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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended October 30, 1999 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 26, 1999 there were 12,278,512 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
October 30, January 30,
(In thousands except share and per share data) 1999 1999
- ---------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 11,407 $ 10,607
Trade and other accounts receivable, net of allowance for doubtful accounts
of $3,036 and $3,692 at October 30, 1999 and January 30, 1999, respectively 26,797 34,677
Merchandise inventories 260,642 192,872
Prepaid expenses and other current assets 13,652 8,292
Deferred income taxes 1,355 -
----------------------------
Total current assets 313,853 246,448
----------------------------
Property, fixtures and equipment at cost,
less accumulated depreciation and amortization 136,732 112,521
Other assets 20,123 19,150
----------------------------
Total assets $ 470,708 $ 378,119
============================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 105,375 $ 71,448
Accrued payroll and benefits 9,723 9,639
Accrued expenses 21,055 25,594
Current portion of long-term debt 664 615
Current portion of obligations under capital leases 434 409
Deferred income taxes - 26
Income taxes payable - 9,740
----------------------------
Total current liabilities 137,251 117,471
----------------------------
Long-term debt, less current maturities 152,621 74,387
Obligations under capital leases, less current maturities 1,544 1,868
Deferred income taxes 1,324 823
Other long-term liabilities 3,270 3,359
----------------------------
Total liabilities 296,010 197,908
----------------------------
Commitments and contingencies
Shareholders' equity
Common Stock - authorized 40,000,000 shares at $0.01 par value; issued and outstanding
shares of 12,278,512 and 12,278,120 at October 30, 1999 and January 30, 1999,
respectively 123 123
Class A Common Stock - authorized 20,000,000 shares at $0.01 par value; issued
and outstanding shares of 2,989,853 at October 30, 1999 and January 30, 1999 30 30
Additional paid-in-capital 108,096 108,260
Deferred compensation (2,418) (3,114)
Retained earnings 68,867 74,912
----------------------------
Total shareholders' equity 174,698 180,211
----------------------------
Total liabilities and shareholders' equity $ 470,708 $ 378,119
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The accompanying notes are an integral part of these consolidated statements.
2
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
--------------------------------------------------------------
(In thousands except per share data) October 30, October 31, October 30, October 31,
(Unaudited) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 168,474 $ 154,748 $ 460,322 $ 443,746
Other income, net 477 424 1,515 1,398
--------------------------------------------------------------
168,951 155,172 461,837 445,144
--------------------------------------------------------------
Costs and expenses:
Costs of merchandise sold 106,469 97,047 292,378 279,942
Selling, general and administrative 59,950 52,352 161,821 150,094
Depreciation and amortization 4,194 3,566 10,595 9,746
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(Loss) income from operations (1,662) 2,207 (2,957) 5,362
Interest expense, net 2,211 2,483 6,179 7,205
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Loss before income taxes (3,873) (276) (9,136) (1,843)
Income tax benefit (1,472) (109) (3,472) (719)
--------------------------------------------------------------
Loss before extraordinary item (2,401) (167) (5,664) (1,124)
Extraordinary item - loss on early extinguishment of debt,
net of income tax benefit of $232 - - (378) -
--------------------------------------------------------------
Net loss $ (2,401) $ (167) $ (6,042) $ (1,124)
==============================================================
Per shares amounts:
Basic:
Loss before extraordinary item $ (0.16) $ (0.01) $ (0.38) $ (0.08)
Effect of extraordinary item - - (0.03) -
--------------------------------------------------------------
Net loss $ (0.16) $ (0.01) $ (0.41) $ (0.08)
==============================================================
Basic shares outstanding 14,781 14,672 14,733 13,590
Diluted:
Loss before extraordinary item $ (0.16) $ (0.01) $ (0.38) $ (0.08)
Effect of extraordinary item - - (0.03) -
--------------------------------------------------------------
Net loss $ (0.16) $ (0.01) $ (0.41) $ (0.08)
==============================================================
Diluted shares outstanding 14,781 14,672 14,733 13,590
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
THIRTY-NINE
WEEKS ENDED
----------------------------------------
(In thousands) October 30, October 31,
(Unaudited) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (6,042) $ (1,124)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 10,595 9,746
Changes in operating assets and liabilities, net (40,256) (28,048)
----------------------------------------
Net cash used in operating activities (35,703) (19,426)
Cash flows from investing activities:
Capital expenditures, net (34,723) (13,923)
Proceeds from sale of property, fixtures and equipment 419 1,459
Proceeds from sale of accounts receivable, net (5,000) (12,000)
Payment for the acquisition of business, net of cash received (2,192) -
----------------------------------------
Net cash used in investing activities (41,496) (24,464)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations (181,617) (197,671)
Proceeds from issuance of long-term debt 259,600 197,400
Proceeds from equity offering - 43,417
Exercised stock options 16 706
----------------------------------------
Net cash provided by financing activities 77,999 43,852
Net increase (decrease) in cash and cash equivalents 800 (38)
Cash and cash equivalents at beginning of period 10,607 9,109
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Cash and cash equivalents at end of period $ 11,407 $ 9,071
========================================
Supplemental Cash Flow Information:
Interest paid $ 6,027 $ 7,398
Income taxes paid $ 7,318 $ 6,390
The accompanying notes are an integral part of these consolidated statements.
4
THE BON-TON STORES, INC. AND SUBSIDIARIES
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, as one business segment, 72 retail department stores
located in Pennsylvania, New York, Maryland, New Jersey, Connecticut
Massachusetts, New Hampshire, Vermont 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 information and
footnotes required by generally accepted accounting principles. In the opinion
of management, all adjustments (primarily consisting of normal recurring
accruals) considered necessary for a fair presentation for interim periods have
been included. The Company's business is seasonal in nature and the results of
operations for the interim periods presented are not necessarily indicative of
the results for the full fiscal year. It is suggested these consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1999 (the "1998 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 weighted average number of common shares
outstanding for the period. Diluted EPS is computed assuming the conversion of
all dilutive securities, such as options and restricted stock. The statement
requires a reconciliation of the numerators and denominators used in the basic
and diluted EPS calculations. The numerator, net loss, is identical in both
calculations.
The following table presents a reconciliation of the shares outstanding for the
respective calculations for each period presented on the accompanying
Consolidated Statements of Operations.
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
------------------------------------- -------------------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
----------------- ------------------ ----------------- -----------------
Basic Calculation 14,781,000 14,672,000 14,733,000 13,590,000
Dilutive Securities ---
Restricted Shares - - - -
Options - - - -
------------------------------------- -------------------------------------
Diluted Calculation 14,781,000 14,672,000 14,733,000 13,590,000
------------------------------------- -------------------------------------
Antidilutive shares and options --
Restricted Shares 487,000 598,000 535,000 454,000
Options 1,283,000 1,372,000 1,288,000 1,225,000
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 in the thirteen weeks and
thirty-nine weeks ended October 30, 1999 and October 31, 1998.
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 reported a profit for the
thirteen and thirty-nine week periods ended October 30, 1999 and October 31,
1998.
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
-------------------------------------- --------------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
----------------- ----------------- ----------------- ------------
Approximate Dilutive Securities ---
Restricted Shares 124,000 90,000 98,000 120,000
Options 15,000 220,000 32,000 300,000
Antidulitive Options 1,233,000 350,000 1,051,000 120,000
Antidilutive options, options to purchase shares with exercise prices greater
than the average market price, were excluded from the "Approximate Dilutive
Securities" in the above table.
3. ACQUISITIONS:
On March 23, 1999, the Company acquired the leasehold interests and certain
other assets in three department stores located in Hamden, Connecticut, Red
Bank, New Jersey and Brick Township, New Jersey, through a bankruptcy auction,
for a total cost of $2.2 million. The leasehold interests were held by Steinbach
Stores, Inc., a wholly-owned subsidiary of Crowley, Milner and Company. The
Brick Township and Red Bank stores have been remodeled and opened for business
on September 1, 1999. The Hamden store opened on September 22, 1999. Certain
fixed assets and customer lists were also included in the purchase. This
business combination was accounted for under the purchase method.
4. REFINANCING:
On October 29, 1999, the Company amended its accounts receivable facility to
extend the term of the facility through January 31, 2003. The amended agreement
provides for changes in the pricing structure and financial covenants, with
substantially all other terms and conditions of the original agreement remaining
unchanged.
On April 7, 1999, the Company amended its revolving credit facility to extend
the term of the facility through April 15, 2004. The amended agreement extends
the term of the available fixed assets and real estate borrowing base and
provides a more favorable interest pricing structure, with substantially all
other terms and conditions remaining unchanged. As a result of this transaction,
the Company incurred a one-time after-tax charge of $378,000 in fiscal 1999
relating to the early extinguishment of debt.
5. SUBSEQUENT EVENTS:
On November 19, 1999, the Company entered into an agreement to terminate the
leasehold interest in the closed Johnstown, Pennsylvania location effective
October 31, 1999.
On November 11, 1999, the Company hired Mr. Frank Tworecke as Vice Chairman and
Chief Merchandising Officer pursuant to a three-year employment agreement. In
addition to a base salary, bonus eligibility, and other annual benefits and
perquisites, Mr. Tworecke received an option to purchase 200,000 shares of the
Company's common stock at $5.72 per share, the market value on the date of the
award. The options will become exercisable at the rate of 33-1/3% per annum over
three years beginning on the first anniversary of the date of the grant and
expiring upon the lapse of 10 years from the date of the grant. Should
Mr.Tworecke
6
THE BON-TON STORES, INC. AND SUBSIDIARIES
leave the Company before vesting, the options will be forfeited upon departure,
except in certain limited circumstances.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table summarizes the changes in selected operating indicators,
illustrating the relationship of various income and expense items expressed as a
percentage of net sales for each period presented:
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
------------------------------- -------------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------ -------------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Other income, net 0.3 0.3 0.3 0.3
------------------------ ---------------------------
100.3 100.3 100.3 100.3
------------------------ ---------------------------
Costs and expenses:
Costs of merchandise sold 63.2 62.7 63.5 63.1
Selling, general and administrative 35.6 33.8 35.2 33.8
Depreciation and amortization 2.5 2.3 2.3 2.2
------------------------ ---------------------------
(Loss) income from operations (1.0) 1.4 (0.6) 1.2
Interest expense, net 1.3 1.6 1.3 1.6
------------------------ ---------------------------
Loss before income taxes (2.3) (0.2) (2.0) (0.4)
Income tax benefit (0.9) (0.1) (0.8) (0.2)
------------------------ ---------------------------
Loss before extraordinary item (1.4) (0.1) (1.2) (0.3)
Extraordinary item - loss on early extinguishment of debt - - (0.1) -
------------------------ ---------------------------
Net loss (1.4)% (0.1)% (1.3)% (0.3)%
======================== ===========================
Thirteen Weeks Ended October 30, 1999 Compared to Thirteen Weeks Ended October
31, 1998
For the purposes of the following discussions, all references to "third quarter
of 1999" and "third quarter of 1998" are to the Company's thirteen week period
ended October 30, 1999 and October 31, 1998, respectively.
Net sales. Net sales were $168.5 million for the thirteen weeks ended October
30, 1999, an increase of 8.9% over the same period last year. Comparable store
sales increased 2.1% for the period, with shoes, accessories, home, cosmetics,
intimate, petites and misses sportswear and children's achieving sales increases
during the quarter.
Other income, net. Net other income, which consisted mainly of income from
leased departments, remained constant at 0.3% of net sales in the third quarter
of 1999 compared to the third quarter of 1998.
Costs and expenses. Gross margin, in the third quarter of 1999, increased $4.3
million compared to the third quarter of 1998 reflecting the increase in sales.
Gross profit as a percentage of net sales decreased 0.5 percentage points to
36.8% for the thirteen week period ended October 30, 1999 from 37.3% for the
comparable period last year.
7
THE BON-TON STORES, INC. AND SUBSIDIARIES
Selling, general and administrative expenses for the third quarter of 1999 were
$60.0 million, or 35.6% of net sales, as compared to $52.4 million, or 33.8% of
net sales, in the third quarter of 1998. The increase in the third quarter of
1999 was primarily attributable to the cost of improving customer service,
including personnel costs, and the expenses associated with opening new stores,
partially offset by the improvement in the credit operations.
Depreciation and amortization increased to 2.5% of net sales in the third
quarter of 1999 compared to 2.3% in the third quarter of 1998. The increase was
primarily due to the addition of new assets in fiscal 1999, relating to the
opening of seven new stores and the remodeling of certain other stores.
(Loss) income from operations. The loss from operations in the third quarter of
1999 amounted to $1.7 million, or 1.0% of net sales, compared to income from
operations of $2.2 million, or 1.4% of net sales, in the third quarter of 1998.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. On a pro-forma basis, if the Company had
on-balance sheet financing, it would have reduced selling, general and
administrative expenses by $1.8 million in the third quarter of 1999 and $1.9
million in the third quarter of 1998. 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 $0.2 million in the
third quarter of 1999 and income from operations of $4.1 million for the third
quarter of 1998.
Interest expense, net. Net interest expense decreased $272,000 to 1.3% of net
sales, in the third quarter of 1999 from $2.5 million, or 1.6% of net sales, in
the third quarter of 1998. The decrease is primarily attributable to the
reduction in the cost of funds borrowed under the revolving credit facility.
Net loss. The net loss in the third quarter of 1999 amounted to $2.4 million
compared to a net loss of $0.2 million in the third quarter of 1998.
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 1999.
Thirty-Nine Weeks Ended October 30, 1999 Compared to Thirty-Nine Weeks Ended
October 31, 1998
For the purposes of the following discussions, all references to "1999" and
"1998" are to the Company's thirty-nine week period ended October 30, 1999 and
October 31, 1998, respectively.
Net sales. Net sales were $460.3 million for the thirty-nine weeks ended October
30, 1999, an increase of 3.7% over the same period last year. Comparable store
sales decreased 0.2% for the period, with home, shoes, cosmetics, accessories
and misses sportswear achieving sales increases.
Other income, net. Net other income, which consisted mainly of income from
leased departments, remained constant at 0.3% of net sales in 1999 and 1998.
Costs and expenses. Gross margin, in 1999, increased $4.1 million compared to
1998 reflecting the increased sales. Gross profit as a percentage of net sales
decreased 0.4 percentage points to 36.5% for the thirty-nine week period ended
October 30, 1999 from 36.9% for the comparable period last year.
Selling, general and administrative expenses for 1999 were $161.8 million, or
35.2% of net sales, as compared to $150.1 million, or 33.8% of net sales, in
1998. During 1998, selling, general and administrative expenses were reduced by
the gain from the sale of a vacant property (see Note 5 of the 1998 Annual
Report) in the amount of $1.4 million, or 0.3% of net sales. The remaining
increase of 1.1% in 1999 was
8
THE BON-TON STORES, INC. AND SUBSIDIARIES
primarily attributable to the cost of improving customer service, including
personnel costs, and the expenses associated with opening new stores, partially
offset by an improvement in credit operations.
Depreciation and amortization increased to 2.3% of net sales in 1999 from 2.2%
of net sales in 1998. The increase was primarily due to the addition of $37.4
million of new assets in fiscal 1999 and $19.4 million of new assets in fiscal
1998.
(Loss) income from operations. The loss from operations in 1999 amounted to
$3.0 million, or 0.6% of net sales, compared to an income from operations of
$5.4 million, or 1.2% of net sales, in 1998.
The Company sells receivables through its accounts receivable facility to
provide additional working capital. On a pro-forma basis, if the Company had
on-balance sheet financing, it would have reduced selling, general and
administrative expenses by $5.4 million in 1999 and $5.8 million in 1998. 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 $2.4
million in 1999 and $11.2 million in 1998.
Interest expense, net. Net interest expense decreased to $6.2 million, or 1.3%
of net sales, in 1999 from $7.2 million, or 1.6% of net sales, in 1998. The
decrease was primarily attributable to the reduction in the cost of funds
borrowed under the revolving credit facility.
Extraordinary item. The Company amended its revolving credit facility on April
7, 1999 (see Note 4). As a result of this transaction, the Company incurred an
extraordinary charge of $0.4 million, net of a $0.2 million income tax benefit,
in 1999.
Net loss. The net loss in 1999 amounted to $6.0 million compared to a net loss
of $1.1 million in 1998.
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 1999.
Year 2000 Readiness Disclosure
The Year 2000 issue refers to the inability of some computer programs and
microprocessors to correctly interpret the 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, operational, distribution or
financial process.
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 point-of-sale 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 said vendor that it expects its systems to be Year 2000
compliant. The vast majority of the Company's information systems are presently
Year 2000 compliant. Remediation is complete and testing has been completed,
except for the Bridal Registry system, which is scheduled for completion by the
end of December.
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, the Company believes these systems
present little Year 2000 risk.
The miscellaneous equipment area includes equipment and systems that contain
embedded computer technology such as elevators, phone systems and security
systems. The Company believes the majority of these systems are presently Year
2000 compliant and the remaining 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 expenditures to achieve Year 2000 readiness are not
expected to exceed $1.3 million. These costs, which include modifying software,
consultant expenses and replacing non-compliant hardware and software, are being
incurred over the two-year period from 1998 through 1999, with the majority
expended in 1999. All costs incurred to modify existing internal-use software or
to correct problems associated with Year 2000 readiness will be expensed as
incurred and funded from operating cash flows. The Company's expenditures
associated with Year 2000 readiness through October 30, 1999 are approximately
$1.1 million.
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, no assurances can be given 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 reasonably predict the most 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 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 has developed contingency plans,
such as 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.
10
THE BON-TON STORES, INC. AND SUBSIDIARIES
The foregoing statements as to costs and dates relating to Year 2000 efforts 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:
October 30, October 31,
(Dollars in millions) 1999 1998
------------------------------------------------------------------
Working capital $ 176.6 $ 163.6
Current capital 2.29:1 2.25:1
Funded debt to total capitalization 0.47:1 0.42:1
Unused availability under lines of credit $ 36.1 $ 87.1
For the thirty-nine weeks ended October 30, 1999, net cash used in operating
activities amounted to $35.7 million as compared to net cash used of $19.4
million for the comparable period last year. The increase in net cash used in
1999 as compared to 1998 was primarily attributable to the decline in the
Company's earnings and increased working capital requirements. The increased
working capital requirements primarily reflect a decrease in accounts payable
and income taxes payable and an increase in prepaid expense and other current
assets, partially offset by a decrease in accounts receivable.
Net cash used in investing activities amounted to $41.5 million in 1999 compared
to $24.5 million for the comparable period last year. The increase in net cash
used for the thirty-nine week period ended October 30, 1999 primarily reflects
increased capital expenditures and payments for the acquisition of leasehold
interests in three department stores (see Note 3).
Net cash provided by financing activities amounted to $78.0 million for 1999
compared to $43.9 million for the comparable period of 1998. The net increase in
borrowings under the revolving credit facility in 1999 reflects the increased
cash requirements for the operating and investing activities as discussed in the
two preceding paragraphs.
The Company anticipates its cash flow from operations, supplemented by
borrowings under its revolving credit facility, as amended (see Note 4), and
proceeds from its accounts receivable facility, as amended (see Note 4), will be
sufficient to satisfy its operating cash requirements.
11
THE BON-TON STORES, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company entered into two new interest rate swap agreements in fiscal 1999.
The two "variable to fixed" rate swaps, with a notional amount of $30.0 million,
increase the interest rate swaps held by the Company to $110.0 million. The
average pay rate on the new swaps are 5.58% and both swaps mature in 2004. Refer
to the Company's discussion of "Market Risk and Financial Instruments"
in the 1998 Annual Report for additional information.
"Safe Harbor" Statement
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Certain information included in this report and other materials filed or to be
filed by the Company with the Securities and Exchange Commission contains
statements that are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, which may be
identified by words such as "may," "will," "plan," "expect," "anticipate,"
"estimate," "project," "intend" or other similar expressions, involve important
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are 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 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 1. LEGAL PROCEEDINGS
There have been no material developments in any legal proceedings since the
Company's disclosure in its 1998 Annual Report.
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 Amendment dated as of October 29, 1999 to Amended and Restated
Receivables Purchase Agreement
10.2 Employment Agreement between the Company and Frank Tworecke
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
None.
12
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, 1999 BY: /s/ Michael L. Gleim
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Michael L. Gleim
Vice Chairman and
Chief Operating Officer
DATE: December 14, 1999 BY: /s/ James H. Baireuther
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James H. Baireuther
Senior Vice President and
Chief Financial Officer
13