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EX-31.2 - EX-31.2 - BON TON STORES INCa15-20355_1ex31d2.htm
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EX-31.1 - EX-31.1 - BON TON STORES INCa15-20355_1ex31d1.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 October 31, 2015

 

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 27, 2015, there were 18,178,127 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)

 

 

 

 

 

October 31,

 

November 1,

 

January 31,

 

(In thousands, except share and per share data)

 

2015

 

2014

 

2015

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,667

 

$

7,516

 

$

8,753

 

Merchandise inventories

 

994,482

 

970,649

 

734,956

 

Prepaid expenses and other current assets

 

82,647

 

79,059

 

93,394

 

Total current assets

 

1,098,796

 

1,057,224

 

837,103

 

Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $951,138, $922,608 and $910,494 at October 31, 2015, November 1, 2014 and January 31, 2015, respectively

 

643,511

 

637,217

 

641,996

 

Deferred income taxes

 

14,546

 

20,486

 

15,781

 

Intangible assets, net of accumulated amortization of $62,412, $62,811 and $64,451 at October 31, 2015, November 1, 2014 and January 31, 2015, respectively

 

85,417

 

91,891

 

90,151

 

Other long-term assets

 

23,031

 

23,162

 

23,483

 

Total assets

 

$

1,865,301

 

$

1,829,980

 

$

1,608,514

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ (Deficit) Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

362,042

 

$

376,070

 

$

208,882

 

Accrued payroll and benefits

 

21,353

 

24,248

 

28,848

 

Accrued expenses

 

154,831

 

157,462

 

158,022

 

Current maturities of long-term debt

 

102,997

 

7,286

 

6,788

 

Current maturities of obligations under capital leases

 

5,262

 

3,888

 

3,961

 

Deferred income taxes

 

24,589

 

28,784

 

24,478

 

Total current liabilities

 

671,074

 

597,738

 

430,979

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

902,647

 

971,608

 

850,963

 

Obligations under capital leases, less current maturities

 

128,089

 

46,034

 

45,016

 

Other long-term liabilities

 

181,286

 

165,897

 

193,908

 

Total liabilities

 

1,883,096

 

1,781,277

 

1,520,866

 

 

 

 

 

 

 

 

 

Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ (deficit) 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 18,343,527, 17,818,323 and 17,818,323 at October 31, 2015, November 1, 2014 and January 31, 2015, respectively

 

183

 

178

 

178

 

Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at October 31, 2015, November 1, 2014 and January 31, 2015

 

30

 

30

 

30

 

Treasury stock, at cost — 337,800 shares at October 31, 2015, November 1, 2014 and January 31, 2015

 

(1,387

)

(1,387

)

(1,387

)

Additional paid-in capital

 

163,747

 

160,759

 

161,359

 

Accumulated other comprehensive loss

 

(77,573

)

(48,006

)

(80,405

)

(Accumulated deficit) retained earnings

 

(102,795

)

(62,871

)

7,873

 

Total shareholders’ (deficit) equity

 

(17,795

)

48,703

 

87,648

 

Total liabilities and shareholders’ (deficit) equity

 

$

1,865,301

 

$

1,829,980

 

$

1,608,514

 

 

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)

 

October 31,

 

November 1,

 

October 31,

 

November 1,

 

(Unaudited)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

623,400

 

$

642,735

 

$

1,789,769

 

$

1,813,647

 

Other income

 

17,497

 

16,022

 

49,369

 

45,780

 

 

 

640,897

 

658,757

 

1,839,138

 

1,859,427

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

415,025

 

409,484

 

1,170,318

 

1,159,846

 

Selling, general and administrative

 

220,183

 

220,901

 

654,055

 

659,027

 

Gain on insurance recovery

 

 

 

(748

)

 

Depreciation and amortization

 

22,786

 

22,073

 

69,012

 

67,678

 

Amortization of lease-related interests

 

1,045

 

1,101

 

3,207

 

3,442

 

Impairment charges

 

203

 

273

 

425

 

447

 

(Loss) income from operations

 

(18,345

)

4,925

 

(57,131

)

(31,013

)

Interest expense, net

 

15,846

 

15,506

 

46,232

 

46,224

 

Loss on extinguishment of debt

 

 

 

4,862

 

153

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(34,191

)

(10,581

)

(108,225

)

(77,390

)

Income tax (benefit) provision

 

(199

)

427

 

(596

)

1,322

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,992

)

$

(11,008

)

$

(107,629

)

$

(78,712

)

 

 

 

 

 

 

 

 

 

 

Per share amounts —

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1.72

)

$

(0.57

)

$

(5.47

)

$

(4.06

)

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1.72

)

$

(0.57

)

$

(5.47

)

$

(4.06

)

 

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

 

3



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

(In thousands)

 

October 31,

 

November 1,

 

October 31,

 

November 1,

 

(Unaudited)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,992

)

$

(11,008

)

$

(107,629

)

$

(78,712

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

944

 

814

 

2,832

 

2,442

 

Comprehensive loss

 

$

(33,048

)

$

(10,194

)

$

(104,797

)

$

(76,270

)

 

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)

 

October 31,

 

November 1,

 

(Unaudited)

 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(107,629

)

$

(78,712

)

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

 

 

 

 

 

Depreciation and amortization

 

69,012

 

67,678

 

Amortization of lease-related interests

 

3,207

 

3,442

 

Impairment charges

 

425

 

447

 

Share-based compensation expense

 

2,338

 

1,902

 

Gain on sale of property, fixtures and equipment

 

(2,457

)

(2,542

)

Reclassifications of accumulated other comprehensive loss

 

4,774

 

2,442

 

Loss on extinguishment of debt

 

4,862

 

153

 

Amortization of deferred financing costs

 

2,227

 

2,195

 

Deferred income tax (benefit) provision

 

(596

)

1,318

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in merchandise inventories

 

(259,525

)

(260,915

)

Decrease (increase) in prepaid expenses and other current assets

 

9,399

 

(2,774

)

Decrease in other long-term assets

 

290

 

296

 

Increase in accounts payable

 

151,915

 

169,757

 

(Decrease) increase in accrued payroll and benefits and accrued expenses

 

(6,976

)

1,793

 

Decrease in other long-term liabilities

 

(12,005

)

(13,676

)

Net cash used in operating activities

 

(140,739

)

(107,196

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(70,473

)

(63,961

)

Proceeds from insurance claim

 

1,510

 

 

Proceeds from sale of property, fixtures and equipment

 

85,268

 

5,297

 

Net cash provided by (used in) investing activities

 

16,305

 

(58,664

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

(485,015

)

(411,051

)

Proceeds from issuance of long-term debt

 

624,313

 

575,231

 

Cash dividends paid

 

(3,014

)

(1,981

)

Restricted shares forfeited in lieu of payroll taxes

 

(399

)

(1,937

)

Proceeds from stock options exercised

 

454

 

22

 

Deferred financing costs paid

 

(314

)

(69

)

Increase in book overdraft balances

 

1,323

 

6,103

 

Net cash provided by financing activities

 

137,348

 

166,318

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

12,914

 

458

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

8,753

 

7,058

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

21,667

 

$

7,516

 

 

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

 

5



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) 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 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JANUARY 31, 2015

 

$

178

 

$

30

 

$

(1,387

)

$

161,359

 

$

(80,405

)

$

7,873

 

$

87,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

(107,629

)

(107,629

)

Other comprehensive income

 

 

 

 

 

2,832

 

 

2,832

 

Dividends to shareholders, $0.15 per share

 

 

 

 

 

 

(3,039

)

(3,039

)

Restricted shares forfeited in lieu of payroll taxes

 

(1

)

 

 

(398

)

 

 

(399

)

Proceeds from stock options exercised

 

1

 

 

 

453

 

 

 

454

 

Share-based compensation expense

 

5

 

 

 

2,333

 

 

 

2,338

 

BALANCE AT OCTOBER 31, 2015

 

$

183

 

$

30

 

$

(1,387

)

$

163,747

 

$

(77,573

)

$

(102,795

)

$

(17,795

)

 

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 October 31, 2015, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 270 stores, including nine 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”).  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 January 31, 2015.

 

For purposes of the following discussion, references to the “third quarter of 2015” and the “third quarter of 2014” are to the 13 weeks ended October 31, 2015 and November 1, 2014, respectively.  References to “fiscal 2015” are to the 52 weeks ending January 30, 2016; references to “fiscal 2014” are to the 52 weeks ended January 31, 2015.

 

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

 

 

 

October 31,

 

November 1,

 

October 31,

 

November 1,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Basic Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,992

)

$

(11,008

)

$

(107,629

)

$

(78,712

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(33,992

)

$

(11,008

)

$

(107,629

)

$

(78,712

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

19,742,212

 

19,470,674

 

19,674,082

 

19,393,072

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$

(1.72

)

$

(0.57

)

$

(5.47

)

$

(4.06

)

 

 

 

 

 

 

 

 

 

 

Diluted Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,992

)

$

(11,008

)

$

(107,629

)

$

(78,712

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(33,992

)

$

(11,008

)

(107,629

)

(78,712

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

19,742,212

 

19,470,674

 

19,674,082

 

19,393,072

 

Common shares issuable - stock options

 

 

 

 

 

Weighted average common shares outstanding assuming dilution

 

19,742,212

 

19,470,674

 

19,674,082

 

19,393,072

 

 

 

 

 

 

 

 

 

 

 

Diluted loss per common share

 

$

(1.72

)

$

(0.57

)

$

(5.47

)

$

(4.06

)

 

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 1,020,723 and 715,140 for the third quarter in each of 2015 and 2014, respectively, and 873,250 and 710,101 for the 39 weeks ended October 31, 2015 and November 1, 2014, 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 0 and 197,593 for the third quarter in each of 2015 and 2014, respectively, and 41,001 and 218,184 for the 39 weeks ended October 31, 2015 and November 1, 2014, 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 2015 and 2014, these shares would have increased diluted weighted average common shares outstanding by 0 and 86,974, respectively. Had the Company reported net income for the 39 weeks ended October 31, 2015 and November 1, 2014, these shares would have increased diluted weighted average common shares outstanding by 5,597 and 96,646, 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 quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or

 

8



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

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 October 31, 2015 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

 

$

254,802

 

$

254,802

 

$

 

$

 

Mortgage facility

 

102,997

 

103,446

 

 

 

103,446

 

Senior secured credit facility

 

495,355

 

495,355

 

 

 

495,355

 

Total

 

$

1,005,644

 

$

853,603

 

$

254,802

 

$

 

$

598,801

 

 

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 January 31, 2015 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

 

$

345,700

 

$

345,700

 

$

 

$

 

Mortgage facilities

 

211,541

 

214,132

 

 

 

214,132

 

Senior secured credit facility

 

238,918

 

238,918

 

 

 

238,918

 

Total

 

$

857,751

 

$

798,750

 

$

345,700

 

$

 

$

453,050

 

 

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:

 

 

 

October 31,

 

November 1,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

Other receivables

 

$

37,375

 

$

35,264

 

$

59,734

 

Prepaid expenses

 

45,272

 

43,795

 

33,660

 

Total

 

$

82,647

 

$

79,059

 

$

93,394

 

 

5.                                      SUPPLEMENTAL CASH FLOW INFORMATION

 

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

 

 

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

 

 

October 31,

 

November 1,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest, net of amounts capitalized

 

$

38,528

 

$

38,439

 

Income taxes, net of refunds received

 

(53

)

(3

)

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Property, fixtures and equipment included in accrued expenses

 

$

4,021

 

$

6,140

 

Assets acquired under capital lease

 

88,229

 

 

Declared dividends to shareholders included in accrued expenses

 

1,016

 

989

 

 

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 October 31, 2015 related to store closings in fiscal 2014, the consolidation of eCommerce fulfillment activities in connection with the Company’s new eCommerce fulfillment center and the Company’s expense efficiency initiative:

 

 

 

Termination
Benefits

 

Other
Costs

 

Total

 

Accrued balance as of January 31, 2015

 

$

1,279

 

$

 

$

1,279

 

Provisions

 

 

 

 

 

 

 

Thirteen weeks ended May 2, 2015

 

(122

)

102

 

(20

)

Thirteen weeks ended August 1, 2015

 

245

 

7

 

252

 

Thirteen weeks ended October 31, 2015

 

(190

)

12

 

(178

)

Payments

 

 

 

 

 

 

 

Thirteen weeks ended May 2, 2015

 

(421

)

(102

)

(523

)

Thirteen weeks ended August 1, 2015

 

(131

)

(7

)

(138

)

Thirteen weeks ended October 31, 2015

 

(267

)

(12

)

(279

)

Accrued balance as of October 31, 2015

 

$

393

 

$

 

$

393

 

 

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

 

 

 

October 31,

 

November 1,

 

October 31,

 

November 1,

 

 

 

2015

 

2014

 

2015

 

2014

 

Interest cost

 

$

1,702

 

$

1,998

 

$

5,103

 

$

5,993

 

Expected return on plan assets

 

(2,410

)

(2,490

)

(7,229

)

(7,470

)

Recognition of net actuarial loss

 

1,698

 

943

 

5,094

 

2,831

 

Net periodic benefit expense

 

$

990

 

$

451

 

$

2,968

 

$

1,354

 

 

During the 39 weeks ended October 31, 2015, contributions of $10,251 were made to the Pension Plans.  The Company anticipates contributing an additional $3,052 to fund the Pension Plans in fiscal 2015 for an annual total of $13,303.

 

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

 

 

 

October 31,

 

November 1,

 

October 31,

 

November 1,

 

 

 

2015

 

2014

 

2015

 

2014

 

Interest cost

 

$

16

 

$

23

 

$

48

 

$

67

 

Recognition of net actuarial gain

 

(107

)

(129

)

(320

)

(389

)

Net periodic benefit income

 

$

(91

)

$

(106

)

$

(272

)

$

(322

)

 

During the 39 weeks ended October 31, 2015, the Company contributed $70 to fund the Postretirement Benefit Plan, and anticipates contributing an additional $285 to fund the Postretirement Benefit Plan in fiscal 2015, for a net annual total of $355.

 

8.                                      SALE-LEASEBACK AND DEBT

 

Sale-Leaseback and Mortgage Facility Repayment

 

On June 26, 2015, the Company entered into a sale-leaseback arrangement with an unrelated party. Under the arrangement, the Company sold six retail department stores for $84,000 and leased them back for a period of 20 years with three optional 10-year renewal terms. The basic rent payable in connection with the lease is $6,888 per year, subject to annual adjustments for increases in the Consumer Price Index with a 2% minimum increase and a 4% maximum increase each year.

 

The leaseback has been accounted for as a capital lease, and the Company recorded a capital lease asset and obligation of $88,229 at the beginning of the lease term.  The loss of $1,971 on this transaction was deferred and is being amortized to expense over the term of the lease.

 

Proceeds from the sale-leaseback transaction, supplemented with borrowings under the Company’s senior secured credit facility, were used to pay the remaining principal balance of $104,538 on one of the two mortgage facilities due in April 2016. As a result of such prepayment, the Company paid an early termination fee of $4,741. Unamortized deferred financing fees of $121 were accelerated on the date of the termination. Fees paid and deferred financing fees accelerated were recognized in loss on extinguishment of debt.

 

Senior Secured Credit Facility

 

On August 28, 2015, pursuant to the terms of a commitment increase letter acknowledgment, the Tranche A revolving commitments under the senior secured credit facility were increased from $575,000 to $650,000. This brought total revolving commitments under the senior secured credit facility to $750,000.

 

See Note 15 for discussion of an additional commitment increase letter acknowledgement under the senior secured credit facility in November 2015.

 

9.                                      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 2014 and the 39 weeks ended October 

 

12



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

31, 2015 on all of the Company’s net deferred tax assets.  The Company’s deferred tax asset valuation allowance totaled $206,338, $176,495 and $161,856 as of October 31, 2015, November 1, 2014 and January 31, 2015, respectively.

 

The Company recorded net income tax benefits of $199 and $596 for the 13 and 39 weeks ended October 31, 2015, respectively, which include $647 and $1,942 non-cash income tax benefits from continuing operations during the 13 and 39 weeks ended October 31, 2015, respectively.  Pursuant to ASC 740, the Company is required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, the Company recorded tax benefits on the losses from continuing operations for the 13 and 39 weeks ended October 31, 2015, respectively, which are exactly offset by income tax expense on other comprehensive income.  In addition, the net income tax benefits include $448 and $1,346 of expense recorded in the 13 and 39 weeks ended October 31, 2015, respectively, for recognition of deferred tax liabilities associated with indefinite-lived assets.  The income tax provisions of $427 and $1,322 recorded in the 13 and 39 weeks ended November 1, 2014, respectively, primarily reflect the recognition of deferred tax liabilities associated with indefinite-lived assets.

 

10.                               CONTINGENCIES

 

In November 2014, there was a fire at the Company’s store located in North Riverside, Illinois. The Company filed an insurance claim to cover the inventory loss and property damage. The Company recognized a gain on insurance recovery related to the inventory loss in the fourth quarter of fiscal 2014.  In the second quarter of 2015, the Company recognized an additional gain on insurance recovery of $748, which is shown separately in the accompanying consolidated statements of operations.

 

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.

 

11.       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.

 

The changes recognized within other comprehensive income reflect income tax expense of $647 and $0 for the 13 weeks ended in each of October 31, 2015 and November 1, 2014, respectively, and $1,942 and $0 for the 39 weeks ended in each of October 31, 2015 and November 1, 2014, respectively (see Note 9).

 

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

 

12.     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. 

 

13



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

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 October 31, 2015, November 1, 2014 and January 31, 2015 and for the third quarter in each of 2015 and 2014 and the 39 weeks ended October 31, 2015 and November 1, 2014 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.

 

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

October 31, 2015

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,047

 

$

3,953

 

$

14,666

 

$

 

$

21,667

 

Merchandise inventories

 

 

662,437

 

332,045

 

 

 

994,482

 

Prepaid expenses and other current assets

 

 

74,089

 

6,764

 

2,262

 

(468

)

82,647

 

Total current assets

 

1

 

739,573

 

342,762

 

16,928

 

(468

)

1,098,796

 

Property, fixtures and equipment at cost, net

 

 

328,016

 

181,627

 

148,263

 

(14,395

)

643,511

 

Deferred income taxes

 

 

2,407

 

12,139

 

 

 

14,546

 

Intangible assets, net

 

 

22,439

 

62,978

 

 

 

85,417

 

Investment in and advances to affiliates

 

(17,796

)

449,013

 

327,242

 

 

(758,459

)

 

Other long-term assets

 

 

25,499

 

850

 

67

 

(3,385

)

23,031

 

Total assets

 

$

(17,795

)

$

1,566,947

 

$

927,598

 

$

165,258

 

$

(776,707

)

$

1,865,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ (Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

362,042

 

$

 

$

 

$

 

$

362,042

 

Accrued payroll and benefits

 

 

17,123

 

4,230

 

 

 

21,353

 

Accrued expenses

 

 

85,705

 

69,413

 

181

 

(468

)

154,831

 

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

 

 

1,343

 

3,919

 

102,997

 

 

108,259

 

Deferred income taxes

 

 

8,241

 

16,348

 

 

 

24,589

 

Total current liabilities

 

 

474,454

 

93,910

 

103,178

 

(468

)

671,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

976,414

 

54,322

 

 

 

1,030,736

 

Other long-term liabilities

 

 

137,190

 

42,860

 

4,621

 

(3,385

)

181,286

 

Total liabilities

 

 

1,588,058

 

191,092

 

107,799

 

(3,853

)

1,883,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ (deficit) equity

 

(17,795

)

(21,111

)

736,506

 

57,459

 

(772,854

)

(17,795

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ (deficit) equity

 

$

(17,795

)

$

1,566,947

 

$

927,598

 

$

165,258

 

$

(776,707

)

$

1,865,301

 

 

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

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

 

 

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 Balance Sheet

January 31, 2015

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

4,209

 

$

4,543

 

$

 

$

 

$

8,753

 

Merchandise inventories

 

 

483,270

 

251,686

 

 

 

734,956

 

Prepaid expenses and other current assets

 

 

74,956

 

14,906

 

3,966

 

(434

)

93,394

 

Total current assets

 

1

 

562,435

 

271,135

 

3,966

 

(434

)

837,103

 

Property, fixtures and equipment at cost, net

 

 

268,224

 

146,793

 

226,979

 

 

641,996

 

Deferred income taxes

 

 

4,889

 

10,892

 

 

 

15,781

 

Intangible assets, net

 

 

24,618

 

65,533

 

 

 

90,151

 

Investment in and advances to affiliates

 

87,647

 

324,668

 

435,870

 

 

(848,185

)

 

Other long-term assets

 

 

22,685

 

391

 

407

 

 

23,483

 

Total assets

 

$

87,648

 

$

1,207,519

 

$

930,614

 

$

231,352

 

$

(848,619

)

$

1,608,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

208,882

 

$

 

$

 

$

 

$

208,882

 

Accrued payroll and benefits

 

 

23,637

 

5,211

 

 

 

28,848

 

Accrued expenses

 

 

76,599

 

81,857

 

 

(434

)

158,022

 

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

 

 

460

 

3,501

 

6,788

 

 

10,749

 

Deferred income taxes

 

 

10,081

 

14,397

 

 

 

24,478

 

Total current liabilities

 

 

319,659

 

104,966

 

6,788

 

(434

)

430,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

651,436

 

39,790

 

204,753

 

 

895,979

 

Other long-term liabilities

 

 

150,152

 

41,921

 

1,835

 

 

193,908

 

Total liabilities

 

 

1,121,247

 

186,677

 

213,376

 

(434

)

1,520,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

87,648

 

86,272

 

743,937

 

17,976

 

(848,185

)

87,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

87,648

 

$

1,207,519

 

$

930,614

 

$

231,352

 

$

(848,619

)

$

1,608,514

 

 

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 October 31, 2015

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

375,130

 

$

248,270

 

$

 

$

 

$

623,400

 

Other income

 

 

10,726

 

6,771

 

 

 

17,497

 

 

 

 

385,856

 

255,041

 

 

 

640,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

252,888

 

162,137

 

 

 

415,025

 

Selling, general and administrative

 

 

136,430

 

88,791

 

(24

)

(5,014

)

220,183

 

Depreciation and amortization

 

 

12,523

 

8,436

 

1,989

 

(162

)

22,786

 

Amortization of lease-related interests

 

 

478

 

567

 

 

 

1,045

 

Impairment charges

 

 

203

 

 

 

 

203

 

Loss from operations

 

 

(16,666

)

(4,890

)

(1,965

)

5,176

 

(18,345

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany income

 

 

432

 

6,250

 

4,320

 

(11,002

)

 

Equity in (losses) earnings of subsidiaries

 

(34,191

)

1,227

 

 

 

32,964

 

 

Interest expense, net

 

 

(19,184

)

(981

)

(1,669

)

5,988

 

(15,846

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(34,191

)

(34,191

)

379

 

686

 

33,126

 

(34,191

)

Income tax (benefit) provision

 

(199

)

(199

)

235

 

 

(36

)

(199

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(33,992

)

$

(33,992

)

$

144

 

$

686

 

$

33,162

 

$

(33,992

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended October 31, 2015

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(33,992

)

$

(33,992

)

$

144

 

$

686

 

$

33,162

 

$

(33,992

)

Other comprehensive income, net of tax: Pension and postretirement benefit plans

 

944

 

944

 

 

 

(944

)

944

 

Comprehensive (loss) income

 

$

(33,048

)

$

(33,048

)

$

144

 

$

686

 

$

32,218

 

$

(33,048

)

 

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

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

)

 

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 October 31, 2015

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

1,063,399

 

$

726,370

 

$

 

$

 

$

1,789,769

 

Other income

 

 

29,346

 

20,023

 

 

 

49,369

 

 

 

 

1,092,745

 

746,393

 

 

 

1,839,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

698,924

 

471,394

 

 

 

1,170,318

 

Selling, general and administrative

 

 

403,537

 

269,246

 

(14,549

)

(4,179

)

654,055

 

Gain on insurance recovery

 

 

 

(748

)

 

 

(748

)

Depreciation and amortization

 

 

36,706

 

25,334

 

7,188

 

(216

)

69,012

 

Amortization of lease-related interests

 

 

1,467

 

1,740

 

 

 

3,207

 

Impairment charges

 

 

425

 

 

 

 

425

 

(Loss) income from operations

 

 

(48,314

)

(20,573

)

7,361

 

4,395

 

(57,131

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany income

 

 

1,328

 

16,526

 

16,673

 

(34,527

)

 

Equity in losses of subsidiaries

 

(108,225

)

(9,780

)

 

 

118,005

 

 

Interest expense, net

 

 

(51,459

)

(2,680

)

(7,830

)

15,737

 

(46,232

)

Loss on extinguishment of debt

 

 

 

 

(4,862

)

 

(4,862

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(108,225

)

(108,225

)

(6,727

)

11,342

 

103,610

 

(108,225

)

Income tax (benefit) provision

 

(596

)

(596

)

703

 

 

(107

)

(596

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(107,629

)

$

(107,629

)

$

(7,430

)

$

11,342

 

$

103,717

 

$

(107,629

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirty-Nine Weeks Ended October 31, 2015

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(107,629

)

$

(107,629

)

$

(7,430

)

$

11,342

 

$

103,717

 

$

(107,629

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

2,832

 

2,832

 

 

 

(2,832

)

2,832

 

Comprehensive (loss) income

 

$

(104,797

)

$

(104,797

)

$

(7,430

)

$

11,342

 

$

100,885

 

$

(104,797

)

 

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 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

)

 

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 October 31, 2015

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net cash provided by (used in) operating activities

 

$

3,413

 

$

(185,446

)

$

16,900

 

$

32,154

 

$

(7,760

)

$

(140,739

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(54,191

)

(16,282

)

 

 

(70,473

)

Intercompany investing activity

 

(454

)

(32,433

)

 

 

32,887

 

 

Proceeds from insurance claim

 

 

 

1,510

 

 

 

1,510

 

Proceeds from sale of property, fixtures and equipment

 

 

17,546

 

66

 

67,656

 

 

85,268

 

Net cash (used in) provided by investing activities

 

(454

)

(69,078

)

(14,706

)

67,656

 

32,887

 

16,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

 

(368,946

)

(2,784

)

(113,285

)

 

(485,015

)

Proceeds from issuance of long-term debt

 

 

624,313

 

 

 

 

624,313

 

Intercompany financing activity

 

 

(3,014

)

 

28,141

 

(25,127

)

 

Deferred financing costs paid

 

 

(314

)

 

 

 

(314

)

Cash dividends paid

 

(3,014

)

 

 

 

 

(3,014

)

Restricted shares forfeited in lieu of payroll taxes

 

(399

)

 

 

 

 

(399

)

Proceeds from stock options exercised

 

454

 

 

 

 

 

454

 

Increase in book overdraft balances

 

 

1,323

 

 

 

 

1,323

 

Net cash (used in) provided by financing activities

 

(2,959

)

253,362

 

(2,784

)

(85,144

)

(25,127

)

137,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(1,162

)

(590

)

14,666

 

 

12,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

1

 

4,209

 

4,543

 

 

 

8,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

1

 

$

3,047

 

$

3,953

 

$

14,666

 

$

 

$

21,667

 

 

22



 

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

 

 

13.     RECENTLY ISSUED ACCOUNTING STANDARDS

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest-Imputation of Interest (“ASU 2015-03”).  The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued ASU No. 2015-15 as an amendment to ASU 2015-03 to provide guidance on presentation and subsequent measurement of debt issuance costs relating to Line-of-Credit Arrangements. The guidance is effective for fiscal years beginning after December 15, 2015.  The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-04, Compensation-Retirement Benefits.  The new standard provides a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The guidance is effective for fiscal years beginning after December 15, 2015.  The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

 

23



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software.  The new standard provides guidance on the accounting for fees paid by a customer in a cloud computing arrangement, including whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer is required to account for the software license consistent with the acquisition of other software licenses. Conversely, if the arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance is effective for fiscal years beginning after December 15, 2015.  The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

 

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The standard amends ASU No. 2014-09, Revenue from Contracts with Customers, to defer the effective date for all entities by one year. As a result of the deferral, the new guidance is effective for fiscal years beginning after December 15, 2017.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.  The new standard requires that all deferred tax liabilities and assets be classified as noncurrent.  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.

 

14.     CREDIT CARD PROGRAM AMENDMENT

 

On October 28, 2015, the Company entered into Amendment No. 1 (the “Amendment”) to the Private Label Credit Card Program Agreement (the “Program Agreement”) with Comenity Bank, a subsidiary of Alliance Data Systems Corporation (“ADS”). The Program Agreement had an original term of seven years from the program commencement date of July 24, 2012. The Amendment provides that the original term was extended three years to July 24, 2022, with successive two-year renewal terms thereafter, unless otherwise terminated in accordance with the Program Agreement.

 

The Amendment provides that, in consideration for the extension of the term, ADS will pay the Company an extension bonus of $6,000, payable $1,000 within five business days of July 24, 2017 and $5,000 within five business days of July 24, 2019, as well as an increased royalty rate based on a percentage of credit card sales during the term of the Program Agreement. The remaining deferred bonus from the original agreement and the deferred bonus received in connection with the Amendment will be amortized over the new extended term of the Program Agreement.

 

The Amendment also provides that ADS will pay the costs, subject to prescribed maximums, for the reissuance of credit cards in 2016 and either 2018 or 2019. In addition, the Amendment provides for an additional annual contribution by ADS, beginning July 24, 2015, for Company costs associated with the marketing and promotion of the private label credit card program.

 

15.     SUBSEQUENT EVENT

 

On November 17, 2015, pursuant to the terms of a commitment increase letter acknowledgment, the Tranche A revolving commitments under the senior secured credit facility were increased from $650,000 to $730,000. This brings total revolving commitments under the senior secured credit facility to $830,000.

 

24



 

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 2015” and the “third quarter of 2014” are to the 13 weeks ended October 31, 2015 and November 1, 2014, respectively.  References to “2015” and “2014” are to the 39 weeks ended October 31, 2015 and November 1, 2014, respectively. References to “fiscal 2016” are to the 52-week period ending January 28, 2017; references to “fiscal 2015” are to the 52-week period ending January 30, 2016; references to “fiscal 2014” are to the 52-week period ended January 31, 2015.  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 270 stores, including nine 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 2015 Guidance

 

Our results were challenged in the third quarter of 2015.  Sales were pressured by unseasonably warm weather, which significantly impacted our cold-weather classifications, and by continued weakness in overall traffic trends.  Gross margin was similarly pressured by increased markdowns in response to sales trends.  Recognizing that the competitive environment is likely to continue, we remain focused on creating a differentiated and compelling product assortment and leveraging our home town strategy.

 

Our revenues in the period benefited from a 3.0% increase in sales associated with our proprietary credit card.  Additionally, we realized continued growth in the penetration of proprietary credit card sales to total sales which, at 54.5% in the third quarter of 2015, exceeded that of the prior year by 299 basis points.  On October 28, 2015, we amended and extended our private label credit card program agreement with a bank subsidiary of Alliance Data Systems Corporation (“ADS”), extending our valued partnership with ADS three years to July 2022.  As a result of the amendment, we will receive an increased royalty rate based on a percentage of credit card sales, additional funding for marketing and promotions and an extension bonus.

 

We completed a $75 million accordion exercise on August 28, 2015 and, subsequent to the third quarter of fiscal 2015, completed a second accordion exercise of $80 million that cumulatively expanded our borrowing capabilities under our revolving credit facility by $155 million, bringing total revolving commitments to $830 million.  We increased our borrowing capabilities to provide flexibility with refinancing efforts.

 

As we are not anticipating major changes in the retail environment in the near term, we are pursuing a number of endeavors to drive additional process improvements and further reduce expenses.  We expect our plan to yield approximately $35 million in annual savings in fiscal 2016.  We believe these expense savings, which will benefit selling, general and administrative (“SG&A”) expense and gross margin, combined with lower capital spending and inventory levels, will positively impact fiscal 2016 cash flow.

 

25



 

Given our challenging third quarter of 2015 results, we have tempered our expectations for the balance of the year and, on November 19, 2015, revised our fiscal 2015 guidance.  We now expect earnings per diluted share in a range of a loss of $2.15 to $2.65.

 

Assumptions reflected in our full-year guidance include the following:

 

·                  A comparable store sales performance ranging from a decrease of 0.5% to 1.5%;

 

·                  A gross margin rate ranging from a decrease of 70 to 80 basis points from the fiscal 2014 rate of 35.7%;

 

·                  An SG&A expense rate ranging from a 30- to 60-basis-point increase over the fiscal 2014 rate of 32.9%;

 

·                  Capital expenditures not to exceed $71 million, net of external contributions; and

 

·                  An estimated 20 million weighted average diluted shares outstanding.

 

Our fiscal 2015 guidance does not reflect any potential impact associated with an early termination of our remaining mortgage facility, thereby excluding the financial effect of the make-whole provision in the agreement, which could range up to approximately $2 million.  It also does not include any implementation costs associated with the planned expense reductions in fiscal 2016, as these costs have yet to be determined.

 

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 31,

 

November 1,

 

October 31,

 

November 1,

 

 

 

2015

 

2014

 

2015

 

2014

 

Net sales

 

100.0

%

100.0

%

100.0

%

100.0

%

Other income

 

2.8

 

2.5

 

2.8

 

2.5

 

 

 

102.8

 

102.5

 

102.8

 

102.5

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

66.6

 

63.7

 

65.4

 

64.0

 

Selling, general and administrative

 

35.3

 

34.4

 

36.5

 

36.3

 

Gain on insurance recovery

 

 

 

 

 

Depreciation and amortization

 

3.7

 

3.4

 

3.9

 

3.7

 

Amortization of lease-related interests

 

0.2

 

0.2

 

0.2

 

0.2

 

Impairment charges

 

 

 

 

 

(Loss) income from operations

 

(2.9

)

0.8

 

(3.2

)

(1.7

)

Interest expense, net

 

2.5

 

2.4

 

2.6

 

2.5

 

Loss on extinguishment of debt

 

 

 

0.3

 

 

Loss before income taxes

 

(5.5

)

(1.6

)

(6.0

)

(4.3

)

Income tax (benefit) provision

 

 

0.1

 

 

0.1

 

Net loss

 

(5.5

)%

(1.7

)%

(6.0

)%

(4.3

)%

 

26



 

Third Quarter of 2015 Compared with Third Quarter of 2014

 

Net sales:  Net sales in the third quarter of 2015 were $623.4 million, compared with $642.7 million in the third quarter of 2014, reflecting a decrease of 3.0%.  Comparable store sales decreased 2.6% in the period, due to unseasonably warm weather in our markets and the continuation of soft traffic trends.

 

The best performing merchandise categories in the third quarter of 2015 were Men’s Sportswear (included in Men’s Apparel), Young Contemporary Apparel and Moderate Sportswear (both included in Women’s Apparel).  Men’s Sportswear primarily benefited from the introduction of a new national brand and the strategic expansion of activewear to additional doors. Sales in Young Contemporary Apparel grew as a result of continued investment in key items and brands.  Moderate Sportswear benefited from the expansion of a key brand and the introduction of a new national brand.

 

Merchandise categories that were challenged in the period included Petites’ Sportswear and Women’s Sportswear (both included in Women’s Apparel) and Footwear. Sales in Petites’ Sportswear, specifically traditional categories, have been challenged in 2015; we are directing inventory investment to updated categories that are performing well. Despite growth in career related merchandise, Women’s Sportswear was adversely impacted by slow sales in seasonal merchandise.  Warm weather hampered sales in Footwear but sales are expected to improve as the winter climate takes hold in the future months.

 

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 $17.5 million in the third quarter of 2015 as compared with $16.0 million in the third quarter of 2014.  The increase primarily reflects increased revenues from our proprietary credit card operations.

 

Costs and expenses: Gross margin in the third quarter of 2015 decreased $24.9 million to $208.4 million as compared with $233.3 million in the comparable prior year period.  Gross margin as a percentage of net sales decreased 286 basis points to 33.4% in the third quarter of 2015 from 36.3% in the comparable prior year period. This decrease was primarily due to increased net markdowns, an unfavorable cumulative markup percentage and increased distribution and delivery costs associated with our omnichannel selling efforts.

 

SG&A expense in the third quarter of 2015 decreased $0.7 million to $220.2 million as compared with $220.9 million in the third quarter of 2014. This reduction was largely driven by expense control measures and avoidance of costs incurred in the prior year period related to the implementation of our expense efficiency initiative, partially offset by increased advertising expenses and continued investment in omnichannel operations. The current period expense rate, 35.3% of net sales, increased 95 basis points from that of the prior year period as a result of the decreased sales volume in the period.

 

Depreciation and amortization expense and amortization of lease-related interests increased $0.6 million to $23.8 million in the third quarter of 2015 from $23.2 million in the third quarter of 2014.

 

Interest expense, net:  Net interest expense was $15.8 million in the third quarter of 2015 as compared with $15.5 million in the third quarter of 2014.  The $0.3 million increase primarily reflects higher average debt levels.

 

Income tax (benefit) provision:  The effective income tax rate in the third quarter in each of 2015 and 2014 largely reflects our valuation allowance position against all net deferred tax assets.  The $0.2 million income tax benefit in the third quarter of 2015 includes a $0.6 million benefit from the loss on continuing operations which was partially offset by the recognition of deferred tax liabilities associated with indefinite-lived assets.  The income tax provision of $0.4 million in the third quarter of 2014 is due to recognition of deferred tax liabilities associated with indefinite-lived assets.

 

2015 Compared with 2014

 

Net sales:  Net sales in 2015 were $1,789.8 million, compared with $1,813.6 million in 2014, reflecting a decrease of 1.3%.  Comparable store sales decreased 1.0% in the period.

 

The best performing merchandise categories in 2015 were Moderate Sportswear and Young Contemporary Apparel (both included in Women’s Apparel) and Furniture (included in Home).  Moderate

 

27



 

Sportswear benefited from increased inventory investment in key items and growth in our activewear business (including the introduction of a new national brand). Sales in Young Contemporary Apparel grew as a result of continued investment in key items and brands.  Furniture achieved success from notable sales increases in key items.

 

Merchandise categories that were challenged in the period included Petites’ Sportswear and Women’s Sportswear (both included in Women’s Apparel) and Hard Home (included in Home). Sales in Petites’ Sportswear, specifically traditional categories, have been challenged in 2015; we are directing inventory investment to updated categories that are performing well. Women’s Sportswear was adversely impacted by slow sales in traditional categories (including seasonal merchandise), despite growth in casual wear and activewear. Hard Home sales were hampered by slow selling in certain product lines.

 

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 $49.4 million in 2015 as compared with $45.8 million in 2014.  The increase primarily reflects increased revenues from our proprietary credit card operations.

 

Costs and expenses: Gross margin in 2015 decreased $34.3 million to $619.5 million as compared with $653.8 million in 2014.  Gross margin as a percentage of net sales decreased 144 basis points to 34.6% in 2015 from 36.0% in 2014, due primarily to increased distribution and delivery costs associated with our omnichannel selling efforts and an unfavorable cumulative markup percentage, partially offset by reduced markdowns.

 

SG&A expense in 2015 decreased $5.0 million to $654.1 million as compared with $659.0 million in 2014. This reduction was largely driven by expense control measures and avoidance of costs incurred in the prior year in the implementation of our expense efficiency initiative, partially offset by an unfavorable comparison to a prior year gain on sale of assets. The current period expense rate, 36.5% of net sales, decreased 21 basis points from that of the prior year.

 

Gain on insurance recovery of $0.7 million was due to an insurance settlement in the second quarter of 2015, a residual of claims associated with one store that experienced fire damage in the fourth quarter of fiscal 2014.

 

Depreciation and amortization expense and amortization of lease-related interests increased $1.1 million to $72.2 million in 2015 from $71.1 million in 2014.

 

Interest expense, net:  Net interest expense was $46.2 million in both 2015 and 2014.  A decrease in borrowing rates was offset by higher average debt levels.

 

Loss on extinguishment of debt:  In 2015, we recorded charges totaling $4.9 million due to the early termination of one of our mortgage facilities. As a result of the prepayment, we paid an early termination fee of $4.7 million. Additionally, unamortized deferred financing fees were accelerated on the date of termination.

 

Income tax (benefit) provision:  The effective income tax rate in each of 2015 and 2014 largely reflects our valuation allowance position against all net deferred tax assets.  The $0.6 million income tax benefit in 2015 includes a $1.9 million benefit from the loss on continuing operations which was partially offset by the recognition of deferred tax liabilities associated with indefinite-lived assets.  The income tax provision of $1.3 million in 2014 is primarily due to 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 $830.0 million senior secured Second Amended

 

28



 

and Restated Loan and Security Agreement (the “Second Amended Revolving Credit Facility”) that expires on December 12, 2018 (see “Liquidity and Capital Resources,” below, for further discussion).

 

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 October 31, 2015, we had $21.7 million in cash and cash equivalents and $250.2 million available under our Second Amended Revolving Credit Facility (before taking into account the minimum borrowing availability covenant under such facility).  Excess availability was $312.8 million as of the comparable prior year period.  The unfavorable excess availability comparison primarily reflects increased direct borrowings to support our operations and, in part, to repay one of our mortgage facilities.

 

During the second quarter of 2015, we entered into a sale-leaseback arrangement with an unrelated party. Under the arrangement, we sold six retail department stores for $84.0 million and leased them back for a period of 20 years with three optional 10-year renewal terms.  The basic rent payable in connection with the lease is $6.9 million per year, subject to annual adjustments for increases in the Consumer Price Index with a 2% minimum increase and a 4% maximum increase each year.  The leaseback has been accounted for as a capital lease, and we recorded a capital lease asset and obligation of $88.2 million at the beginning of the lease term.

 

Proceeds from the sale-leaseback transaction, supplemented with borrowings under our Second Amended Revolving Credit Facility, were used to pay the remaining principal balance of $104.5 million on one of the two mortgage facilities due in April 2016. As a result of such prepayment, we paid an early termination fee of $4.7 million.

 

Current maturities of long-term debt of $103.0 million reflect the outstanding balance of our existing mortgage loan facility which has final payment due April 1, 2016. We are currently reviewing options to address this mortgage facility prior to its due date, including refinancing under our Second Amended Revolving Credit Facility or through other potential sources of financing.

 

On August 28, 2015, pursuant to the terms of a commitment increase letter acknowledgment, the Tranche A revolving commitments under the Second Amended Revolving Credit Facility were increased from $575.0 million to $650.0 million. This brought total revolving commitments under the Second Amended Revolving Credit Facility to $750.0 million.

 

On November 17, 2015, pursuant to the terms of a commitment increase letter acknowledgment, the Tranche A revolving commitments under the Second Amended Revolving Credit Facility were increased from $650.0 million to $730.0 million. This brings total revolving commitments under the Second Amended Revolving Credit Facility to $830.0 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, we consider our resources (including, but not limited to, cash flows from operations supplemented by borrowings under the Second Amended Revolving Credit Facility, or other potential borrowings) 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 $830.0 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

 

29



 

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

 

 

 

October 31,

 

November 1,

 

(Dollars in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Operating activities

 

$

(140.7

)

$

(107.2

)

Investing activities

 

16.3

 

(58.7

)

Financing activities

 

137.3

 

166.3

 

 

Net cash used in operating activities was $140.7 million and $107.2 million in 2015 and 2014, respectively.  The decrease in cash primarily reflects the increased net loss and an unfavorable change in cash flow from working capital. The working capital change was largely due to unfavorable fluctuations in accounts payable and accrued expenses, partially offset by a favorable variance in prepaid expenses and other current assets.

 

Net cash provided by investing activities was $16.3 million in 2015; net cash used in investing activities was $58.7 million in 2014. The current year inflow of cash reflects $84.0 million of proceeds from the sale of assets associated with the sale-leaseback transaction partially offset by capital expenditures primarily for our new eCommerce fulfillment center, renovations to support our strategic initiatives and information technology.  Capital expenditures totaled $70.5 million and $64.0 million in 2015 and 2014, respectively; these expenditures do not reflect reductions for external contributions (primarily leasehold improvement and fixture allowances received from landlords or vendors) of $8.6 million and $14.8 million in 2015 and 2014, respectively.  We anticipate our fiscal 2015 capital expenditures will not exceed $86.3 million (excluding external contributions of $15.3 million, reducing anticipated net capital investments to $71.0 million).

 

Net cash provided by financing activities was $137.3 million and $166.3 million in 2015 and 2014, respectively. The decrease in current year cash inflow was primarily due to the repayment of one of our mortgage facilities, partially offset by increased net borrowings on our Second Amended Revolving Credit Facility to support current year operations and, in part, to repay one of our mortgage facilities.

 

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 2, 2015, May 4, 2015, August 3, 2015 and November 2, 2015 to shareholders of record as of January 16, 2015, April 17, 2015, July 17, 2015 and October 16, 2015, respectively.  Our Board of Directors has not declared an additional dividend as a result of the current shareholders’ deficit and the requirements of Pennsylvania state law.  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 January 31, 2015.

 

30



 

Recently Issued Accounting Standards

 

Recently issued accounting standards are discussed in Note 13 to the Consolidated Financial Statements.

 

Forward-Looking Statements

 

Certain information included in this report (as well as other communications made or to be made by the Company) 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, including the Company’s fiscal 2015 guidance, 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 or changes in the competitive environment; 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 improve 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 2014 filed with the Securities and Exchange Commission.

 

31



 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk and Financial Instruments

 

In the second quarter of 2015, we repaid the remaining principal balance of $104.5 million on one of the two mortgage facilities due in April 2016, as discussed in “Liquidity and Capital Resources” within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

There were no other material changes in our exposures, risk management strategies, or hedging positions since January 31, 2015.  For further information, refer to Item 7A of our fiscal 2014 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 October 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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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

 

Commitment Increase Letter Acknowledgment, dated as of August 28, 2015, made by The Bon-Ton Department Stores, Inc., Carson Pirie Scott II, Inc., Bon-Ton Distribution, LLC, and McRIL, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 2, 2015)

10.2

 

Amendment No. 1 to The Bon-Ton Stores, Inc. Private Label Credit Card Program Agreement dated October 28, 2015 and effective as of October 28, 2015 by and between The Bon-Ton Stores, Inc. and Comenity Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 3, 2015)

10.3

 

Employment Agreement dated October 29, 2015 and effective as of November 9, 2015 by and between The Bon-Ton Stores, Inc. and Nancy A. Walsh (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 4, 2015 (“11/4/15 Form 8-K”))

10.4

 

Restricted Stock Agreement for Nancy A. Walsh (incorporated by reference to Exhibit 10.2 to the 11/4/15 Form 8-K)

10.5

 

Commitment Increase Letter Acknowledgment, dated November 17, 2015, made by The Bon-Ton Department Stores, Inc., Carson Pirie Scott II, Inc., Bon-Ton Distribution, LLC, and McRIL, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 18, 2015)

31.1

 

Certification of Kathryn Bufano

31.2

 

Certification of Nancy A. Walsh

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.

 

33



 

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 9, 2015

 

BY:

/s/ Kathryn Bufano

 

 

Kathryn Bufano

 

 

President and

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

DATE:

December 9, 2015

 

BY:

/s/ Nancy A. Walsh

 

 

Nancy A. Walsh

 

 

Executive Vice President—

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

 

 

 

DATE:

December 9, 2015

 

BY:

/s/ Michael W. Webb

 

 

Michael W. Webb

 

 

Senior Vice President—

 

 

Chief Accounting Officer

 

 

(Principal Accounting Officer)

 

34