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 July 29, 2017

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

Accelerated filer o

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

Smaller reporting company x

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 August 24, 2017, there were 18,570,320 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)

 

 

 

 

 

July 29,

 

July 30,

 

January 28,

 

(In thousands, except share and per share data)

 

2017

 

2016

 

2017

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,335

 

$

7,047

 

$

6,736

 

Merchandise inventories

 

658,218

 

693,810

 

724,454

 

Prepaid expenses and other current assets

 

82,801

 

74,897

 

98,558

 

Total current assets

 

747,354

 

775,754

 

829,748

 

Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $1,049,212, $998,415 and $1,024,435 at July 29, 2017, July 30, 2016 and January 28, 2017, respectively

 

547,279

 

613,763

 

584,803

 

Intangible assets, net of accumulated amortization of $68,371, $65,090 and $65,646 at July 29, 2017, July 30, 2016 and January 28, 2017, respectively

 

70,386

 

79,176

 

73,111

 

Other long-term assets

 

21,729

 

16,053

 

17,401

 

Total assets

 

$

1,386,748

 

$

1,484,746

 

$

1,505,063

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

177,689

 

$

214,957

 

$

185,900

 

Accrued payroll and benefits

 

26,288

 

25,999

 

25,821

 

Accrued expenses

 

136,610

 

143,738

 

150,441

 

Current maturities of long-term debt

 

 

57,183

 

 

Current maturities of capital lease and financing obligations

 

6,986

 

5,666

 

6,685

 

Total current liabilities

 

347,573

 

447,543

 

368,847

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

849,332

 

762,326

 

848,777

 

Capital lease and financing obligations, less current maturities

 

130,471

 

123,796

 

133,857

 

Other long-term liabilities

 

170,307

 

189,589

 

176,363

 

Total liabilities

 

1,497,683

 

1,523,254

 

1,527,844

 

 

 

 

 

 

 

 

 

Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ deficit

 

 

 

 

 

 

 

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 18,908,120, 18,944,025 and 18,972,718 at July 29, 2017, July 30, 2016 and January 28, 2017, respectively

 

189

 

189

 

190

 

Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at July 29, 2017, July 30, 2016 and January 28, 2017, respectively

 

30

 

30

 

30

 

Treasury stock, at cost — 337,800 shares at July 29, 2017,

 

 

 

 

 

 

 

July 30, 2016 and January 28, 2017

 

(1,387

)

(1,387

)

(1,387

)

Additional paid-in capital

 

168,285

 

165,820

 

166,932

 

Accumulated other comprehensive loss

 

(71,391

)

(74,388

)

(72,909

)

Accumulated deficit

 

(206,661

)

(128,772

)

(115,637

)

Total shareholders’ deficit

 

(110,935

)

(38,508

)

(22,781

)

Total liabilities and shareholders’ deficit

 

$

1,386,748

 

$

1,484,746

 

$

1,505,063

 

 

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

 

2



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

THIRTEEN

 

TWENTY-SIX

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

(In thousands, except per share data)

 

July 29,

 

July 30,

 

July 29,

 

July 30,

 

(Unaudited)

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

504,424

 

$

542,360

 

$

1,040,565

 

$

1,133,367

 

Other income

 

21,037

 

16,252

 

37,917

 

33,668

 

 

 

525,461

 

558,612

 

1,078,482

 

1,167,035

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

325,195

 

344,273

 

688,756

 

735,186

 

Selling, general and administrative

 

191,191

 

211,872

 

396,276

 

428,057

 

Depreciation and amortization

 

23,135

 

24,999

 

45,342

 

48,193

 

Amortization of lease-related interests

 

955

 

1,008

 

1,909

 

2,015

 

Impairment charges

 

147

 

178

 

147

 

178

 

Loss from operations

 

(15,162

)

(23,718

)

(53,948

)

(46,594

)

Interest expense, net

 

18,029

 

15,162

 

36,047

 

30,248

 

Loss on extinguishment of debt

 

 

 

559

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(33,191

)

(38,880

)

(90,554

)

(76,842

)

Income tax provision (benefit)

 

18

 

(144

)

(30

)

(288

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,209

)

$

(38,736

)

$

(90,524

)

$

(76,554

)

 

 

 

 

 

 

 

 

 

 

Per share amounts —

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1.64

)

$

(1.95

)

$

(4.49

)

$

(3.86

)

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1.64

)

$

(1.95

)

$

(4.49

)

$

(3.86

)

 

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

 

3



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

 

 

 

THIRTEEN

 

TWENTY-SIX

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

(In thousands)

 

July 29,

 

July 30,

 

July 29,

 

July 30,

 

(Unaudited)

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,209

)

$

(38,736

)

$

(90,524

)

$

(76,554

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

755

 

867

 

1,518

 

1,734

 

Comprehensive loss

 

$

(32,454

)

$

(37,869

)

$

(89,006

)

$

(74,820

)

 

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

 

4



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

TWENTY-SIX

 

 

 

WEEKS ENDED

 

(In thousands)

 

July 29,

 

July 30,

 

(Unaudited)

 

2017

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(90,524

)

$

(76,554

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

45,342

 

48,193

 

Amortization of lease-related interests

 

1,909

 

2,015

 

Impairment charges

 

147

 

178

 

Share-based compensation expense

 

896

 

1,516

 

(Gain) loss on sale of property, fixtures and equipment

 

(5,538

)

22

 

Reclassifications of accumulated other comprehensive loss

 

2,567

 

2,927

 

Loss on extinguishment of debt

 

559

 

 

Amortization of deferred financing costs and debt discount

 

2,892

 

1,704

 

Deferred income tax benefit

 

(30

)

(288

)

Changes in operating assets and liabilities:

 

 

 

 

 

Decrease in merchandise inventories

 

66,236

 

17,888

 

Decrease in prepaid expenses and other current assets

 

15,757

 

22,358

 

Decrease in other long-term assets

 

49

 

632

 

(Decrease) increase in accounts payable

 

(6,698

)

49,514

 

Decrease in accrued payroll and benefits and accrued expenses

 

(11,966

)

(6,495

)

Decrease in other long-term liabilities

 

(10,254

)

(41

)

Net cash provided by operating activities

 

11,344

 

63,569

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(21,184

)

(25,749

)

Proceeds from sale of property, fixtures and equipment

 

21,422

 

7

 

Net cash provided by (used in) investing activities

 

238

 

(25,742

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Payments on long-term debt and capital lease and financing obligations

 

(279,382

)

(303,258

)

Proceeds from issuance of long-term debt and financing obligations

 

275,866

 

263,669

 

Restricted shares forfeited in lieu of payroll taxes

 

(44

)

(120

)

Deferred financing costs paid

 

(6,842

)

(495

)

(Decrease) increase in book overdraft balances

 

(1,581

)

2,545

 

Net cash used in financing activities

 

(11,983

)

(37,659

)

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(401

)

168

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

6,736

 

6,879

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

6,335

 

$

7,047

 

 

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

 

 

 

 

 

 

 

 

 

Class A

 

 

 

Additional

 

Other

 

 

 

 

 

(In thousands)

 

Common

 

Common

 

Treasury

 

Paid-in

 

Comprehensive

 

Accumulated

 

 

 

(Unaudited)

 

Stock

 

Stock

 

Stock

 

Capital

 

Loss

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JANUARY 30, 2016

 

$

185

 

$

30

 

$

(1,387

)

$

164,428

 

$

(76,122

)

$

(52,218

)

$

34,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

(76,554

)

(76,554

)

Other comprehensive income

 

 

 

 

 

1,734

 

 

1,734

 

Restricted shares forfeited in lieu of payroll taxes

 

(1

)

 

 

(119

)

 

 

(120

)

Share-based compensation expense

 

5

 

 

 

1,511

 

 

 

1,516

 

BALANCE AT JULY 30, 2016

 

$

189

 

$

30

 

$

(1,387

)

$

165,820

 

$

(74,388

)

$

(128,772

)

$

(38,508

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT JANUARY 28, 2017

 

$

190

 

$

30

 

$

(1,387

)

$

166,932

 

$

(72,909

)

$

(115,637

)

$

(22,781

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative adjustment to adopt ASU 2016-09 (Note 1)

 

 

 

 

500

 

 

(500

)

 

Net loss

 

 

 

 

 

 

(90,524

)

(90,524

)

Other comprehensive income

 

 

 

 

 

1,518

 

 

1,518

 

Restricted shares forfeited in lieu of payroll taxes

 

(1

)

 

 

(43

)

 

 

(44

)

Share-based compensation expense

 

 

 

 

896

 

 

 

896

 

BALANCE AT JULY 29, 2017

 

$

189

 

$

30

 

$

(1,387

)

$

168,285

 

$

(71,391

)

$

(206,661

)

$

(110,935

)

 

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 July 29, 2017, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 261 stores, including nine furniture galleries and four clearance centers, in 25 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 28, 2017.

 

For purposes of the following discussion, references to the “second quarter of 2017” and the “second quarter of 2016” are to the 13 weeks ended July 29, 2017 and July 30, 2016, respectively.  References to “fiscal 2017” are to the 53 weeks ending February 3, 2018; references to “fiscal 2016” are to the 52 weeks ended January 28, 2017.

 

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.

 

Recently Adopted Accounting Standards

 

Effective January 29, 2017, the Company adopted Accounting Standards Update (“ASU”) No. 2016-09, Stock Compensation.  The new standard is intended to simplify several aspects of the accounting for share-based payment award transactions.  In connection with the adoption of this standard, the Company made a policy election to record the expense associated with forfeitures under its share-based payment plans when they occur (rather than estimating forfeitures and recording over the vesting term of the award).  The Company made this election to reduce the complexity of accounting for its awards.  The Company used a modified retrospective approach to recording this change and recorded a $500 increase to both additional paid-in capital and accumulated deficit at the time of the adoption to eliminate the forfeiture estimates previously recorded for awards outstanding as of January 29, 2017.

 

7



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

2.                                      PER-SHARE AMOUNTS

 

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

 

 

 

THIRTEEN

 

TWENTY-SIX

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

July 29,

 

July 30,

 

July 29,

 

July 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

Basic Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,209

)

$

(38,736

)

$

(90,524

)

$

(76,554

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(33,209

)

$

(38,736

)

$

(90,524

)

$

(76,554

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

20,271,746

 

19,909,198

 

20,155,397

 

19,834,823

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$

(1.64

)

$

(1.95

)

$

(4.49

)

$

(3.86

)

 

 

 

 

 

 

 

 

 

 

Diluted Loss Per Common Share

 

 

 

 

 

 

 

 

 

Net loss

 

$

(33,209

)

$

(38,736

)

$

(90,524

)

$

(76,554

)

Less: Income allocated to participating securities

 

 

 

 

 

Net loss available to common shareholders

 

$

(33,209

)

$

(38,736

)

(90,524

)

(76,554

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

20,271,746

 

19,909,198

 

20,155,397

 

19,834,823

 

Common shares issuable - stock options

 

 

 

 

 

Weighted average common shares outstanding assuming dilution

 

20,271,746

 

19,909,198

 

20,155,397

 

19,834,823

 

 

 

 

 

 

 

 

 

 

 

Diluted loss per common share

 

$

(1.64

)

$

(1.95

)

$

(4.49

)

$

(3.86

)

 

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 1,138,433 and 1,382,142 for the second quarter in each of 2017 and 2016, respectively, and 1,244,027 and 1,301,295 for the 26 weeks ended July 29, 2017 and July 30, 2016, respectively, were not considered in the calculation of net loss available to common shareholders used for both basic and diluted EPS.

 

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 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.

 

8



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The carrying value and estimated fair value of the Company’s long-term debt, excluding capital lease and financing obligations and unamortized second lien senior secured notes deferred financing costs and discount on senior secured credit facility — Tranche A-1, as of July 29, 2017 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

 

$

350,000

 

$

140,000

 

$

140,000

 

$

 

$

 

Senior secured credit facility

 

506,258

 

506,258

 

 

 

506,258

 

Total

 

$

856,258

 

$

646,258

 

$

140,000

 

$

 

$

506,258

 

 

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital lease and financing obligations and unamortized second lien senior secured notes deferred financing costs, as of July 30, 2016 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

 

$

207,250

 

$

207,250

 

$

 

$

 

Senior secured credit facility

 

418,301

 

418,301

 

 

 

418,301

 

Total

 

$

825,593

 

$

625,551

 

$

207,250

 

$

 

$

418,301

 

 

The carrying value and estimated fair value of the Company’s long-term debt, excluding capital lease and financing obligations and unamortized second lien senior secured notes deferred financing costs and discount on senior secured credit facility — Tranche A-1, as of January 28, 2017 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

 

$

350,000

 

$

177,331

 

$

177,331

 

$

 

$

 

Senior secured credit facility

 

506,689

 

506,689

 

 

 

506,689

 

Total

 

$

856,689

 

$

684,020

 

$

177,331

 

$

 

$

506,689

 

 

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:

 

9



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

 

 

July 29,

 

July 30,

 

January 28,

 

 

 

2017

 

2016

 

2017

 

Other receivables

 

$

43,872

 

$

36,475

 

$

68,270

 

Prepaid expenses

 

38,929

 

38,422

 

30,288

 

Total

 

$

82,801

 

$

74,897

 

$

98,558

 

 

5.                                      SUPPLEMENTAL CASH FLOW INFORMATION

 

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

 

 

 

TWENTY-SIX

 

 

 

WEEKS ENDED

 

 

 

July 29,

 

July 30,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest, net of amounts capitalized

 

$

32,913

 

$

28,363

 

Income taxes, net of refunds received

 

 

(2

)

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Property, fixtures and equipment included in accrued expenses

 

$

3,420

 

$

5,838

 

 

6.                                      EXIT OR DISPOSAL ACTIVITIES

 

The following table summarizes exit or disposal activities during the 26 weeks ended July 29, 2017 related to store closings in fiscal 2017 and 2016 and the Company’s expense efficiency initiative:

 

 

 

Termination
Benefits

 

Other
Costs

 

Total

 

Accrued balance as of January 28, 2017

 

$

952

 

$

 

$

952

 

Provisions

 

 

 

 

 

 

 

Thirteen weeks ended April 29, 2017

 

132

 

239

 

371

 

Thirteen weeks ended July 29, 2017

 

421

 

34

 

455

 

Payments

 

 

 

 

 

 

 

Thirteen weeks ended April 29, 2017

 

(666

)

(239

)

(905

)

Thirteen weeks ended July 29, 2017

 

(313

)

(34

)

(347

)

Accrued balance as of July 29, 2017

 

$

526

 

$

 

$

526

 

 

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

 

During the second quarter of 2017, the Company recorded $7,810 of gains related to various real estate transactions which were included in 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

 

10



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

“Pension Plans”).  Net periodic benefit expense for the Pension Plans includes the following (income) and expense components:

 

 

 

THIRTEEN

 

TWENTY-SIX

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

July 29,

 

July 30,

 

July 29,

 

July 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Interest cost

 

$

1,666

 

$

1,784

 

$

3,332

 

$

3,569

 

Expected return on plan assets

 

(1,933

)

(2,100

)

(3,867

)

(4,200

)

Recognition of net actuarial loss

 

1,407

 

1,572

 

2,814

 

3,143

 

Net periodic benefit expense

 

$

1,140

 

$

1,256

 

$

2,279

 

$

2,512

 

 

During the 26 weeks ended July 29, 2017, contributions of $282 were made to the Pension Plans.  The Company anticipates contributing an additional $273 to fund the Pension Plans in fiscal 2017 for an annual total of $555.

 

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:

 

 

 

THIRTEEN

 

TWENTY-SIX

 

 

 

WEEKS ENDED

 

WEEKS ENDED

 

 

 

July 29,

 

July 30,

 

July 29,

 

July 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Interest cost

 

$

13

 

$

16

 

$

26

 

$

31

 

Recognition of net actuarial gain

 

(124

)

(109

)

(247

)

(216

)

Net periodic benefit income

 

$

(111

)

$

(93

)

$

(221

)

$

(185

)

 

During the 26 weeks ended July 29, 2017, the Company contributed $63 to fund the Postretirement Benefit Plan, and anticipates contributing an additional $204 to fund the Postretirement Benefit Plan in fiscal 2017 for an annual total of $267.

 

8.                                      LONG-TERM DEBT

 

On April 28, 2017, The Bon-Ton Department Stores, Inc. and certain subsidiaries as borrowers and certain other subsidiaries as guarantors entered into a Fifth Amendment (the “Fifth Amendment”) to the Second Amended and Restated Loan and Security Agreement (the “Second Amended Revolving Credit Facility”) with Bank of America, N.A., as Agent, and certain financial institutions as lenders. The Fifth Amendment extends the maturity date of the $730,000 Tranche A of the Second Amended Revolving Credit Facility (“Tranche A”).  Tranche A is now due to mature on April 28, 2022 provided that Tranche A-1 of the Second Amended Revolving Credit Facility (“Tranche A-1”) is repaid prior to March 15, 2021 or the maturity of Tranche A-1 is extended to at least April 28, 2022.  If Tranche A-1 is not so repaid or so extended, or is extended to a date earlier than April 28, 2022, Tranche A will mature on the same date as Tranche A-1.  In any event, Tranche A remains subject to a “springing” maturity date that is sixty days prior to the earliest of the maturity date of (1) any senior note debt (which is currently comprised of the 8.00% Second Lien Senior Secured Notes due June 15, 2021) and (2) if incurred, certain permitted debt secured by junior liens.

 

11



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Fifth Amendment did not change the total lender commitment under the facility, which remains at $880,000 (for both Tranche A and Tranche A-1). Pricing and other terms of the Second Amended Revolving Credit Facility remain essentially unchanged.

 

In connection with the Fifth Amendment, the Company incurred a loss on extinguishment of debt of $559 due to the write-off of certain deferred fees.

 

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 2016 and the 26 weeks ended July 29, 2017 on all of the Company’s net deferred tax assets.  The Company’s deferred tax asset valuation allowance totaled $242,759, $218,177 and $206,089 as of July 29, 2017, July 30, 2016 and January 28, 2017, respectively.

 

The Company recorded net income tax expense of $18 and net income tax benefit of $30 for the 13 and 26 weeks ended July 29, 2017, respectively, which includes $528 and $1,049 non-cash income tax benefits from continuing operations during the 13 and 26 weeks ended July 29, 2017, respectively.  The Company recorded net income tax benefits of $144 and $288 for the 13 and 26 weeks ended July 30, 2016, respectively, which includes $596 and $1,193 non-cash income tax benefits from continuing operations during the 13 and 26 weeks ended July 30, 2016, 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 26 weeks ended July 29, 2017 and July 30, 2016, which are exactly offset by income tax expense on other comprehensive income. The net income tax expense and benefit includes $546 and $1,019 recorded in the 13 and 26 weeks ended July 29, 2017, respectively, and $452 and $905 recorded in the 13 and 26 weeks ended July 30, 2016, respectively, for recognition of deferred tax liabilities associated with indefinite-lived assets.

 

10.                               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.

 

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 $528 and $596 for the second quarter in each of 2017 and 2016, respectively, and $1,049 and $1,193 for the 26 weeks ended on each of July 29, 2017 and July 30, 2016, 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



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

12.                               CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

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 Second Amended Revolving 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 subsidiaries as of July 29, 2017, July 30, 2016 and January 28, 2017 and for the second quarter in each of 2017 and 2016 and the 26 weeks ended July 29, 2017 and July 30, 2016 as presented below has been prepared from the books and records maintained by the Parent, the Issuer and the guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the 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

July 29, 2017

 

 

 

 

 

 

 

Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,351

 

$

2,983

 

$

 

$

6,335

 

Merchandise inventories

 

 

428,205

 

230,013

 

 

658,218

 

Prepaid expenses and other current assets

 

 

78,602

 

4,379

 

(180

)

82,801

 

Total current assets

 

1

 

510,158

 

237,375

 

(180

)

747,354

 

Property, fixtures and equipment at cost, net

 

 

261,890

 

285,389

 

 

547,279

 

Intangible assets, net

 

 

16,445

 

53,941

 

 

70,386

 

Investment in and advances to affiliates

 

(110,936

)

387,475

 

468,174

 

(744,713

)

 

Other long-term assets

 

 

23,896

 

875

 

(3,042

)

21,729

 

Total assets

 

$

(110,935

)

$

1,199,864

 

$

1,045,754

 

$

(747,935

)

$

1,386,748

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ (Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

177,689

 

$

 

$

 

$

177,689

 

Accrued payroll and benefits

 

 

21,717

 

4,571

 

 

26,288

 

Accrued expenses

 

 

73,806

 

62,984

 

(180

)

136,610

 

Current maturities of capital lease and financing obligations

 

 

2,104

 

4,882

 

 

6,986

 

Total current liabilities

 

 

275,316

 

72,437

 

(180

)

347,573

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease and financing obligations, less current maturities

 

 

920,266

 

59,537

 

 

979,803

 

Other long-term liabilities

 

 

122,576

 

50,773

 

(3,042

)

170,307

 

Total liabilities

 

 

1,318,158

 

182,747

 

(3,222

)

1,497,683

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ (deficit) equity

 

(110,935

)

(118,294

)

863,007

 

(744,713

)

(110,935

)

Total liabilities and shareholders’ (deficit) equity

 

$

(110,935

)

$

1,199,864

 

$

1,045,754

 

$

(747,935

)

$

1,386,748

 

 

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

July 30, 2016

 

 

 

 

 

 

 

Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,020

 

$

4,026

 

$

 

$

7,047

 

Merchandise inventories

 

 

461,278

 

232,532

 

 

693,810

 

Prepaid expenses and other current assets

 

 

70,812

 

4,265

 

(180

)

74,897

 

Total current assets

 

1

 

535,110

 

240,823

 

(180

)

775,754

 

Property, fixtures and equipment at cost, net

 

 

300,997

 

312,766

 

 

613,763

 

Intangible assets, net

 

 

19,640

 

59,536

 

 

79,176

 

Investment in and advances to affiliates

 

(38,509

)

417,681

 

400,054

 

(779,226

)

 

Other long-term assets

 

 

18,250

 

1,024

 

(3,221

)

16,053

 

Total assets

 

$

(38,508

)

$

1,291,678

 

$

1,014,203

 

$

(782,627

)

$

1,484,746

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ (Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

214,957

 

$

 

$

 

$

214,957

 

Accrued payroll and benefits

 

 

20,687

 

5,312

 

 

25,999

 

Accrued expenses

 

 

71,344

 

72,574

 

(180

)

143,738

 

Current maturities of long-term debt and capital lease and financing obligations

 

 

58,684

 

4,165

 

 

62,849

 

Total current liabilities

 

 

365,672

 

82,051

 

(180

)

447,543

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease and financing obligations, less current maturities

 

 

834,954

 

51,168

 

 

886,122

 

Other long-term liabilities

 

 

134,951

 

57,859

 

(3,221

)

189,589

 

Total liabilities

 

 

1,335,577

 

191,078

 

(3,401

)

1,523,254

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ (deficit) equity

 

(38,508

)

(43,899

)

823,125

 

(779,226

)

(38,508

)

Total liabilities and shareholders’ (deficit) equity

 

$

(38,508

)

$

1,291,678

 

$

1,014,203

 

$

(782,627

)

$

1,484,746

 

 

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

January 28, 2017

 

 

 

 

 

 

 

Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,575

 

$

3,160

 

$

 

$

6,736

 

Merchandise inventories

 

 

475,816

 

248,638

 

 

724,454

 

Prepaid expenses and other current assets

 

 

94,585

 

4,153

 

(180

)

98,558

 

Total current assets

 

1

 

573,976

 

255,951

 

(180

)

829,748

 

Property, fixtures and equipment at cost, net

 

 

277,511

 

307,292

 

 

584,803

 

Intangible assets, net

 

 

17,715

 

55,396

 

 

73,111

 

Investment in and advances to affiliates

 

(22,782

)

414,949

 

446,521

 

(838,688

)

 

Other long-term assets

 

 

19,800

 

733

 

(3,132

)

17,401

 

Total assets

 

$

(22,781

)

$

1,303,951

 

$

1,065,893

 

$

(842,000

)

$

1,505,063

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ (Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

185,900

 

$

 

$

 

$

185,900

 

Accrued payroll and benefits

 

 

21,405

 

4,416

 

 

25,821

 

Accrued expenses

 

 

70,988

 

79,633

 

(180

)

150,441

 

Current maturities of capital lease and financing obligations

 

 

1,995

 

4,690

 

 

6,685

 

Total current liabilities

 

 

280,288

 

88,739

 

(180

)

368,847

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease and financing obligations, less current maturities

 

 

920,782

 

61,852

 

 

982,634

 

Other long-term liabilities

 

 

132,165

 

47,330

 

(3,132

)

176,363

 

Total liabilities

 

 

1,333,235

 

197,921

 

(3,312

)

1,527,844

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ (deficit) equity

 

(22,781

)

(29,284

)

867,972

 

(838,688

)

(22,781

)

Total liabilities and shareholders’ (deficit) equity

 

$

(22,781

)

$

1,303,951

 

$

1,065,893

 

$

(842,000

)

$

1,505,063

 

 

16



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirteen Weeks Ended July 29, 2017

 

 

 

 

 

 

 

Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

314,012

 

$

190,412

 

$

 

$

504,424

 

Other income

 

 

10,682

 

10,355

 

 

21,037

 

 

 

 

324,694

 

200,767

 

 

525,461

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

204,830

 

120,365

 

 

325,195

 

Selling, general and administrative

 

 

115,486

 

80,606

 

(4,901

)

191,191

 

Depreciation and amortization

 

 

13,027

 

10,108

 

 

23,135

 

Amortization of lease-related interests

 

 

455

 

500

 

 

955

 

Impairment charges

 

 

147

 

 

 

147

 

Loss from operations

 

 

(9,251

)

(10,812

)

4,901

 

(15,162

)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Intercompany income

 

 

382

 

13,476

 

(13,858

)

 

Equity in (losses) earnings of subsidiaries

 

(33,191

)

1,587

 

 

31,604

 

 

Interest expense, net

 

 

(25,909

)

(1,077

)

8,957

 

(18,029

)

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(33,191

)

(33,191

)

1,587

 

31,604

 

(33,191

)

Income tax provision

 

18

 

18

 

275

 

(293

)

18

 

Net (loss) income

 

$

(33,209

)

$

(33,209

)

$

1,312

 

$

31,897

 

$

(33,209

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended July 29, 2017

 

 

 

 

 

 

 

Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(33,209

)

$

(33,209

)

$

1,312

 

$

31,897

 

$

(33,209

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefit plans

 

755

 

755

 

 

(755

)

755

 

Comprehensive (loss) income

 

$

(32,454

)

$

(32,454

)

$

1,312

 

$

31,142

 

$

(32,454

)

 

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 July 30, 2016

 

 

 

 

 

 

 

Guarantor

 

Consolidating

 

Company

 

 

 

Parent

 

Issuer

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

324,079

 

$

218,281

 

$

 

$

542,360

 

Other income

 

 

9,814

 

6,438