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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 May 2, 1998 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 May 30, 1998 there were 12,011,117 shares of Common Stock, $0.01 par
value, and 2,989,853 shares of Class A Common Stock, $0.01 par value,
outstanding.
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<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 2, JANUARY 31,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 9,763 $ 9,109
Trade and other accounts receivable, net of allowance for doubtful
accounts of $2,313 and $1,977 at May 2, 1998 and January 31, 1998, respectively 25,817 28,485
Merchandise inventories 194,143 177,783
Prepaid expenses and other current assets 7,451 8,835
- ----------------------------------------------------------------------------------- -------- --------
Total current assets 237,174 224,212
- ----------------------------------------------------------------------------------- -------- --------
PROPERTY, FIXTURES AND EQUIPMENT at cost, less accumulated
depreciation and amortization 108,290 108,568
OTHER ASSETS 19,501 19,906
- ----------------------------------------------------------------------------------- -------- --------
TOTAL ASSETS $364,965 $352,686
=================================================================================== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 61,679 $ 55,478
Accrued payroll and benefits 6,410 9,457
Accrued expenses 23,631 25,649
Current portion of long-term debt 570 556
Current portion of obligations under capital leases 386 379
Deferred income taxes 1,342 1,227
Income taxes payable 2,357 8,388
- ---------------------------------------------------------------------------------------- -------- --------
Total current liabilities 96,375 101,134
- ---------------------------------------------------------------------------------------- -------- --------
Long-Term Debt, less current maturities 93,785 121,121
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 2,173 2,263
DEFERRED INCOME TAXES 445 365
OTHER LONG-TERM LIABILITIES 3,524 3,409
- ---------------------------------------------------------------------------------------- -------- --------
Total liabilities 196,302 228,292
- ---------------------------------------------------------------------------------------- -------- --------
COMMITMENTS AND CONTINGENCIES --- ---
SHAREHOLDERS' EQUITY:
Common Stock-authorized 40,000,000 shares at $0.01 par value; issued and outstanding
shares of 12,003,713 and 8,847,333 at May 2, 1998 and January 31, 1998, respectively 120 88
Class A Common Stock-authorized 20,000,000 shares at $0.01 par value; issued
and outstanding shares of 2,989,853 at May 2, 1998 and January 31, 1998 30 30
Additional paid-in capital 107,009 62,585
Deferred compensation (1,949) (2,010)
Retained earnings 63,453 63,701
- ---------------------------------------------------------------------------------------- -------- --------
Total shareholders' equity 168,663 124,394
- ---------------------------------------------------------------------------------------- -------- --------
Total liabilities and shareholders' equity $364,965 $352,686
=================================================================================== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
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THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED
-------------------
MAY 2, MAY 3,
1998 1997
-------- --------
<S> <C> <C>
NET SALES $143,267 $134,251
Other income, net 499 491
- ------------------------------------------------------------ -------- --------
143,766 134,742
-------- --------
COSTS AND EXPENSES:
Costs of merchandise sold 91,435 84,936
Selling, general and administrative 47,029 46,002
Depreciation and amortization 3,090 3,166
- ------------------------------------------------------------ -------- --------
INCOME FROM OPERATIONS 2,212 638
Interest expense, net 2,633 3,549
- ------------------------------------------------------------ -------- --------
Loss before income taxes (421) (2,911)
Income tax benefit (175) (1,108)
- ------------------------------------------------------------ -------- --------
Loss before extraordinary item (246) (1,803)
EXTRAORDINARY ITEM loss on early extinguishment of debt,
net of income tax benefit of $251 --- (446)
- ------------------------------------------------------------ -------- --------
NET LOSS $ (246) $ (2,249)
============================================================ ======== ========
PER SHARE AMOUNTS:
BASIC:
Loss before extraordinary item $ (0.02) $ (0.16)
Effect of extraordinary item --- (0.04)
- ------------------------------------------------------------ -------- --------
Net loss $ (0.02) $ (0.20)
============================================================ ======== ========
BASIC SHARES OUTSTANDING 11,506 11,073
DILUTED:
Loss before extraordinary item $ (0.02) $ (0.16)
Effect of extraordinary item --- (0.04)
- ------------------------------------------------------------ -------- --------
Net loss $ (0.02) $ (0.20)
============================================================ ======== ========
DILUTED SHARES OUTSTANDING 11,506 11,073
============================================================ ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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THE BON-TON STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED
------------------
MAY 2, MAY 3,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (246) $(2,249)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,090 3,166
Changes in operating assets and liabilities, net (13,451) (8,759)
- ------------------------------------------------------------------------------ -------- -------
Net cash used in operating activities (10,607) (7,842)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (2,661) (676)
Proceeds from sale of property, fixtures and equipment 1,451 16
Proceeds from sale of accounts receivable, net (4,000) (11,000)
Proceeds from sale and leaseback arrangement, net --- 11,034
- ------------------------------------------------------------------------------ -------- -------
Net cash used in investing activities (5,210) (626)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (95,404) (148,929)
Proceeds from issuance of long-term debt 68,000 159,002
Proceeds from equity offering 43,443 ---
Exercised stock options 432 ---
- ------------------------------------------------------------------------------ -------- -------
Net cash provided by financing activities 16,471 10,073
Net increase in cash and cash equivalents 654 1,605
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,109 6,516
- ------------------------------------------------------------------------------ -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,763 $8,121
============================================================================== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $2,964 $3,729
Income taxes paid $5,519 $ 302
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on
January 31, 1996 as the successor of a company established on January 31, 1929
and currently operates, through its subsidiaries, 64 retail department stores
located in Pennsylvania, New York, Maryland, West Virginia and New Jersey.
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include accounts of
The Bon-Ton Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All
intercompany transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance
with the instructions for Form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (primarily consisting of normal recurring
accruals) considered necessary for a fair presentation for interim periods have
been included. The Company's business is seasonal in nature and the results of
operations for the interim periods presented are not necessarily indicative of
the results for the full fiscal year. It is suggested these consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for the
year ended January 31, 1998 (the "1997 Annual Report").
2. PER SHARE AMOUNTS:
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128") in fiscal 1997. SFAS No. 128 requires
dual presentation of Basic and Diluted earnings per share ("EPS") on the face of
the statement of operations. Basic EPS is computed by dividing reported
earnings available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed assuming the
conversion of all dilutive securities, such as options and restricted stock.
The statement requires a reconciliation of the numerators and denominators used
in the Basic and Diluted EPS calculations. The numerator, net loss, is
identical in both calculations. The following table presents a reconciliation
of the shares outstanding for the respective calculations for each period
presented on the accompanying Consolidated Statements of Operations.
May 2, May 3,
1998 1997
- -------------------------------------- ---------- ----------
Shares Shares
- -------------------------------------- ---------- ----------
Basic Calculation 11,506,000 11,073,000
Dilutive Securities--
Restricted Shares --- ---
Options --- ---
- -------------------------------------- ---------- ----------
Diluted Calculation 11,506,000 11,073,000
- -------------------------------------- ---------- ----------
5
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3. SALE OF PROPERTY:
On February 17, 1998, the Company sold its vacant property in Lancaster,
Pennsylvania. The property which was acquired during the 1992 acquisition of
Watt and Shand, Inc. was closed in March 1995. The Company recognized a gain
during the first quarter of 1998 of $1.4 million on the disposal of this
property, which included the remaining store closing reserve established in
1994. The net proceeds of $1.2 million received from the sale were used to fund
additional working capital requirements.
4. ISSUANCE OF ADDITIONAL SHARES OF STOCK
On May 1, 1998, the Company completed the sale of 3.1 million shares of its
Common Stock pursuant to a public offering. The net proceeds received, of $43.4
million will be used to expand and upgrade existing stores, open new stores,
provide working capital and for general corporate purposes. Pending such uses,
the Company used the proceeds to reduce indebtedness under the Company's
revolving credit facility. Common Stock outstanding after the completion of
this transaction was 12,003,713 shares.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table summarizes the changes in selected operating indicators,
illustrating the relationship of various income and expense items expressed as a
percentage of net sales for each period presented:
<TABLE>
<CAPTION>
THIRTEEN
WEEKS ENDED
--------------------
MAY 2, MAY 3,
1998 1997
----- -----
<S> <C> <C>
Net sales 100.0 % 100.0 %
Other income, net 0.3 0.4
- ---------------------------------------------------------- ----- -----
100.3 100.4
----- -----
Costs and expenses:
Costs of merchandise sold 63.8 63.3
Selling, general and administrative 32.8 34.3
Depreciation and amortization 2.2 2.4
- ---------------------------------------------------------- ----- -----
Income from operations 1.5 0.4
Interest expense, net 1.8 2.6
- ---------------------------------------------------------- ----- -----
Loss before income taxes (0.3) (2.2)
Income tax benefit (0.1) (0.8)
- ---------------------------------------------------------- ----- -----
Loss before extraordinary item (0.2) (1.4)
Extraordinary item loss on early extinguishment of debt --- (0.3)
- ---------------------------------------------------------- ----- -----
Net loss (0.2)% (1.7)%
========================================================== ===== =====
</TABLE>
THIRTEEN WEEKS ENDED MAY 2, 1998 COMPARED TO THIRTEEN WEEKS ENDED MAY 3, 1997
For the purposes of the following discussions, all references to "first quarter
of 1998" and "first quarter of 1997" are to the Company's thirteen week period
ended May 2, 1998 and May 3, 1997, respectively.
NET SALES. Net sales were $143.3 million for the thirteen weeks ended May 2,
1998, an increase of 6.7% over the same period last year. Comparable store
sales increased 5.7% for the period, with men's, young men's, juniors, intimate,
petite, home and women's achieving sales increases greater than Company average.
OTHER INCOME, NET. Net other income, which consisted mainly of income from
leased departments, decreased to 0.3% of net sales in the first quarter of 1998
compared to 0.4% of net sales in the first quarter of 1997 primarily as a result
of the increase in 1998 sales volume.
COSTS AND EXPENSES. Gross profit as a percentage of net sales decreased by 0.5
percentage point to 36.2% for the thirteen weeks ended May 2, 1998 from 36.7%
for the comparable period last year. The decline in margin rate was largely
attributable to a lower initial markup strategy initiated by management and an
increased level of markdowns in the first quarter of 1998.
Selling, general and administrative expenses for the first quarter of fiscal
1998 decreased to 32.8% of net sales from 34.3% of net sales in the prior year.
The rate decrease was primarily due to the increase in sales volume, impact of
the sale of the vacant property (see Note 3) and the increased profitability of
the credit operations.
Depreciation and amortization decreased to 2.2% of net sales in the first
quarter of 1998 from 2.4% of net sales in the first quarter of 1997, primarily
as a function of the increase in the 1998 sales volume.
7
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THE BON-TON STORES, INC. AND SUBSIDIARIES
INCOME FROM OPERATIONS. Income from operations for the first quarter of 1998
was $2.2 million, or 1.5% of net sales, compared to income from operations of
$0.6 million, or 0.4% of net sales, in the comparable period last year. The
improvement for the period primarily reflects the increase in sales and
resultant gross margin, and the gain on the sale of property (see Note 3).
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 $2.0 million in the first quarter of 1998 and $1.6
million in the first quarter of 1997. 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 $4.2 million in the
first quarter of 1998 and $2.2 million for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense decreased to 1.8% of net sales for
the thirteen weeks ended May 2, 1998 compared to 2.6% of net sales for the
thirteen weeks ended May 3, 1997. The decrease resulted primarily from lower
levels of borrowing and the increase in sales volume in 1998.
EXTRAORDINARY ITEM. The Company entered into a new asset based borrowing
agreement on April 10, 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) in the first quarter of 1997 relating to the early extinguishment of
its existing debt.
NET LOSS. The net loss for the first quarter of 1998 amounted to $0.2 million,
compared to a net loss of $2.2 million in the first quarter of 1997.
Due to the seasonal nature of the Company's business, the results for the
current year first quarter are not necessarily indicative of the results that
may be achieved for the full fiscal year of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are currently met through a
combination of cash, borrowings under its revolving credit facility and proceeds
from its accounts receivable facility.
The following table summarizes material measures of the Company's liquidity and
capital resources (dollars in millions):
May 2, May 3,
1998 1997
------- -------
Working Capital $ 140.8 $ 132.6
Current Ratio 2.46:1 2.61:1
Funded Debt to Total Capitalization 0.36:1 0.57:1
Unused Availability Under Lines of Credit $ 85.3 $ 18.1
For the thirteen weeks ended May 2, 1998, net cash used in operating activities
amounted to $10.6 million as compared to a net cash used of $7.8 million for the
comparable period last year. The increase in net operating cash outflows for
the thirteen weeks ended May 2, 1998 is primarily comprised of an increase in
merchandise inventory and payment of $5.5 million in income taxes. In the first
quarter of 1997, the Company received $5.8 million from a pension reversion, of
which $1.2 million was paid in excise tax to the Internal Revenue Service.
8
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THE BON-TON STORES, INC. AND SUBSIDIARIES
Net cash used in investing activities amounted to $5.2 million for the thirteen
weeks ended May 2, 1998, compared to cash used in investing activities of $0.6
million for the comparable period last year. The net cash used for the
thirteen week period ended May 2, 1998, was primarily the result of proceeds
received from the sale of property (see Note 3), partially offset by capital
expenditures and payments made on the receivables facility. The net outflow in
the thirteen week period ended May 3, 1997 was due to payments made pursuant to
the Company's accounts receivable facility, which were offset by the proceeds
received from the sales and leaseback arrangement (see Note 17 of the 1997
Annual Report).
Net cash provided by financing activities amounted to $16.5 million for the
thirteen week period ended May 2, 1998 as compared to cash provided by financing
activities of $10.1 million for the comparable period last year. The Company
received net proceeds of $43.4 million from the sale of additional shares of its
Common Stock. Pending intended uses, the proceeds were used to reduce
indebtedness under the Company's revolving credit facility (see Note 4).
The Company anticipates its cash flow from operations, supplemented by
borrowings under its revolving credit facility and its accounts receivable
facility, will be sufficient to satisfy its operating cash requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
"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
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITITES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION.
None.
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
10.1(a) Employment Agreement between the Company and Heywood Wilansky
(incorporated by reference to Exhibit 99 to the Company's Report
on Form 8-K, dated March 26, 1998, File No. 0-19517).
10.1(b) The Bon-Ton Stores, Inc. Supplemental Executive Retirement Plan
for Heywood Wilansky (incorporated by reference to Exhibit 10.2(b)
to the Company's Registration Statement on Form S-1, File No. 333-
48811).
10.1(c) The Bon-Ton Stores, Inc. Five Year Cash Bonus Plan for Heywood
Wilansky (incorporated by reference to Exhibit 10.2(c) to the
Company's Registration Statement on Form S-1, File No. 333-48811).
10.2 Third Amendment to Credit Agreement (incorporated by reference to
Exhibit 10.3(d) to the Company's Registration Statement on Form S-
1, File No. 333-48811).
27 Financial Data Schedule.
(b) Reports on Form 8-K filed during the first quarter.
A Current Report on Form 8-K dated March 26, 1988 was filed related to the
Employment Agreement between The Bon-Ton Stores, Inc. and
Heywood Wilansky dated February 27, 1998.
10
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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: June 12, 1998 BY: /s/ Michael L. Gleim
----------------------- --------------------------------------
Michael L. Gleim
Vice Chairman and
Chief Operating Officer
DATE: June 12, 1998 BY: /s/ James H. Baireuther
------------------------ --------------------------------------
James H. Baireuther
Senior Vice President and
Chief Financial Officer
11
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE FIRST QUARTER ENDED MAY 2, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 9,763
<SECURITIES> 0
<RECEIVABLES> 28,130
<ALLOWANCES> 2,313
<INVENTORY> 194,143
<CURRENT-ASSETS> 237,174
<PP&E> 192,599
<DEPRECIATION> 84,309
<TOTAL-ASSETS> 364,965
<CURRENT-LIABILITIES> 96,375
<BONDS> 95,958
0
0
<COMMON> 150
<OTHER-SE> 168,513
<TOTAL-LIABILITY-AND-EQUITY> 364,965
<SALES> 143,267
<TOTAL-REVENUES> 143,766
<CGS> 91,435
<TOTAL-COSTS> 141,554
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,633
<INCOME-PRETAX> (421)
<INCOME-TAX> (175)
<INCOME-CONTINUING> (246)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246)
<EPS-PRIMARY> (0.02)<F1>
<EPS-DILUTED> (0.02)<F1>
<FN>
<F1>EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND THAT BASIC AND
DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY DILUTED,
RESPECTIVELY.
</FN>
</TABLE>
