-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IZdwito2LPM639GT1azLA39fPRyiFIa2YIb/Ilq9+7FDwkf22lpdlmxnKHvotBC/ TTEL+El9fSuxfVBUTWZkKQ== 0000893220-01-500996.txt : 20020413 0000893220-01-500996.hdr.sgml : 20020413 ACCESSION NUMBER: 0000893220-01-500996 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011103 FILED AS OF DATE: 20011217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BON TON STORES INC CENTRAL INDEX KEY: 0000878079 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 232835229 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19517 FILM NUMBER: 1814891 BUSINESS ADDRESS: STREET 1: 2801 E MARKET ST CITY: YORK STATE: PA ZIP: 17402-2406 BUSINESS PHONE: 7177577660 MAIL ADDRESS: STREET 1: P O BOX 2821 CITY: YORK STATE: PA ZIP: 17405-2821 10-Q 1 w55778e10-q.txt BON-TON FORM 10-Q FOR THE QUARTER ENDED 11/03/01 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended November 3, 2001 Commission File Number 0-19517 THE BON-TON STORES, INC. 2801 EAST MARKET STREET YORK, PENNSYLVANIA 17402 (717) 757-7660 INCORPORATED IN PENNSYLVANIA IRS NO. 23-2835229 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ As of November 30, 2001 there were 12,483,941 shares of Common Stock, $0.01 par value, and 2,989,853 shares of Class A Common Stock, $0.01 par value, outstanding. PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
November 3, February 3, (In thousands except share and per share data) 2001 2001 - ---------------------------------------------------------------------------------------------------------------------------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,261 $ 14,067 Trade and other accounts receivable, net of allowance for doubtful accounts of $2,972 and $3,445 at November 3, 2001 and February 3, 2001, respectively 29,750 24,052 Merchandise inventories 234,022 192,547 Prepaid expenses and other current assets 15,461 8,503 Deferred income taxes 2,582 2,318 --------------------------- Total current assets 297,076 241,487 --------------------------- PROPERTY, FIXTURES AND EQUIPMENT AT COST, less accumulated depreciation and amortization 144,476 147,415 DEFERRED INCOME TAXES 3,877 1,163 OTHER ASSETS 14,143 14,973 --------------------------- TOTAL ASSETS $ 459,572 $ 405,038 --------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 80,288 $ 57,184 Accrued payroll and benefits 9,912 8,588 Accrued expenses 22,531 21,919 Current portion of long-term debt 630 584 Current portion of obligations under capital leases 472 479 Income taxes payable 3,162 10,422 --------------------------- Total current liabilities 116,995 99,176 --------------------------- LONG-TERM DEBT, LESS CURRENT MATURITIES 142,876 97,805 OBLIGATIONS UNDER CAPITAL LEASES, LESS CURRENT MATURITIES 605 953 OTHER LONG-TERM LIABILITIES 12,171 8,242 --------------------------- TOTAL LIABILITIES 272,647 206,176 --------------------------- SHAREHOLDERS' EQUITY Preferred Stock - authorized 5,000,000 shares at $0.01 par value; no shares issued - - Common Stock - authorized 40,000,000 shares at $0.01 par value; issued and outstanding shares of 12,483,941 and 12,225,501 at November 3, 2001 and February 3, 2001, respectively 125 122 Class A Common Stock - authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,989,853 30 30 Additional paid-in-capital 107,496 106,882 Deferred compensation (484) (347) Accumulated other comprehensive income (3,812) - Retained earnings 83,570 92,175 --------------------------- TOTAL SHAREHOLDERS' EQUITY 186,925 198,862 --------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 459,572 $ 405,038 ---------------------------
The accompanying notes are an integral part of these consolidated statements. 2 THE BON-TON STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN THIRTY-NINE WEEKS ENDED WEEKS ENDED ------------------------------------------------------------------ (In thousands except per share data) November 3, October 28, November 3, October 28, (Unaudited) 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- NET SALES $ 175,621 $ 174,924 $ 476,207 $ 483,405 OTHER INCOME, NET 466 468 1,508 1,579 ------------------------------------------------------------------ 176,087 175,392 477,715 484,984 ------------------------------------------------------------------ COSTS AND EXPENSES: Costs of merchandise sold 111,898 110,178 306,275 308,777 Selling, general and administrative 56,656 56,010 163,874 164,210 Depreciation and amortization 4,908 4,677 13,842 12,919 Unusual expense 916 - 916 6,485 ------------------------------------------------------------------ INCOME (LOSS) FROM OPERATIONS 1,709 4,527 (7,192) (7,407) INTEREST EXPENSE, NET 2,484 2,906 6,576 8,066 ------------------------------------------------------------------ INCOME (LOSS) BEFORE INCOME TAXES (775) 1,621 (13,768) (15,473) INCOME TAX PROVISION (BENEFIT) (291) 615 (5,164) (5,882) ------------------------------------------------------------------ NET INCOME (LOSS) $ (484) $ 1,006 $ (8,604) $ (9,591) ------------------------------------------------------------------ PER SHARE AMOUNTS: BASIC: Net income (loss) $ (0.03) $ 0.07 $ (0.57) $ (0.64) ------------------------------------------------------------------ BASIC SHARES OUTSTANDING 15,214 15,051 15,175 14,889 DILUTED: Net income (loss) $ (0.03) $ 0.07 $ (0.57) $ (0.64) ------------------------------------------------------------------ DILUTED SHARES OUTSTANDING 15,214 15,051 15,175 14,889
The accompanying notes are an integral part of these consolidated statements. 3 THE BON-TON STORES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED ---------------------------------- (In thousands) November 3, October 28, (Unaudited) 2001 2000 - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,604) $ (9,591) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 13,842 12,919 Proceeds from sale of accounts receivable, net (8,200) (6,500) Changes in operating assets and liabilities, net (30,240) (39,890) ---------------------------------- Net cash used in operating activities (33,202) (43,062) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (10,381) (17,351) Proceeds from sale of property, fixtures and equipment 16 10 ---------------------------------- Net cash used in investing activities (10,365) (17,341) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt and capital lease obligations (115,489) (183,673) Proceeds from issuance of long-term debt 160,250 245,950 Exercised stock options - 1 ---------------------------------- Net cash provided by financing activities 44,761 62,278 Net increase in cash and cash equivalents 1,194 1,875 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,067 10,807 ---------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,261 $ 12,682 ---------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 5,471 $ 8,301 Income taxes paid $ 7,838 $ 7,620
The accompanying notes are an integral part of these consolidated statements. 4 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as successor of a company established on January 31, 1929 and currently operates, as one business segment, 73 retail department stores located in Pennsylvania, New York, New Jersey, Maryland, Connecticut, Massachusetts, New Hampshire, Vermont and West Virginia. 1. BASIS OF PRESENTATION: The accompanying unaudited consolidated financial statements include accounts of The Bon-Ton Stores, Inc. and its wholly-owned subsidiaries (the "Company"). All intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair presentation of interim periods have been included. The Company's business is seasonal in nature and results of operations for interim periods presented are not necessarily indicative of results for the full fiscal year. It is suggested these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2001 (the "2000 Annual Report"). Certain prior year balances have been reclassified to conform with the current year presentation. 2. PER SHARE AMOUNTS: The presentation of earnings per share (EPS) requires a reconciliation of numerators and denominators used in basic and diluted EPS calculations. The numerator, net loss, is identical in both calculations. The following table presents a reconciliation of shares outstanding for the respective calculations for each period presented on the accompanying Consolidated Statements of Operations:
THIRTEEN THIRTY-NINE WEEKS ENDED WEEKS ENDED ----------------------------- ------------------------------ November 3, October 28, November 3, October 28, 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Basic Calculation 15,214,000 15,051,000 15,175,000 14,889,000 Dilutive securities --- Restricted Shares - - - - Options - - - - ---------- ---------- ---------- ---------- Diluted Calculation 15,214,000 15,051,000 15,175,000 14,889,000 ---------- ---------- ---------- ---------- Antidilutive shares and options --- Restricted Shares 262,000 166,000 233,000 350,000 Options 903,000 1,171,000 918,000 1,324,000
Antidilutive shares and options, consisting of restricted shares and options to purchase shares outstanding, were excluded from the computation of dilutive securities for the thirteen weeks ended November 3, 2001 and thirty-nine weeks ended November 3, 2001 and October 28, 2000 due to the Company's net loss position in those periods. 5 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) The following table reflects approximate dilutive securities had the Company reported profit for the thirteen weeks ended November 3, 2001 and thirty-nine weeks ended November 3, 2001 and October 28, 2000:
THIRTEEN THIRTY-NINE WEEKS ENDED WEEKS ENDED ----------------------------- ------------------------------- November 3, October 28, November 3, October 28, 2001 2000 2001 2000 ---------- ---------- ---------- ----------- Approximate Dilutive Securities --- Restricted Shares 7,000 - 12,000 - Options - - - -
Antidilutive options, options to purchase shares with exercise prices greater than average market price, were excluded from the above table. 3. ADOPTION OF SFAS NOS. 133 AND 138: The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133," on February 5, 2001. SFAS No. 133 requires the transition adjustment, net of tax effect, resulting from adopting these Statements to be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle. In the first quarter of 2001, a $426,000 net-of-tax loss transition adjustment was recorded in accumulated other comprehensive income as a result of recognizing at fair value all derivatives designated as cash flow hedging instruments. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company recognizes all derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into, the Company generally designates the derivative as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"). Changes in the fair value of a derivative that is designated as, and meets all required criteria for, a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings as the underlying hedged item affects earnings. The portion of the change in fair value of a derivative associated with hedge ineffectiveness or the component of a derivative instrument excluded from the assessment of hedge effectiveness is recorded currently in earnings. Also, changes in the entire fair value of a derivative that is not designated as a hedge are recorded immediately in earnings. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes relating all derivatives that are designated as cash flow hedges to specific balance sheet assets and liabilities. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the respective derivative. 6 THE BON-TON STORES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) DEBT PORTFOLIO MANAGEMENT It is the policy of the Company to identify on a continuing basis the need for debt capital and evaluate financial risks inherent in funding the Company with debt capital. Reflecting the result of this ongoing review, the debt portfolio and hedging program of the Company is managed with the objectives and intent to (1) reduce funding risk with respect to borrowings made or to be made by the Company to preserve the Company's access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) reduce the aggregate interest rate risk of the debt portfolio in accordance with certain debt management parameters. The Company enters into interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio in order to maintain the percentage of fixed-rate and variable-rate debt within parameters set by management. In accordance with these parameters, swap agreements are used to reduce interest rate risks and costs inherent in the Company's debt portfolio. Accordingly, the Company currently has interest rate swap contracts outstanding to effectively convert variable-rate debt to fixed-rate debt. These contracts entail the exchange of fixed- and floating-rate interest payments periodically over the agreement life. CASH FLOW HEDGES Interest expense for the thirty-nine weeks ended November 3, 2001 includes $143,000 of net losses related to hedge ineffectiveness. Changes in fair value of derivatives qualifying as cash flow hedges are reported in accumulated other comprehensive income. Gains and losses are reclassified into earnings as the underlying hedged item affects earnings, such as when quarterly settlements are made on the hedged forecasted transaction. It is expected that approximately $1.5 million of net-of-tax losses in accumulated other comprehensive income will be reclassified into earnings within the next twelve months. There was no gain or loss reclassified from accumulated other comprehensive income into earnings during the nine month period ended November 3, 2001 as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. As of November 3, 2001, the maximum time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is 51 months. 4. ADOPTION OF SFAS NOS. 141 AND 142: In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and Other Intangible Assets" (effective for the Company on January 1, 2002). SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that goodwill and some intangible assets will no longer be amortized, but instead will be subject to periodic impairment testing. The Company is in the process of evaluating the financial statement impact of SFAS No. 142 adoption. 5. UNUSUAL EXPENSE: The Company reported $916,000 in unusual expense within the thirteen weeks ended November 3, 2001. This expense relates to a workforce reduction, and realignment and elimination of certain senior management positions, in September 2001. As of November 3, 2001, $617,000 of these costs remain as an accrued liability. 7 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table summarizes changes in select operating indicators, illustrating the relationship of various income and expense items expressed as a percentage of net sales for the respective period presented:
THIRTEEN THIRTY-NINE WEEKS ENDED WEEKS ENDED --------------------------- --------------------------- November 3, October 28, November 3, October 28, 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------- --------------------------- NET SALES 100.0 % 100.0 % 100.0 % 100.0 % OTHER INCOME, NET 0.3 0.3 0.3 0.3 --------------------------- --------------------------- 100.3 100.3 100.3 100.3 --------------------------- --------------------------- COSTS AND EXPENSES: Costs of merchandise sold 63.7 63.0 64.3 63.9 Selling, general and administrative 32.3 32.0 34.4 34.0 Depreciation and amortization 2.8 2.7 2.9 2.7 Unusual expense 0.5 - 0.2 1.3 --------------------------- --------------------------- INCOME (LOSS) FROM OPERATIONS 1.0 2.6 (1.5) (1.5) INTEREST EXPENSE, NET 1.4 1.7 1.4 1.7 --------------------------- --------------------------- INCOME (LOSS) BEFORE INCOME TAXES (0.4) 0.9 (2.9) (3.2) INCOME TAX PROVISION (BENEFIT) (0.2) 0.4 (1.1) (1.2) --------------------------- --------------------------- NET INCOME (LOSS) (0.3) % 0.6 % (1.8) % (2.0) % --------------------------- ---------------------------
THIRTEEN WEEKS ENDED NOVEMBER 3, 2001 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER 28, 2000 For purposes of the following discussions, all references to "third quarter of 2001" and "third quarter of 2000" are to the Company's thirteen week period ended November 3, 2001 and October 28, 2000, respectively. NET SALES. Net sales for the third quarter of 2001 were $175.6 million, reflecting an increase of 0.4% from the same period last year. Comparable store sales decreased 0.6% in the third quarter of 2001. Business families recording comparable store sales increases for the third quarter of 2001 were coats, home, cosmetics, petites and juniors. Business families reflecting the sharpest comparable store sales percentage decrease were suits, dresses and womens. OTHER INCOME, NET. Net other income, principally income from leased departments, remained constant at 0.3% of net sales in the third quarter of 2001 and 2000. COSTS AND EXPENSES. Gross margin as a percentage of net sales decreased 0.7 percentage point to 36.3% for the quarter ended November 3, 2001 from 37.0% for the comparable period last year, primarily reflecting an increased markdown rate due to aggressive promotional programs. As a result of the decreased gross margin rate, gross margin dollars decreased $1.0 million compared to the third quarter of 2000. 8 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Selling, general and administrative expenses for the third quarter of 2001 were $0.6 million above third quarter of 2000. The current year expense rate increased 0.3 percentage point to 32.3% of net sales, relative to 32.0% of net sales in the third quarter of 2000. The expense dollar and rate increases in the third quarter of 2001 over the third quarter of 2000 are principally a reflection of store payroll cost increases. Corporate expense dollars and rate for the third quarter of 2001 remained level with the third quarter of 2000. Depreciation and amortization in the third quarter of 2001 increased $0.2 million over the third quarter of 2000, reflecting full 2001 depreciation on fiscal 2000 fixed asset additions. Unusual expense of $0.9 million was incurred in the third quarter of 2001 relating to a workforce reduction, and realignment and elimination of certain senior management positions. INCOME FROM OPERATIONS. Income from operations in the third quarter of 2001 was $1.7 million, or 1.0% of net sales, compared to income from operations of $4.5 million, or 2.6% of net sales, in the third quarter of 2000. The Company sells receivables through its accounts receivable facility to provide additional working capital. On a pro-forma basis, if the Company had on-balance sheet financing, it would have reduced selling, general and administrative expenses by $1.6 million in the third quarter of 2001 and $2.2 million in the third quarter of 2000. The lower selling, general and administrative expenses would have been offset by a corresponding increase in interest expense for both periods. The net result of the pro-forma reclassification would reflect income from operations of $3.3 million in the third quarter of 2001 and income from operations of $6.7 million for the third quarter of 2000. INTEREST EXPENSE, NET. Net interest expense decreased to $2.5 million, or 1.4% of net sales, in the third quarter of 2001 from $2.9 million, or 1.7% of net sales, in the third quarter of 2000. The decrease in interest expense reflects the impact of decreased debt and reduced average rates on outstanding debt. NET INCOME (LOSS). The net loss in the third quarter of 2001 was $0.5 million, compared to net income of $1.0 million in the third quarter of 2000. Due to the seasonal nature of the Company's business, results for the current period are not necessarily indicative of results that may be achieved for the full fiscal year of 2001. THIRTY-NINE WEEKS ENDED NOVEMBER 3, 2001 COMPARED TO THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000 For purposes of the following discussions, all references to "2001" and "2000" are to the Company's thirty-nine week period ended November 3, 2001 and October 28, 2000, respectively. NET SALES. Net sales were $476.2 million for the thirty-nine weeks ended November 3, 2001, reflecting a decrease of 1.5% from the same period last year. Comparable store sales decreased 2.5% for the nine-month period. Business families recording comparable store sales increases in 2001 were coats, home, cosmetics and juniors. Business families reflecting the sharpest comparable store sales percentage decline were suits, dresses and mens clothing/collection. OTHER INCOME, NET. Net other income, principally income from leased departments, remained constant at 0.3% of net sales in 2001 and 2000. 9 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) COSTS AND EXPENSES. 2001 gross margin as a percentage of net sales decreased 0.4 percentage point to 35.7% from 36.1% for the comparable period last year, primarily reflecting an increased markdown rate. Gross margin in 2001 decreased $4.7 million compared to 2000, reflecting both the 2001 decrease in sales and lower gross margin percentage rate. Selling, general and administrative expenses decreased $0.3 million to $163.9 million in 2001 from $164.2 million in 2000. The expense rate increased 0.4 percentage point to 34.4% of net sales in 2001, compared to 34.0% of net sales in 2000, due to the decreased 2001 sales basis. The store expense rate increased 1.0 percentage point over last year, principally due to increased payroll costs. The corporate expense rate decreased 0.6 percentage point relative to last year, driven principally by fewer purchased services and increased finance charge income. Depreciation and amortization increased $0.9 million to $13.8 million in 2001 from $12.9 million in 2000. As a percent of net sales, depreciation and amortization increased to 2.9% of net sales in 2001 from 2.7% of net sales in 2000. The increase was primarily due to full year depreciation on $29.6 million of fiscal 2000 fixed asset additions. Unusual expense of $0.9 million was incurred in 2001 relating to a workforce reduction, and realignment and elimination of certain senior management positions. Unusual expense of $6.5 million was incurred in 2000 relating to the early retirement of Mr. Heywood Wilansky as President and Chief Executive Officer, realignment and elimination of certain senior management positions and headcount reduction initiatives implemented by the Company. LOSS FROM OPERATIONS. The loss from operations in 2001 was $7.2 million, or 1.5% of net sales, compared to $7.4 million, or 1.5% of net sales, in 2000. The Company sells receivables through its accounts receivable facility to provide additional working capital. On a pro-forma basis, if the Company had on-balance sheet financing, it would have reduced selling, general and administrative expenses by $5.4 million in 2001 and $6.6 million in 2000. The lower selling, general and administrative expenses would have been offset by a corresponding increase in interest expense for both periods. The net result of the pro-forma reclassification would reflect a loss from operations of $1.8 million in 2001 and a loss from operations of $0.9 million in 2000. INTEREST EXPENSE, NET. Net interest expense decreased $1.5 million to $6.6 million, or 1.4% of net sales, in 2001 from $8.1 million, or 1.7% of net sales, in 2000. The decrease in interest expense reflects both the impact of decreased debt and reduced average rates on outstanding debt. NET LOSS. The net loss in 2001 was $8.6 million compared to a net loss of $9.6 million in 2000. Due to the seasonal nature of the Company's business, results for the current period are not necessarily indicative of results that may be achieved for the full fiscal year of 2001. 10 THE BON-TON STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES The Company's working capital requirements are currently met through a combination of cash, borrowings under its revolving credit facility and proceeds from its accounts receivable facility. The following table summarizes the Company's liquidity and capital resources:
(Dollars in millions) 2001 2000 - ----------------------------------------------------------------------------------- Working capital $ 180.1 $ 189.7 Current ratio 2.54:1 2.53:1 Funded debt to total capitalization 0.43:1 0.48:1 Unused availability under lines of credit $ 44.4 $ 33.4
For the thirty-nine weeks ended November 3, 2001, net cash used in operating activities was $33.2 million as compared to net cash used of $43.1 million for the comparable period last year. The decrease in net cash used in 2001 as compared to 2000 was primarily attributable to a decrease in the Company's working capital requirements, particularly reflected in reduced merchandise inventories. Net cash used in investing activities was $10.4 million in 2001 compared to $17.3 million for the comparable period last year. This reduction reflects the Company's decision to curtail certain 2001 capital projects given the current economic environment. Net cash provided by financing activities amounted to $44.8 million for 2001 compared to $62.3 million for the comparable period of 2000. The decrease in cash provided by financing activities in 2001 was primarily attributable to decreased advances from the Company's revolving credit facility on lower working capital and capital expenditures. The Company anticipates its cash flows from operations, supplemented by borrowings under its revolving credit facility and proceeds from its accounts receivable facility, will be sufficient to satisfy its operating cash requirements. FORWARD-LOOKING STATEMENTS Certain information included in this report and other materials filed or to be filed by the Company with the Securities and Exchange Commission contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which may be identified by words such as "may," "will," "plan," "expect," "anticipate," "estimate," "project," "intend" or other similar expressions, involve important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, uncertainties affecting retail in general, such as consumer confidence and demand for soft goods; risks relating to leverage and debt service; competition within markets in which the Company's stores are located; and the need for, and costs associated with, store renovations and other capital expenditures. 11 THE BON-TON STORES, INC. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not believe its interest rate risks, as described in the 2000 Annual Report, have changed materially other than as described in Note 3 of "Notes To Condensed Consolidated Financial Statements (Unaudited)" contained in this Form 10Q. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no material developments in any legal proceedings since the Company's disclosure in its 2000 Annual Report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed pursuant to the requirements of Item 601 of Regulation S-K: Exhibit No. Description 10.1 Consulting and Noncompetition Agreement Between the Company and Leon D. Starr (b) Reports on Form 8-K filed during the quarter: None. 12 THE BON-TON STORES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BON-TON STORES, INC. DATE: December 13, 2001 BY: /s/ Tim Grumbacher ----------------------- ---------------------------------- Tim Grumbacher Chairman of the Board and Chief Executive Officer DATE: December 13, 2001 BY: /s/ James H. Baireuther ----------------------- ---------------------------------- James H. Baireuther Vice Chairman, Chief Administrative Officer and Chief Financial Officer 13 EX-10.1 3 w55778ex10-1.txt CONSULTING AND NONCOMPETITION AGREEMENT Exhibit 10.1 CONSULTING AND NONCOMPETITION AGREEMENT This Agreement is made as of the 4th day of February, 2001 by and between The Bon-Ton Department Stores, Inc., a Pennsylvania corporation (the "Company"), and LEON D. STARR ("Starr"). BACKGROUND The Company desires to retain Starr as a consultant and Starr desires to provide consulting services to the Company, and the Company desires to secure Starr's agreement not to engage in competition with the Company, all in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Services. The Company hereby engages Starr as a consultant and Starr hereby agrees to provide such consulting services for the Company when and as requested by the Board of Directors, the Chairman of the Board or another executive officer of the Company. Starr shall be entitled to render such consulting services by telephone, telecopy or other practical means. Through the term of this Agreement, Starr will devote his energy, skill and best efforts to the performance of his duties in a manner which will faithfully and diligently further the business interests of the Company. However, the Company acknowledges that Starr may provide consulting services to others, provided that Starr makes himself reasonably available to fulfill his obligations hereunder and does not violate the provisions of Section 7 of this Agreement. 2. Term. Starr shall perform consulting services hereunder for a term commencing February 4, 2001 and shall continue until the earlier of (a) termination by either party on written notice to the other, or (b) Starr's death. 3. Payment for Services. As full and complete compensation for any and all consulting services that Starr renders to the Company, the Company shall pay Starr $65,000.00 per year, payable in equal monthly installments on the first day of each month, 1 which payments shall commence on February 4, 2001 and continue to and until the termination of the consulting services to be provided by Starr under this Agreement, provided, however, that if Starr shall be in breach of his obligations under Section 7 of this Agreement, such payments shall immediately cease. Thereafter, so long as Starr is not in breach of his obligations under Section 7 and in consideration of Starr's agreement contained in Section 7(a), the Company will pay Starr $65,000 per year, payable in equal monthly installments on the first day of each month, commencing on termination of Starr's consulting services and continuing for 37 months. Such payments shall be made to Starr or, in the event of his death, to his estate. 4. Business Expenses. Starr will be entitled to be reimbursed for reasonable out-of-pocket business expenses he incurs while performing services on behalf of the Company pursuant to this Agreement, provided that such business expenses have been authorized in advance by the Chairman of the Board. The Company will not provide any fringe benefits of any type to Starr. 5. Independent Contractor. The parties acknowledge that it is their intention that Starr is and shall be an independent contractor and not an employee of the Company. Starr agrees that he will not represent himself to be an employee of the Company or an authorized agent of the Company. 6. Company Property. All advertising, sales, manufacturer's and other materials or articles of information, including without limitation data processing reports, customer sales analyses, invoices, price lists or information, samples, or any other materials or data of any kind furnished to Starr by the Company or developed by Starr on behalf of the Company or at the Company's direction or for the Company's use or otherwise in connection with Starr's services hereunder, are and shall remain the sole and confidential property of the Company; if the Company requests the return of such materials at any time during or at or after the termination of this Agreement, Starr shall immediately deliver the same to Company. 7. Non-Competition, Trade Secrets, Etc. a) Starr agrees that, at any time during or within three years after the end of Starr's performance of consulting services under this Agreement, Starr shall not, directly or indirectly, (i) solicit, induce, encourage or attempt to influence any client, customer, 2 employee, consultant, independent contractor, salesman or supplier of the Company to cease to do business or terminate his or her employment with the Company or (ii) engage in (as a principal, agent, consultant, partner, director, officer, employee, stockholder, investor, owner, independent contractor or otherwise), alone or in association with any person or entity, or be financially interested in or otherwise be connected with, any business operating within 50 miles of any of the department stores currently operated by the Company (the "Department Stores"), the primary business of which would be in competition with the business of any of such Department Stores. However, nothing contained in this Section 7(a) shall prevent Starr from holding for investment no more than 5% of any class of equity securities of a company whose securities are publicly traded. b) Starr shall not, at any time during or following the term of this Agreement, use for his personal benefit, or disclose, communicate or divulge to or use for the direct or indirect benefit of any person, firm, association or company, any confidential information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets or other confidential knowledge or processes of or developed by the Company or any names and addresses of customers or clients or any data on or relating to past, present or prospective customers or clients or any other confidential information relating to or dealing with the business operations or activities of the Company. The confidentiality obligations of this Section 7(b) shall not apply to information: (i) which Starr is compelled to disclose by judicial or administrative process, or other mandatory requirements of law; (ii) which can be shown to have been generally available to the public other than as a result of a breach of this Section; or (iii) which can be shown to have been provided to Starr by a third party who obtained such information other than as a result of breaching an obligation of confidentiality. c) Starr acknowledges and agrees that (i) the covenants set forth herein are reasonable and necessary in order to protect the legitimate interests of the Company; (ii) the Company will not have any adequate remedy at law if Starr violates the terms hereof or fails to perform any of his obligations hereunder; and (iii) the Company shall have the right, in addition to any other rights it may have, to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief to restrain any breach or threatened breach of or otherwise to specifically enforce any such covenant or any other obligations of Starr under 3 this Agreement, as well as to obtain damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. d) If the period of time or territory of any restriction set forth in Section 7(a) or 7(b) should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such number of months or the territory shall be reduced by the elimination of such unreasonable portion thereof or both so that such restrictions may be enforceable for such time and in the manner adjudged to be reasonable. 8. Miscellaneous. a) Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. b) This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without the aid of any canon, custom or rule of law requiring construction against the draftsman. c) All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received only when delivered (personally, by courier service such as Federal Express, or by other messenger) or two days after deposit in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below: (i) If to the Company: The Bon-Ton Department Stores, Inc. 2801 East Market Street York, Pennsylvania 17402 Attention: Chairman of the Board 4 (ii) If to Starr: Mr. Leon D. Starr 705 Walton Avenue Mamaroneck, NY 10543 Either party may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section for the giving of notice. d) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns, except that neither party may assign or transfer its rights or obligations under this Agreement without the prior written consent of the other party hereto. e) This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of date first above written. THE BON-TON DEPARTMENT STORES, INC. By: /s/ Tim Grumbacher -------------------------------- Tim Grumbacher Chairman of the Board /s/ Leon D. Starr -------------------------------- 5 -----END PRIVACY-ENHANCED MESSAGE-----