<PAGE>
Page 1 of 11
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended November 1, 1997 Commission File Number
0-19517
THE BON-TON STORES, INC.
2801 EAST MARKET STREET
YORK, PENNSYLVANIA 17402
(717) 757-7660
INCORPORATED IN PENNSYLVANIA IRS NO. 23-2835229
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
As of November 28, 1997 there were 8,646,344 shares of Common Stock, $0.01 par
value, and 2,989,853 shares of Class A Common Stock, $0.01 par value,
outstanding.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOVEMBER 1, FEBRUARY 1,
1997 1997
---------- ----------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,234 $ 6,516
Trade and other accounts receivable, net of allowance for doubtful
accounts of $1,594 and $2,769 at November 1, 1997 and February 1, 1997, respectively 21,981 16,306
Merchandise inventories 229,233 161,191
Prepaid expenses and other current assets 9,603 18,389
- ---------------------------------------------------------------------------------------- -------- --------
Total current assets 267,051 202,402
- ---------------------------------------------------------------------------------------- -------- --------
PROPERTY, FIXTURES AND EQUIPMENT at cost, less accumulated
depreciation and amortization 107,728 117,716
OTHER ASSETS 20,675 21,134
DEFERRED INCOME TAXES 37 ---
- ---------------------------------------------------------------------------------------- -------- --------
TOTAL ASSETS $395,491 $341,252
===================================================================================================================
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 97,977 $ 51,626
Accrued payroll and benefits 6,491 7,135
Accrued expenses 20,822 25,209
Current portion of long-term debt 586 9,763
Current portion of obligations under capital leases 371 351
Deferred income taxes 1,883 1,628
Income taxes payable 968 3,837
- -------------------------------------------------------------------------------------------- -------- --------
Total current liabilities 129,098 99,549
- -------------------------------------------------------------------------------------------- -------- --------
LONG-TERM DEBT, less current maturities 150,563 125,620
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 2,320 2,478
OTHER LONG-TERM LIABILITIES 4,095 946
DEFERRED INCOME TAXES --- 1,174
COMMITMENTS AND CONTINGENCIES --- ---
- -------------------------------------------------------------------------------------------- -------- --------
Total liabilities 286,076 229,767
- -------------------------------------------------------------------------------------------- -------- --------
Shareholders' Equity:
Common Stock-authorized 40,000,000 shares at $0.01 par value; issued and outstanding
shares of 8,570,304 and 8,349,699 at November 1, 1997 and February 1, 1997, respectively 86 83
Class A Common Stock-authorized 20,000,000 shares at $0.01 par value; issued
and outstanding shares of 2,989,853 at November 1, 1997 and February 1, 1997 30 30
Additional paid-in capital 59,616 58,182
Deferred compensation (2,120) (1,259)
Retained earnings 51,803 54,449
- -------------------------------------------------------------------------------------------- -------- --------
Total shareholders' equity 109,415 111,485
- -------------------------------------------------------------------------------------------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $395,491 $341,252
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
------------------------ -------------------------
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $155,513 $148,374 $427,758 $408,434
Other income, net 457 497 1,420 1,519
- ------------------------------------------------------------------------------------------------------------------
155,970 148,871 429,178 409,953
- ------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Costs of merchandise sold 97,212 93,514 268,300 255,308
Selling, general and administrative 51,064 48,497 144,523 141,284
Depreciation and amortization 3,500 3,256 9,862 9,329
- ------------------------------------------------------------------------------------------------------------------
Income from Operations 4,194 3,604 6,493 4,032
Interest expense, net 3,254 3,979 10,026 10,877
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 940 (375) (3,533) (6,845)
Income tax expense (benefit) 367 (133) (1,335) (2,458)
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 573 (242) (2,198) (4,387)
Extraordinary Item loss on early extinguishment of debt,
net of income tax benefit of $251 --- --- (446) ---
- ------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 573 $ (242) $ (2,644) $ (4,387)
==================================================================================================================
PER SHARE AMOUNTS:
Income (loss) before extraordinary item $ 0.05 $ (0.02) $ (0.20) $ (0.40)
Effect of extraordinary item --- --- (0.04) ---
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.05 $ (0.02) $ (0.24) $ (0.40)
==================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 11,752 11,064 11,078 11,063
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS ENDED
-------------------------
November 1, November 2,
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,644) $ (4,387)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,862 9,329
Changes in operating assets and liabilities, net (34,207) (43,250)
- --------------------------------------------------------------------------------------
Net cash used in operating activities (26,989) (38,308)
INVESTING ACTIVITIES:
Capital expenditures, net (7,331) (7,112)
Proceeds from sale of property, fixtures and equipment 17 17
Proceeds from sale of accounts receivable, net 7,300 (17,500)
Proceeds from sale and leaseback arrangement, net 10,901 ---
- --------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 10,887 (24,595)
FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (224,375) (143,141)
Proceeds from issuance of long-term debt 240,002 184,500
Proceeds from mortgages on Rochester properties --- 23,400
Proceeds from exercised stock options 193 ---
- --------------------------------------------------------------------------------------
Net cash provided by financing activities 15,820 64,759
Net (decrease) increase in cash and cash equivalents (282) 1,856
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,516 6,941
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,234 $8,797
======================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $9,520 $9,673
Income taxes paid (refunded) $2,191 $(8,551)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on
January 31, 1996 as the successor of a company established on January 31, 1929
and currently operates, through its subsidiaries, 64 retail department stores
located in Pennsylvania, New York, Maryland, West Virginia, New Jersey and
Georgia.
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include accounts of
The Bon-Ton Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All
intercompany transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance
with the instructions for Form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (primarily consisting of normal recurring
accruals) considered necessary for a fair presentation for interim periods have
been included. The Company's business is seasonal in nature and the results of
operations for the interim periods are not necessarily indicative of the results
for the full fiscal year. It is suggested these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
February 1, 1997 (the "1996 Annual Report").
2. PER SHARE AMOUNTS:
Per share amounts were computed by dividing the corresponding net income or loss
amounts by the weighted average number of common shares outstanding. Common
share equivalents represent stock options and restricted stock grants computed
using the treasury stock method and are included in the weighted average shares
reported on the Consolidated Statements of Operations when the effect is
dilutive.
5
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table summarizes the changes in selected operating data,
illustrating the relationship of various income and expense items expressed as a
percentage of net sales for each period presented:
<TABLE>
<CAPTION>
Thirteen Thirty-nine
Weeks Ended Weeks Ended
------------------------- -------------------------
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Other income, net 0.3 0.3 0.3 0.4
- --------------------------------------------------------------------------------------------------------------------------------
100.3 100.3 100.3 100.4
- --------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of merchandise sold 62.5 63.0 62.7 62.5
Selling, general and administrative 32.8 32.7 33.8 34.6
Depreciation and amortization 2.3 2.2 2.3 2.3
- --------------------------------------------------------------------------------------------------------------------------------
Income from operations 2.7 2.4 1.5 1.0
Interest expense, net 2.1 2.7 2.3 2.7
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 0.6 (0.3) (0.8) (1.7)
Income tax expense (benefit) 0.2 (0.1) (0.3) (0.6)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 0.4 (0.2) (0.5) (1.1)
Extraordinary item loss on early extinguishment of debt, net of tax --- --- (0.1) ---
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 0.4% (0.2)% (0.6)% (1.1)%
================================================================================================================================
</TABLE>
THIRTEEN WEEKS ENDED NOVEMBER 1, 1997 COMPARED TO THIRTEEN WEEKS ENDED NOVEMBER
2, 1996
For the purpose of the following discussion, all references to "third quarter of
1997" and "third quarter of 1996" are to the Company's thirteen week period
ended November 1, 1997 and November 2, 1996, respectively.
NET SALES. Net sales were $155.5 million for the thirteen weeks ended November
1, 1997, an increase of 4.8% over the same period last year. Comparable store
sales increased 7.1% for the period, with home, men's and ladies' sportswear
categories achieving sales increases greater than Company average.
OTHER INCOME, NET. Net other income, which consisted mainly of income from
leased departments, remained at 0.3% of net sales in the third quarter of 1997,
the same as in the third quarter of 1996.
COSTS AND EXPENSES. Gross profit dollars in the third quarter of 1997 increased
$3.4 million over the third quarter of 1996 due to the increased sales base and
a reduction in the ratio of markdowns to sales. Gross profit as a percentage of
net sales increased by 0.5 percentage points to 37.5% for the thirteen weeks
ended November 1, 1997 from 37.0% for the comparable period last year.
Selling, general and administrative (SG&A) expenses for the third quarter of
1997 increased $2.6 million over the third quarter of last year. The increase
in expense was primarily related to the expenses associated with the higher
sales volume. SG&A as a percentage of sales increased by a 0.1 percentage point
to 32.8% in the third quarter of 1997 from 32.7% in the third quarter of 1996
and reflects the improvement in the credit operation which was offset by the
increased expenses associated with the higher sales base.
Depreciation and amortization at 2.3% of net sales for the thirteen weeks ended
November 1, 1997 increased by 0.1% over the same period last year.
6
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
INCOME FROM OPERATIONS. Income from operations for the third quarter of 1997
was $4.2 million, or 2.7% of net sales, compared to income from operations of
$3.6 million, or 2.4% of net sales, in the comparable period last year. The
improvement for the period was achieved primarily through increased sales and
improved gross margin rate.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. The pro-forma effect, as if the Company had
on-balance sheet financing, would have reduced selling, general and
administrative expenses by $1.7 million in the third quarter of 1997 and $1.3
million in the third quarter of 1996. The lower selling, general and
administrative expenses would have been offset by a corresponding increase in
interest expense for both periods. The net result of the pro-forma
reclassification would reflect income from operations of $5.9 million in the
third quarter of 1997 and $5.0 million for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense decreased to 2.1% of net sales for
the thirteen weeks ended November 1, 1997 compared to 2.7% of net sales for the
thirteen weeks ended November 2, 1996. The decrease is primarily attributed to
the lower borrowing levels and higher sales achieved in the third quarter of
1997 compared to the third quarter of 1996.
NET INCOME (LOSS). The net income for the third quarter of 1997 amounted to
$0.6 million compared to a net loss of $0.2 million in the third quarter of
1996.
Due to the seasonal nature of the Company's business, the results for the
current year third quarter are not necessarily indicative of the results that
may be achieved for the full fiscal year of 1997.
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 1996
For the purpose of the following discussion, all references to "1997" and "1996"
are to the Company's thirty-nine week period ended November 1, 1997 and November
2, 1996, respectively.
NET SALES. Net sales were $427.8 million for 1997, an increase of 4.7% over the
same period last year. Comparable store sales increased 6.4% for the period,
with shoes, ladies' sportswear categories, home and cosmetics achieving sales
increases greater than Company average.
OTHER INCOME, NET. Net other income, which consisted mainly of income from
leased departments, decreased to 0.3% of net sales in 1997 compared to 0.4% of
net sales in 1996. The reduction in other income was primarily the result of
the Company's discontinuance of certain leased departments.
COSTS AND EXPENSES. Gross profit dollars in 1997 increased $6.3 million over
1996 due primarily to the increased sales base, partially offset by the decrease
in gross profit as a percentage of net sales to 37.3% for the thirty-nine week
period ended November 1, 1997 from 37.5% for the comparable period last year.
The decline in the margin rate was largely attributable to a lower initial
markup strategy initiated by management.
Selling, general and administrative expenses for 1997 increased $3.2 million,
resulting in a ratio to net sales of 33.8%, compared to 34.6% of net sales in
the prior year. The rate decrease principally reflected an improvement in the
credit operation and the operating leverage achieved by the Company as a result
of the improvement in the Company's sales base.
Depreciation and amortization remained constant at 2.3% of net sales for the
thirty-nine weeks ended November 1, 1997 and November 2, 1996.
7
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
INCOME FROM OPERATIONS. Income from operations for 1997 was $6.5 million, or
1.5% of net sales, compared to income from operations of $4.0 million, or 1.0%
of net sales, in the comparable period last year. The improvement for the
period was achieved through increased sales and gross margin dollars.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. Pro-forma effects, as if the Company had
on-balance sheet financing, would have reduced selling, general and
administrative expenses by $4.9 million in 1997 and $4.8 million in 1996. The
lower selling, general and administrative expenses would have been offset by a
corresponding increase in interest expense for both periods. The net result of
the pro-forma reclassification would reflect income from operations of $11.4
million in 1997 and $8.9 million for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense decreased to 2.3% of net sales in
1997 compared to 2.7% of net sales in 1996. The decrease was primarily the
result of lower borrowing levels incurred by the Company in 1997 as compared to
the same period last year and the achievement of a higher sales base in 1997.
LOSS BEFORE EXTRAORDINARY ITEM. The net loss before the extraordinary item was
$2.2 million in 1997, a 50% improvement compared to a loss of $4.4 million in
1996.
EXTRAORDINARY ITEM. The Company entered into a new asset based borrowing
agreement on April 10, 1997 (see Note 4 of the Company's Form 10-Q for the
quarter ended May 3, 1997). As a result of this transaction, the Company
incurred an extraordinary charge of $0.4 million (net of $0.3 million income tax
benefit) relating to early extinguishment of existing debt.
NET LOSS. The net loss for 1997, after the impact of the extraordinary item,
amounted to $2.6 million compared to a net loss of $4.4 million in 1996.
Due to the seasonal nature of the Company's business, the results for the
current period are not necessarily indicative of the results that may be
achieved for the full fiscal year of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are currently met through a
combination of cash, borrowings under its revolving credit facility and proceeds
from its accounts receivable facility.
The following table summarizes material measures of the Company's liquidity and
capital resources:
<TABLE>
<CAPTION>
(dollars in millions)
November 1, November 2,
1997 1996
----------- -----------
<S> <C> <C>
Working Capital $138.0 $152.8
Current Ratio 2.07:1 2.38:1
Total Debt to Total Capitalization 0.58:1 0.66:1
Available Lines of Credit $ 42.2 $ 12.5
</TABLE>
8
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
For the thirty-nine weeks ended November 1, 1997, net cash used in operating
activities amounted to $27.0 million, as compared to net cash used in operating
activities of $38.3 million for the comparable period last year. Net cash used
in operating activities in 1997, supplemented by a $4.8 million pension asset
reversion (net of federal excise tax payment), decreased as compared to the same
period last year when additional working capital was employed to increase
merchandise inventory to support the Company's inventory intensification
initiative. The inventory intensification program, initiated by the Company in
1996, provides a deeper assortment of merchandise in key categories, enabling
the Company to offer a greater selection of colors and sizes, ensuring
appropriate in-stock position to provide the customers with what they want.
Net cash provided by investing activities amounted to $10.9 million for the
thirty-nine weeks ended November 1, 1997, compared to cash used in investing
activities of $24.6 million for the comparable period last year. The net cash
provided during the thirty-nine week period ended November 1, 1997 was primarily
a result of the proceeds received from the sale and leaseback arrangement (see
Note 4 of the Company's Form 10-Q for the quarter ended May 3, 1997) and the
Company's further utilization of the accounts receivable facility.
Net cash provided by financing activities amounted to $15.8 million for the
thirty-nine week period ended November 1, 1997, as compared to cash provided by
financing activities of $64.8 million for the comparable period last year. The
cash required from financing activities in 1997 decreased primarily as a result
of the Company's improved operating performance, the application of proceeds
received from the Company's sale and leaseback arrangement, the further
utilization of the Company's account receivable facility and funds provided by
the pension assets reversion. The cash provided during the thirty-nine weeks
ended November 2, 1996 was primarily the result of increased borrowings from
long-term debt and proceeds the Company received from mortgages on the Rochester
properties (as discussed in Note 2 of the 1996 Annual Report).
The Company anticipates that its cash flow from operations, supplemented by
borrowings under its revolving credit facility and proceeds from its accounts
receivable facility, will be sufficient to satisfy its operating cash
requirements.
"SAFE HARBOR" STATEMENT:
- ------------------------
Certain information included in this Form 10-Q contains statements that are
forward looking. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future,
including, but not limited to, uncertainties affecting retail in general, such
as consumer confidence and demand for soft goods, risks relating to leverage and
debt service, competition within primary markets in which the Company's stores
are located, and the need for, and costs associated with, store renovations and
other capital expenditures.
9
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed pursuant to the requirements of Item 601
of Regulation S-K:
Exhibit No. Description
27 Financial Data Schedule
(b) The Company did not file Current Reports on Form 8-K during the thirteen
week period ended November 1, 1997.
10
<PAGE>
THE BON-TON STORES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BON-TON STORES, INC.
Date: December 15,1997 By: /s/ Michael L. Gleim
---------------------- -----------------------------------
Michael L. Gleim
Vice Chairman and
Chief Operating Officer
Date: December 15, 1997 By: /s/ James H. Baireuther
----------------------- ------------------------------------
James H. Baireuther
Senior Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Company's Quarterly Report on Form 10-Q for the Third Quarter ended November 1,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 6,234
<SECURITIES> 0
<RECEIVABLES> 23,575
<ALLOWANCES> 1,594
<INVENTORY> 229,233
<CURRENT-ASSETS> 267,051
<PP&E> 186,280
<DEPRECIATION> 78,552
<TOTAL-ASSETS> 395,491
<CURRENT-LIABILITIES> 129,098
<BONDS> 152,883
0
0
<COMMON> 116
<OTHER-SE> 109,299
<TOTAL-LIABILITY-AND-EQUITY> 395,491
<SALES> 427,758
<TOTAL-REVENUES> 429,178
<CGS> 268,300
<TOTAL-COSTS> 422,685
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,026
<INCOME-PRETAX> (3,533)
<INCOME-TAX> (1,335)
<INCOME-CONTINUING> (2,198)
<DISCONTINUED> 0
<EXTRAORDINARY> (446)
<CHANGES> 0
<NET-INCOME> (2,644)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
