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

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarter ended November 1, 2014

 

Commission File Number

 

 

0-19517

 

THE BON-TON STORES, INC.

2801 East Market Street

York, Pennsylvania 17402

(717) 757-7660

 

Incorporated in Pennsylvania

IRS No. 23-2835229

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated
filer 
o

Accelerated filer x

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

Smaller reporting
company
o

 

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

 

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

 

 

 



 

PART I:  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

THE BON-TON STORES, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

 

 

 

November 1,

 

November 2,

 

February 1,

 

(In thousands, except share and per share data)

 

2014

 

2013

 

2014

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,516

 

$

8,082

 

$

7,058

 

Merchandise inventories

 

970,649

 

914,603

 

709,733

 

Prepaid expenses and other current assets

 

79,059

 

91,120

 

76,285

 

Total current assets

 

1,057,224

 

1,013,805

 

793,076

 

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

 

637,217

 

649,966

 

640,004

 

Deferred income taxes

 

20,486

 

16,659

 

15,765

 

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

 

91,891

 

104,932

 

102,800

 

Other long-term assets

 

23,162

 

23,139

 

25,584

 

Total assets

 

$

1,829,980

 

$

1,808,501

 

$

1,577,229

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

376,070

 

$

351,281

 

$

200,465

 

Accrued payroll and benefits

 

24,248

 

25,369

 

28,343

 

Accrued expenses

 

157,462

 

161,224

 

150,595

 

Current maturities of long-term debt

 

7,286

 

7,247

 

7,363

 

Current maturities of obligations under capital leases

 

3,888

 

3,878

 

3,797

 

Deferred income taxes

 

28,784

 

23,222

 

22,744

 

Income taxes payable

 

 

4

 

 

Total current liabilities

 

597,738

 

572,225

 

413,307

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

971,608

 

931,776

 

804,372

 

Obligations under capital leases, less current maturities

 

46,034

 

49,609

 

48,977

 

Other long-term liabilities

 

165,897

 

206,017

 

182,617

 

Total liabilities

 

1,781,277

 

1,759,627

 

1,449,273

 

 

 

 

 

 

 

 

 

Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Preferred Stock — authorized 5,000,000 shares at $0.01 par value; no shares issued

 

 

 

 

Common Stock — authorized 40,000,000 shares at $0.01 par value; issued shares of 17,818,323, 17,857,457 and 17,846,457 at November 1, 2014, November 2, 2013 and February 1, 2014, respectively

 

178

 

179

 

178

 

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

 

30

 

30

 

30

 

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

 

(1,387

)

(1,387

)

(1,387

)

Additional paid-in capital

 

160,759

 

160,185

 

160,772

 

Accumulated other comprehensive loss

 

(48,006

)

(68,589

)

(50,448

)

(Accumulated deficit) retained earnings

 

(62,871

)

(41,544

)

18,811

 

Total shareholders’ equity

 

48,703

 

48,874

 

127,956

 

Total liabilities and shareholders’ equity

 

$

1,829,980

 

$

1,808,501

 

$

1,577,229

 

 

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

 

2



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

(In thousands, except per share data)

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

(Unaudited)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

642,735

 

$

651,161

 

$

1,813,647

 

$

1,855,205

 

Other income

 

16,022

 

15,412

 

45,780

 

44,236

 

 

 

658,757

 

666,573

 

1,859,427

 

1,899,441

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

409,484

 

412,932

 

1,159,846

 

1,185,528

 

Selling, general and administrative

 

220,901

 

215,204

 

659,027

 

651,553

 

Depreciation and amortization

 

22,073

 

21,149

 

67,678

 

65,248

 

Amortization of lease-related interests

 

1,101

 

1,117

 

3,442

 

3,388

 

Impairment charges

 

273

 

321

 

447

 

452

 

Income (loss) from operations

 

4,925

 

15,850

 

(31,013

)

(6,728

)

Interest expense, net

 

15,506

 

16,492

 

46,224

 

52,747

 

Loss on extinguishment of debt

 

 

20

 

153

 

4,297

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(10,581

)

(662

)

(77,390

)

(63,772

)

Income tax provision

 

427

 

269

 

1,322

 

1,123

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

 

 

 

 

 

 

 

 

 

 

Per share amounts —

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

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

 

3



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

(In thousands)

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

(Unaudited)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

814

 

1,551

 

2,442

 

4,653

 

Comprehensive (loss) income

 

$

(10,194

)

$

620

 

$

(76,270

)

$

(60,242

)

 

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

 

4



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

(In thousands)

 

November 1,

 

November 2,

 

(Unaudited)

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(78,712

)

$

(64,895

)

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

 

 

 

 

 

Depreciation and amortization

 

67,678

 

65,248

 

Amortization of lease-related interests

 

3,442

 

3,388

 

Impairment charges

 

447

 

452

 

Share-based compensation expense

 

1,902

 

3,000

 

Gain on sale of property, fixtures and equipment

 

(2,542

)

(403

)

Reclassifications of accumulated other comprehensive loss

 

2,442

 

4,653

 

Loss on extinguishment of debt

 

153

 

4,297

 

Amortization of deferred financing costs

 

2,195

 

3,029

 

Deferred income tax provision

 

1,318

 

1,317

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in merchandise inventories

 

(260,915

)

(156,203

)

Increase in prepaid expenses and other current assets

 

(2,774

)

(20,520

)

Decrease (increase) in other long-term assets

 

296

 

(1,159

)

Increase in accounts payable

 

169,757

 

151,986

 

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

 

1,793

 

(13,953

)

Decrease in income taxes payable

 

 

(735

)

Decrease in other long-term liabilities

 

(13,676

)

(2,893

)

Net cash used in operating activities

 

(107,196

)

(23,391

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(63,961

)

(60,780

)

Proceeds from sale of property, fixtures and equipment

 

5,297

 

1,274

 

Net cash used in investing activities

 

(58,664

)

(59,506

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

(411,051

)

(917,791

)

Proceeds from issuance of long-term debt

 

575,231

 

1,007,791

 

Cash dividends paid

 

(1,981

)

(1,966

)

Restricted shares forfeited in lieu of payroll taxes

 

(1,937

)

(2,134

)

Proceeds from stock options exercised

 

22

 

595

 

Deferred financing costs paid

 

(69

)

(8,712

)

Increase in book overdraft balances

 

6,103

 

5,270

 

Net cash provided by financing activities

 

166,318

 

83,053

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

458

 

156

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

7,058

 

7,926

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

7,516

 

$

8,082

 

 

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

 

5



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

(Accumulated

 

 

 

 

 

 

 

Class A

 

 

 

Additional

 

Other

 

Deficit)

 

 

 

(In thousands, except per share data)

 

Common

 

Common

 

Treasury

 

Paid-in

 

Comprehensive

 

Retained

 

 

 

(Unaudited)

 

Stock

 

Stock

 

Stock

 

Capital

 

Loss

 

Earnings

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT FEBRUARY 2, 2013

 

$

175

 

$

30

 

$

(1,387

)

$

158,728

 

$

(73,242

)

$

26,302

 

$

110,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

(64,895

)

(64,895

)

Other comprehensive income

 

 

 

 

 

4,653

 

 

4,653

 

Dividends to shareholders, $0.15 per share

 

 

 

 

 

 

(2,951

)

(2,951

)

Restricted shares forfeited in lieu of payroll taxes

 

(2

)

 

 

(2,132

)

 

 

(2,134

)

Proceeds from stock options exercised

 

1

 

 

 

594

 

 

 

595

 

Share-based compensation expense

 

5

 

 

 

2,995

 

 

 

3,000

 

BALANCE AT NOVEMBER 2, 2013

 

$

179

 

$

30

 

$

(1,387

)

$

160,185

 

$

(68,589

)

$

(41,544

)

$

48,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT FEBRUARY 1, 2014

 

$

178

 

$

30

 

$

(1,387

)

$

160,772

 

$

(50,448

)

$

18,811

 

$

127,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

(78,712

)

(78,712

)

Other comprehensive income

 

 

 

 

 

2,442

 

 

2,442

 

Dividends to shareholders, $0.15 per share

 

 

 

 

 

 

(2,970

)

(2,970

)

Restricted shares forfeited in lieu of payroll taxes

 

(2

)

 

 

(1,935

)

 

 

(1,937

)

Proceeds from stock options exercised

 

 

 

 

22

 

 

 

22

 

Share-based compensation expense

 

2

 

 

 

1,900

 

 

 

1,902

 

BALANCE AT NOVEMBER 1, 2014

 

$

178

 

$

30

 

$

(1,387

)

$

160,759

 

$

(48,006

)

$

(62,871

)

$

48,703

 

 

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

 

6



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

1.                                      BASIS OF PRESENTATION

 

The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company incorporated on January 31, 1929.  As of November 1, 2014, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 273 stores, including ten furniture galleries and four clearance centers, in 26 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates.

 

The accompanying unaudited consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. (the “Parent”) and its subsidiaries (collectively, the “Company”).  Variable interest entities are consolidated where it has been determined the Company is the primary beneficiary of those entities’ operations.  All intercompany transactions have been eliminated in consolidation.

 

The unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.  In the opinion of management, all adjustments considered necessary for a fair presentation of interim periods have been included.  The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of results for the full fiscal year.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2014.

 

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

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions about future events.  These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and the reported amounts of revenues and expenses.  Such estimates include those related to merchandise returns, the valuation of inventories, long-lived assets, intangible assets, insurance reserves, contingencies, litigation and assumptions used in the calculation of income taxes and retirement and other post-employment benefits, among others.  These estimates and assumptions are based on management’s best estimates and judgments.  Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.  Management adjusts such estimates and assumptions when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.  Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

 

2.                                      PER-SHARE AMOUNTS

 

The following table presents a reconciliation of net loss and weighted average shares outstanding used in basic and diluted earnings (loss) per share (“EPS”) calculations for each period presented:

 

7



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Basic Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

19,470,674

 

19,202,416

 

19,393,072

 

19,066,734

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

 

 

 

 

 

 

 

 

 

Diluted Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(11,008

)

$

(931

)

$

(78,712

)

$

(64,895

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

19,470,674

 

19,202,416

 

19,393,072

 

19,066,734

 

Common shares issuable - stock options

 

 

 

 

 

Weighted average common shares outstanding assuming dilution

 

19,470,674

 

19,202,416

 

19,393,072

 

19,066,734

 

 

 

 

 

 

 

 

 

 

 

Diluted loss per common share

 

$

(0.57

)

$

(0.05

)

$

(4.06

)

$

(3.40

)

 

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 715,140 and 857,754 for the third quarter in each of 2014 and 2013, respectively, and 710,101 and 939,333 for the 39 weeks ended November 1, 2014 and November 2, 2013, respectively, were not considered in the calculation of net loss available to common shareholders used for both basic and diluted EPS.

 

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

 

3.                                      FAIR VALUE MEASUREMENTS

 

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value and establishes a framework for measuring fair value.  ASC 820 establishes fair value hierarchy levels that prioritize the inputs used in valuations determining fair value.  Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.  Level 2 inputs are primarily

 

8



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions.

 

The carrying values of the Company’s cash and cash equivalents, accounts payable and financial instruments reported within prepaid expenses and other current assets and other long-term assets approximate fair value.

 

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

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying
Value

 

Estimated
Fair Value

 

Quoted
Prices in
Active Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Second lien senior secured notes

 

$

407,292

 

$

360,792

 

$

360,792

 

$

 

$

 

Mortgage facilities

 

213,292

 

215,552

 

 

 

215,552

 

Senior secured credit facility

 

358,310

 

358,310

 

 

 

358,310

 

Total

 

$

978,894

 

$

934,654

 

$

360,792

 

$

 

$

573,862

 

 

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

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying
Value

 

Estimated
Fair Value

 

Quoted
Prices in
Active Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Second lien senior secured notes

 

$

407,292

 

$

394,267

 

$

394,267

 

$

 

$

 

Mortgage facilities

 

221,270

 

224,628

 

 

 

224,628

 

Senior secured credit facility

 

310,461

 

310,461

 

 

 

310,461

 

Total

 

$

939,023

 

$

929,356

 

$

394,267

 

$

 

$

535,089

 

 

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

 

9



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying
Value

 

Estimated
Fair Value

 

Quoted
Prices in
Active Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Second lien senior secured notes

 

$

407,292

 

$

398,972

 

$

398,972

 

$

 

$

 

Mortgage facilities

 

219,564

 

222,168

 

 

 

222,168

 

Senior secured credit facility

 

184,879

 

184,879

 

 

 

184,879

 

Total

 

$

811,735

 

$

806,019

 

$

398,972

 

$

 

$

407,047

 

 

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

 

4.                                      SUPPLEMENTAL BALANCE SHEET INFORMATION

 

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

 

 

 

November 1,

 

November 2,

 

February 1,

 

 

 

2014

 

2013

 

2014

 

Other receivables

 

$

35,264

 

$

45,461

 

$

39,569

 

Prepaid expenses

 

43,795

 

45,659

 

36,716

 

Total

 

$

79,059

 

$

91,120

 

$

76,285

 

 

5.                                      SUPPLEMENTAL CASH FLOW INFORMATION

 

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

 

 

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest, net of amounts capitalized

 

$

38,439

 

$

55,457

 

Income taxes, net of refunds received

 

(3

)

691

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Property, fixtures and equipment included in accrued expenses

 

$

6,140

 

$

7,082

 

Declared dividends to shareholders included in accrued expenses

 

989

 

985

 

 

10



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

6.                                      EXIT OR DISPOSAL ACTIVITIES

 

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

 

 

 

Termination
Benefits

 

Other
Costs

 

Total

 

Accrued balance as of February 1, 2014

 

$

232

 

$

188

 

$

420

 

Provisions:

 

 

 

 

 

 

 

Thirteen weeks ended May 3, 2014

 

319

 

125

 

444

 

Thirteen weeks ended August 2, 2014

 

1,148

 

18

 

1,166

 

Thirteen weeks ended November 1, 2014

 

245

 

 

245

 

Payments:

 

 

 

 

 

 

 

Thirteen weeks ended May 3, 2014

 

(217

)

(313

)

(530

)

Thirteen weeks ended August 2, 2014

 

(377

)

(18

)

(395

)

Thirteen weeks ended November 1, 2014

 

(417

)

 

(417

)

Accrued balance as of November 1, 2014

 

$

933

 

$

 

$

933

 

 

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

 

7.                                      EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS

 

The Company provides benefits to certain current and former associates who are eligible under a qualified defined benefit pension plan and various non-qualified supplemental pension plans (collectively, the “Pension Plans”).  Net periodic benefit expense for the Pension Plans includes the following (income) and expense components:

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

2014

 

2013

 

Interest cost

 

$

1,998

 

$

1,997

 

$

5,993

 

$

5,994

 

Expected return on plan assets

 

(2,490

)

(2,235

)

(7,470

)

(6,706

)

Recognition of net actuarial loss

 

943

 

1,642

 

2,831

 

4,925

 

Net periodic benefit expense

 

$

451

 

$

1,404

 

$

1,354

 

$

4,213

 

 

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

 

The Company also provides medical and life insurance benefits to certain former associates under a postretirement benefit plan (“Postretirement Benefit Plan”).  Net periodic benefit income for the Postretirement Benefit Plan includes the following (income) and expense components:

 

11



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

 

 

THIRTEEN

 

THIRTY-NINE

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

November 1,

 

November 2,

 

November 1,

 

November 2,

 

 

 

2014

 

2013

 

2014

 

2013

 

Interest cost

 

$

23

 

$

30

 

$

67

 

$

91

 

Recognition of net actuarial gain

 

(129

)

(91

)

(389

)

(272

)

Net periodic benefit income

 

$

(106

)

$

(61

)

$

(322

)

$

(181

)

 

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

 

8.                                      INCOME TAXES

 

The provisions codified within ASC Topic 740, Income Taxes (“ASC 740”), require companies to assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence using a “more likely than not” standard.  In accordance with ASC 740, the Company maintained a full valuation allowance throughout fiscal 2013 and the 39 weeks ended November 1, 2014 on all of the Company’s net deferred tax assets.  The Company’s deferred tax asset valuation allowance totaled $176,495, $178,106 and $144,908 as of November 1, 2014, November 2, 2013 and February 1, 2014, respectively.

 

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

 

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

 

9.                                      CONTINGENCIES

 

The Company is party to legal proceedings and claims that arise during the ordinary course of business.  In the opinion of management, the ultimate outcome of any such litigation and claims will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

 

10.       COMPREHENSIVE LOSS

 

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

 

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

 

12



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

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

 

11.     GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

 

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

 

The condensed consolidating financial information for the Parent, the Issuer and the guarantor and non-guarantor subsidiaries as of November 1, 2014, November 2, 2013 and February 1, 2014 and for the third quarter in each of 2014 and 2013 and the 39 weeks ended November 1, 2014 and November 2, 2013 as presented below has been prepared from the books and records maintained by the Parent, the Issuer and the guarantor and non-guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor and non-guarantor subsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time.

 

13



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

November 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

2,879

 

$

4,636

 

$

 

$

 

$

7,516

 

Merchandise inventories

 

 

628,017

 

342,632

 

 

 

970,649

 

Prepaid expenses and other current assets

 

 

69,415

 

6,311

 

3,839

 

(506

)

79,059

 

Total current assets

 

1

 

700,311

 

353,579

 

3,839

 

(506

)

1,057,224

 

Property, fixtures and equipment at cost, net

 

 

259,079

 

148,437

 

229,701

 

 

637,217

 

Deferred income taxes

 

 

3,392

 

17,094

 

 

 

20,486

 

Intangible assets, net

 

 

25,365

 

66,526

 

 

 

91,891

 

Investment in and advances to affiliates

 

48,702

 

421,602

 

299,047

 

 

(769,351

)

 

Other long-term assets

 

 

22,273

 

403

 

486

 

 

23,162

 

Total assets

 

$

48,703

 

$

1,432,022

 

$

885,086

 

$

234,026

 

$

(769,857

)

$

1,829,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

376,070

 

$

 

$

 

$

 

$

376,070

 

Accrued payroll and benefits

 

 

19,622

 

4,626

 

 

 

24,248

 

Accrued expenses

 

 

87,858

 

70,074

 

36

 

(506

)

157,462

 

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

 

 

451

 

3,436

 

7,287

 

 

11,174

 

Deferred income taxes

 

 

8,382

 

20,402

 

 

 

28,784

 

Total current liabilities

 

 

492,383

 

98,538

 

7,323

 

(506

)

597,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

770,946

 

40,690

 

206,006

 

 

1,017,642

 

Other long-term liabilities

 

 

120,767

 

43,327

 

1,803

 

 

165,897

 

Total liabilities

 

 

1,384,096

 

182,555

 

215,132

 

(506

)

1,781,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

48,703

 

47,926

 

702,531

 

18,894

 

(769,351

)

48,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

48,703

 

$

1,432,022

 

$

885,086

 

$

234,026

 

$

(769,857

)

$

1,829,980

 

 

14



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

November 2, 2013

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,038

 

$

5,043

 

$

 

$

 

$

8,082

 

Merchandise inventories

 

 

590,837

 

323,766

 

 

 

914,603

 

Prepaid expenses and other current assets

 

 

83,315

 

4,439

 

3,944

 

(578

)

91,120

 

Total current assets

 

1

 

677,190

 

333,248

 

3,944

 

(578

)

1,013,805

 

Property, fixtures and equipment at cost, net

 

 

234,300

 

172,501

 

243,165

 

 

649,966

 

Deferred income taxes

 

 

6,114

 

10,545

 

 

 

16,659

 

Intangible assets, net

 

 

34,102

 

70,830

 

 

 

104,932

 

Investment in and advances to (from) affiliates

 

48,873

 

429,589

 

272,151

 

(52

)

(750,561

)

 

Other long-term assets

 

 

21,711

 

504

 

924

 

 

23,139

 

Total assets

 

$

48,874

 

$

1,403,006

 

$

859,779

 

$

247,981

 

$

(751,139

)

$

1,808,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

351,281

 

$

 

$

 

$

 

$

351,281

 

Accrued payroll and benefits

 

 

21,115

 

4,254

 

 

 

25,369

 

Accrued expenses

 

 

92,851

 

68,875

 

76

 

(578

)

161,224

 

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

 

 

669

 

3,209

 

7,247

 

 

11,125

 

Deferred income taxes

 

 

10,290

 

12,932

 

 

 

23,222

 

Income taxes payable

 

 

4

 

 

 

 

4

 

Total current liabilities

 

 

476,210

 

89,270

 

7,323

 

(578

)

572,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

723,512

 

43,850

 

214,023

 

 

981,385

 

Other long-term liabilities

 

 

154,633

 

49,707

 

1,677

 

 

206,017

 

Total liabilities

 

 

1,354,355

 

182,827

 

223,023

 

(578

)

1,759,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

48,874

 

48,651

 

676,952

 

24,958

 

(750,561

)

48,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

48,874

 

$

1,403,006

 

$

859,779

 

$

247,981

 

$

(751,139

)

$

1,808,501

 

 

15



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

February 1, 2014

 

 

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

2,889

 

$

4,168

 

$

 

$

 

$

7,058

 

Merchandise inventories

 

 

454,718

 

255,015

 

 

 

709,733

 

Prepaid expenses and other current assets

 

 

67,670

 

4,437

 

4,726

 

(548

)

76,285

 

Total current assets

 

1

 

525,277

 

263,620

 

4,726

 

(548

)

793,076

 

Property, fixtures and equipment at cost, net

 

 

232,869

 

166,720

 

240,415

 

 

640,004

 

Deferred income taxes

 

 

4,076

 

11,689

 

 

 

15,765

 

Intangible assets, net

 

 

33,260

 

69,540

 

 

 

102,800

 

Investment in and advances to (from) affiliates

 

127,955

 

344,188

 

387,556

 

(90

)

(859,609

)

 

Other long-term assets

 

 

24,169

 

533

 

882

 

 

25,584

 

Total assets

 

$

127,956

 

$

1,163,839

 

$

899,658

 

$

245,933

 

$

(860,157

)

$

1,577,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

200,465

 

$

 

$

 

$

 

$

200,465

 

Accrued payroll and benefits

 

 

22,567

 

5,776

 

 

 

28,343

 

Accrued expenses

 

 

74,115

 

76,981

 

47

 

(548

)

150,595

 

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

 

 

548

 

3,249

 

7,363

 

 

11,160

 

Deferred income taxes

 

 

8,451

 

14,293

 

 

 

22,744

 

Total current liabilities

 

 

306,146

 

100,299

 

7,410

 

(548

)

413,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

597,857

 

43,291

 

212,201

 

 

853,349

 

Other long-term liabilities

 

 

132,690

 

48,220

 

1,707

 

 

182,617

 

Total liabilities

 

 

1,036,693

 

191,810

 

221,318

 

(548

)

1,449,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

127,956

 

127,146

 

707,848

 

24,615

 

(859,609

)

127,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

127,956

 

$

1,163,839

 

$