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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 2054
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended October 31, 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 November 30, 1998 there were 12,274,156 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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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)
OCTOBER 31, JANUARY 31,
1998 1998
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ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 9,071 $ 9,109
Trade and other accounts receivable, net of allowance for doubtful
accounts of $3,050 and $1,977 at October 31, 1998 and January 31, 1998, respectively 29,296 28,485
Merchandise inventories 246,470 177,783
Prepaid expenses and other current assets 9,241 8,835
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TOTAL CURRENT ASSETS 294,078 224,212
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PROPERTY, FIXTURES AND EQUIPMENT at cost, less accumulated
depreciation and amortization 113,109 108,568
OTHER ASSETS 19,342 19,906
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TOTAL ASSETS $ 426,529 $ 352,686
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 100,836 $ 55,478
Accrued payroll and benefits 7,702 9,457
Accrued expenses 19,543 25,649
Current portion of long-term debt 600 556
Current portion of obligations under capital leases 401 379
Deferred income taxes 1,382 1,227
Income taxes payable --- 8,388
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Total current liabilities 130,464 101,134
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LONG-TERM DEBT, less current maturities 121,074 121,121
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 1,972 2,263
DEFERRED INCOME TAXES 1,475 365
OTHER LONG-TERM LIABILITIES 3,486 3,409
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Total liabilities 258,471 228,292
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock-authorized 40,000,000 shares at $0.01 par value; issued and outstanding
shares of 12,274,156 and 8,847,333 at October 31, 1998 and January 31, 1998, respectively 123 88
Class A Common Stock-authorized 20,000,000 shares at $0.01 par value; issued
and outstanding shares of 2,989,853 at October 31, 1998 and January 31, 1998 30 30
Additional paid-in capital 109,508 62,585
Deferred compensation (4,177) (2,010)
Retained earnings 62,574 63,701
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Total shareholders' equity 168,058 124,394
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 426,529 $ 352,686
==================================================================================================================================
The accompanying notes are an integral part of these consolidated statements.
2
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
----------------------------- -----------------------------
OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
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NET SALES $ 154,748 $ 155,513 $ 443,746 $ 427,758
OTHER INCOME, NET 424 457 1,398 1,420
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155,172 155,970 445,144 429,178
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COSTS AND EXPENSES:
Costs of merchandise sold 97,047 97,212 279,942 268,300
Selling, general and administrative 52,352 51,064 150,094 144,523
Depreciation and amortization 3,566 3,500 9,746 9,862
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INCOME FROM OPERATIONS 2,207 4,194 5,362 6,493
INTEREST EXPENSE, NET 2,483 3,254 7,205 10,026
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(LOSS) INCOME BEFORE INCOME TAXES (276) 940 (1,843) (3,533)
INCOME TAX (BENEFIT) EXPENSE (109) 367 (719) (1,335)
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(LOSS) INCOME BEFORE EXTRAORDINARY ITEM (167) 573 (1,124) (2,198)
EXTRAORDINARY ITEM - loss on early extinguishment of debt,
net of income tax benefit of $251 --- --- --- (446)
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Net (loss) income $ (167) $ 573 $ (1,124) $ (2,644)
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PER SHARE AMOUNTS:
BASIC:
(Loss) income before extraordinary item $ (0.01) $ 0.05 $ (0.08) $ (0.20)
Effect of extraordinary item --- --- --- (0.04)
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Net (loss) income per share $ (0.01) $ 0.05 $ (0.08) $ (0.24)
================================================================================================================================
BASIC SHARES OUTSTANDING 14,672 11,082 13,590 11,076
DILUTED:
(Loss) income before extraordinary item $ (0.01) $ 0.05 $ (0.08) $ (0.20)
Effect of extraordinary item --- --- --- (0.04)
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Net (loss) income per share $ (0.01) $ 0.05 $ (0.08) $ (0.24)
================================================================================================================================
DILUTED SHARES OUTSTANDING 14,672 11,493 13,590 11,076
================================================================================================================================
The accompanying notes are an integral part of these consolidated statements.
3
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THIRTY-NINE
WEEKS ENDED
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OCTOBER 31, NOVEMBER 1,
1998 1997
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OPERATING ACTIVITIES:
Net loss $ (1,124) $ (2,644)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 9,746 9,862
Changes in operating assets and liabilities, net (28,048) (34,207)
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Net cash used in operating activities (19,426) (26,989)
INVESTING ACTIVITIES:
Capital expenditures, net (13,923) (7,331)
Proceeds from sale of property, fixtures and equipment 1,459 17
Proceeds from sale of accounts receivable, net (12,000) 7,300
Proceeds from sale and leaseback arrangement, net --- 10,901
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Net cash (used in) provided by investing activities (24,464) 10,887
FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (197,671) (224,375)
Proceeds from issuance of long-term debt 197,400 240,002
Proceeds from equity offering 43,417 ---
Proceeds from exercised stock options 706 193
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Net cash provided by financing activities 43,852 15,820
Net decrease in cash and cash equivalents (38) (282)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,109 6,516
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,071 $ 6,234
==============================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 7,398 $ 9,520
Income taxes paid $ 6,390 $ 2,191
The accompanying notes are an integral part of these consolidated statements.
4
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, 65 retail department stores
located in Pennsylvania, New York, Maryland, Massachusetts, New Jersey and West
Virginia.
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include accounts of
The Bon-Ton Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All
intercompany transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance
with the instructions for Form 10-Q and do not include all the information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (primarily consisting of normal recurring
accruals) considered necessary for a fair presentation for interim periods have
been included. The Company's business is seasonal in nature and the results of
operations for the interim periods are not necessarily indicative of the results
for the full fiscal year. It is suggested these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal 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 or income, 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.
Thirteen Thirty-nine
Weeks Ended Weeks Ended
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October 31, November 1, October 31, November 1,
1998 1997 1998 1997
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Shares Shares Shares Shares
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Basic Calculation 14,672,000 11,082,000 13,590,000 11,076,000
Dilutive Securities--
Restricted Shares --- 90,000 --- ---
Options --- 321,000 --- ---
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Diluted Calculation 14,672,000 11,493,000 13,590,000 11,076,000
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Antidilutive shares and options
Restricted Shares 598,000 --- 454,000 288,000
Options 1,372,000 285,000 1,225,000 1,372,000
Antidilutive shares and options consisting of restricted shares and options to
purchase shares outstanding were excluded from the computation of dilutive
securities due to the Company's net loss position for the thirteen week period
ended October 31, 1998 and the thirty-nine week periods ended October 31, 1998
and November 1, 1997. Antidilutive options to purchase shares were excluded from
the computation of dilutive securities due to exercise prices greater than the
average market price during the thirteen week period ended November 1, 1997.
5
THE BON-TON STORES, INC. AND SUBSIDIARIES
The following table reflects the approximate dilutive securities calculated
under the treasury stock method had the Company been in a net profit position
for the thirteen week period ended October 31, 1998 and the thirty-nine week
periods ended October 31, 1998 and November 1, 1997.
Thirteen Thirty-nine
Weeks Ended Weeks Ended
---------------------------------- ----------------------------------
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
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Shares Shares Shares Shares
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Approximate Dilutive Securities--
Restricted Shares 90,000 N/A 120,000 70,000
Options 220,000 N/A 300,000 230,000
Options to purchase shares with exercise prices greater than the average market
price were excluded from the above table for the thirteen weeks ended October
31, 1998 and the thirty-nine weeks ended October 31, 1998 and November 1, 1997
in the approximate amounts of 350,000, 120,000 and 450,000, respectively, as
they would have been antidilutive.
3. SALE OF PROPERTY:
On February 17, 1998, the Company sold its vacant property in Downtown
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 gain was reflected in selling, general and
administrative expense. 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.
5. SUBSEQUENT EVENT:
On November 20, 1998, the Company sold its vacant property in Downtown
Allentown, Pennsylvania. The property was acquired during the 1994 acquisition
of certain assets from Hess's Department Stores, Inc. The property was closed in
January 1996. No gain or loss was recognized on this transaction as the Company
utilized $1.0 million of the store closing reserve established for this
property. The net proceeds of $1.5 million received from the sale were used to
fund additional working capital requirements.
6
THE BON-TON STORES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table summarizes the changes in selected operating indicators of
the Company, illustrating the relationship of various income and expense items
expressed as a percentage of net sales for each period presented:
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
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OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
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Net sales 100.0% 100.0% 100.0% 100.0%
Other income, net 0.3 0.3 0.3 0.3
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100.3 100.3 100.3 100.3
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Costs and expenses:
Costs of merchandise sold 62.7 62.5 63.1 62.7
Selling, general and administrative 33.8 32.8 33.8 33.8
Depreciation and amortization 2.3 2.3 2.2 2.3
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Income from operations 1.4 2.7 1.2 1.5
Interest expense, net 1.6 2.1 1.6 2.3
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(Loss) income before income taxes (0.2) 0.6 (0.4) (0.8)
Income tax (benefit) expense (0.1) 0.2 (0.2) (0.3)
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(Loss) income before extraordinary item (0.1) 0.4 (0.3) (0.5)
Extraordinary item - loss on early extinguishment of debt, net of tax --- --- --- (0.1)
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Net (loss) income (0.1)% 0.4% (0.3)% (0.6)%
================================================================================================================================
THIRTEEN WEEKS ENDED OCTOBER 31, 1998 COMPARED TO THIRTEEN WEEKS ENDED NOVEMBER
1, 1997
For the purpose of the following discussion, all references to "third quarter of
1998" and "third quarter of 1997" are to the Company's thirteen-week period
ended October 31, 1998 and November 1, 1997, respectively.
NET SALES. Net sales were $154.7 million for the thirteen weeks ended October
31, 1998, a decrease of 0.5% to the same period last year. Comparable store
sales decreased 1.2% for the period, with men's, cosmetics and home achieving
sales increases during the quarter.
OTHER INCOME, NET. Net other income, consisting mainly of income from leased
departments, remained at 0.3% of net sales in the third quarter of 1998.
COSTS AND EXPENSES. Gross profit, in the third quarter of 1998, decreased $0.6
million compared to the third quarter of 1997 as a result of the decrease in
sales and an increase in the ratio of markdowns to sales. Gross profit as a
percentage of net sales decreased by 0.2 percentage points to 37.3% for the
thirteen weeks ended October 31, 1998 from 37.5% for the comparable period last
year.
Selling, general and administrative expenses for the third quarter of 1998
increased $1.3 million to 33.8% of net sales from 32.8% of net sales in the
third quarter of 1997. The expense increase was due primarily to pre-opening
cost associated with the new store in Westfield, Massachusetts and an increase
in bad debt expense as a result of increased personal bankruptcies, partially
offset by an increase in finance charge revenue.
Depreciation and amortization was 2.3% of net sales for the thirteen weeks ended
October 31, 1998 and November 1, 1997.
7
THE BON-TON STORES, INC. AND SUBSIDIARIES
INCOME FROM OPERATIONS. Income from operations for the third quarter of 1998 was
$2.2 million, or 1.4% of net sales, compared to income from operations of $4.2
million, or 2.7% of net sales, in the comparable period last year. The decline
for the period primarily reflects the reduced gross margin and the increased
selling, general and administrative expenses.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. The pro-forma effect, as if the Company had
on-balance sheet financing, would have reduced selling, general and
administrative expenses by $1.9 million in the third quarter of 1998 and $1.7
million in the third 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 $4.1 million in the
third quarter of 1998 and $5.9 million for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense decreased to 1.6% of net sales for
the thirteen weeks ended October 31, 1998 compared to 2.1% of net sales for the
thirteen weeks ended November 1, 1997. The decrease is primarily attributed to
the lower borrowing levels as a result of the sale of additional shares (see
Note 4).
NET (LOSS) INCOME. The net loss for the third quarter of 1998 amounted to $0.2
million compared to net income of $0.6 million in the third quarter of 1997.
Due to the seasonal nature of the Company's business, the results for the
current year third quarter are not necessarily indicative of the results that
may be achieved for the full fiscal year of 1998.
THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 COMPARED TO THIRTY-NINE WEEKS ENDED
NOVEMBER 1, 1997
For the purpose of the following discussion, all references to "1998" and "1997"
are to the Company's thirty-nine week period ended October 31, 1998 and November
1, 1997, respectively.
NET SALES. Net sales were $443.7 million for 1998, an increase of 3.7% over the
same period last year. Comparable store sales increased 2.9% for the period,
with men's, intimate and home achieving sales increases greater than Company
average.
OTHER INCOME, NET. Net other income, which consisted mainly of income from
leased departments, was 0.3% of net sales in 1998 and 1997.
COSTS AND EXPENSES. Gross profit in 1998 increased $4.3 million over 1997 due
primarily to the increased sales base, partially offset by the decrease in gross
profit as a percentage of net sales to 36.9% for the thirty-nine week period
ended October 31, 1998 from 37.3% for the comparable period last year. The
decline in the margin rate was largely attributable to a higher level of
markdowns.
Selling, general and administrative expenses for 1998 increased $5.6 million
over 1997, with the ratio to net sales at 33.8% consistent with the ratio in
1997. The increase in expenses primarily reflects an increase in payroll
expense, pre-opening expense associated with the new stores in Jamestown, New
York and Westfield, Massachusetts and an increase in bad debt expense as a
result of higher receivables. The increased expenses were partially offset by
the $1.4 million gain on the sale of property (see Note 3) and an increase in
finance charge revenue.
Depreciation and amortization decreased to 2.2% of net sales for the thirty-nine
weeks ended October 31, 1998 from 2.3% of net sales over the comparable period
last year primarily due to the increase in 1998 sales volume.
8
THE BON-TON STORES,INC. AND SUBSIDIARIES
INCOME FROM OPERATIONS. Income from operations for 1998 was $5.4 million, or
1.2% of net sales, compared to income from operations of $6.5 million, or 1.5%
of net sales, in the comparable period last year. The decline for the period
reflects increased selling, general and administrative expenses, partially
offset by increased gross margin dollars.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. Pro-forma effects, as if the Company had on-
balance sheet financing, would have reduced selling, general and administrative
expenses by $5.8 million in 1998 and $4.9 million in 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 $11.2 million in 1998
and $11.4 million for the corresponding period last year.
INTEREST EXPENSE, NET. Net interest expense decreased to 1.6% of net sales in
1998 compared to 2.3% of net sales in 1997. The decrease in 1998 reflects lower
borrowing levels incurred by the Company as compared to the same period last
year primarily as a result of the sale of additional shares (see Note 4).
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
debt.
NET LOSS. The net loss for 1998 amounted to $1.1 million compared to a net loss
of $2.6 million in 1997.
Due to the seasonal nature of the Company's business, the results for the
current period are not necessarily indicative of the results that may be
achieved for the full fiscal year of 1998.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue refers to the inability of some computer programs and
microprocessors to correctly interpret the century from a date in which the year
is represented by only two digits (e.g., 98). As a result, on January 1, 2000,
computer systems throughout the world may experience operating difficulties
unless they are modified or upgraded to properly process date related
information. The Year 2000 issue can arise at any point in a company's supply,
processing, distribution or financial chains.
Breakdowns or malfunctions in any number of the Company's computer systems or
applications could prevent the Company from being able to receive and sell its
merchandise. Examples are failures in the Company's receiving, inventory,
payment or POS applications software, computer chips embedded in equipment, lack
of supply of products from its vendors or lack of power, heat or water from
utilities servicing its facilities.
STATE OF READINESS: The Company implemented a comprehensive risk-based plan
designed to make its operations Year 2000 compliant. The Company established a
corporate project team, which reports to the Vice Chairman and Chief Operating
Officer, to oversee, monitor and coordinate the Company-wide Year 2000 effort.
The Company's plan focuses on four areas - applications and mainframe software,
service providers, miscellaneous equipment providers and merchandise vendors -
and generally covers three stages, including (i) assessment, (ii) remediation
and (iii) testing and certification. The remediation and testing and
certification stages do not apply to the merchandise vendor area. The Company is
primarily utilizing internal resources to complete its Year 2000 initiatives.
9
THE BON-TON STORES, INC. AND SUBSIDIARIES
The applications and mainframe software area includes the Company's proprietary
and third party computer systems and related hardware, software and data and
telephone networks. The Company's merchandise system, which supports procurement
and distribution, inventory control and point-of-sale reporting systems, is
primarily proprietary. With respect to the Company's credit business, the
Company utilizes a third party software support vendor and has obtained
assurances from such vendor that it expects its system to be Year 2000
compliant. A majority of the Company's information systems are presently Year
2000 compliant. Remediation and testing of remaining systems is in process, with
substantial completion anticipated by June 1999.
The service providers area includes systems and processes provided by outside
agencies, such as freight carriers, inventory and direct mail service providers.
Based on assurances from third parties, these systems present little Year 2000
exposure risks.
The miscellaneous equipment area includes equipment and systems that contain
embedded computer technology such as elevators, phone systems and security
systems. The Company's assessment of these systems is in process. It is
anticipated, based on assurances from third parties, these systems present
little Year 2000 exposure or risk.
Merchandise vendors are currently being monitored by an outside agency,
co-sponsored by a group of retailers, which is surveying the vendors for Year
2000 readiness. The survey results are monitored by the retailers via an
internet webpage. The Company is reviewing its vendors responses on the webpage
and expects to conduct follow-up assessments of certain of its critical vendors
to further monitor such vendors' progress.
COSTS: The aggregate costs for the Company to achieve Year 2000 readiness are
not expected to exceed $1.1 million. These costs will be incurred over the two
year period from 1998 through the year 1999, with the majority to be expended in
1999. All costs associated with Year 2000 readiness will be expensed as incurred
and funded from operating cash flows. The Company's costs associated with Year
2000 readiness through October 31, 1998 are approximately $235,000.
RISKS AND CONTINGENCY PLANS: Despite the Company's significant efforts to make
its systems and facilities Year 2000 compliant, the ability of third party
service providers, merchandise vendors and other third parties, including
governmental entities and utility companies, to be Year 2000 compliant, is
beyond the Company's control. Accordingly, the Company can give no assurances
that the systems of others on which the Company's systems rely will be timely
converted or compatible with the Company's systems. Additionally, there can be
no assurance that the Company's systems will be rendered Year 2000 compliant in
a timely manner. Failure of a third party or the Company to comply on a timely
basis could have a material adverse effect on the Company. At present, the
Company does not expect Year 2000 issues to materially affect its supply of
merchandise, services, competitive position or financial performance.
The Company believes it is very difficult to accurately predict the most
reasonably likely worst case Year 2000 scenario. However, a reasonably likely
worst case Year 2000 scenario would include the failure of a third party
(including, without limitation, merchandise vendors and service and utility
providers) to timely complete the remediation of its Year 2000 deficiencies for
any substantial period of time. This could have a material adverse effect upon
the Company's ability to provide and sell merchandise to its customers.
Additionally, a failure by the Company to timely remediate its Year 2000
deficiencies could impair the Company's ability to conduct its business of
providing and selling merchandise in a timely or profitable manner. The Company
is developing contingency plans, such as identifying alternative sourcing,
increasing inventory on basic stock items and identifying what actions need to
be taken if a critical system or third party provider is not Year 2000
compliant. The Company expects these plans to be finalized by April 1999.
10
THE BON-TON STORES, INC. AND SUBSIDIARIES
The foregoing statements as to costs and dates relating to the Year 2000 effort
are forward looking and are made in reliance on the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. They are based on the
Company's best estimates which may be updated as additional information becomes
available. The Company's forward looking statements are also based on
assumptions about many important factors, including the technical skills of
employees and independent contractors, the representations and preparedness of
third parties, the failure of vendors to deliver merchandise or perform services
required by the Company and the collateral effects of the Year 2000 issues on
the Company's business partners and customers. While the Company believes its
assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors that could cause actual costs or timetables to differ
materially from the expected results.
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)
October 31, November 1,
1998 1997
----------- ----------
Working Capital $163.6 $138.0
Current Ratio 2.25:1 2.07:1
Funded Debt to Total Capitalization 0.42:1 0.58:1
Available Lines of Credit $87.1 $42.2
For the thirty-nine weeks ended October 31, 1998, net cash used in operating
activities amounted to $19.4 million, as compared to net cash used in operating
activities of $27.0 million for the comparable period last year. The reduction
in net cash used in operating activities for 1998 is primarily attributable to
an improvement in the Company's earnings and a reduction in accounts receivable,
partially offset by payment of $6.4 million in income taxes. Net cash used in
operating activities during the comparable period last year was supplemented by
a $4.9 million pension asset reversion (net of federal excise tax payment).
Net cash used in investing activities amounted to $24.5 million for the
thirty-nine weeks ended October 31, 1998, compared to cash provided by investing
activities of $10.9 million for the comparable period last year. The net cash
used during the thirty-nine week period ended October 31, 1998 was primarily
attributable to increased capital expenditures for store renovations and new
stores and the reduction in the receivables sold under the accounts receivable
facility, partially offset by proceeds received from the sale of property. Net
cash provided during the thirty-nine week period ended November 1, 1997 was
primarily a result of the proceeds received from the sale and leaseback
arrangement (see Note 17 of the 1997 Annual Report) and the Company's further
utilization of the accounts receivable facility.
11
THE BON-TON STORES, INC. AND SUBSIDIARIES
Net cash provided by financing activities amounted to $43.9 million for the
thirty-nine week period ended October 31, 1998, as compared to cash provided by
financing activities of $15.8 million for the comparable period last year. The
Company received net proceeds of $43.4 million from the sale of additional
shares of Common Stock in 1998. Pending intended uses, the proceeds were used to
reduce indebtedness under the Company's revolving credit facility (see Note 4).
The cash provided in 1997 was primarily attributable to increased borrowings of
long-term debt.
The Company anticipates that its cash flow from operations, supplemented by
borrowings under its revolving credit facility and proceeds from its accounts
receivable facility, will be sufficient to satisfy its operating cash
requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
"SAFE HARBOR" STATEMENT:
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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.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed pursuant to the requirements of Item 601 of
Regulation S-K:
Exhibit No. Description
10.1 First Amendment to the Employment Agreement between the
Company and Michael L. Gleim.
10.2 Fourth Amendment to the Credit Agreement.
27 Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K during the
thirteen-week period ended October 31, 1998.
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THE BON-TON STORES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BON-TON STORES, INC.
Date: DECEMBER 14, 1998 By: /S/ MICHAEL L. GLEIM
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Michael L. Gleim
Vice Chairman and
Chief Operating Officer
Date: DECEMBER 14, 1998 By: /S/ JAMES H. BAIREUTHER
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James H. Baireuther
Senior Vice President and
Chief Financial Officer
13