estimated 21 million weighted average shares outstanding, assuming dilution.

 

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

 

 

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net sales

 

100.0

%

100.0

%

100.0

%

100.0

%

Other income

 

2.5

 

2.4

 

2.5

 

2.4

 

 

 

102.5

 

102.4

 

102.5

 

102.4

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

63.7

 

63.4

 

64.0

 

63.9

 

Selling, general and administrative

 

34.4

 

33.0

 

36.3

 

35.1

 

Depreciation and amortization

 

3.4

 

3.2

 

3.7

 

3.5

 

Amortization of lease-related interests

 

0.2

 

0.2

 

0.2

 

0.2

 

Impairment charges

 

 

 

 

 

Income (loss) from operations

 

0.8

 

2.4

 

(1.7

)

(0.4

)

Interest expense, net

 

2.4

 

2.5

 

2.5

 

2.8

 

Loss on extinguishment of debt

 

 

 

 

0.2

 

Loss before income taxes

 

(1.6

)

(0.1

)

(4.3

)

(3.4

)

Income tax provision

 

0.1

 

 

0.1

 

0.1

 

Net loss

 

(1.7

)%

(0.1

)%

(4.3

)%

(3.5

)%

 

Third Quarter of 2014 Compared with Third Quarter of 2013

 

Net sales:  Net sales in the third quarter of 2014 were $642.7 million, compared with $651.2 million in the third quarter of 2013, reflecting a decrease of 1.3%.   Comparable store sales decreased 0.8% in the period.

 

The best performing merchandise categories in the third quarter of 2014 were Coats (included in Women’s Apparel), Home and Young Contemporary Apparel.  Coats benefited through expansion of key brands as well as an additional promotional event. Home sales benefited from a favorable shift in the promotional calendar, with notable sales increases in bedding, cookware and small electronics.  Increased sales in Young Contemporary Apparel grew as a result of continued refinements to the merchandise mix, including the introduction of a new national brand and expansion of successful brands.

 

Merchandise categories that were challenged in the period included Petites’ (included in Women’s Apparel), Men’s Sportswear (included in Men’s Apparel) and Cosmetics. Sales in Petites’ Sportswear have been difficult for several seasons; we are redirecting inventory investment to those categories and vendors that are performing well.  Men’s Sportswear improved in several categories but the decrease in sales was primarily due to lackluster product offerings.  Continued pressure remains in Cosmetics which had disappointing product launches during the quarter.

 

25



 

Other income:  Other income, which includes income from revenues received under our credit card program agreement, miscellaneous revenue departments and gift and merchandise return card breakage, was $16.0 million in the third quarter of 2014 as compared with $15.4 million in the third quarter of 2013.  The increase primarily reflects increased revenues from our proprietary credit card operations.

 

Costs and expenses: Gross margin in the third quarter of 2014 decreased $5.0 million to $233.3 million as compared with $238.2 million in the comparable prior year period.   Gross margin as a percentage of net sales decreased 29 basis points to 36.3% in the third quarter of 2014 from 36.6% in the comparable prior year period, due to increased distribution and delivery costs associated with our omnichannel selling efforts, partially offset by a reduction in the net markdown rate.

 

SG&A expense in the third quarter of 2014 increased $5.7 million to $220.9 million as compared with $215.2 million in the third quarter of 2013. The increase is largely the result of reduced performance incentives in the third quarter of 2013 and continued investment in information technology and our omnichannel operations.  The current year expense rate, 34.4% of net sales, increased 132 basis points over that of the prior year period.

 

Depreciation and amortization expense and amortization of lease-related interests increased $0.9 million to $23.2 million in the third quarter of 2014 from $22.3 million in the third quarter of 2013.

 

Interest expense, net:  Net interest expense was $15.5 million in the third quarter of 2014 as compared with $16.5 million in the third quarter of 2013.  The $1.0 million decrease primarily reflects reductions in cash fees and amortization of deferred fees and, to a lesser degree, a reduction in the borrowing rates associated with our revolving credit facility.

 

Income tax provision:  The effective income tax rate in the third quarter in each of 2014 and 2013 largely reflects our valuation allowance position against all net deferred tax assets.  The income tax provision of $0.4 million and $0.3 million recorded in each third quarter of 2014 and 2013, respectively, is primarily due to recognition of deferred tax liabilities associated with indefinite-lived assets.

 

2014 Compared with 2013

 

Net sales:  Net sales in 2014 were $1,813.6 million, compared with $1,855.2 million in 2013, a decrease of 2.2%.  Comparable store sales decreased 1.8% in 2014 primarily due to the sales erosion resulting from an extended period of unseasonable weather in our markets during the thirteen week period ended May 3, 2014.

 

The best performing merchandise categories in 2014 were Coats, Dresses and Women’s Sportswear (all included in Women’s Apparel).  Coats achieved success through investment of favorable product brands and styles. Both Dresses and Women’s Sportswear benefited from increased inventory of key fashionable items.

 

The merchandise categories most challenged in 2014 were the Petites’, Moderate and Better Sportswear areas (all included in Women’s Apparel) and Furniture (included in Home). Sales in Petites’ Sportswear have been challenged in 2014; we are redirecting inventory investment to those categories and vendors that are performing well.  We are continuing our efforts to optimize our inventory in the Sportswear categories, aligning investment with sales trends and reengineering the businesses through additional merchandise adjustments.  Despite our improved sales performance in the third quarter of 2014, Furniture sales were adversely impacted by the discontinuation by our vendors of certain key upholstered pieces and our difficulty in replacing these items as well as slow sales in mattresses in the first quarter.

 

26



 

Other income:  Other income was $45.8 million in 2014 as compared with $44.2 million in 2013. The increase primarily reflects increased revenues from our proprietary credit card operations.

 

Costs and expenses: Gross margin in 2014 was $653.8 million as compared with $669.7 million in 2013, reflecting a decrease of $15.9 million. The decrease in gross margin dollars was due to reduced sales volume in the period.  Gross margin as a percentage of net sales remained stable from 2013 to 2014.

 

SG&A expense in 2014 was $659.0 million as compared with $651.6 million in 2013, an increase of $7.5 million.  The increase is primarily due to higher advertising expenditures and implementation costs associated with our ongoing expense efficiency initiative, partially offset by gain on the sale of our remaining Rochester, New York store.  The expense rate in 2014, at 36.3% of net sales, was 122 basis points higher than that of the prior year.

 

Depreciation and amortization expense and amortization of lease-related interests increased $2.5 million to $71.1 million in 2014.

 

Interest expense, net:  Net interest expense was $46.2 million in 2014 as compared with $52.7 million in 2013.  The $6.5 million decrease is largely due to reductions in borrowing rates and amortization of deferred fees.

 

Loss on extinguishment of debt:  In 2014, we recorded a $0.2 million loss on extinguishment of debt related to the prepayment of mortgage debt associated with the sale of our remaining Rochester, New York store.  In 2013, we recorded charges totaling $4.3 million for fees, tender premium and accelerated amortization of deferred fees in conjunction with the tender and redemption of certain of our senior notes.

 

Income tax provision:  The effective tax rate in each of 2014 and 2013 largely reflects our valuation allowance position against all net deferred tax assets.  The income tax provision of $1.3 million and $1.1 million recorded in each of 2014 and 2013, respectively, primarily reflects recognition of deferred tax liabilities associated with indefinite-lived assets.

 

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 $675.0 million senior secured Second Amended and Restated Loan and Security Agreement (the “Second Amended Revolving Credit Facility”) that expires on December 12, 2018.

 

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

 

At November 1, 2014, we had $7.5 million in cash and cash equivalents and $312.8 million available under our Second Amended Revolving Credit Facility (before taking into account the minimum borrowing availability covenant under such facility).  Excess availability was $361.2 million as of the comparable prior year period.  The unfavorable excess availability comparison primarily reflects increased direct borrowings to support current year operations.

 

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

 

27



 

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, 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 $675.0 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.

 

Cash (used in) provided by our operating, investing and financing activities is summarized as follows:

 

 

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

(Dollars in millions)

 

2014

 

2013

 

 

 

 

 

 

 

Operating activities

 

$

(107.2

)

$

(23.4

)

Investing activities

 

(58.7

)

(59.5

)

Financing activities

 

166.3

 

83.1

 

 

Net cash used in operating activities was $107.2 million and $23.4 million in 2014 and 2013, respectively.  The increase in cash outflow is primarily due to the unfavorable change in working capital, largely the result of the increase in inventories in the current year.

 

Net cash used in investing activities in the current year primarily reflects capital expenditures for a new store, renovations to support our strategic initiatives and information technology, partially offset by proceeds from the sale of property, fixtures and equipment, largely proceeds from the sale of the Rochester, New York store.  Capital expenditures totaled $64.0 million and $60.8 million in 2014 and 2013, respectively; these expenditures do not reflect reductions for external contributions (primarily leasehold improvement and fixture allowances received from landlords or vendors) of $14.8 million and $15.2 million in 2014 and 2013, respectively.  We anticipate our fiscal 2014 capital expenditures will not exceed $96.5 million (excluding external contributions of $26.5 million, reducing anticipated net capital investments to $70.0 million).

 

Net cash provided by financing activities was $166.3 million and $83.1 million in 2014 and 2013, respectively. The cash inflow in the current year primarily reflects increased net borrowings to support current year operating activities.  A significant reduction in deferred financing fees paid resulted in decreased cash outflow in 2014.

 

Aside from planned capital expenditures, the Company’s primary cash requirements will be to service debt and finance working capital increases during peak selling seasons.

 

We paid a quarterly cash dividend of $0.05 per share on shares of Class A common stock and common stock on February 3, 2014, May 5, 2014, August 5, 2014 and November 3, 2014 to shareholders of record as of January 17, 2014, April 17, 2014, July 18, 2014 and October 17, 2014, respectively.  Additionally, a quarterly cash dividend of $0.05 per share on shares of Class A common stock and common stock was declared on November 18, 2014, payable February 2, 2015 to shareholders of record as of

 

28



 

January 16, 2015.  Our Board of Directors may consider dividends in subsequent periods as it deems appropriate.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts and disclosure of contingent assets and liabilities.  There have been no significant changes in the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended February 1, 2014.

 

Recently Issued Accounting Standards

 

Recently issued accounting standards are discussed in Note 12 to the Consolidated Financial Statements.

 

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 or phrases such as “may,” “could,” “would,” “will,” “plan,” “expect,” “believe,” “anticipate,” “estimate,” “project,” “intend,” “look forward to” 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; risks related to the Company’s proprietary credit card program; potential increases 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, including initiatives to reduce expenses and improve efficiency; operational disruptions; unsuccessful marketing initiatives; the ability to expand capacity and efficiency through the Company’s new eCommerce fulfillment center; changes in, or the failure to successfully implement, our key strategies, including initiatives to improve our merchandising, marketing and operations; adverse outcomes in litigation; the incurrence of unplanned capital expenditures; the ability to obtain financing for working capital, capital expenditures and general corporate purposes; the impact of regulatory requirements including the Health Care Reform Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act;  the inability or limitations on the Company’s ability to favorably adjust the valuation allowance on deferred tax assets; and the financial condition of mall operators.  Additional factors that could cause the Company’s actual results to differ from those contained in these forward-looking statements are discussed in greater detail under Item 1A of the Company’s Annual Report on Form 10-K for fiscal 2013 filed with the Securities and Exchange Commission.

 

29



 

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk and Financial Instruments

 

There were no material changes in our exposures, risk management strategies, or hedging positions since February 1, 2014.  For further information, refer to Item 7A of our 2013 Annual Report on Form 10-K.

 

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 Commission’s 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

 

There were no changes to our internal controls over financial reporting that occurred during the thirteen weeks ended November 1, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

30



 

PART II:       OTHER INFORMATION

 

ITEM 6.   EXHIBITS

 

(a) The following exhibits are filed pursuant to the requirements of Item 601 of Regulation S-K:

 

10.1#

 

Amendment No. 1 to The Bon-Ton Stores, Inc. Amended and Restated Omnibus Incentive Plan

10.2#

 

Amendment No. 2 to The Bon-Ton Stores, Inc. Cash Bonus Plan

10.3#

 

Restricted Stock Agreement for Kathryn Bufano (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on July 31, 2014 (“7/31/14 Form 8-K”)

10.4#

 

Restricted Stock Agreement — Performance Shares for Kathryn Bufano (incorporated by reference to Exhibit 10.3 to the 7/31/14 Form 8-K)

31.1

 

Certification of Kathryn Bufano

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.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*              Furnished herewith.

 

#              Constitutes a management contract or compensatory plan

 

31



 

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 10, 2014

 

BY:

/s/ Kathryn Bufano

 

 

Kathryn Bufano

 

 

President and

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

DATE:

December 10, 2014

 

BY:

/s/ Keith E. Plowman

 

 

Keith E. Plowman

 

 

Executive Vice President—

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

DATE:

December 10, 2014

 

BY:

/s/ Michael W. Webb

 

 

Michael W. Webb

 

 

Group Vice President—

 

 

Chief Accounting Officer

 

 

(Principal Accounting Officer)

 

32