<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
January 29, 2000 0-19517
THE BON-TON STORES, INC.
2801 EAST MARKET STREET
YORK, PENNSYLVANIA, 17402
(717) 757-7660
INCORPORATED IN PENNSYLVANIA IRS NO. 23-2835229
---------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
The Registrant 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 has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is contained in Registrant's proxy statement incorporated by reference in Part
III of this Form 10-K.
As of March 24, 2000, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $26,720,022, based
upon the closing price of $3.063 per share on March 24, 2000.*
As of March 24, 2000, there were 12,270,954 shares of Common Stock,
$.01 par value, and 2,989,853 shares of Class A Common Stock, $.01 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II - Portions of our 1999 Annual Report to security holders
("Annual Report").
Part III - Portions of the Proxy Statement for the 2000 Annual
Meeting of Shareholders ("Proxy Statement").
- -------------------------------------
* Calculated by excluding all shares that may be deemed to be beneficially owned
by executive officers and directors of the Registrant, without conceding that
all such persons are "affiliates" of the Registrant for purposes of the federal
securities laws.
1
<PAGE> 2
Statements made in this Form 10-K, other than statements of historical
information, are forward-looking statements 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", "intend" or
other similar expressions, involve certain risks and uncertainties that could
significantly affect anticipated results in the future, including, but not
limited to, uncertainties affecting retail generally (such as consumer
confidence and demand for soft goods); uncertainties associated with opening new
stores or expanding and remodeling existing stores; the Company's presence in
and dependence on limited geographic markets; competition within the markets in
which the Company's stores are located; the ability to attract and maintain
qualified management; failure to accurately predict customer fashion
preferences; and the ability to obtain financing for working capital, capital
expenditures and general corporate purposes. The Company assumes no obligation
to update or revise any such forward-looking statements even if future events
make it clear that any projected results implied by such statements will not be
realized.
References to a year in this Form 10-K refer to The Bon-Ton's fiscal
year, which is the 52 or 53 week period ending on the Saturday nearer January 31
of the following calendar year (e.g. a reference to 1999 is a reference to the
fiscal year ended January 29, 2000).
PART I
ITEM 1. BUSINESS
GENERAL
The Bon-Ton Stores, Inc., together with its subsidiaries, is the
successor to S. Grumbacher & Son, a family business founded in 1898, and is a
leading operator of quality fashion department stores offering moderate and
better apparel, home furnishings, cosmetics, accessories and shoes. In many of
its markets, The Bon-Ton is the primary destination for branded fashion
merchandise such as Calvin Klein, Liz Claiborne, Nautica, Ralph Lauren and Tommy
Hilfiger. We presently operate 72 stores in secondary markets - 36 stores in
Pennsylvania, 25 in New York, three stores in each of New Jersey and Maryland
and one store in each of Connecticut, New Hampshire, Massachusetts, Vermont and
West Virginia. Our strategy focuses on being the premier fashion retailer in
markets that demand, but often have limited access to, better branded
merchandise.
The Bon-Ton's executive offices are located at 2801 East Market Street,
York, Pennsylvania.
MERCHANDISING
The Bon-Ton stores offer moderate and better fashion apparel, home
furnishings, cosmetics, accessories, shoes and other items. Sales of apparel
constituted 62.3% of sales in 1999. The following chart illustrates sales by
product category for 1999, 1998 and 1997.
2
<PAGE> 3
<TABLE>
<CAPTION>
MERCHANDISE CATEGORY 1999 1998 1997
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Women's clothing 27.2% 27.7% 28.6%
Men's clothing 18.0 18.7 17.9
Home 13.6 12.9 12.6
Cosmetics 10.5 9.9 9.9
Accessories 7.8 7.5 7.5
Children's clothing 7.1 7.2 7.2
Shoes 5.8 5.6 5.5
Intimate apparel 5.2 5.1 5.1
Junior's clothing 4.8 5.4 5.7
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
We carry a number of highly recognized brand names, including Calvin
Klein, Cole Haan, Estee Lauder, Jones New York, Kenneth Cole, Liz Claiborne,
Nautica, Nine West, Ralph Lauren, Steve Madden and Tommy Hilfiger, and within
these brands choose collections which balance fashion, price and selection. We
maintain vendor shops within our stores from key vendors such as Calvin Klein,
Nautica, Ralph Lauren and Tommy Hilfiger. In these vendor shops merchandise is
grouped and positioned in preferred floor locations to provide enhanced
visibility with distinctive, vendor-specific fixturing, signage and displays.
We depend on our relationships with our key vendors and our ability to
purchase better branded merchandise from them at competitive prices. If we lose
the support of these vendors, it could have a material adverse affect on The
Bon-Ton.
Complementing branded merchandise, our private brand merchandise
provides fashion at competitive pricing under names such as Andrea Viccaro,
Jenny Buchanan, Susquehanna Trail Outfitters and Zigg's. We view this private
brand merchandise as a strategic addition to our strong array of highly
recognized, quality national brands and as an opportunity to increase brand
exclusiveness, customer loyalty and competitive differentiation. Private brand
merchandise represented approximately 12.5% of 1999 total sales.
Our business, like that of most retailers, is subject to seasonal
fluctuations, with the major portion of sales and income realized during the
latter half of each year, which includes the back-to-school and holiday seasons.
MARKETING
We attract customers by offering services such as free gift wrap,
special order capability and in-store alterations. In addition, through our
"Certified Value" program, we maintain everyday value prices on staple items
such as turtlenecks, T-shirts, shorts and denim within major product groups.
3
<PAGE> 4
Our advertising and promotional programs are conducted through
newspaper advertisements, direct mail and, to a lesser extent, local television
and radio. We maintain an in-house advertising group that produces substantially
all our print advertising.
The effectiveness of our direct mail efforts has been greatly enhanced
through database management systems. By accurately identifying the predictors of
response to direct mail pieces, we have the ability to rank, score and select
customers with event-specific information.
CUSTOMER CREDIT
Our customers may pay for their purchases with The Bon-Ton proprietary
credit card, Visa, Mastercard, cash or check.
The Bon-Ton credit card holders generally constitute our most loyal and
active customers; during 1999, the average dollar amount for proprietary credit
card purchases substantially exceeded the average dollar amount for cash
purchases. We believe our credit card is a particularly productive tool for
customer segmentation and target marketing.
The following table summarizes the percentage of total sales generated
by payment type:
TYPE OF PAYMENT
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Bon-Ton credit card 47% 48% 50%
Visa, Mastercard, American Express* 25 23 22
Cash or check 28 29 28
--- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
*The Company ceased accepting American Express in 1998.
During 1999, we issued 311,000 Bon-Ton credit cards for newly opened
accounts.
Sales on The Bon-Ton's proprietary credit card represent a significant
portion of our business. Deterioration in the quality of these accounts
receivable because customers fail to pay on time or at all, or any adverse
changes in laws regulating the granting or servicing of credit, could have a
material adverse effect on our business and financial condition.
4
<PAGE> 5
COMPETITION
We face competition for customers from traditional department stores
such as those operated by J. C. Penney Company, Inc., Federated Department
Stores Inc., The May Department Stores Company, Kohl's Corporation and Sears,
Roebuck and Co., from regional department stores such as Boscov's Department
Store, Inc., and from specialty stores and catalogue and internet retailers. In
a number of our markets, we compete with national department store chains which
are better established and in other markets, we face potential competition from
national chains that have not yet entered such markets. In all markets, we
generally compete for customers with department stores offering moderately
priced goods. Many of our competitors have substantially greater financial and
other resources than The Bon-Ton, and some of our competitors have greater
leverage with vendors, which may allow such competitors to obtain merchandise
more easily or on better terms. In several of our markets, we compete with
department stores which have a larger store or a better location in the market.
We believe we compare favorably with our competitors with respect to
quality, depth and breadth of merchandise, prices for comparable quality
merchandise, customer service and store environment. We also believe our
knowledge of secondary markets, developed over many years of operation, and our
focus on secondary markets as our primary area of operation, give us a
competitive advantage.
ASSOCIATES
As of January 29, 2000, we had approximately 3,800 full-time and 5,900
part-time associates. We also employ additional part-time associates during peak
periods. None of our associates are represented by a labor union. We believe
that our relationship with our associates is good.
ITEM 2. PROPERTIES.
Our stores, which all operate under "The Bon-Ton" name, vary in size
from approximately 33,000 to 160,000 square feet. All but four of The Bon-Ton
stores are anchor tenants in shopping malls or are in, or adjacent to, strip
shopping centers.
5
<PAGE> 6
The following table sets forth the number of stores at the beginning
and end of each of the last five years:
<TABLE>
<CAPTION>
Fiscal Year 1999 1998 1997 1996 1995
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning of year 65 64 64 68 69
Additions 7 2 0 1 4
Closings 0 (1) 0 (5) (5)
-- -- -- -- --
End of year 72 65 64 64 68
</TABLE>
We plan to maintain our growth by expanding and upgrading existing
stores and by opening new stores. In addition, we will consider acquisitions of
department store companies or their real estate assets if and when such
opportunities arise. Our market positioning strategy has been to locate new
stores or acquire existing companies or their stores in secondary markets
generally within or contiguous to existing areas of operations.
In April 1999, we opened a store in the Glens Falls, New York market
(80,300 square feet), in August 1999, a store in Pottstown, Pennsylvania (88,300
square feet), and in September 1999, stores in Hamden, Connecticut (58,900
square feet), Brick, New Jersey (53,500 square feet) and Red Bank, New Jersey
(33,300 square feet). In November 1999, we opened stores in South Burlington,
Vermont (60,000 square feet) and in Concord, New Hampshire (87,700 square feet).
The following table provides certain information regarding our store
properties:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE YEAR OPENED
MARKET LOCATION FOOTAGE OR ACQUIRED
------ -------- ------- -----------
<S> <C> <C> <C>
PENNSYLVANIA
Allentown South Mall 101,800 1994
Bethlehem Westgate Mall 102,000 1994
Bloomsburg Columbia Mall 46,100 1988
Butler Clearview Mall 100,800 1982
Carlisle Carlisle Plaza Mall 59,900 1977
Chambersburg Chambersburg Mall 55,600 1985
Doylestown Doylestown Shopping Center 55,500 1994
Easton Palmer Park Mall 115,100 1994
Greensburg Westmoreland Mall 100,000 1987
Hanover North Hanover Mall 67,600 1971
Harrisburg Camp Hill (Free Standing) 145,200 1987
Colonial Park Shopping Center 136,500 1987
Indiana Indiana Mall 60,400 1979
Johnstown The Galleria 80,900 1992
Lancaster Park City Center 144,800 1992
Lebanon Lebanon Plaza Mall 53,700 1994
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE YEAR OPENED
MARKET LOCATION FOOTAGE OR ACQUIRED
------ -------- ------- -----------
<S> <C> <C> <C>
Lewistown Central Business District 46,700 1972
Oil City Cranberry Mall 45,200 1982
Pottstown Coventry Mall 88,300 1999
Pottsville Schuylkill Mall 61,100 1987
Quakertown Richland Mall 88,100 1994
Reading Berkshire Mall 159,400 1987
Scranton Keyser Oak Plaza 57,600 1980
State College Nittany Mall 70,200 1994
Stroudsburg Stroud Mall 87,000 1994
Sunbury Susquehanna Valley Mall 90,000 1978
Trexlertown Trexler Mall 54,000 1994
Uniontown Uniontown Mall 71,000 1976
Warren Warren Mall 50,000 1980
Washington Crown Washington Center 78,100 1987
Williamsport Lycoming Mall 60,900 1986
Wilkes-Barre Midway Shopping Center 66,000 1987
Wyoming Valley Mall 159,500 1987
York York Galleria 132,000 1989
Queensgate Shopping Center 85,100 1962
West Manchester Mall 80,200 1981
NEW YORK
Binghamton Oakdale Mall 80,000 1981
Buffalo Northtown Plaza 100,800 1994
Walden Galleria 150,000 1994
Eastern Hills Mall 151,200 1994
McKinley Mall 97,200 1994
Sheridan/Delaware Plaza 124,100 1994
Southgate Plaza 100,500 1994
Elmira Arnot Mall 74,800 1995
Glens Falls Aviation Mall 80,300 1999
Ithaca Pyramid Mall 52,400 1991
Jamestown Chautauqua Mall 59,900 1998
Lockport Lockport Mall 82,000 1994
Massena St. Lawrence Centre 51,000 1994
Niagara Falls Summit Park Mall 88,100 1994
Olean Olean Mall 73,000 1994
Rochester Greece Ridge Center 144,600 1996
The Marketplace Mall 100,000 1995
Irondequoit Mall 102,600 1995
Eastview Mall 120,600 1995
Saratoga Springs Wilton Mall 71,700 1993
Syracuse Carousel Center 80,000 1994
Camillus Mall 64,700 1994
Great Northern Mall 98,400 1994
Shoppingtown Mall 70,100 1994
Watertown Salmon Run Mall 50,200 1992
MARYLAND
Cumberland Country Club Mall 60,900 1981
Frederick Frederick Towne Mall 77,900 1972
Hagerstown Valley Mall 126,000 1974
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE YEAR OPENED
MARKET LOCATION FOOTAGE OR ACQUIRED
------ -------- ------- -----------
<S> <C> <C> <C>
NEW JERSEY
Brick Brick Plaza 53,500 1999
Phillipsburg Phillipsburg Mall 65,000 1994
Red Bank Central Business District 33,300 1999
WEST VIRGINIA
Martinsburg Martinsburg Mall 65,800 1994
CONNECTICUT
Hamden Hamden Mart 58,900 1999
MASSACHUSETTS
Westfield Westfield Shops 50,600 1998
NEW HAMPSHIRE
Concord Steeplegate Mall 87,700 1999
VERMONT
S. Burlington University Mall 60,000 1999
</TABLE>
We lease 64 of our stores and own eight stores, three of which are
subject to ground leases. We lease a total of 171,000 square feet for our
executive and administrative offices in York, Pennsylvania, lease the land (but
own the building) for our 143,700 square foot distribution center in York,
Pennsylvania, and lease our 326,000 square foot distribution center in
Allentown, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS.
The Bon-Ton has been named, together with other department stores and
Nine West Group, Inc., a defendant in a number of antitrust class action
lawsuits filed in February 1999, which have been consolidated in the United
States District Court for the Southern District of New York. These lawsuits
allege that the defendants engaged in conduct in violation of the antitrust laws
relating to the sale of shoes manufactured by Nine West, and seek unspecified
damages against all defendants. We and our counsel believe these claims are
without merit and intend to vigorously defend these lawsuits.
Nine West recently announced it entered into a settlement with the
Attorneys General of the states, territories and possessions of the United
States and with the Federal Trade Commission. The agreement, which must be
approved by the Court, settles price-fixing claims against Nine West and its
alleged co-conspirators. We and our counsel believe that the settlement
agreement, if approved, may completely resolve and extinguish the claims
asserted in the private class action against The Bon-Ton and the other
department store defendants.
8
<PAGE> 9
We are party to other legal proceedings and claims which arise during
the ordinary course of business. We do not expect the ultimate outcome of all
such litigation and claims to have a material adverse effect on our financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM A. EXECUTIVE OFFICERS OF THE COMPANY.
The Executive Officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Heywood Wilansky 52 President and Chief Executive Officer and Director
M. Thomas ("Tim") Grumbacher 60 Chairman of the Board and Director
Michael L. Gleim 57 Vice Chairman and Chief Operating Officer and Director
Frank Tworecke 53 Vice Chairman and Chief Merchandising Officer and Director
James H. Baireuther 53 Executive Vice President and Chief Financial Officer
Jack Boonshaft 57 Senior Vice President - Stores
H. Stephen Evans 50 Senior Vice President - Real Estate, Legal and Governmental
Affairs
Steven D. Goldsmith 33 Senior Vice President - General Merchandise Manager
William T. Harmon 45 Senior Vice President - Sales Promotion, Marketing and Strategic
Planning
Gary Kellman 57 Senior Vice President - General Merchandise Manager
Douglas Lamm 53 Senior Vice President - General Merchandise Manager
Patrick J. McIntyre 55 Senior Vice President - Chief Information Officer
Ryan J. Sattler 55 Senior Vice President - Operations
Stephen M. Sloane 53 Senior Vice President - General Merchandise Manager
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C> <C>
Stephanie Stough 48 Senior Vice President - Merchandise Planning and Control
Thomas R. Tortoriello 58 Senior Vice President - Human Resources
</TABLE>
Mr. Wilansky joined us in August 1995 as President and Chief Executive
Officer and a Director. Prior to that, Mr. Wilansky was employed by May
Department Stores for more than 19 years. From 1992 to August 1995, he was
President and Chief Executive Officer of the Foley's division of May, and from
1991 to 1992, he was President and Chief Executive Officer of the Filene's
division of May. Prior to that, he was with the Hecht's and Lord & Taylor
divisions of May.
Mr. Tworecke joined the Company in November 1999 as Vice Chairman and
Chief Merchandising Officer and a Director. From January 1996 until November
1999, he was President and Chief Operating officer of Jos. A. Bank Clothiers,
and from August 1994 to December 1995, he was President of Merry-Go-Round
Enterprises, Inc.
Mr. Baireuther was elected Senior Vice President and Chief Financial
Officer in June 1996 and appointed Executive Vice President and Chief Financial
Officer in January 2000. From September 1994 until June 1996, he was Senior Vice
President - Chief Financial Officer at DAC Vision, a manufacturer and
distributor of optical supplies. From 1989 to 1994, he was Executive Vice
President - Chief Financial Officer for Eye Care Centers of America, a retail
optical superstore chain and wholly-owned subsidiary of Sears. From 1969 to
1989, Mr. Baireuther held a variety of positions with Sears including Director
of Mergers and Acquisitions, Manager of Corporate Financial Analysis and
Controller.
Mr. Boonshaft joined us in January 1996 as Vice President - Stores'
Merchandising and was named Senior Vice President - Stores in February 1998.
Prior to that, Mr. Boonshaft was with the Hecht's division of May, where his
last position was Regional Vice President - Stores from 1986 to 1995.
Mr. Goldsmith was appointed Divisional Vice President - Divisional
Merchandise Manager in February 1997 and was named Senior Vice President -
General Merchandise Manager in March 1999. From November 1992 to February 1997,
Mr. Goldsmith was with the Foley's division of May, where he held various
positions, including buyer and Director of Merchandising Analysis.
Mr. Harmon joined the Company as Senior Vice President - Sales
Promotion, Marketing and Strategic Planning in June 1997. From 1989 to 1997, Mr.
Harmon was with May, serving as Senior Vice President - Merchandise Planning of
Foley's from November 1994 to June 1997, Vice President - Merchandise Planning
of Foley's from December 1992 to October 1994, and Vice President - Assistant to
the President of Filene's from June 1989 to December 1992. Prior to that, he was
employed by McKinsey & Company for seven years.
Mr. Kellman became Senior Vice President - General Merchandise Manager
in August 1999. From November 1996 to April 1999, he was Executive Vice
President of Today's Man, Inc., and from March 1989 to June 1996 he was Senior
Vice President - Merchandising at Lord & Taylor.
Mr. Lamm was elected Senior Vice President - General Merchandise
Manager in October 1995, appointed Executive Vice President - Softlines
Merchandise in February 1998, and appointed Senior Vice President - General
Merchandise Manager in January 2000. He owned a chain of women's large size
apparel boutiques from 1988 to 1995, and from 1984 to 1988 was Senior Vice
President and General
10
<PAGE> 11
Merchandise Manager of Venture Stores, Inc. in St. Louis.
Mr. McIntyre joined us as Senior Vice President - Chief Information
Officer in June 1997. From 1988 to June 1997, Mr. McIntyre was Senior Vice
President - Chief Information Officer for the Cato Corporation, a women's
specialty retailer. Prior to that, he held similar positions with the Higbee
Company and Burdine's Department Store.
Mr. Sloane joined the Company as Senior Vice President - General
Merchandise Manager in February 1997. From December 1995 until February 1997, he
was Vice President - General Merchandise Manager at Dick's Clothing & Sporting
Goods, and from July 1995 until December 1995 he was Vice President - General
Merchandise Manager at McRae's Department Stores. Prior to that, Mr. Sloane was
with May for over 17 years, having most recently served as Vice
President - Merchandising at Foley's.
Mr. Tortoriello joined the Company in June 1998 as Senior Vice
President - Human Resources. From April 1995 until he joined the Company, Mr.
Tortoriello was Vice President - Organization Development at the Handleman
Company, a distributor to retailers, and from January 1993 to June 1994 he was
Senior Vice President, Human Resources at Office Max.
Messrs. Grumbacher, Gleim, Evans, Sattler and Ms. Stough have been
executive officers of The Bon-Ton for more than five years.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded on the Nasdaq Stock Market (symbol: BONT).
There is no established public trading market for the Class A Common Stock. The
Class A Common Stock is convertible on a share for share basis into Common
Stock. The following table sets forth the range of the sales price of the Common
Stock as furnished by Nasdaq:
<TABLE>
<CAPTION>
1999
-----------------------
HIGH LOW
---- ---
<S> <C> <C>
1st Quarter $ 8.125 $ 4.500
2nd Quarter 6.719 5.438
3rd Quarter 5.688 3.625
4th Quarter 6.375 3.438
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------
HIGH LOW
---- ---
<S> <C> <C>
1st Quarter $ 18.000 $ 13.750
2nd Quarter 17.625 11.250
3rd Quarter 14.000 6.000
4th Quarter 9.250 6.000
</TABLE>
11
<PAGE> 12
On March 24, 2000, there were approximately 322 shareholders of record
of Common Stock and five shareholders of record of Class A Common Stock.
We have not paid cash dividends since our initial public offering in
September 1991 and do not anticipate paying any cash dividends in the
foreseeable future. The Company intends to retain its earnings, if any, for the
operation and expansion of the business. The payment and rate of future
dividends, if any, are subject to the discretion of the Board of Directors and
will depend upon earnings, financial condition, capital requirements,
contractual restrictions under current indebtedness and other factors. Our
revolving credit agreement contains restrictions on our ability to pay dividends
and make other distributions.
ITEM 6. SELECTED FINANCIAL DATA.
Item 6 is hereby incorporated by reference to the material under
"Selected Consolidated Financial and Operating Data" on page 20 of our Annual
Report, attached hereto as Exhibit 13.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Item 7 is hereby incorporated by reference to the material under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 21 through 25 of our Annual Report, attached hereto as
Exhibit 13.2.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Item 7A is hereby incorporated by reference to the material under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 21 through 25 of our Annual Report, attached hereto as
Exhibit 13.2.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Item 8 is hereby incorporated by reference to the Report of Independent
Public Accountants, Consolidated Financial Statements and Notes thereto on pages
26 through 43 of our Annual Report, attached hereto as Exhibit 13.3.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
12
<PAGE> 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding executive officers called for by Item 401 of
Regulation S-K is included in Part I as Item A, in accordance with General
Instruction G(3) to Form 10-K. The remainder of the information called for by
this Item will be contained in our Proxy Statement and is hereby incorporated by
reference thereto.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item will be contained in our Proxy
Statement and is hereby incorporated by reference thereto (other than the
information called for by Item 402(i), (k) and (l) of Regulation S-K, which is
not incorporated herein by reference).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item will be contained in our Proxy
Statement and is hereby incorporated by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this Item will be contained in our Proxy
Statement and is hereby incorporated by reference thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements -- See Item 8 above.
2. Consolidated Financial Statement Schedules -- See the Index to
Consolidated Financial Statement Schedules on page F-1.
3. The Securities and Exchange Commission allows us to "incorporate
by reference" information into this Form 10-K, which means we can
disclose important information by referring to another document
filed with the Commission. The following are exhibits to this
Form 10-K and, if incorporated by reference, we have indicated
the document previously filed with the Commission in which the
exhibit was included.
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
NO.
<S> <C> <C> <C>
3.1 Articles of Incorporation Exhibit 3.1 to the Report on Form 8-B, File No.
0-19517 ("Form 8-B")
3.2 Bylaws Exhibit 3.2 to Form 8-B
10.1 Shareholder's Agreement by and among the Exhibit 10.3 to Amendment No. 2 to the Registration
Company and the shareholders named therein Statement on Form S-1, File No. 33-42142 ("1991
Form S-1")
* 10.2 (a) Employment Agreement with Heywood Wilansky Exhibit 99 to the Report on Form 8-K dated March 26,
1998
* (b) The Bon-Ton Stores, Inc. Supplemental Exhibit 10.2(b) to the Registration Statement on Form
Executive Retirement Plan for Heywood Wilansky S-1, File No. 333-48811 ("1998 Form S-1")
* (c) The Bon-Ton Stores, Inc. Five Year Cash Bonus Exhibit 10.2(c) to 1998 Form S-1
Plan for Heywood Wilansky
* (d) The Bon-Ton Stores, Inc. Performance Based Stock Exhibit 4 to the Registration Statement on Form S-8,
Incentive Plan for Heywood Wilansky File No. 333-58591
* 10.3 (a) Employment Agreement with Michael L. Gleim Exhibit 10.4 to Form 8-B
* (b) First Amendment to Employment Agreement Exhibit 10.1 to the Quarterly Report on Form 10-Q for
with Michael L. Gleim the quarter ended October 31, 1998
* (c) Second Amendment to Employment Agreement with Michael
L. Gleim
* 10.4 Employment Agreement with Frank Tworecke Exhibit 10.2 to the Quarterly Report on Form 10-Q for
the quarter ended October 30, 1999
* 10.5 Form of severance agreement with certain executive Exhibit 10.14 to Form 8-B
officers
* 10.6 Supplemental Retirement Plan for James H. Baireuther
* 10.7 (a) Amended and Restated 1991 Stock Option and Exhibit 4.1 to the Registration Statement on Form S-8,
Restricted Stock Plan File No. 333-36633
* (b) Phantom Equity Replacement Stock Option Plan Exhibit 10.18 to 1991 Form S-1
10.8 Ground Leases for distribution center located in Exhibit 10.12 to 1991 Form S-1
York, Pennsylvania between the Company and M.
Thomas Grumbacher, as amended
10.9 Ground Lease for York Galleria store, York, Exhibit 10.14 to 1991 Form S-1
Pennsylvania between the Company and MBM Land
Associates Limited Partnership
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
10.10 (a) Sublease of Oil City, Pennsylvania store between Exhibit 10.16 to 1991 Form S-1
the Company and M. Thomas Grumbacher
(b) First Amendment to Oil City, Pennsylvania sublease Exhibit 10.22 to Amendment No. 1 to 1991 Form S-1
(c) Corporate Guarantee with respect to Oil City, Exhibit 10.26 to Amendment No. 1 to 1991 Form S-1
Pennsylvania lease
* 10.11 The Company's Profit Sharing/Retirement Savings Exhibit 10.24 to the Annual Report on Form 10-K for the
Plan, amended and restated as of July 1, 1994 fiscal year ended January 28, 1995
10.12 (a) Amended and Restated Receivables Purchase Agreement Exhibit 10.16(a) to Amendment No. 2 to 1998 Form S-1
dated as of January 12, 1995 among The Bon-Ton
Receivables Corp., The Bon-Ton Receivables
Partnership, L.P., Falcon Asset Securitization
Corporation, The First National Bank of Chicago, and
the other financial institutions party thereto
(b) Amendment dated as of June 30, 1995 to Amended and Exhibit 10.16(b) to Amendment No. 1 to 1998 Form S-1
Restated Receivables Purchase Agreement
(c) Amendment dated as of October 29, 1999 to Amended and Exhibit 10.1 to the Quarterly Report on Form 10-Q for
Restated Receivables Purchase Agreement the quarter ended October 30, 1999
* 10.13 Management Incentive Plan and Addendum to Management Exhibit 10.13 to the Annual Report on Form 10-K for the
Incentive Plan fiscal year ended February 1, 1997 ("1996 Form 10-K")
* 10.14 The Bon-Ton Stores, Inc. Long-Term Incentive Plan For Exhibit 10.14 to 1996 Form 10-K
Principals
10.15 (a) Credit Agreement dated as of April 15, 1997 among the Exhibit 10.1 to the Quarterly Report on Form 10-Q for
Company, Adam, Meldrum & Anderson Co., Inc., and The the quarter ended May 3, 1997
Bon-Ton Stores of Lancaster, Inc., the Other Credit
Parties Signatory thereto, the Lenders Signatory
thereto from time to time, the First National Bank of
Boston and General Electric Capital Corporation
(b) First Amendment to Credit Agreement Exhibit 10.3(b) to 1998 Form S-1
(c) Second Amendment to Credit Agreement Exhibit 10.3(c) to 1998 Form S-1
(d) Third Amendment to Credit Agreement Exhibit 10.3(d) to 1998 Form S-1
(e) Fourth Amendment to Credit Agreement Exhibit 10.2 to the Quarterly Report on Form 10-Q for
the quarter ended October 31, 1998
(f) Fifth Amendment to Credit Agreement Exhibit 10.14(f) to the Annual Report on Form 10-K for
the fiscal year ended January 30, 1999
(g) Sixth Amendment to Credit Agreement
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
13.1 Page 20 of the Annual Report.
13.2 Pages 21 through 25 of the Annual Report.
13.3 Pages 26 through 43 of the Annual Report.
21. Subsidiaries of The Bon-Ton.
23. Consent of Arthur Andersen LLP.
27. Financial Data Schedule - Year ended January 29, 2000
(b) Reports on Form 8-K filed during the fourth quarter.
None
</TABLE>
- ------------------------------
* Constitutes a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned.
THE BON-TON STORES, INC.
Dated: April 14, 2000 By: /s/ Heywood Wilansky
---------------------------
Heywood Wilansky
President and
Chief Executive Officer
16
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Heywood Wilansky President, Chief Executive April 14, 2000
-------------------------------------- Officer and Director
Heywood Wilansky (principal executive officer)
/s/ M. Thomas Grumbacher Chairman of the Board April 14, 2000
-------------------------------------- and Director
M. Thomas Grumbacher
/s/ Samuel J. Gerson Director April 14, 2000
--------------------------------------
Samuel J. Gerson
/s/ Michael L. Gleim Vice Chairman, Chief April 14, 2000
-------------------------------------- Operating Officer
Michael L. Gleim and Director
/s/ Lawrence J. Ring Director April 14, 2000
--------------------------------------
Lawrence J. Ring
/s/ Robert C. Siegel Director April 14, 2000
------------------------------------
Robert C. Siegel
/s/ Leon D. Starr Director April 14, 2000
--------------------------------------
Leon D. Starr
/s/ Frank Tworecke Vice Chairman, Chief April 14, 2000
-------------------------------------- Merchandising Officer
Frank Tworecke and Director
/s/ Leon F. Winbigler Director April 14, 2000
--------------------------------------
Leon F. Winbigler
/s/ Thomas W. Wolf Director April 14, 2000
--------------------------------------
Thomas W. Wolf
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
/s/ James H. Baireuther Executive Vice President April 14, 2000
-------------------------------------- and Chief Financial Officer
James H. Baireuther (principal financial and
accounting officer)
</TABLE>
18
<PAGE> 19
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS .............................. F-2
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ....................... F-3
</TABLE>
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Bon-Ton Stores, Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements included in
The Bon-Ton Stores, Inc.'s annual report incorporated by reference in this Form
10-K and have issued our report thereon dated March 3, 2000. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedule listed in the accompanying index is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Philadelphia, PA
March 3, 2000
F-2
<PAGE> 21
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
THE BON-TON STORES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS OTHER END OF
CLASSIFICATION OF PERIOD & EXPENSES INCREASE DEDUCTIONS PERIOD
- -------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1998:
Allowance for doubtful
accounts.................... $ 2,769,000 $ 3,549,000 (1) $ --- $ (4,341,000)(2) $ 1,977,000
Reserve for store closing........ $ 6,984,000 $ --- $ --- $ (1,513,000)(3) $ 5,471,000
Year ended January 30, 1999:
Allowance for doubtful
accounts.................... $ 1,977,000 $ 8,851,000 (1) $ --- $ (7,136,000)(2) $ 3,692,000
Reserve for store closing........ $ 5,471,000 $ --- $ --- $ (2,663,000)(3) $ 2,808,000
Year ended January 29, 2000:
Allowance for doubtful
accounts.................... $ 3,692,000 $ 7,038,000 (1) $ --- $ (7,563,000)(2) $ 3,167,000
Reserve for store closing........ $ 2,808,000 $ (2,492,000)(4) $ --- $ (86,000)(3) $ 230,000
</TABLE>
- -------------------
NOTES:
(1) Provision for loss on credit sales.
(2) Uncollectible accounts, written off, net of recoveries.
(3) Store closing expenses, net of monies received from asset liquidation.
(4) Restructuring income, relating to the lease termination as discussed in
Note 16 of the financial statements.
F-3
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.3(c) Second Amendment to Employment Agreement with Michael L. Gleim.
10.6 Supplemental Retirement Plan for James H. Baireuther.
10.15(g) Sixth Amendment to Credit Agreement.
13.1 Page 20 of the Company's Annual Report.
13.2 Pages 21 through 25 of the Company's Annual Report.
13.3 Pages 26 through 43 of the Company's Annual Report.
21. Subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule - Year Ended January 29, 2000
</TABLE>
<PAGE> 1
Exhibit 10.3(c)
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment made as of this 14th day of January, 2000, is by and
between THE BON-TON STORES, INC., a Pennsylvania Corporation ("the Company") and
MICHAEL L. GLEIM ("Employee").
Whereas Employee is currently employed by the Company pursuant to an
Employment Agreement dated December 15, 1995 as amended in September 1998
("Employment Agreement"); and
Whereas the Company and Employee mutually desire to amend the
Employment Agreement and to extend its term;
NOW THEREFORE, in consideration of the facts, mutual promises and
convenants contained herein and intending to be legally bound hereby, the
Company and Employee hereby agree as follows:
1. Effective February 1, 2000, paragraph 4(a) of the Employment
Agreement shall be amended to provide for an increase in Employee's base salary
to an annual rate of $450,000.
2. Paragraph 2 of the Employment Agreement is amended to provide that
the Employment Agreement shall continue through and terminate on January 31,
2002, unless sooner terminated in accordance with paragraph 10 of the Employment
Agreement.
3. The Employment Agreement is amended to provide Employee with a
Supplemental Retirement Benefit on the following terms: Effective February 1,
2002, provided Employee has remained continuously in the employ of the Company
through January 31, 2002, and has not breached the Employment Agreement,
Employee shall become eligible for an annual Supplemental Retirement Benefit in
the amount of $30,000. The Supplemental Retirement Benefit shall be in equal
monthly installments commencing with the month of the Employee's retirement (on
or after February, 2002) through the month of the date of death of the Employee.
In the event that the Company and the Employee mutually agree to continue the
employment of the Employee by the Company after January 31, 2002, the amount of
the Employee's annual Supplemental Retirement Benefit shall increase by $10,000
for each full year of employment (ending on January 31 of any year) completed by
the Employee prior to his retirement. The
<PAGE> 2
Company may establish a Supplemental Executive Retirement Plan to provide for
payment of the Supplemental Retirement Benefit, but shall be under no obligation
to fund the Supplemental Retirement Benefit. The Company's obligation to pay the
Supplemental Retirement Benefit will survive termination of the Employment
Agreement, provided that Employee's entitlement to the Supplemental Retirement
Benefit shall be forfeited in its entirety in the following circumstances: (a)
the Employee's discharge for Cause during the term of the Employment Agreement
or any extension of the Employment Agreement or (b) the Employee's breach of the
Employment Agreement during the term of the Employment Agreement (or any
extension thereof) or breach of paragraph 13 of the Employment Agreement at any
time.
4. Except as provided in this amendment, the terms of the Employment
Agreement shall remain in effect and Employee shall retain all compensation,
benefits, stock options and restricted shares previously granted to him, subject
to the vesting schedule set forth in the Employment Agreement.
BON-TON STORES, INC.
Date: 1-14-00 By: /s/ Heywood Wilansky
---------------- ----------------------------
Heywood Wilansky
Chief Executive Officer
Date: 1-14-00 By: /s/ Michael L. Gleim
---------------- ----------------------------
Michael L. Gleim
<PAGE> 1
Exhibit 10.6
THE BON-TON
HEYWOOD L. WILANSKY
President/CEO
April 4, 2000
Mr. James Baireuther
942 High Meadow Court
Lancaster, PA 17601
Dear Jim:
I am pleased to inform you that Bon-Ton Stores, Inc. ("the Company")
has decided to promote you, effective February 1, 2000 to the position of
Executive Vice President and Chief Financial Officer in charge of Finance,
Information Services, and Store Planning and Construction.
In connection with your promotion, you are eligible for a Supplemental
Retirement Benefit ("SRB") payable by the Company in the amount of $30,000
annually, provided that you remain continuously within the employ of the Company
until February 1, 2005 and retire on or after that date. The SRB shall be
payable in equal monthly installments commencing with the month of your
retirement (on or after February 1, 2005) through the month of the date of your
death. In the event that you and the Company mutually agree to continue your
employment after February 1, 2005, the amount of your annual supplemental
retirement benefit shall increase by $10,000 for each full year of employment
(ending on January 31 of any year) completed by you prior to your retirement to
a maximum benefit of $80,000 annually payable upon your retirement on or after
February 1, 2010. Your SRB shall be subject to forfeiture in its entirety in the
event you are discharged for "Cause" at any time (which shall be defined to
include discharge for willful misconduct, fraud, misappropriation, embezzlement,
gross negligence, self-dealing, dishonesty, misrepresentation, conflict of
interest, conviction of a crime of moral turpitude or material violation of any
material Company policy).
Your eligibility for the SRB is not a promise of continuing employment.
You remain free to resign your position with the Company at any time, and the
Company retains the right to terminate your employment at any time, with or
without Cause.
The SRB is in addition to and not in lieu of any other retirement
benefit to which you may be entitled as an employee of the Company.
I appreciate very much all that you have done for the Company and look
forward to continue to working with you in the future.
On a personal note, I am really happy to be able to offer you this
added long-term benefit which will provide added security to you and your
family's future.
Sincerely yours,
/s/ Heywood Wilansky
Heywood Wilansky
The Bon-Ton Department Stores, Inc.
2801 East Market Street, PO Box 2821, York, PA 17405
TEL: (717) 757-3079 FAX: 717-751-3196
<PAGE> 1
Exhibit 10.15(g)
SIXTH AMENDMENT TO THE CREDIT AGREEMENT
SIXTH AMENDMENT, dated as of March 2, 2000, among THE BON-TON
DEPARTMENT STORES, INC. and THE BON-TON STORES OF LANCASTER, INC. (collectively,
the "Borrowers"), the other Credit Parties party to the Credit Agreement
referred to below, the Lenders party to such Credit Agreement and GENERAL
ELECTRIC CAPITAL CORPORATION, as Administrative Agent, Collateral Agent and
Lender.
W I T N E S S E T H :
WHEREAS, the parties hereto have entered into that certain
Credit Agreement, dated as of April 15, 1997 (such Agreement, as amended,
supplemented or otherwise modified from time to time, being hereinafter referred
to as the "Credit Agreement," and capitalized terms defined therein and not
otherwise defined herein are used herein as therein defined); and
WHEREAS, the Borrowers desire to have the Lenders amend
certain provisions of the Credit Agreement; and
WHEREAS, the Lenders have agreed to such amendments upon the
terms and subject to the conditions provided herein;
NOW, THEREFORE, in consideration of the premises, covenants
and agreements contained herein, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Amendment. The Lenders, the Agent, the Borrowers and the
other Credit Parties hereby agree to the following amendment to the Credit
Agreement:
(a) Section 6.14 is hereby amended by adding the following at
the end thereof: "; provided further, however, that with respect to clause (f)
above, notwithstanding the foregoing proviso and in addition to any amounts paid
pursuant to such proviso, such dividends may be paid pursuant to such clause (f)
up to an aggregate amount of $2,500,000 if no Default or Event of Default shall
have occurred and be continuing or would result after giving effect to any such
payment."
(b) Disclosure Schedule (A-1) to the Credit Agreement is
hereby replaced with Disclosure Schedule (A-1) annexed hereto effective upon the
release by the Agent of the Mortgage on the Borrowers' real property located in
Camp Hill, Pennsylvania. Accordingly, as of such date, Designated Properties
shall no longer include such property.
<PAGE> 2
Section 2. Consent. The Lenders and Agent hereby consent to the Agent
releasing the Mortgage on the Borrowers' real property located in Camp Hill,
Pennsylvania.
Section 3. Conditions to Effectiveness. This Amendment shall become
effective as of the date hereof when the Agent shall have received counterparts
of this Amendment executed by each Borrower, Credit Party, Agent and the
Requisite Lenders as to Section 1 hereof, and each of the Lenders as to Section
2 hereof, or, as to the Lenders, advice satisfactory to the Agents that such
Lenders have executed this Amendment.
Section 4. Representations and Warranties. The Borrowers and other
Credit Parties hereby jointly and severally represent and warrant to the Lenders
and the Agent as follows:
(a) After giving effect to this Amendment, each of the
representations and warranties in Section 3 of the Credit Agreement and in the
other Loan Documents are true and correct in all material respects on and as of
the date hereof as though made on and as of such date, except to the extent that
any such representation or warranty expressly relates to an earlier date and
except for changes therein not prohibited by the Credit Agreement.
(b) After giving effect to this Amendment, no Default or Event
of Default has occurred and is continuing as of the date hereof.
(c) The execution, delivery and performance by the Credit
Parties of this Amendment have been duly authorized by all necessary or proper
corporate action and do not require the consent or approval of any Person which
has not been obtained.
(d) This Amendment has been duly executed and delivered by
each Credit Party and each of this Amendment and the Credit Agreement as amended
hereby constitutes the legal, valid and binding obligation of the Credit
Parties, enforceable against them in accordance with its terms.
Section 5. Reference to and Effect on the Loan Documents. (a) Upon the
effectiveness of this Amendment, on and after the date hereof, each reference in
the Credit Agreement and the other Loan Documents to "this Agreement,"
"hereunder," "hereof," "herein," or words of like import, shall mean and be a
reference to the Credit Agreement as amended hereby.
(b) Except to the extent amended hereby, the provisions of the
Credit Agreement and all of the other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or
2
<PAGE> 3
remedy of the Lenders or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
Section 6. Costs and Expenses. The Borrowers agree to pay on demand all
costs, fees and expenses of the Agent in connection with the preparation,
execution and delivery of this Amendment and the other instruments and documents
to be delivered pursuant hereto, including the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto.
Section 7. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
Section 8. Governing Law. This Amendment shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
BORROWERS:
THE BON-TON DEPARTMENT STORES, INC.
By: /s/ H. Todd Dissinger
---------------------------------------
Name H. Todd Dissinger
Title: Treasurer
THE BON-TON STORES OF LANCASTER, INC.
By: /s/ J. H. Baireuther
---------------------------------------
Name: James H. Baireuther
Title: Executive Vice President & CFO
OTHER CREDIT PARTIES:
THE BON-TON STORES, INC.
By: /s/ H. Todd Dissinger
---------------------------------------
Name: H. Todd Dissinger
Title: Treasurer
3
<PAGE> 4
THE BON-TON CORP.
By: /s/ J. H. Baireuther
---------------------------------------
Name: James H. Baireuther
Title: Treasurer
THE BON-TON NATIONAL CORP.
By: /s/ J. H. Baireuther
---------------------------------------
Name: James H. Baireuther
Title: Treasurer
THE BON-TON TRADE CORP.
By: /s/ J. H. Baireuther
---------------------------------------
Name: James H. Baireuther
Title: Treasurer
AGENT AND LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Charles D. Chiodo
----------------------------------
Name: Charles D. Chiodo
Title: Authorized Signatory
BANKBOSTON, N.A.
By: /s/ Susan L. Pardus-Galland
----------------------------------
Name: Susan L/ Pardus-Galland
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Evelyn Kusold
----------------------------------
Name: Evelyn Kusold
Title: AVP
FIRST UNION NATIONAL BANK
By: /s/ Joan Anderson
----------------------------------
Name: Joan Anderson
Title: VP
4
<PAGE> 5
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ Gregory Vogelsang
----------------------------------
Name: C. Gregory Vogelsang
Title: Assistant Vice President
FOOTHILL CAPITAL CORPORATION
By: /s/ Michael P. Baranowski
----------------------------------
Name: Michael P. Baranowski
Title: Vice President
FLEET BUSINESS CREDIT CORPORATION
By: /s/ Victor A. Alarcon
----------------------------------
Name: Victor A. Alarcon
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Albert R. Joseph
----------------------------------
Name: Albert R. Joseph
Title: Vice President
5
<PAGE> 6
Disclosure Schedule (A-1)
Designated Properties
Store #36 - Greensburg, PA
Store #4 - Lewistown
<PAGE> 1
The Bon-Ton Stores Inc., and Subsidiaries
Exhibit 13.1
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(In thousands except share, per share and store data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
Fiscal Year Ended Jan. 29, 2000 Jan. 30, 1999 Jan. 31, 1998 Feb. 1, 1997 Feb. 3, 1996
----------------- ------------------ ----------------- ------------------- ------------------
STATEMENT OF OPERATIONS DATA: % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales(1) $710,963 100.0 $674,871 100.0 $656,399 100.0 $626,482 100.0 $607,357 100.0
Other income, net 2,651 0.4 2,350 0.3 2,349 0.4 2,430 0.4 2,266 0.4
Gross profit(2) 261,367 36.8 248,141 36.8 242,553 37.0 230,919 36.9 219,410 36.1
Selling, general and
administrative expenses 224,150 31.5 209,407 31.0 202,850 30.9 197,315 31.5 207,058 34.1
Depreciation and
amortization 14,846 2.1 13,281 2.0 12,882 2.0 12,758 2.1 11,895 2.0
Unusual expense (income)(3) 2,683 0.4 -- -- -- -- (3,171) (0.5) 3,280 0.5
Restructuring (income)
charges(4) (2,492) (0.4) -- -- -- -- -- -- 5,690 0.9
Income (loss) from operations 24,831 3.5 27,803 4.1 29,170 4.4 26,447 4.2 (6,247) (1.0)
Interest expense, net 8,552 1.2 9,396 1.4 13,202 2.0 14,687 2.3 8,722 1.4
Income (loss) before taxes 16,279 2.3 18,407 2.7 15,968 2.4 11,760 1.9 (14,969) (2.4)
Income tax provision (benefit) 6,186 0.9 7,196 1.1 6,270 1.0 4,949 0.8 (5,766) (0.9)
Income (loss) before
extraordinary item 10,093 1.4 11,211 1.7 9,698 1.5 6,811 1.1 (9,203) (1.5)
Extraordinary item, net
of tax(5) (378) (0.1) -- -- (446) (0.1) -- -- -- --
Net income (loss) $ 9,715 1.4 $ 11,211 1.7 $ 9,252 1.4 $ 6,811 1.1 $ (9,203) (1.5)
PER SHARE AMOUNTS--
BASIC:
Net income (loss) before
extraordinary item $ 0.68 $ 0.81 $ 0.87 $ 0.62 $ (0.83)
Effect of extraordinary
item (0.02) -- (0.04) -- --
Net income (loss) $ 0.66 $ 0.81 $ 0.83 $ 0.62 $ (0.83)
Basic shares outstanding 14,750,000 13,866,000 11,122,000 11,064,000 11,044,000
DILUTED:
Net income (loss) before
extraordinary item $ 0.68 $ 0.81 $ 0.85 $ 0.61 $ (0.83)
Effect of extraordinary
item (0.02) -- (0.04) -- --
Net income (loss) $ 0.66 $ 0.81 $ 0.81 $ 0.61 $ (0.83)
Diluted shares outstanding 14,753,000 13,917,000 11,377,000 11,106,000 11,044,000
BALANCE SHEET DATA [AT END OF PERIOD]:
Working capital $141,788 $128,977 $123,078 $102,853 $ 90,758
Total assets 417,492 378,119 352,686 341,252 331,173
Long-term debt, including
capital leases 107,678 76,255 123,384 128,098 127,893
Shareholders' equity 190,691 180,211 124,394 111,485 104,174
SELECTED OPERATING DATA:
Total sales growth(6) 5.3% 2.8% 4.8% 4.1% 22.7%
Comparable stores growth(6)(7) 0.0% 1.4% 6.5% 4.2% 0.2%
Comparable stores data:(7)
Sales per selling square
foot $ 141 $ 143 $ 143 $ 138 $ 160
Selling square footage 4,705,000 4,620,000 4,511,000 4,153,000 2,278,000
Capital expenditures $46,451 $19,418 $10,978 $ 9,730 $43,587
Number of stores:
Beginning of year 65 64 64 68 69
Additions 7 2 -- 1 4
Closings -- (1) -- (5) (5)
End of year 72 65 64 64 68
</TABLE>
(1) Fiscal 1995 reflects the 53 weeks ended February 3, 1996.
(2) Fiscal 1995 includes a $3.5 million charge related to inventory liquidation
associated with the elimination of certain vendors and other merchandise
changes.
(3) Reflects the expense recognized on the asset write-down, the gain recognized
on the pension termination and expenses related to hiring the Chief
Executive Officer in fiscal years 1999, 1996 and 1995, respectively.
(4) Income recognized in fiscal 1999 as a result of a lease termination for a
closed store. Fiscal 1995 reflects a $5.0 million charge for a store closing
reserve with the balance related to a workforce reduction.
(5) Expense resulting from the early extinguishment of the Company's revolving
credit facility in fiscal 1999 and term loan and revolving credit facility
in fiscal 1997.
(6) Fiscal 1996 sales compared to the 52 weeks ended January 27, 1996.
(7) Comparable stores data (sales and selling square footage) reflects stores
open for the entire current year and prior fiscal year.
<PAGE> 1
Exhibit 13.2
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1999 OPERATIONS OVERVIEW
SALES PERFORMANCE
In fiscal 1999, The Bon-Ton Stores, Inc. (the "Company") achieved a 5.3% sales
increase compared to fiscal 1998. The sales growth in fiscal 1999 related
primarily to new store openings with comparable store sales remaining equal to
last year. Although sales productivity improved in a number of stores in the New
York market reflecting strategic initiatives taken in fiscal 1999, these stores
did not perform up to the Company's average productivity. During fiscal 2000,
the Company will allocate additional time and resources towards improving sales
per square foot in all locations.
NON-COMPARABLE ITEMS REVIEW
Net income in fiscal 1999 totaled $9.7 million, or $0.66 per share on a diluted
basis, a decrease of $1.5 million from $11.2 million, or $0.81 per share on a
diluted basis in fiscal 1998. The results for fiscal 1999 and 1998 were impacted
by several non-comparable items. The primary non-comparable items impacting net
income for fiscal 1999 and 1998 are set forth in the following table:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
----------- -----------
Diluted Diluted
After-tax Earnings After-tax Earnings
Net Income Per Share Net Income Per Share
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net income excluding non-comparable items $ 12,506 $ 0.85 $ 11,153 $ 0.80
Pre-opening expenses (2,372) (819)
Gain on sale of property 77 877
Asset write-down charge (1,663) --
Restructuring income 1,545 --
Extraordinary loss on debt extinguishment (378) --
--------------------------------------------------
Net income as reported $ 9,715 $ 0.66 $ 11,211 $ 0.81
==================================================
</TABLE>
The Company incurred significantly higher pre-opening expenses in fiscal 1999
when it opened seven new stores versus the two new stores opened in fiscal 1998.
The Company anticipates pre-opening expenses in fiscal 2000 will approximate the
level expended in fiscal 1998.
In fiscal 1999, the Company had a small gain on the sale of land, which was
significantly less than the gain realized by the Company for the sale of a
vacant property located in Downtown Lancaster, Pennsylvania in fiscal 1998.
The Company recorded a charge in the fourth quarter of 1999 to write-down the
value of assets associated with a cooperative buying group from which the
Company purchases inventory. It is anticipated the cooperative buying group will
cease its operations by the end of fiscal 2000. The Company is establishing
vendor contacts to ensure the continued supply of product. The Company will
continue to offer a broad line of products, including private label brands, to
its customers at comparable prices, quality and service.
In fiscal 1999, the Company negotiated the termination of a lease for a
closed store located in Johnstown, Pennsylvania. The Company closed the store in
1995, but was obligated under the terms of a lease through fiscal 2005. The
termination of this lease resulted in the Company reversing the remaining
restructuring reserve established in fiscal 1995 and reporting restructuring
income in fiscal 1999.
The Company renegotiated the term of its revolving credit agreement in fiscal
1999. The agreement was amended to extend the term to April 15, 2004 and
provides a more favorable interest rate pricing structure, with substantially
all other terms and conditions remaining unchanged. This transaction created a
one-time extraordinary charge in fiscal 1999.
21
<PAGE> 2
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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
to net sales for each fiscal year presented:
<TABLE>
<CAPTION>
Percent of Net Sales
--------------------
Fiscal Year
-----------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Other income, net 0.4 0.3 0.4
--------------------------------
100.4 100.3 100.4
--------------------------------
Costs and expenses:
Costs of merchandise sold 63.2 63.2 63.0
Selling, general and administrative 31.5 31.0 30.9
Depreciation and amortization 2.1 2.0 2.0
Unusual expense 0.4 -- --
Restructuring income (0.4) -- --
--------------------------------
Income from operations 3.5 4.1 4.4
Interest expense, net 1.2 1.4 2.0
--------------------------------
Income before income taxes 2.3 2.7 2.4
Income tax provision 0.9 1.1 1.0
--------------------------------
Income before extraordinary item 1.4 1.7 1.5
Extraordinary loss, net of tax 0.1 -- 0.1
--------------------------------
Net income 1.4% 1.7% 1.4%
================================
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES: Net sales were $711.0 million for the fifty-two weeks ended January
29, 2000, an increase of $36.1 million, or 5.3%, over the fifty-two week period
ended January 30, 1999. The majority of the increase was attributable to the
seven new stores opened in fiscal 1999 and two stores opened in fiscal 1998.
Comparable store sales for the same period remained even with last year. Strong
sales performances were achieved in home, cosmetics, shoes and accessories.
OTHER INCOME, NET: Net other income, which is comprised mainly of income from
leased departments, increased to 0.4% of net sales for fiscal 1999 compared to
0.3% in fiscal 1998, as a result of the addition of certain leased departments
in four of the Company's new stores.
COSTS AND EXPENSES: Gross margin dollars for fiscal 1999 increased $13.2
million, or 5.3%, over fiscal 1998 as a result of the sales volume increase.
Gross profit as a percentage of net sales was 36.8% in fiscal 1999 and fiscal
1998.
Selling, general and administrative expenses for fiscal 1999 were $224.2
million, or 31.5% of net sales, compared to $209.4 million, or 31.0% of net
sales, in the prior year. The percentage increase in fiscal 1999 was primarily
attributable to $3.8 million in expenses associated with the opening of seven
new stores in fiscal 1999 versus $1.3 million for two stores in fiscal 1998,
increased advertising costs and the gain recognized in fiscal 1998 on the sale
of the Downtown Lancaster property (see Note 5). The increase was partially
offset by an improvement in the credit operations and increased sales volume in
fiscal 1999.
Depreciation and amortization increased to 2.1% of net sales in fiscal 1999
from 2.0% in fiscal 1998 as a result of $46.5 million of capital expenditures in
fiscal 1999.
Unusual expense in fiscal 1999 of $2.7 million, or 0.4% of net sales, was
incurred as a result of the write-down of certain assets related to a
cooperative buying group in which the Company has an investment (see Note 14).
Restructuring income of $2.5 million, or 0.4% of net sales, was recognized as
a result of the Company reaching an agreement in the fourth quarter of fiscal
1999 on the termination of a lease relating to a closed store in Johnstown,
Pennsylvania. The Company established an accrual in fiscal 1995 relating to the
costs associated with maintaining this property as part of its restructuring
(see Note 16). The termination of this lease concludes the Company's actions
under the 1995 restructuring plan.
INCOME FROM OPERATIONS: Income from operations in fiscal 1999 amounted to $24.8
million, or 3.5% of net sales, compared to $27.8 million, or 4.1% of net sales,
in fiscal 1998.
22
<PAGE> 3
INTEREST EXPENSE, NET: Net interest expense in fiscal 1999 decreased $0.8
million to $8.6 million, or 1.2% of net sales, from $9.4 million, or 1.4% of net
sales, in the prior fiscal year. The decrease in interest expense was primarily
attributable to lower borrowing rates under the amended credit facility,
partially offset by increased average borrowing levels.
EXTRAORDINARY ITEM: The Company recorded an expense of $378,000, net of tax,
related to the early extinguishment of the Company's revolving credit facility
in fiscal 1999 (see Note 2).
NET INCOME: Net income in fiscal 1999 amounted to $9.7 million, or 1.4% of net
sales, compared to $11.2 million, or 1.7% of net sales, in fiscal 1998.
The decrease in the effective tax rate to 38.0% in fiscal 1999 from 39.1% in
fiscal 1998 primarily reflects closure of the Internal Revenue Service audit in
fiscal 1998, partially offset by an increase in the effective state tax rate due
to the Company's entry into three states during fiscal 1999.
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES: Net sales were $674.9 million for the fifty-two weeks ended January
30, 1999, an increase of $18.5 million, or 2.8%, over the fifty-two week period
ended January 31, 1998. A majority of this increase was attributable to the
addition of stores in Jamestown, New York and Westfield, Massachusetts.
Comparable store sales for the same period increased 1.4%. Strong sales
performances were achieved in men's sportswear/young men's, home, intimate,
childrens and shoes.
OTHER INCOME, NET: Net other income, which is comprised mainly of income from
leased departments, decreased to 0.3% of net sales for fiscal 1998 compared to
0.4% in fiscal 1997, as a result of the increased net sales in fiscal 1998.
COSTS AND EXPENSES: Gross margin dollars for fiscal 1998 increased $5.6 million,
or 2.3%, over fiscal 1997 as a result of the sales volume increase. Gross profit
as a percentage of net sales decreased slightly from 37.0% in fiscal 1997 to
36.8% for fiscal 1998. The decrease in the margin rate was primarily
attributable to a reduction in the cumulative markup percentage, an increase in
the ratio of markdowns to sales and lower margin typically associated with
better branded goods which accounted for a greater percentage of total
inventory.
Selling, general and administrative expenses for fiscal 1998 were $209.4
million, or 31.0% of net sales, as compared to $202.9 million, or 30.9% of net
sales, in the prior year. The percentage increase in fiscal 1998 was primarily
attributable to the cost of improving customer service, including personnel
costs, expenses associated with the opening of two new stores and the
deterioration of credit operations as a result of increased levels of personal
bankruptcies, which were partially offset by the gain recognized on the sale of
the Downtown Lancaster property (see Note 5) and increased sales volume in
fiscal 1998.
Depreciation and amortization remained constant at 2.0% of net sales in
fiscal 1998 and fiscal 1997.
INCOME FROM OPERATIONS: Income from operations in fiscal 1998 amounted to $27.8
million, or 4.1% of net sales, as compared to $29.2 million, or 4.4% of net
sales, in fiscal 1997.
INTEREST EXPENSE, NET: Net interest expense decreased $3.8 million to $9.4
million, or 1.4% of net sales, in fiscal 1998 from $13.2 million, or 2.0% of net
sales, in the prior fiscal period. The decrease was primarily attributable to
lower average borrowing levels, which were reduced with the proceeds received
from the sale of additional shares (see Note 7), lower borrowing rates due to a
change in the debt mix and a reduction in the cost of funds borrowed under the
Credit Facility (see Note 2).
EXTRAORDINARY ITEM: The Company recorded an expense of $446,000, net of tax,
related to the early extinguishment of the Company's term loan and revolving
credit facility in fiscal 1997 (see Note 2).
NET INCOME: Net income in fiscal 1998 amounted to $11.2 million, or 1.7% of net
sales, compared to $9.3 million, or 1.4% of net sales, in fiscal 1997.
The decrease in the effective tax rate to 39.1% in fiscal 1998 from 39.3% in
fiscal 1997 primarily reflects a reduction in expenses in excess of the
limitations established in Section 162 of the Internal Revenue Code of 1986,
partially offset by taxes paid in the closure of the Internal Revenue Service
audit for the fiscal years of 1992 through 1995.
CHANGES IN ACCOUNTING POLICIES
In the fourth quarter of fiscal 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). The
statement establishes standards for computing and presenting earnings per share
("EPS") and
23
<PAGE> 4
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
applies to entities with publicly held common stock. SFAS No. 128 simplifies the
standards for computing EPS previously found in Accounting Principles Board
Opinion No. 15, "Earnings Per Share," and makes them comparable to international
EPS standards. It replaces the presentation of primary and fully diluted EPS
with a presentation of basic and diluted EPS, respectively. SFAS No. 128 also
requires the dual presentation of basic and diluted EPS on the face of the
income statement and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and the denominator of
the diluted EPS calculation.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and for Hedging Activities" ("SFAS No. 133"). This statement requires every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. SFAS No. 133 also requires the Company to formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. By requiring greater use of fair-value accounting, SFAS No.
133 has the potential to increase volatility in earnings and other comprehensive
income. The Company will adopt SFAS No. 133 in fiscal 2001 and its effect is not
anticipated to impact the operating results of the Company, as only cash flow
hedges are utilized by the Company and their change will be reported through
comprehensive income.
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, in the year 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 processes. To date, the Company is not
aware of the occurrence of any significant Year 2000 problems in its business.
The Company expended approximately $1.2 million in connection with the Year
2000 expenses. Any further expenditures necessary would likely be in connection
with verification of third-party interfaces with the Company's systems.
MARKET RISK AND FINANCIAL INSTRUMENTS
The Company is exposed to market risk associated with changes in interest rates.
To provide some protection against potential rate increases associated with its
variable rate facilities, the Company has entered into various derivative
financial transactions in the form of interest rate swaps. The interest rate
swaps are used to hedge underlying variable rate facilities. The swaps are
qualifying hedges and the interest rate differential is reflected as an
adjustment to interest expense over the life of the swaps. The Company currently
holds "variable to fixed" rate swaps with a notional amount of $110.0 million
with several different financial institutions for various terms. The notional
amount does not represent amounts exchanged by the parties, but it is used as
the basis to calculate the amounts due and to be received under the rate swaps.
The Company believes the derivative financial instruments entered into provide
protection from volatile upward swings in the interest rates associated with the
Company's variable rate facilities. The Company does not enter into or hold
derivative financial instruments for trading purposes.
The following tabular disclosure provides information about the Company's
derivative financial instruments and other financial instruments that are
sensitive to changes in interest rates, including debt obligations and interest
rate swaps. For debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates as of January
29, 2000. For interest rate swaps, the table presents notional amounts and
weighted average pay and receive interest rates by expected maturity date.
<TABLE>
<CAPTION>
Expected Maturity Date
----------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Long-term Debt
Fixed Rate Debt $ 682 $ 6,542 $ 642 $ 709 $ 780 $17,774 $ 27,129 $27,408
Average fixed rate 9.92% 10.88% 9.62% 9.62% 9.62% 9.62% 9.93%
Variable Rate Debt -- -- -- -- $ 75,300 $ 4,500 $ 79,800 $77,795
Average variable rate -- -- -- -- 6.74% 4.25% 6.60%
Interest Rate Derivatives
Interest Rate Swaps
Variable to Fixed $30,000 -- -- $ 50,000 $ 30,000 -- $ 110,000 $ 3,842
Average pay rate 6.02% -- -- 5.81% 5.58% -- 5.81%
Average receive rate 5.21% -- -- 5.27% 5.49% -- 5.49%
</TABLE>
24
<PAGE> 5
SEASONALITY AND INFLATION
The Company's business, like that of most retailers, is subject to seasonal
fluctuations, with the major portion of sales and income realized during the
last half of each fiscal year, which includes the back-to-school and holiday
seasons. See Note 11 of Notes to Consolidated Financial Statements for the
Company's quarterly results for fiscal 1999 and 1998. Selling, general and
administrative expenses are typically higher as a percentage of net sales during
the first half of each fiscal year.
Because of the seasonality of the Company's business, results for any quarter
are not necessarily indicative of the results that may be achieved for a full
fiscal year. In addition, quarterly results of operations depend upon the timing
and amount of revenues and costs associated with the opening of new stores and
closing and remodeling of existing stores.
The Company does not believe inflation had a material effect on operating
results during the past three years. However, there can be no assurance that the
Company's business will not be affected by inflationary adjustments in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes material measures of the Company's liquidity and
capital resources:
<TABLE>
<CAPTION>
January 29, January 30, January 31,
(Dollars in millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working capital $ 141.8 $ 129.0 $ 123.1
Current ratio 2.24:1 2.10:1 2.22:1
Funded debt to total capitalization 0.36:1 0.29:1 0.49:1
Unused availability under lines of credit $ 35.5 $ 69.7 $ 17.5
</TABLE>
The Company's primary sources of working capital are cash flow from operations,
borrowings under its revolving credit facility and proceeds from its accounts
receivable facility. The Company had working capital of $141.8 million, $129.0
million and $123.1 million at the end of fiscal 1999, 1998 and 1997,
respectively. The increase in working capital in fiscal 1999 was principally
attributable to an increase in merchandise inventories required to support the
seven new locations, partially offset by decreased inventories in existing
stores. The Company's business follows a seasonal pattern and working capital
fluctuates with seasonal variations. On average, the Company's working capital
was at its lowest levels from February through August and then increased through
October when it reached its highest level.
Net cash provided by operating activities amounted to $5.9 million and $25.8
million in fiscal 1999 and 1998, respectively, while net cash used in operating
activities amounted to $7.7 million in fiscal 1997.
Net cash used in investing activities amounted to $37.2 million and $21.4
million in fiscal 1999 and 1998, respectively, while net cash provided by
investing activities amounted to $21.9 million in fiscal 1997. The net cash
outflow in fiscal 1999 was the result of capital expenditures in the amount of
$46.5 million which were primarily related to the construction of new stores in
Glens Falls, New York; Pottstown, Pennsylvania; Concord, New Hampshire and
Burlington, Vermont, expansion and remodeling of four stores, expenditures for
fixtures and displays and remodeling the newly acquired stores. The Company
acquired, in exchange for $2.2 million, the leasehold interests in three stores
located in Hamden, Connecticut; Red Bank, New Jersey and Brick Township, New
Jersey (see Note 13). Offsetting these expenditures were $11.0 million of
proceeds from the accounts receivable facility.
Net cash provided by financing activities amounted to $31.5 million in fiscal
1999, while the cash used in financing activities amounted to $2.9 million and
$11.6 million in fiscal 1998 and 1997, respectively. The net cash inflow in
fiscal 1999 was attributable to the borrowings on the Company's long-term debt.
The Company currently anticipates its capital expenditures for fiscal 2000
will approximate $30.7 million. The expenditures will be directed toward
expansion and remodeling three of the Company's existing stores, opening one to
two new stores and information systems enhancements.
Aside from planned capital expenditures, the Company's primary cash
requirements will be to service debt and finance working capital increases
during peak selling seasons. The Company anticipates that its cash balances and
cash flows from operations, supplemented by borrowings under the Credit Facility
and proceeds from the accounts receivable facility, will be sufficient to
satisfy its operating cash requirements.
25
<PAGE> 1
Exhibit 13.3
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 29, January 30,
(In thousands except share and per share data) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,807 $ 10,607
Trade and other accounts receivable, net of allowance for doubtful
accounts of $3,167 and $3,692 in 1999 and 1998, respectively 27,782 34,677
Merchandise inventories 203,489 192,872
Prepaid expenses and other current assets 12,371 8,292
Deferred income taxes 1,926 -
--------------------------
Total current assets 256,375 246,448
==========================
PROPERTY, FIXTURES AND EQUIPMENT AT COST,
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 144,715 112,521
OTHER ASSETS 16,402 19,150
--------------------------
Total assets $417,492 $378,119
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 67,353 $ 71,448
Accrued payroll and benefits 10,016 9,639
Accrued expenses 26,262 25,594
Current portion of long-term debt 682 615
Current portion of obligations under capital leases 442 409
Deferred income taxes - 26
Income taxes payable 9,832 9,740
--------------------------
Total current liabilities 114,587 117,471
--------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 106,247 74,387
OBLIGATIONS UNDER CAPITAL LEASES, LESS CURRENT MATURITIES 1,431 1,868
DEFERRED INCOME TAXES 1,362 823
OTHER LONG-TERM LIABILITIES 3,174 3,359
--------------------------
Total liabilities 226,801 197,908
--------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY:
Common Stock - authorized 40,000,000 shares at $0.01 par value;
issued and outstanding shares of 12,276,860 and 12,278,120 in
1999 and 1998, 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 in 1999 and 1998 30 30
Additional paid-in capital 108,083 108,260
Deferred compensation (2,172) (3,114)
Retained earnings 84,627 74,912
--------------------------
Total shareholders' equity 190,691 180,211
--------------------------
Total liabilities and shareholders' equity $417,492 $378,119
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
26
<PAGE> 2
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
January 29, January 30, January 31,
(In thousands except share and per share data) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 710,963 $ 674,871 $ 656,399
OTHER INCOME, NET 2,651 2,350 2,349
-------------------------------------------------
713,614 677,221 658,748
-------------------------------------------------
COSTS AND EXPENSES:
Costs of merchandise sold 449,596 426,730 413,846
Selling, general and administrative 224,150 209,407 202,850
Depreciation and amortization 14,846 13,281 12,882
Unusual expense 2,683 -- --
Restructuring income (2,492) -- --
-------------------------------------------------
INCOME FROM OPERATIONS 24,831 27,803 29,170
INTEREST EXPENSE, NET 8,552 9,396 13,202
-------------------------------------------------
INCOME BEFORE INCOME TAXES 16,279 18,407 15,968
INCOME TAX PROVISION 6,186 7,196 6,270
-------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 10,093 11,211 9,698
EXTRAORDINARY ITEM - loss on early extinguishment
of debt, net of income tax benefit (378) -- (446)
-------------------------------------------------
NET INCOME $ 9,715 $ 11,211 $ 9,252
=================================================
PER SHARE AMOUNTS -
BASIC:
Net income before extraordinary item $ 0.68 $ 0.81 $ 0.87
Effect of extraordinary item (0.02) -- (0.04)
-------------------------------------------------
Net income $ 0.66 $ 0.81 $ 0.83
=================================================
BASIC SHARES OUTSTANDING 14,750,000 13,866,000 11,122,000
DILUTED:
Net income before extraordinary item $ 0.68 $ 0.81 $ 0.85
Effect of extraordinary item (0.02) -- (0.04)
-------------------------------------------------
Net income $ 0.66 $ 0.81 $ 0.81
=================================================
DILUTED SHARES OUTSTANDING 14,753,000 13,917,000 11,377,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE> 3
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Additional
Common Common Paid-in Deferred Retained
(In thousands) Stock Stock Capital Compensation Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1997 $ 83 $ 30 $ 58,182 $ (1,259) $ 54,449 $ 111,485
Net income -- -- -- -- 9,252 9,252
Issuance of stock under Stock Award Plans 2 -- 2,094 (1,256) -- 840
Deferred compensation amortization -- -- -- 505 -- 505
Exercised stock options 3 -- 2,314 -- -- 2,317
Cancellation of Restricted Shares -- -- (5) -- -- (5)
--------------------------------------------------------------------------------
Balance at January 31, 1998 88 30 62,585 (2,010) 63,701 124,394
Net income -- -- -- -- 11,211 11,211
Secondary stock offering 31 -- 43,386 -- -- 43,417
Issuance of stock under Stock Award Plans 3 -- 1,949 (2,262) -- (310)
Deferred compensation amortization -- -- -- 943 -- 943
Exercised stock options 1 -- 732 -- -- 733
Cancellation of Restricted Shares -- -- (392) 215 -- (177)
--------------------------------------------------------------------------------
Balance at January 30, 1999 123 30 108,260 (3,114) 74,912 180,211
Net income -- -- -- -- 9,715 9,715
Issuance of stock under Stock Award Plans -- -- 36 (22) -- 14
Deferred compensation amortization -- -- (183) 933 -- 750
Exercised stock options -- -- 16 -- -- 16
Cancellation of Restricted Shares -- -- (46) 31 -- (15)
--------------------------------------------------------------------------------
Balance at January 29, 2000 $ 123 $ 30 $ 108,083 $ (2,172) $ 84,627 $ 190,691
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
28
<PAGE> 4
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
January 29, January 30, January 31,
(In thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,715 $ 11,211 $ 9,252
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 14,846 13,281 12,882
Bad debt 520 1,770 700
Stock compensation expense 750 441 1,345
Gain on sale of property, fixtures and equipment (158) (1,291) (17)
Cancellation of Restricted Shares (15) (177) (5)
(Increase) decrease in other long-term assets (408) 143 (80)
Deferred income tax (1,414) (743) (1,210)
Decrease in other long-term liabilities (185) (50) (523)
Extraordinary loss on debt extinguishment 610 -- 697
Asset write-down charge 2,683 -- --
Restructuring income (2,492) -- --
Restructuring payments -- (449) (580)
Changes in operating assets and liabilities:
Increase in accounts receivable (4,625) (2,961) (34,879)
Increase in merchandise inventories (10,616) (15,090) (16,592)
(Increase) decrease in prepaid expenses and other current assets (3,195) 543 9,554
(Decrease) increase in accounts payable (4,093) 15,970 3,852
Increase in accrued expenses 3,865 1,851 3,343
Increase in income taxes payable 91 1,352 4,551
-----------------------------------------
Total adjustments (3,836) 14,590 (16,962)
-----------------------------------------
Net cash provided by (used in) operating activities 5,879 25,801 (7,710)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (46,451) (19,418) (10,978)
Proceeds from sale of property, fixtures and equipment 426 3,004 17
Proceeds from sale of accounts receivable, net 11,000 (5,000) 22,000
Payment for the acquisition of businesses, net of cash received (2,192) -- --
Proceeds from Sale and Leaseback arrangement -- -- 10,841
-----------------------------------------
Net cash (used in) provided by investing activities (37,217) (21,414) 21,880
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (278,778) (309,339) (320,996)
Proceeds from issuance of long-term debt 310,300 262,300 307,102
Proceeds from equity offering -- 43,417 --
Exercised stock options 16 733 2,317
-----------------------------------------
Net cash provided by (used in) financing activities 31,538 (2,889) (11,577)
Net increase in cash and cash equivalents 200 1,498 2,593
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,607 9,109 6,516
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,807 $ 10,607 $ 9,109
=========================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
29
<PAGE> 5
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
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, through its subsidiaries, 72
retail department stores located in Pennsylvania, New York, New Jersey,
Maryland, Connecticut, Massachusetts, New Hampshire, Vermont and West Virginia.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Bon-Ton
Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All intercompany
transactions have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
which affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearer to January 31 of the
following calendar year, and consisted of fifty-two weeks for fiscal years 1999,
1998 and 1997. Fiscal years 1999, 1998 and 1997 ended on January 29, 2000,
January 30, 1999 and January 31, 1998, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with an original
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents are generally overnight money market investments.
MERCHANDISE INVENTORIES
For both financial reporting and tax purposes, merchandise inventories are
determined by the retail method, using a LIFO (last-in, first-out) cost basis.
The estimated cost to replace inventories was $203,756 and $193,823 as of
January 29, 2000 and January 30, 1999, respectively.
PROPERTY, FIXTURES AND EQUIPMENT: DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property, fixtures and equipment are computed
using the straight-line method based upon the following average estimated
service lives (or remaining lease terms):
Buildings 20 to 40 years
Leasehold improvements 15 years
Fixtures and equipment 5 to 10 years
No depreciation is recorded until property, fixtures and equipment are placed
into service. Property, fixtures and equipment not placed into service are
classified as construction in progress.
The Company capitalizes interest and lease costs incurred during the
construction of any new facilities or major improvements. The amount of interest
and lease costs capitalized is limited to that incurred during the construction
period. Repair and maintenance costs are charged to operations as incurred.
Property retired or sold is removed from the asset and accumulated depreciation
accounts and the resulting gain or loss is reflected in income.
The costs of major remodeling and improvements on leased stores are
capitalized as leasehold improvements. Leasehold improvements are generally
amortized over the shorter of the lease term or the useful life of the asset.
Capital leases are recorded at the lower of fair market value or the present
value of future minimum lease payments. Capital leases are amortized over the
primary term of the lease.
30
<PAGE> 6
STORE OPENING AND CLOSING COSTS
The Company follows the practice of accounting for store opening costs incurred
prior to opening a new retail unit as a current period expense. When the
decision to close a retail unit is made, the Company provides for the estimated
future net lease obligations after store operations cease, nonrecoverable
investments in property, fixtures and equipment and other expenses directly
related to discontinuance of operations. The estimates are based upon historical
information and certain assumptions about future events. Changes in the
assumptions for store closing costs for such items as the estimated period of
future lease obligations and the amounts actually realized relating to the
carrying value of property, fixtures and equipment could cause these estimates
to change.
ADVERTISING
Advertising production costs are expensed the first time the advertisement is
run. Media placement costs are expensed in the period the advertising appears.
Total advertising expenses included in selling, general and administrative
expenses for fiscal years 1999, 1998 and 1997 were $28,795, $27,569 and $27,095,
respectively. Prepaid expenses and other current assets include prepaid
advertising costs of $1,000 and $972 at January 29, 2000 and January 30, 1999,
respectively.
REVENUE RECOGNITION
The Company recognizes revenue at either the point-of-sale or at the time
merchandise is shipped to the customer.
LEASED DEPARTMENT SALES
The Company leases space to third parties in several of its stores and receives
compensation based on a percentage of sales made in these departments. Other
income, net, includes leased department rental income of approximately $2,872,
$2,590 and $2,502 in fiscal 1999, 1998 and 1997, respectively.
REVOLVING CHARGE ACCOUNTS
Finance charge income on customers' revolving charge accounts is reflected as a
reduction of selling, general and administrative expenses. The finance charge
income earned by the Company, before considering the costs of administering and
servicing the revolving charge accounts, for fiscal years 1999, 1998 and 1997
was $28,406, $29,776 and $25,019, respectively, and is a component of
securitization income (see Note 4).
STOCK-BASED COMPENSATION
The Company follows Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), which provides for a
fair value based method of accounting for grants of equity instruments to
employees or suppliers in return for goods or services. As permitted under SFAS
No. 123, the Company has elected to continue to account for compensation costs
under the provisions prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has included pro forma
disclosures of net income and basic and diluted earnings per share in Note 10 as
if the fair value based method had been applied in measuring compensation cost.
EARNINGS PER SHARE
In the fourth quarter of fiscal 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No.
128, which supersedes Accounting Principles Board Opinion No. 15, "Earnings per
Share," 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
income, is identical in both calculations. The following table presents a
reconciliation of the shares outstanding for the respective calculations, as
well as the calculated EPS, for each period presented on the accompanying
Consolidated Statements of Income. The EPS shown in the reconciliation
represents EPS before the impact of extraordinary items.
31
<PAGE> 7
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
Shares EPS Shares EPS Shares EPS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Calculation 14,750,000 $0.68 13,866,000 $0.81 11,122,000 $0.87
Dilutive Securities -
Restricted Shares -- 25,000 72,000
Options 3,000 26,000 183,000
------------------------------------------------------------------
Diluted Calculation 14,753,000 $0.68 13,917,000 $0.81 11,377,000 $0.85
------------------------------------------------------------------
Antidilutive shares and options -
Restricted Shares 402,000 388,000 132,000
Options 1,316,000 1,068,000 654,000
</TABLE>
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 first three quarters of
1999 and 1998 and the first two quarters of 1997. In addition, antidilutive
options to purchase shares during the remaining quarters were excluded from the
computation of dilutive securities due to exercise prices greater than the
average market price.
The following table reflects the approximate dilutive securities calculated
under the treasury stock method had the Company reported a net profit in each
consecutive quarter of the corresponding fiscal years:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Approximate Dilutive Securities -
Restricted Shares 43,000 90,000 108,000
Options 27,000 291,000 248,000
</TABLE>
In addition, options to purchase shares with exercise prices greater than the
average market price were excluded from the above table for 1999, 1998 and 1997
in the approximate amounts of 1,139,000, 244,000 and 311,000, respectively, as
they would have been antidilutive.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and for Hedging Activities" ("SFAS No. 133"). This statement requires every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. SFAS No. 133 also requires the Company to formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. By requiring greater use of fair-value accounting, SFAS No.
133 has the potential to increase volatility in earnings and other comprehensive
income. The Company will adopt SFAS No. 133 in fiscal 2001 and its effect is not
anticipated to impact the operating results of the Company, as only cash flow
hedges are utilized by the Company and their change will be reported through
comprehensive income.
2. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit agreement - principal payable April 15, 2004;
interest payable periodically at varying rates (6.74% for fiscal year 1999) $ 75,300 $42,770
Mortgage notes payable - principal payable in varying monthly installments
through June 2016; interest 9.62%; secured by land and buildings 21,012 21,484
Mortgage notes payable - principal and interest in monthly installments of
$68 through January 2001, with a balloon payment in February 2001;
interest 11.00%; secured by buildings 6,117 6,248
Mortgage notes payable - principal payable February 1, 2012; interest payable
monthly at various rates; secured by a building 4,500 4,500
--------------------------
Total debt 106,929 75,002
Less: current maturities 682 615
--------------------------
Long-term debt $106,247 $74,387
==========================
</TABLE>
32
<PAGE> 8
In April 1999, the Company amended its revolving credit agreement ("Credit
Facility") to extend the term of the facility to 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 rate pricing structure,
with substantially all other terms and conditions remaining unchanged. As a
result of this transaction, the Company incurred a one-time extraordinary
after-tax charge of $378, or $0.02 per share, in fiscal 1999. The Company also
recognized a one-time extraordinary charge of $446, or $0.04 per share, in
fiscal 1997 related to refinancing the Company's debt.
As of January 29, 2000, the Company borrowed $75,300, with $35,501 of
additional borrowing availability remaining under the Credit Facility. The
interest charged under this agreement, based on LIBOR or an index rate plus an
applicable margin, is determined by a formula based on the Company's interest
coverage ratio (defined as the ratio of earnings before interest, taxes,
depreciation and amortization to interest expense).
The Company maintains an interest rate swap portfolio that allows the Company
to convert a portion of the variable rates under the Company's facilities to
fixed rates. The following table indicates the notional amounts as of January
29, 2000 and January 30, 1999 and the range of interest rates paid and received
by the Company during the respective fiscal years:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed swaps (notional amount) $110,000 $80,000
Range of receive rate 5.00%-6.16% 5.06%-5.70%
Range of pay rate 5.58%-6.06% 5.66%-6.06%
</TABLE>
The interest rate swap agreements will expire on various dates from November 27,
2000 to April 8, 2004. The net income or expense from the exchange of interest
rate payments is included in interest expense. The estimated fair value, based
on dealer quotes, of the interest rate swap agreements at January 29, 2000 and
January 30, 1999, was income of $3,842 and a loss of $2,308, respectively, and
represents the amount the Company would receive or pay if the agreements were
terminated as of such dates.
Several of the Company's loan agreements contain restrictive covenants,
including a minimum trade support ratio, a minimum fixed charge ratio and
limitations on dividends, additional incurrence of debt and capital
expenditures.
The fair value of the Company's debt, excluding interest rate swaps, is
estimated at $105,203 and $76,480 on January 29, 2000 and January 30, 1999,
respectively, and is based on an estimate of the rates available to the Company
for debt with similar features.
Debt maturities, as of January 29, 2000, are as follows:
<TABLE>
<S> <C>
2000 $ 682
2001 6,542
2002 642
2003 709
2004 76,080
2005 and thereafter 22,274
--------
$106,929
========
</TABLE>
3. INTEREST COSTS
Interest and debt costs were:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest costs incurred $8,988 $9,681 $13,441
Interest income (103) (110) (234)
Capitalized interest, net (333) (175) (5)
----------------------------------------------
Interest expense, net $8,552 $9,396 $13,202
==============================================
Interest paid $8,303 $9,128 $12,887
==============================================
</TABLE>
4. SALE OF RECEIVABLES
The Company securitizes its private credit card portfolio through an accounts
receivable facility (the "Facility"). The securitization agreement was amended
in October 1999 to extend the term of the facility through January 2003 and
contains increased pricing of 0.1 percentage point and a trade support covenant.
The amended agreement also provides provisions for the Company to request
seasonal increases in the amount sold under the facility and annual extensions
of the term. Substantially all other terms and conditions of the original
agreement remain unchanged.
33
<PAGE> 9
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the securitization agreement, which is contingent upon the receivables
meeting certain performance criteria, the Company has the option to sell through
The Bon-Ton Receivables Partnership, LP ("BTRLP"), a wholly-owned subsidiary of
the Company, up to $150,000 of an undivided percentage interest in the
receivables, on a limited recourse basis. BTRLP assets of $25,873 and $35,157 as
of January 29, 2000 and January 30, 1999, respectively, were included in the
accompanying Consolidated Balance Sheets and consist primarily of its retained
interest in receivables initially purchased from the Company and sold under the
Facility. The Company accounts for its retained interest in the receivables in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The Company has not
recognized any unrealized gains or losses on its retained interest, as the
current carrying value of customers' revolving charge accounts receivable is a
reasonable estimate of fair value since the average interest rates approximate
current market origination rates. Creditors of BTRLP have a claim on BTRLP's
assets prior to any equity in BTRLP becoming available to creditors of the
Company.
As of January 29, 2000 and January 30, 1999, credit card receivables were
sold under the above referenced agreement in the amount of $138,000 and
$127,000, respectively. BTRLP holds a participating interest in an undivided
ownership interest in the receivables sold. This interest is required to be held
under terms of the agreement to provide credit support against future losses and
is subject to lien. The amount subject to credit support amounted to $23,172 and
$29,360 at January 29, 2000 and January 30, 1999, respectively. New receivables
are sold on a continual basis to replenish the investors' respective level of
participation in receivables which have been repaid by the credit card holders.
The Company does not recognize a servicing asset or liability, as the amount
received for servicing the receivables is a reasonable approximation of market
rates and servicing costs.
The net impact on earnings in connection with the sale of receivables
under this agreement was not significant. However, under the terms of the sale
agreement, the Company receives securitization income equal to the excess of the
finance charges collected on the receivables over the rate paid, which is based
on variable or fixed rate pricing alternatives, less the credit losses which are
payable under the recourse provisions of these agreements. The Company also
continues to service the accounts. Securitization income, before consideration
of servicing expenses other than the rate paid in these securitization
transactions and credit losses, was approximately $7,121, $7,587 and $8,410 in
fiscal 1999, 1998 and 1997, respectively. Securitization income and servicing
expenses are reported as components of selling, general and administrative
expenses. Although the Company receives positive securitization cash flow, an
interest-only strip has not been recorded due to the short life of the
receivables and to provide for credit losses under the recourse provision of the
Facility.
5. PROPERTY, FIXTURES AND EQUIPMENT
As of January 29, 2000, and January 30, 1999, property, fixtures and equipment
and the related accumulated depreciation and amortization consisted of:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 1,952 $ 660
Buildings and leasehold improvements 131,290 105,305
Furniture and equipment 113,772 94,675
Buildings under capital leases 5,052 5,052
----------------------------
252,066 205,692
Less: Accumulated depreciation and amortization 107,351 93,171
----------------------------
$144,715 $112,521
============================
</TABLE>
Property, fixtures and equipment with a net depreciated cost of approximately
$38,754 and $40,056 are pledged as collateral for secured loans at January 29,
2000 and January 30, 1999, respectively.
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 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.
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 as a reduction of selling, general
and administrative expense. The net proceeds of $1.2 million received from the
sale were used to fund additional working capital requirements.
34
<PAGE> 10
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company is obligated under capital and operating leases for a major portion
of its store properties. Certain leases provide for additional rental payments
based on a percentage of sales in excess of a specified base (contingent
rentals) and for payment by the Company of operating costs (taxes, maintenance
and insurance). Also, selling space has been licensed to other retailers in many
of the Company's leased facilities.
At January 29, 2000, future minimum lease payments under operating leases and
the present value of net minimum lease payments under capital leases are as
follows:
<TABLE>
<CAPTION>
Fiscal Year Capital Leases Operating Leases
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 579 $ 20,335
2001 579 18,536
2002 300 16,538
2003 300 15,914
2004 300 15,317
2005 and thereafter 200 82,566
-------------------------
Total net minimum rentals 2,258 $169,206
========
Less: Amount representing interest 385
------
Present value of net minimum lease payments, of which $442 is due within one year $1,873
======
</TABLE>
Minimum rental commitments under operating leases are reflected without
reduction for rental income due in future years under noncancellable subleases
since the amounts are immaterial. Some of the store leases contain renewal
options ranging from two to thirty-five years. Included in the minimum lease
payments under operating leases are leased vehicles, copiers, fax machines and
computer equipment, as well as related-party commitments with the Company's
majority shareholder and related entities of $451, $481, $481, $481, $481 and
$3,795 for fiscal 2000, 2001, 2002, 2003, 2004 and 2005 and thereafter,
respectively.
Rental expense consisted of the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating leases:
Buildings:
Minimum rentals $16,367 $14,597 $13,898
Contingent rentals 2,614 2,710 2,636
Fixtures and equipment 2,015 1,230 1,332
Contingent rentals on capital leases 414 399 410
----------------------------------------------
Totals $21,410 $18,936 $18,276
==============================================
</TABLE>
CONTINGENCIES
The Company has been named, together with other department stores and Nine West
Group, Inc., as a defendant in a number of antitrust class action lawsuits which
have been consolidated in the United States District Court of the Southern
District of New York. These lawsuits allege that the defendants engaged in
conduct in violation of the antitrust laws relating to the sale of shoes
manufactured by Nine West, and seek unspecified damages against all defendants.
The Company and its counsel believes these claims are without merit and intends
to vigorously defend these lawsuits.
Nine West recently announced it entered into a settlement with the Attorneys
General of the fifty states, territories and possessions of the United States
and the Federal Trade Commission. The agreement, which must be approved by the
Court, settles price-fixing claims against Nine West and its alleged
co-conspirators. The Company believes that the settlement agreement, if
approved, may completely resolve and extinguish the claims asserted in the
private class action against the Company and the other department store
defendants.
The Company is party to legal proceedings and claims which arise during the
ordinary course of business. In the opinion of management, the ultimate outcome
of all such litigation and claims will not have a material adverse effect on the
Company's financial position or results of its operations.
35
<PAGE> 11
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY
The Company's capital structure consists of Common Stock with one vote per share
and Class A Common Stock with ten votes per share. In addition, the Company has
5.0 million shares of preferred stock authorized; however, none of these shares
have been issued.
Transfers of the Company's Class A Common Stock are restricted. Upon sale or
transfer of ownership or voting rights to other than permitted transferees, as
defined, such shares will convert to an equal number of shares of Common Stock.
On May 1, 1998, the Company sold 3.1 million shares of its Common Stock
pursuant to a public offering. The net proceeds received of $43.4 million were
used to expand and upgrade existing stores, open new stores, provide working
capital and for general corporate purposes.
8. INCOME TAXES
The Company accounts for income taxes according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Under SFAS No. 109, deferred tax assets and liabilities are computed based on
the difference between the financial statement and income tax basis of assets
and liabilities using applicable current marginal tax rates.
Components of the income tax provision are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal and State:
Current $ 7,600 $7,939 $ 7,480
Deferred (1,414) (743) (1,210)
----------------------------------------------
Total $ 6,186 $7,196 $ 6,270
==============================================
</TABLE>
Components of gross deferred tax assets and liabilities were comprised of the
following:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses $2,261 $1,635
Restricted Shares 1,614 1,432
Bad debt reserve 1,172 1,329
Sale and leaseback 948 976
Asset write-down 830 -
Loss carryforward 222 270
Capital leases 88 116
Store closings - 1,011
Valuation allowance (125) (204)
------------------------
Total gross deferred tax assets $7,010 $6,565
========================
Deferred tax liabilities:
Fixed assets $4,205 $4,400
Inventory 1,029 1,692
Other 1,212 1,322
------------------------
Total gross deferred tax liabilities $6,446 $7,414
========================
</TABLE>
The loss carryforward at January 29, 2000 relates to the acquisition of Adam,
Meldrum & Anderson Co., Inc. and will expire in January 2009.
The valuation allowance relates to the deferred tax assets that result from
accrued expenses that are not deductible for tax purposes due to the limitations
arising from Section 162 of the Internal Revenue Code of 1986, as amended ("IRC
162"), relating to deductions for executive compensation.
No other deferred tax assets have associated valuation allowances since these
tax benefits are realizable through the reversal of existing deferred tax
liabilities and future taxable income.
36
<PAGE> 12
A reconciliation of the statutory federal income tax rate to the effective
tax rate for fiscal 1999, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate 35.0% 35.0% 35.0%
Book expense in excess of IRC 162 limitation 0.9 0.7 2.3
State income taxes, net of federal benefit 2.0 1.0 1.0
Internal Revenue Service audit closure -- 1.9 --
Other, net 0.1 0.5 1.0
----------------------------------------------
Total 38.0% 39.1% 39.3%
==============================================
</TABLE>
In fiscal 1999, 1998 and 1997, the Company made income tax payments of $7,335,
$6,397 and $2,194, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company provides eligible employees with retirement benefits under a 401(k)
salary reduction and profit sharing plan (the "Plan"). Employees are eligible to
participate in the Plan after they reach the age of 21, complete one year of
service and work at least 1,000 hours in any calendar year. Under the 401(k)
provisions of the Plan, the majority of eligible employees may contribute up to
15% of their compensation to the Plan. Company matching contributions, not to
exceed 5% of eligible employees' compensation, are at the discretion of the
Company's Board of Directors. Company matching contributions under the 401(k)
provisions of the Plan become fully vested for eligible employees after three
years of service. Contributions to the Plan under the profit sharing provisions
are at the discretion of the Company's Board of Directors. These profit sharing
contributions become fully vested after five years of service. The Company
contributed $1,400, $1,422 and $1,350 in fiscal 1999, 1998 and 1997,
respectively, under the profit sharing provisions of the Plan.
In addition to the above plans, the Company maintains a non-qualified
compensation plan for a select group of management employees.
The Company's fiscal 1999, 1998 and 1997 expense under the aforementioned
benefit plans was $1,981, $1,798 and $1,951, respectively.
10. STOCK AWARD PLANS
The Company's Amended and Restated 1991 Stock Option and Restricted Stock Plan
(the "Stock Plan"), as amended through June 17, 1997, provides for the granting
of the following options and awards to certain associates, officers, directors,
consultants and advisors: Common Stock options; performance-based Common Stock
options as part of a long-term incentive plan for selected officers; and Common
Stock awards subject to substantial risk of forfeiture ("Restricted Shares").
The maximum number of shares to be granted under the Stock Plan, less
forfeitures, is 1,900,000 shares. In addition to the Stock Plan, during 1991 the
Board of Directors approved a Phantom Equity Replacement Plan (the "Replacement
Plan") to replace the Company's previous deferred compensation arrangement that
was structured as a phantom stock program.
Options granted under the Stock Plan, excluding Restricted Share awards, are
generally issued at the market price of the Company's stock on the date of
grant, vest over three to five years and have a ten-year term. Grants under the
Replacement Plan vest over approximately one to six years and have a thirty-year
term.
The Company amended its Management Incentive Plan (the "MIP Plan") in 1997 to
provide, at the election of each participant, bonus awards to be received in
vested Restricted Shares in lieu of cash on the satisfaction of applicable
performance goals. The maximum number of shares to be granted under the MIP Plan
is 300,000, with no additional shares to be issued after July 1998.
Pursuant to Mr. Wilansky's Employment Agreement (see Note 12), the Company
implemented The Bon-Ton Stores, Inc. Performance Based Stock Incentive Plan for
Heywood Wilansky (the "Stock Incentive Plan"). The Stock Incentive Plan provides
performance-based compensation to Mr. Wilansky in the form of stock bonuses
granted in connection with services provided. The maximum number of shares
available under the Stock Incentive Plan is 500,000.
Compensation cost charged to operations, calculated using the intrinsic value
method as required by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," was $750, $441 and $1,345 in fiscal 1999, 1998
and 1997, respectively. Had the Company recorded compensation expense using the
fair value based method as discussed in SFAS No. 123,
37
<PAGE> 13
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
"Accounting for Stock-Based Compensation," net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $9,715 $11,211 $9,252
Pro forma 8,121 10,154 8,416
Earnings per share
Basic As reported $ 0.66 $ 0.81 $ 0.83
Pro forma 0.55 0.73 0.76
Diluted As reported $ 0.66 $ 0.81 $ 0.81
Pro forma 0.55 0.73 0.74
</TABLE>
The Company used the Black-Scholes option pricing model to calculate the fair
value of the stock options at the grant date. The following assumptions were
used:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected option term in years 6.7 7.7 7.2
Stock price volatility factor 65.4% 66.6% 61.5%
Dividend yield 0.0% 0.0% 0.0%
Risk free interest rate 6.1% 5.5% 6.3%
</TABLE>
A summary of the options and restricted shares under the Stock Plan follows:
<TABLE>
<CAPTION>
Restricted
Common Stock Options Performance-Based Options Shares
--------------------------------------------------------------------
Number of Average Number of Average Number
Options Price Options Price of Shares
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1997
February 1, 1997 751,820 $ 8.22 210,100 $ 6.94 268,325
Granted 134,300 $ 6.86 167,100 $ 7.25 --
Exercised (243,759) $ 6.04 -- -- (10,955)
Forfeited (25,866) $10.32 -- -- (704)
--------------------------------------------------------------------
January 31, 1998 616,495 $ 8.35 377,200 $ 7.08 256,666
====================================================================
Options exercisable at January 31, 1998 274,309 $10.03 -- -- --
Weighted average fair value of options
granted during fiscal 1997 $ 4.84 $ 4.95
FISCAL 1998
Granted 151,400 $13.71 -- -- 35,000
Exercised (64,132) $ 8.72 -- -- (90,000)
Forfeited (21,400) $ 8.13 (33,300) $11.25 --
--------------------------------------------------------------------
January 30, 1999 682,363 $ 9.50 343,900 $ 6.67 201,666
====================================================================
Options exercisable at January 30, 1999 399,753 $ 8.88 -- -- --
Weighted average fair value of options
granted during fiscal 1998 $ 9.86 --
FISCAL 1999
Granted 243,000 $ 5.81 -- -- 5,000
Transferred 88,400 $ 6.13 (88,400) $ 6.13 --
Exercised (1,000) $ 6.38 -- -- (83,333)
Forfeited (40,733) $11.31 (88,400) $ 6.13 --
--------------------------------------------------------------------
January 29, 2000 972,030 $ 8.20 167,100 $ 7.25 123,333
====================================================================
Options exercisable at January 29, 2000 592,008 $ 8.55 -- -- --
Weighted average fair value of options
granted during fiscal 1999 $ 3.95 --
</TABLE>
The exercised shares in the above summary for Restricted Shares represent shares
for which the restrictions have lapsed.
38
<PAGE> 14
The range of exercise prices for the Common Stock options outstanding as of
January 29, 2000 follows:
<TABLE>
<CAPTION>
Range of Number of Options Weighted Average Weighted Average Number of Options Weighted Average
Exercise Prices Outstanding Exercise Price Contractual Life Currently Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.25 - $ 7.63 674,847 $ 6.26 5.1 years 383,748 $ 6.50
$ 8.00 - $11.25 77,033 $10.01 0.5 years 62,033 $10.48
$12.50 - $16.13 220,150 $13.50 1.2 years 146,227 $13.09
</TABLE>
The exercise price for the performance-based options was $7.25, with a weighted
average contractual life of 7.1 years.
A summary of the status of the Replacement Plan follows:
<TABLE>
<CAPTION>
Discount Non-Discount
Options Options
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Exercise Price $3.25 $13.00
-------------------------
February 1, 1997 142,578 42,606
Exercised (57,309) --
Forfeited -- (5,054)
-------------------------
January 31, 1998 85,269 37,552
Exercised (36,080) --
Forfeited -- --
-------------------------
January 30, 1999 49,189 37,552
Exercised -- --
Forfeited -- --
-------------------------
January 29, 2000 49,189 37,552
=========================
</TABLE>
The exercisable discounted options amounted to 49,189 as of January 29, 2000 and
January 30, 1999, and 83,411 as of January 31, 1998. The exercisable
non-discounted options amounted to 37,552 as of January 29, 2000 and January 30,
1999, and 36,122 as of January 31, 1998.
A summary of the Management Incentive Plan follows:
<TABLE>
<CAPTION>
Shares
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
February 1, 1997 --
Granted 202,300
Restriction lapse --
Forfeited --
-------
January 31, 1998 202,300
Granted 1,326
Restriction lapse (39,466)
Forfeited (47,022)
-------
January 30, 1999 117,138
Granted --
Restriction lapse (15,317)
Forfeited (7,260)
-------
January 29, 2000 94,561
=======
</TABLE>
Shares issued under the Stock Incentive Plan in fiscal 1998 were 250,000
Restricted Shares and options to purchase 250,000 shares with an exercise price
of $8.00 per share. No shares or options were vested or forfeited during fiscal
1998 and 83,334 options vested in fiscal 1999.
Cancellation of options and shares in the above plans resulted primarily from
the termination of the employment of certain executives and voluntary
forfeitures.
39
<PAGE> 15
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
------------------------------------------------------------
May 1, July 31, October 30, January 29,
1999 1999 1999 2000
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1999:
Net sales $142,399 $149,449 $168,474 $250,641
Other income, net 517 521 477 1,136
-------------------------------------------------------------
142,916 149,970 168,951 251,777
-------------------------------------------------------------
Costs of merchandise sold 93,190 92,719 106,469 157,218
Selling, general and administrative expenses 48,560 53,311 59,950 62,329
Depreciation and amortization 3,256 3,145 4,194 4,251
Unusual expense -- -- -- 2,683
Restructuring income -- -- -- (2,492)
-------------------------------------------------------------
Income (loss) from operations (2,090) 795 (1,662) 27,788
Interest expense, net 1,920 2,048 2,211 2,373
-------------------------------------------------------------
Income (loss) before income taxes (4,010) (1,253) (3,873) 25,415
Income tax provision (benefit) (1,524) (476) (1,472) 9,658
-------------------------------------------------------------
Income (loss) before extraordinary item (2,486) (777) (2,401) 15,757
Extraordinary item - loss on early extinguishment
of debt, net of income tax benefit of $232 (378) -- -- --
-------------------------------------------------------------
Net income (loss) $ (2,864) $ (777) $ (2,401) $ 15,757
=============================================================
PER SHARE AMOUNTS -
BASIC:
Net income (loss) before extraordinary item $ (0.17) $ (0.05) $ (0.16) $ 1.06
Effect of extraordinary item (0.02) -- -- --
-------------------------------------------------------------
Net income (loss) $ (0.19) $ (0.05) $ (0.16) $ 1.06
=============================================================
BASIC SHARES OUTSTANDING 14,703,000 14,715,000 14,781,000 14,799,000
DILUTED:
Net income (loss) before extraordinary item $ (0.17) $ (0.05) $ (0.16) $ 1.06
Effect of extraordinary item (0.02) -- -- --
-------------------------------------------------------------
Net income (loss) $ (0.19) $ (0.05) $ (0.16) $ 1.06
=============================================================
DILUTED SHARES OUTSTANDING 14,703,000 14,715,000 14,781,000 14,812,000
</TABLE>
40
<PAGE> 16
11. QUARTERLY RESULTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
Fiscal Quarter Ended
-----------------------------------------------------------
May 2, August 1, October 31, January 30,
1998 1998 1998 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1998:
Net sales $143,267 $145,731 $154,748 $231,125
Other income, net 499 475 424 952
-------------------------------------------------------------
143,766 146,206 155,172 232,077
-------------------------------------------------------------
Costs of merchandise sold 91,435 91,460 97,047 146,788
Selling, general and administrative expenses 47,029 50,713 52,352 59,313
Depreciation and amortization 3,090 3,090 3,566 3,535
-------------------------------------------------------------
Income from operations 2,212 943 2,207 22,441
Interest expense, net 2,633 2,089 2,483 2,191
-------------------------------------------------------------
Income (loss) before income taxes (421) (1,146) (276) 20,250
Income tax provision (benefit) (175) (435) (109) 7,915
-------------------------------------------------------------
Net income (loss) $ (246) $ (711) $ (167) $ 12,335
=============================================================
PER SHARE AMOUNTS --
BASIC:
Net income (loss) $ (0.02) $ (0.05) $ (0.01) $ 0.84
=============================================================
BASIC SHARES OUTSTANDING 11,506,000 14,592,000 14,672,000 14,695,000
DILUTED:
Net income (loss) $ (0.02) $ (0.05) $ (0.01) $ 0.83
=============================================================
DILUTED SHARES OUTSTANDING 11,506,000 14,592,000 14,672,000 14,900,000
</TABLE>
12. CHIEF EXECUTIVE OFFICER EMPLOYMENT
The Company signed an agreement with Mr. Wilansky, effective February 1, 1998,
to extend his employment as the Company's President and Chief Executive Officer
through January 31, 2003. This new agreement provides for increased cash and
stock-based compensation. Pursuant to the new agreement, the Company implemented
the Stock Incentive Plan, which provides performance-based compensation to Mr.
Wilansky in connection with services provided by him during the term of the
plan. The Stock Incentive Plan provided for the award of 250,000 Restricted
Shares and an option to purchase 250,000 shares of Common Stock at $8.00 per
share. The restricted shares, which on the date the performance requirement was
met had a market value of $1,969, will be transferable to Mr. Wilansky in three
equal installments on the last day of the Company's fiscal year which occurs on
the third, fourth and fifth anniversaries of the agreement. The options will
become exercisable in three equal installments on the day before the first,
second and third anniversaries of the agreement. Should Mr. Wilansky leave the
Company before the shares are transferred or the options become exercisable,
these benefits will be forfeited except in certain limited circumstances.
13. ACQUISITIONS
In March 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. Certain fixed
assets and customer lists were also included in the purchase. This business
combination was accounted for under the purchase method, with the fair market
value of the acquired leases amortized over the remaining lease term.
14. UNUSUAL EXPENSE
During the fourth quarter of fiscal 1999, the Company recorded an expense to
write-down the value of certain assets relating to a cooperative buying group
from which the Company purchases inventory. A $2.7 million charge was recorded
to write-down $2.3 million in deposits held by the cooperative buying group with
the remainder relating to the write-down of the Company's minority equity
interest. The Company anticipates the cooperative buying group will cease its
operations by the end of fiscal 2000.
41
<PAGE> 17
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SALE AND LEASEBACK ARRANGEMENT
In April 1997, the Company sold the land, building and leasehold improvements
comprising a department store and a distribution center both located in
Pennsylvania and subsequently leased the facilities back under a twenty-year
lease. The lease has been accounted for as an operating lease for financial
reporting purposes. Annual payments under the operating lease agreement were
$1,270. The $10,841 of net proceeds received from the sale were used to pay down
indebtedness of $8,208 and to provide additional working capital. The gain
associated with the sale, totaling $2,986, has been deferred in other long-term
liabilities and is being amortized on a straight-line basis over the twenty-year
lease term.
16. RESTRUCTURING
In fiscal 1995, the Company recorded a restructuring charge of $5,690 for store
closings and workforce reductions. The amounts charged against the restructuring
reserve for fiscal 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of year balance $2,446 $2,895 $3,475
Store closing costs, net of expense forgiveness 46 (449) (580)
Restructuring income (2,492) -- --
-----------------------------------------
End of year balance $ -- $2,446 $2,895
=========================================
</TABLE>
At the end of fiscal 1998, the balance remaining from this charge related to a
leased property located in Johnstown, Pennsylvania. In 1999, the mall containing
the leased location was sold to a new owner who wanted to redevelop the property
and the Company negotiated the termination of this lease with the new owner. In
the fourth quarter of fiscal 1999, the Company entered into an agreement to
terminate the lease related to the closed store. To reflect the lease
termination, the Company recognized $2.5 million of restructuring income in the
Company's Consolidated Statements of Income.
42
<PAGE> 18
THE BON-TON STORES, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF THE BON-TON STORES, INC.:
We have audited the accompanying consolidated balance sheets of The Bon-Ton
Stores, Inc. (a Pennsylvania corporation) and subsidiaries as of January 29,
2000 and January 30, 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended January 29, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Bon-Ton
Stores, Inc. and subsidiaries as of January 29, 2000 and January 30, 1999, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended January 29, 2000 in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
-----------------------
Philadelphia, PA
March 3, 2000
43
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Bon-Ton Department Stores, Inc., a Pennsylvania corporation
The Bon-Ton Corp., a Delaware corporation
The Bon-Ton Stores of Lancaster, Inc., a Pennsylvania corporation
The Bon-Ton National Corp., a Delaware corporation
The Bon-Ton Trade Corp., a Delaware corporation
BTRGP, Inc., a Pennsylvania corporation
The Bon-Ton Receivables Partnership, L. P., a Pennsylvania limited partnership
The Bon-Ton Properties - Greece Ridge G. P., Inc., a New York corporation
The Bon-Ton Properties - Greece Ridge L. P., a Delaware limited partnership
The Bon-Ton Properties - Irondequoit G. P., Inc., a New York corporation
The Bon-Ton Properties - Irondequoit L. P., a Delaware limited partnership
The Bon-Ton Properties - Marketplace G. P., Inc., a New York corporation
The Bon-Ton Properties - Marketplace L. P., a Delaware limited partnership
The Bon-Ton Properties - Eastview G. P., Inc., a New York corporation
The Bon-Ton Properties - Eastview L. P., a Delaware limited partnership
Capital City Commons Realty, Inc., a Pennsylvania corporation
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated March 3, 2000 included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statements, Registration Nos. 33-43105,
33-51954, 333-36633, 333-36661, 333-36725, and 333-58591.
/s/ Arthur Andersen LLP
Philadelphia, PA
April 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 29, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 10,807
<SECURITIES> 0
<RECEIVABLES> 30,949
<ALLOWANCES> 3,167
<INVENTORY> 203,489
<CURRENT-ASSETS> 256,375
<PP&E> 252,066
<DEPRECIATION> 107,351
<TOTAL-ASSETS> 417,492
<CURRENT-LIABILITIES> 114,587
<BONDS> 107,678
0
0
<COMMON> 153
<OTHER-SE> 190,538
<TOTAL-LIABILITY-AND-EQUITY> 417,492
<SALES> 710,963
<TOTAL-REVENUES> 713,614
<CGS> 449,596
<TOTAL-COSTS> 688,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,552
<INCOME-PRETAX> 16,279
<INCOME-TAX> 6,186
<INCOME-CONTINUING> 10,093
<DISCONTINUED> 0
<EXTRAORDINARY> (378)
<CHANGES> 0
<NET-INCOME> 9,715
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.66
</TABLE>
