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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended November 2, 2002 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
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
As of December 10, 2002 there were 12,264,678 shares of Common Stock,
$0.01 par value per share, and 2,989,853 shares of Class A Common Stock, $0.01
par value per share, outstanding.
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 2, February 2,
(In thousands except share and per share data) 2002 2002
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 14,913 $ 9,752
Trade and other accounts receivable, net of allowance for doubtful accounts and sales
returns of $3,269 and $2,912 at November 2, 2002 and February 2, 2002, respectively 34,477 31,657
Merchandise inventories 210,029 166,042
Prepaid expenses and other current assets 21,507 10,542
Deferred income taxes 5,350 7,371
------------------------
Total current assets 286,276 225,364
------------------------
PROPERTY, FIXTURES AND EQUIPMENT AT COST,
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 136,034 143,884
DEFERRED INCOME TAXES 3,646 2,741
GOODWILL AND INTANGIBLE ASSETS 9,633 9,999
OTHER ASSETS 3,658 4,091
------------------------
Total assets $ 439,247 $ 386,079
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 91,144 $ 57,007
Accrued payroll and benefits 11,567 9,743
Accrued expenses 25,393 28,687
Current portion of long-term debt 697 646
Current portion of obligations under capital leases 245 232
Income taxes payable -- 11,891
------------------------
Total current liabilities 129,046 108,206
------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 105,179 67,209
OBLIGATIONS UNDER CAPITAL LEASES, LESS CURRENT MATURITIES 533 720
OTHER LONG-TERM LIABILITIES 7,532 6,683
------------------------
Total liabilities 242,290 182,818
------------------------
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 12,264,678 and 12,483,941 at November 2, 2002 and February 2, 2002, respectively 125 125
Class A Common Stock - authorized 20,000,000 shares at $0.01 par value; issued and
outstanding shares of 2,989,853 at November 2, 2002 and February 2, 2002 30 30
Treasury stock, at cost - shares of 212,700 at November 2, 2002 (882) --
Additional paid-in-capital 107,412 107,467
Deferred compensation (258) (408)
Accumulated other comprehensive loss (2,255) (2,354)
Retained earnings 92,785 98,401
------------------------
Total shareholders' equity 196,957 203,261
------------------------
Total liabilities and shareholders' equity $ 439,247 $ 386,079
========================
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 share and per share data) November 2, November 3, November 2, November 3,
(Unaudited) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
NET SALES $ 167,542 $ 175,621 $ 471,949 $ 476,207
OTHER INCOME, NET 520 466 1,607 1,508
--------------------------------------------------------------------
168,062 176,087 473,556 477,715
--------------------------------------------------------------------
COSTS AND EXPENSES:
Costs of merchandise sold 104,878 111,898 301,234 306,275
Selling, general and administrative 55,301 56,656 159,670 163,874
Depreciation and amortization 4,945 4,908 14,849 13,842
Unusual expense -- 916 -- 916
--------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 2,938 1,709 (2,197) (7,192)
INTEREST EXPENSE, NET 2,413 2,484 6,789 6,576
--------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 525 (775) (8,986) (13,768)
INCOME TAX PROVISION (BENEFIT) 197 (291) (3,370) (5,164)
--------------------------------------------------------------------
NET INCOME (LOSS) $ 328 $ (484) $ (5,616) $ (8,604)
====================================================================
Per share amounts --
BASIC:
Net income (loss) $ 0.02 $ (0.03) $ (0.37) $ (0.57)
====================================================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 15,180,685 15,213,869 15,233,871 15,174,953
DILUTED:
Net income (loss) $ 0.02 $ (0.03) $ (0.37) $ (0.57)
====================================================================
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 15,392,437 15,213,869 15,233,871 15,174,953
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 2, November 3,
(Unaudited) 2002 2001
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,616) $ (8,604)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 14,849 13,842
Changes in operating assets and liabilities, net (33,773) (44,133)
---------------------------
Net cash used in operating activities (24,540) (38,895)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (8,244) (10,381)
Proceeds from sale of property, fixtures and equipment 2 16
---------------------------
Net cash used in investing activities (8,242) (10,365)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (113,903) (115,489)
Proceeds from issuance of long-term debt 151,750 160,250
Common shares repurchased (882) --
Increase in bank overdraft balances, net 978 1,514
---------------------------
Net cash provided by financing activities 37,943 46,275
Net increase (decrease) in cash and cash equivalents 5,161 (2,985)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,752 14,067
---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,913 $ 11,082
===========================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,597 $ 5,471
Income taxes paid $ 12,096 $ 7,838
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, through its subsidiaries, 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 all of 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 that 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 2, 2002 (the "2001 Annual Report").
Certain prior year balances have been reclassified to conform with the current
year presentation.
2. STOCK REPURCHASES
On February 7, 2002, the Company announced a stock repurchase program
authorizing the purchase of up to $2.5 million of Company stock from time to
time. The Company purchased 147,200 shares, at a cost of $0.6 million, and
212,700 shares, at a cost of $0.9 million, during the thirteen and thirty-nine
weeks ended November 2, 2002, respectively. Treasury stock is accounted for by
the cost method.
3. 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 income and loss, is identical in both calculations. The following
table presents a reconciliation of average 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 2, November 3, November 2, November 3,
2002 2001 2002 2001
---- ---- ---- ----
Basic Calculation 15,180,685 15,213,869 15,233,871 15,174,953
Effect of dilutive shares ---
Restricted Shares 106,294 -- -- --
Options 105,458 -- -- --
-------------------------- --------------------------
Diluted Calculation 15,392,437 15,213,869 15,233,871 15,174,953
-------------------------- --------------------------
5
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
The following securities were antidilutive and, therefore, were not included in
the computation of diluted income per share amounts for the periods indicated:
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
----------- -----------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---- ---- ---- ----
Antidilutive shares ---
Restricted Shares -- 261,934 176,232 233,491
Options 619,764 903,055 961,664 918,284
Certain securities were excluded from the computation of dilutive shares due to
the Company's net loss position. The following table shows the effect of
dilutive securities for the thirteen weeks ended November 2, 2002 and
approximate effect of dilutive securities had the Company reported profit for
the thirty-nine weeks ended November 2, 2002 and November 3, 2001 and thirteen
weeks ended November 3, 2001:
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
----------- -----------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---- ---- ---- ----
Effect of dilutive securities ---
Restricted Shares 106,294 7,368 100,581 11,838
Options 105,458 -- 104,196 --
4. GOODWILL AND INTANGIBLE ASSETS
Effective at the beginning of 2002, the Company adopted the Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." Upon adoption of SFAS No. 142,
goodwill amortization ceased. Goodwill is now subject to fair-value based
impairment tests performed, at a minimum, on an annual basis. In addition, a
transitional goodwill impairment test was required as of the adoption date.
The Company had $3.0 million in net goodwill recorded in its consolidated
balance sheet at the beginning of 2002. The Company completed the required
transitional goodwill impairment test in the first quarter of 2002, and
determined that its goodwill was not impaired. During the thirty-nine weeks
ended November 2, 2002, no goodwill amortization was recorded, no additional
goodwill was acquired, no impairment losses were recognized and no goodwill was
disposed of through sale of a business unit.
6
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
SFAS No. 142 requires the presentation of net income and related earnings per
share data adjusted for the effect of goodwill amortization. To illustrate the
impact of goodwill amortization on results of the prior year periods, the
following table provides adjusted net income and earnings per share:
THIRTEEN THIRTY-NINE
(In thousands except per share data) WEEKS ENDED WEEKS ENDED
- ------------------------------------ ----------- -----------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income (loss) $ 328 ($484) ($5,616) ($8,604)
Add back: Goodwill amortization - 58 - 175
------------------------ -------------------------
Adjusted net income (loss) $ 328 ($426) ($5,616) ($8,429)
======================== =========================
Per share amounts ---
BASIC:
Reported net income (loss) $0.02 ($0.03) ($0.37) ($0.57)
Add back: Goodwill amortization - 0.00 - 0.01
------------------------ -------------------------
Adjusted net income (loss) $0.02 ($0.03) ($0.37) ($0.56)
======================== =========================
DILUTED:
Reported net income (loss) $0.02 ($0.03) ($0.37) ($0.57)
Add back: Goodwill amortization - 0.00 - 0.01
------------------------ -------------------------
Adjusted net income (loss) $0.02 ($0.03) ($0.37) ($0.56)
======================== =========================
SFAS No. 142 also requires disclosure of intangible assets which are subject to
amortization. As of November 2, 2002 and February 2, 2002, the Company reported
the following lease-related interests classified as intangible assets:
(In thousands) November 2, February 2,
2002 2002
---- ----
Intangible assets - leases $10,828 $10,828
Less: Accumulated amortization 4,160 3,794
---------------------
Net $ 6,668 $ 7,034
---------------------
These lease interests relate to below-market-rate leases purchased in store
acquisitions completed in fiscal years 1992 through 1999, which were adjusted to
reflect fair market value. These leases had average lives of twenty-five years.
Amortization of $0.1 million and $0.4 million was recorded on these intangible
assets during the thirteen and thirty-nine weeks ended November 2, 2002,
respectively. The Company anticipates amortization on these intangible assets of
approximately $0.5 million, $0.4 million, $0.4 million, $0.5 million and $0.5
million for fiscal years 2002, 2003, 2004, 2005 and 2006, respectively.
7
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. INTEREST RATE DERIVATIVES
In 2002, the Company discontinued cash flow hedge accounting for $40 million of
outstanding interest rate swaps that are converting variable rates under the
Company's credit facilities to fixed rates. As these swaps were no longer
considered highly effective under SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," they are now being marked-to-market through
earnings each reporting period. The amount recorded in interest expense related
to the mark-to-market adjustment for these swaps was $0.1 million of income and
$0.1 of expense for the thirteen weeks and thirty-nine weeks ended November 2,
2002, respectively.
The amount in accumulated other comprehensive income/loss related to these swaps
is being recognized as an adjustment to the yield of credit facilities
borrowings over the remaining term for these discontinued swaps. The amount
released from accumulated other comprehensive income/loss to expense was $0.7
million and $1.2 million for the thirteen weeks and thirty-nine weeks ended
November 2, 2002, respectively. The $0.7 million released from accumulated other
comprehensive income/loss to expense for the thirteen weeks ended November 2,
2002 includes $0.5 million of derivative losses reclassified into earnings as
the Company determined that occurrence of forecasted transactions hedged by
these swaps was not probable.
6. SALE OF RECEIVABLES
The Company securitizes its proprietary credit card portfolio through an
accounts receivable facility (the "Facility"). Under the Facility, which is
contingent upon receivables meeting certain eligibility 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 $150.0 million of
undivided percentage interests in the eligible receivables on a limited recourse
basis. In connection with the Facility, the Company retains servicing
responsibilities, subordinated interests and an interest-only strip, all of
which are retained interests in the securitized receivables. The Company
receives annual servicing fees of 2.0% of the outstanding balance and rights to
future cash flows arising after investors in the securitization have received
the return for which they contracted. The investors have no recourse to the
Company's assets for failure of the accounts receivable debtors to pay when due.
The Company's retained interests are subordinate to the investors' interests.
The value of the retained interest is subject to credit, prepayment and interest
rate risks. 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 Facility expires on January 31, 2003.
The Company expects that the Facility will be extended prior to that date.
As of November 2, 2002 and February 2, 2002, credit card receivables were sold
under the securitization agreement in the amount of $143.0 million and $150.0
million, respectively, and the Company had subordinated interests of $33.8
million and $29.8 million, respectively, related to the amounts sold that were
included in the accompanying consolidated balance sheets as trade and other
accounts receivable.
During the thirteen weeks and thirty-nine weeks ended November 2, 2002, the
Company recognized securitization income of $1.8 million and $7.0 million,
respectively, on securitization of the credit card receivables. This income is
reported as a component of selling, general and administrative expenses.
8
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
7. ADOPTION OF SFAS NO. 146
In June 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with
Exit or Disposal Activities." This statement changes the timing of recognition
for certain exit costs associated with restructuring activities so that certain
exit costs would be recognized over the period in which the restructuring
activities occur. Currently, exit costs are recognized when the Company commits
to a restructuring plan. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002 with early adoption encouraged.
In October 2002, the Company announced it will close its distribution center in
York, Pennsylvania by the end of April 2003. All merchandise processing
functions will be consolidated into the Company's existing Allentown,
Pennsylvania distribution center. In addition, the Company announced it will
close its Red Bank, New Jersey store by the end of January 2003.
The Company elected to adopt SFAS No.146 early for these exit activities and,
accordingly, in the third quarter recorded $0.3 million of selling, general and
administrative expense related to the closures. This expense primarily relates
to one-time termination benefits for affected associates and other costs to
consolidate the distribution centers. Additional termination benefits for the
distribution center and Red Bank locations will be paid when operations cease at
these locations in April 2003 and January 2003, respectively. These termination
benefits will only be paid if employees render service through the scheduled
closing dates of each location. As a result, termination benefits of $0.3
million, valued at the communication date, are being recognized ratably over the
future service period.
The Company has operating lease agreements for these locations. The operating
lease agreement for the Red Bank location expires at the end of January 2003, at
which time the Company will have no further obligation. When the Company
discontinues distribution center operations, the remaining distribution center
rental obligation through lease expiration in December 2020 will be $9.7
million. The Company intends to sublet the space and anticipates that the fair
market value of any sublet income will equal or exceed its remaining rent
obligation.
8. EFFECT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 is effective for fiscal years
beginning after June 15, 2002 with earlier adoption encouraged. The Company
intends to adopt SFAS 143 for the 2003 fiscal year and does not expect the
provisions of SFAS No. 143 to have a material impact on operating results of the
Company.
9
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS 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 selected operating indicators of the
Company, illustrating the relationship of various income and expense items to
net sales for the respective periods presented:
THIRTEEN THIRTY-NINE
WEEKS ENDED WEEKS ENDED
----------- -----------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---- ---- ---- ----
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 62.6 63.7 63.8 64.3
Selling, general and administrative 33.0 32.3 33.8 34.4
Depreciation and amortization 3.0 2.8 3.1 2.9
Unusual expense -- 0.5 -- 0.2
------------------------ ------------------------
INCOME (LOSS) FROM OPERATIONS 1.8 1.0 (0.5) (1.5)
INTEREST EXPENSE, NET 1.4 1.4 1.4 1.4
------------------------ ------------------------
INCOME (LOSS) BEFORE INCOME TAXES 0.3 (0.4) (1.9) (2.9)
INCOME TAX PROVISION (BENEFIT) 0.1 (0.2) (0.7) (1.1)
------------------------ ------------------------
NET INCOME (LOSS) 0.2% (0.3)% (1.2)% (1.8)%
------------------------ ------------------------
THIRTEEN WEEKS ENDED NOVEMBER 2, 2002 COMPARED TO THIRTEEN WEEKS ENDED NOVEMBER
3, 2001
For purposes of the following discussions, all references to "third quarter of
2002" and "third quarter of 2001" are to the Company's thirteen-week period
ended November 2, 2002 and November 3, 2001, respectively.
NET SALES. Net sales for the third quarter of 2002 were $167.5 million,
reflecting a total and comparable store sales decrease of 4.6% from the same
period last year. Business families recording sales increases for the third
quarter of 2002 were Coats and Accessories. Business families reflecting the
sharpest sales percentage decreases for the third quarter of 2002 were Dresses,
Childrens, Mens Clothing, Misses Sportswear and Cosmetics. The sales decrease in
these merchandise categories reflects a change in the Company's inventory mix
with less clearance and seasonal inventory than last year.
OTHER INCOME, NET. Net other income, principally income from leased departments,
was 0.3% of net sales in the third quarter of 2002 and 2001.
COSTS AND EXPENSES. Gross margin as a percentage of net sales increased 1.1
percentage points to 37.4% for the third quarter of 2002 from 36.3% for the
comparable period last year. The gross margin percentage increase was primarily
due to a higher cumulative markup and reduced markdowns. Gross margin dollars
for the third quarter of 2002 decreased $1.1 million compared to the third
quarter of 2001, resulting from decreased sales volume partially offset by an
increased gross margin rate.
10
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Selling, general and administrative expenses for the third quarter of 2002 were
$55.3 million, $1.4 million less than the third quarter of 2001. The expense
dollar improvement was principally a reflection of increased securitization
income on the Company's proprietary credit card program and increased vendor
purchase order violations income, partially offset by increased advertising
expenses. The current year expense rate increased 0.7 percentage point to 33.0%
of net sales due to decreased sales volume.
Depreciation and amortization in the third quarter remained constant at $4.9
million for 2002 and 2001. The current year expense rate increased 0.2
percentage point to 3.0% of net sales due to decreased sales volume.
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 2002 was
$2.9 million, or 1.8% of net sales, compared to income from operations of $1.7
million, or 1.0% of net sales, in the third quarter of 2001.
INTEREST EXPENSE, NET. Net interest expense was $2.4 million, or 1.4% of net
sales, in the third quarter of 2002 compared to $2.5 million, or 1.4% of net
sales, in the third quarter of 2001. The decrease in net interest expense is a
reflection of reductions in debt balances and interest rates, partially offset
by the Company's position in interest rate swaps.
INCOME TAX PROVISION (BENEFIT). The effective tax rate remained constant at
37.5% in the third quarter of 2002 and 2001.
NET INCOME (LOSS). Net income in the third quarter of 2002 was $0.3 million, or
0.2% of net sales, compared to net loss of $0.5 million, or 0.3% of net sales,
in the third quarter of 2001.
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2002 COMPARED TO THIRTY-NINE WEEKS ENDED
NOVEMBER 3, 2001
For purposes of the following discussions, all references to "2002" and "2001"
are to the Company's thirty-nine week period ended November 2, 2002 and November
3, 2001, respectively.
NET SALES. Net sales for the thirty-nine weeks ended November 2, 2002 were
$471.9 million, reflecting a total and comparable store sales decrease of 0.9%
from the same period last year. Business families recording sales increases for
2002 were Accessories, Coats, Petites, Misses Sportswear and Juniors. Business
families reflecting the sharpest sales percentage decreases for 2002 were
Dresses, Childrens, Mens Clothing, Intimate and Mens Collections.
OTHER INCOME, NET. Net other income, principally income from leased departments,
was 0.3% of net sales in 2002 and 2001.
COSTS AND EXPENSES. Gross margin as a percentage of net sales increased 0.5
percentage point to 36.2% for the thirty-nine weeks ended November 2, 2002 from
35.7% for the comparable period last year. The gross margin percentage increase
in 2002 was primarily due to a higher cumulative markup rate and a reduced
markdown rate. Gross margin dollars in 2002 increased $0.8 million compared to
2001, resulting from increases in gross margin rate partially offset by
decreases in sales volume.
11
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Selling, general and administrative expenses decreased $4.2 million, to $159.7
million in 2002 from $163.9 million in 2001. The expense dollar improvement was
principally a reflection of increased securitization income on the Company's
proprietary credit card program of $2.9 million and decreased payroll,
utilities, relocation and customer loyalty expenses. The expense rate as a
percentage of net sales decreased 0.6 percentage point, to 33.8% from 34.4% for
the prior year period, resulting from reductions in net expense partially offset
by decreased sales volume.
Depreciation and amortization increased to 3.1% of net sales in 2002 from 2.9%
of net sales in 2001, principally reflecting 2002 depreciation on fiscal 2001
capital expenditures.
Unusual expense of $0.9 million was incurred in 2001 relating to a workforce
reduction, and realignment and elimination of certain senior management
positions.
LOSS FROM OPERATIONS. Loss from operations in 2002 was $2.2 million, or 0.5% of
net sales, compared to loss from operations of $7.2 million, or 1.5% of net
sales, in 2001.
INTEREST EXPENSE, NET. Net interest expense was $6.8 million, or 1.4% of net
sales, for the thirty-nine weeks ended November 2, 2002 compared to $6.6
million, or 1.4% of net sales, for the prior year period. The increase in net
interest expense is a reflection of the Company's position in interest rate
swaps, partially offset by reductions in debt balances and interest rates.
INCOME TAX BENEFIT. The effective tax rate remained constant at 37.5% in 2002
and 2001.
NET LOSS. Net loss in 2002 was $5.6 million compared to a net loss of $8.6
million in 2001.
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
second half of each fiscal year, which includes back-to-school and holiday
seasons. Due to the fixed nature of certain costs, 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 results that may be achieved for a full fiscal
year. In addition, quarterly operating results are impacted by 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 thirty-nine weeks ended November 2, 2002 and November 3,
2001. However, there can be no assurance that the Company's business will not be
affected by inflationary adjustments in the future.
12
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS 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:
November 2, November 3,
(Dollars in millions) 2002 2001
- -------------------------------------------------------------------------
Working capital $ 157.2 $ 180.1
Current ratio 2.22:1 2.58:1
Funded debt to total capitalization 0.35:1 0.43:1
Unused availability under lines of credit $ 64.4 $ 44.4
For the thirty-nine weeks ended November 2, 2002, net cash used in operating
activities was $24.5 million as compared to net cash used in operating
activities of $38.9 million for the comparable prior year period. The reduction
in net cash used in operating activities in 2002 as compared to 2001 was
primarily attributable to a reduction in net loss, an increase in accounts
payable and a reduction in accounts receivable.
Net cash used in investing activities was $8.2 million in 2002, compared to
$10.4 million for the comparable period last year. This reduction reflects
differences in the timing of capital projects.
Net cash provided by financing activities was $37.9 million for 2002, compared
to net cash provided by financing activities of $46.3 million for the comparable
period of 2001. The decrease in cash from financing activities in 2002 was
primarily attributable to decreased borrowings on the Company's revolving credit
facility.
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.
Cash flows from operations are impacted by consumer confidence, weather
conditions in the geographic markets served by the Company, economic climate and
competitive conditions existing in the retail industry. A downturn in any single
factor or a combination of factors could have a material adverse impact upon the
Company's ability to generate sufficient cash flows to operate its business.
The Company has not identified any reasonably possible circumstances that would
likely impair its ability to meet its cash requirements or trigger a default or
acceleration of payment of the Company's debt.
13
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
TRANSFERS OF FINANCIAL ASSETS
The Company engages in securitization activities involving the Company's
proprietary credit card portfolio as a source of funding. Gains and losses from
securitizations are recognized in the Consolidated Statements of Income when the
Company relinquishes control of the transferred financial assets in accordance
with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125"
and other related pronouncements. The gain or loss on the sale of financial
assets depends in part on the previous carrying amount of the assets involved in
the transfer, allocated between the assets sold and the retained interests based
upon their respective fair values at the date of sale.
The Company has sold an undivided percentage ownership interest in certain of
its credit card accounts receivable to an unrelated third-party under a $150.0
million accounts receivable securitization facility. The unrelated third-party,
referred to as the conduit, has purchased a $143.0 million interest in the
accounts receivable under this facility at November 2, 2002. The Company has an
agreement to sell, on a revolving basis, pools of accounts receivable to a
special purpose entity, The Bon-Ton Receivables Partnership, LP ("BTRLP"), a
wholly-owned subsidiary of the Company. BTRLP is designed to facilitate the
securitization of certain accounts receivable. BTRLP then sells an undivided
percentage ownership interest in each individual receivable to the conduit at a
discount and uses cash collected on these receivables to purchase additional
receivables from the Company. The Company is responsible for servicing these
accounts and receives a servicing fee, while BTRLP bears the risk of
non-collection. Associated off-balance-sheet assets and related debt were $143.0
and $150.0 million at November 2, 2002 and February 2, 2002, respectively. Upon
the facility's termination, the conduit would be entitled to all cash
collections on BTRLP's accounts receivable until its net investment ($143.0
million at November 2, 2002) is repaid. Accordingly, upon termination of the
facility, the assets of BTRLP would not be available to the Company until all
obligations of BTRLP to the conduit have been paid in full or satisfied.
The Company believes the terms of the accounts receivable facility qualify the
accounts receivable transactions for "sale treatment" under generally accepted
accounting principles. This treatment requires it to account for BTRLP's
transactions with the conduit as a sale of accounts receivable instead of
reflecting the conduit's net investment as long-term debt with a pledge of
accounts receivable as collateral. Absent this "sale treatment," the Company's
balance sheet would reflect additional accounts receivable and long-term debt,
which could be an adverse factor in the Company's ability to raise capital;
however, results of operations would not be materially impacted.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of financial condition and results of
operations are based upon the consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles.
Preparation of these financial statements requires the Company to make estimates
and judgments that affect reported amounts of assets and liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities at the
date of its financial statements. On an ongoing basis, the Company evaluates its
estimates, including those related to merchandise returns, bad debts,
inventories, intangible assets, income taxes, financings and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
14
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The Company defines "critical accounting policies" as those accounting policies
that are reflective of significant judgments and uncertainties, and could
potentially result in materially different results under different assumptions
and conditions. The Company believes its critical accounting policies are those
described below.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers and adjusts
credit limits based upon payment history and the customer's current
creditworthiness. The Company continually monitors collections and payments from
customers and maintains an allowance for estimated credit losses based upon its
historical experience and any specific customer collection issues identified
(e.g., bankruptcy). While such credit losses have historically been within
expectations and provisions established, the Company cannot guarantee that it
will continue to experience the same credit loss rates as in the past. If
circumstances change (e.g., higher than expected defaults or bankruptcies), the
Company's estimates of the recoverability of amounts due to the Company could be
materially reduced.
Inventory Valuation
Inventories are stated at the lower of cost or market with cost determined using
the retail last-in, first-out ("LIFO") method. Under the retail inventory
method, the valuation of inventories at cost and resulting gross margin are
calculated by applying a calculated cost-to-retail ratio to the retail value of
inventories. The retail inventory method is an averaging method that has been
widely used in the retail industry due to its practicality. Use of the retail
inventory method will result in valuing inventories at the lower of cost or
market if markdowns are taken timely as a reduction of the retail value of
inventories.
Vendor Allowances
As is standard industry practice, the Company receives allowances from
merchandise vendors as reimbursement for charges incurred on marked-down
merchandise. Vendor allowances are generally credited to costs of goods sold,
provided the allowance is (1) collectible; (2) for merchandise either
permanently marked down or sold; (3) not predicated on a future purchase; (4)
not predicated on a future increase in the purchase price from the vendor; and
(5) authorized by internal management. If the aforementioned criteria are not
met, the Company reflects the allowance dollars as an adjustment to the cost of
merchandise capitalized in inventory. Additionally, the Company receives
allowances from vendors in connection with cooperative advertising programs.
These amounts are recognized as a reduction of the advertising costs incurred
and reflected in selling, general and administrative expenses.
Income Taxes
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. The process involves the Company
summarizing temporary differences resulting from differing treatment of items
(e.g., inventory valuation reserves) for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included
within the consolidated balance sheet. The Company must then assess the
likelihood that deferred tax assets will be recovered from future taxable income
and, to the extent the
15
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Company believes recovery is not likely, a valuation allowance must be
established. To the extent the Company establishes a valuation allowance in a
period, an expense must be recorded within the tax provision in the statement of
operations. Net deferred tax assets were $9.0 million and $10.1 million as of
November 2, 2002 and February 2, 2002, respectively. As of said dates, no
valuation allowance has been established against net deferred tax assets, as the
Company believes these tax benefits will be realizable through reversal of
existing deferred tax liabilities, tax carry-back availability and future
taxable income.
Long-lived Assets
The Company assesses, on a store-by-store basis, the impairment of identifiable
long-lived assets -- primarily property, fixtures and equipment -- whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those items. Cash flow estimates are
based on historical results adjusted to reflect the Company's best estimate of
future market and operating conditions. The net carrying value of assets not
recoverable is reduced to fair value. Estimates of fair value represent the
Company's best estimate based on industry trends and reference to market rates
and transactions. Newly-opened stores may take time to generate positive
operating and cash flow results. Factors such as store type, store location,
current marketplace awareness of the Company's private label brands, local
customer demographic data and current fashion trends are all considered in
determining the time-frame required for a store to achieve positive financial
results. If economic conditions are substantially different from our
expectations, the carrying value of certain long-lived assets may become
impaired.
Property, fixtures and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of such assets. Changes in
the Company's business model or changes in the Company's capital strategy can
result in the actual useful lives differing from the Company's estimates. In
cases where the Company determines that the useful life of property, fixtures
and equipment should be shortened, the Company depreciates the net book value in
excess of the salvage value over its revised remaining useful life, thereby
increasing depreciation expense. Factors such as changes in the planned use of
fixtures or leasehold improvements could result in shortened useful lives.
Securitizations
A significant portion of the Company's funding is through off-balance-sheet
credit card securitizations via sales of certain accounts receivable through an
accounts receivable facility. The sale of receivables is to BTRLP, a special
purpose entity, as defined by SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -- A
Replacement of FASB Statement No. 125." BTRLP is a wholly-owned subsidiary of
the Company. BTRLP sells the receivables through the accounts receivable
facility to a conduit. BTRLP may sell up to $150.0 million through the facility.
The Company sells accounts receivable through securitizations with servicing
retained. When the Company securitizes, it surrenders control over the
transferred assets and accounts for the transaction as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. The Company allocates the previous carrying amount of the
securitized receivables between the assets sold and retained interests, based on
their relative estimated fair values at the date of sale. Securitization income
is recognized at the time of the sale, and is equal to the excess of the fair
value of the assets obtained (principally cash) over the allocated cost of the
assets sold and transaction costs. During the revolving period of each accounts
receivable securitization, securitization income is recorded representing
estimated gains on
16
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
the sale of new receivables to the conduit on a continuous basis to replenish
the investors' interest in securitized receivables that have been repaid by the
credit card account holders. Fair value estimates used in the recognition of
securitization income require certain assumptions of payment, default, servicing
costs and interest rates. To the extent actual results differ from those
estimates, the impact is recognized as securitization income.
The Company estimates the fair value of retained interests in securitizations
based on a discounted cash flow analysis. The cash flows of the retained
interest-only strip are estimated as the excess of the weighted average finance
charge yield on each pool of receivables sold over the sum of the interest rate
paid to the note holder, the servicing fee and an estimate of future credit
losses over the life of the receivables. Cash flows are discounted from the date
the cash is expected to become available to the Company. These cash flows are
projected over the life of the receivables using payment, default, and interest
rate assumptions that the Company believes would be used by market participants
for similar financial instruments subject to prepayment, credit and interest
rate risk. The cash flows are discounted using an interest rate that the Company
believes a purchaser unrelated to the seller of the financial instrument would
demand. As all estimates used are influenced by factors outside the Company's
control, there is uncertainty inherent in these estimates, making it reasonably
possible that they could change in the near term. Any adverse change in the
Company's assumptions could materially impact securitization income.
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," "could," "will," "plan," "expect,"
"anticipate," "estimate," "project," "intend" or other similar expressions,
involve important risks and uncertainties that could significantly affect
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. These risks
and other risks are discussed in the Company's Annual Report on Form 10-K for
the fiscal year ended February 2, 2002.
17
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 2001
Annual Report, have changed materially since the Company's disclosure in its
2001 Annual Report.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, including Tim Grumbacher, Chairman of the Board and
Chief Executive Officer (principal executive officer) and James H. Baireuther,
Vice Chairman, Chief Administrative Officer and Chief Financial Officer
(principal financial officer), have evaluated the effectiveness of the Company's
"disclosure controls and procedures," as such term is defined in Rules 13a-14
and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended,
within 90 days of the filing date of this Quarterly Report on Form 10-Q. Based
upon their evaluation, the principal executive officer and principal financial
officer concluded that the Company's disclosure controls and procedures are
effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls since the date the
internal controls were evaluated.
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 2001 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:
None.
(b) Reports on Form 8-K filed during the quarter:
None.
18
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, 2002 BY: /s/ Tim Grumbacher
--------------------------- ------------------------------
Tim Grumbacher
Chairman of the Board and
Chief Executive Officer
DATE: December 13, 2002 BY: /s/ James H. Baireuther
--------------------------- ------------------------------
James H. Baireuther
Vice Chairman, Chief
Administrative Officer and
Chief Financial Officer
19
THE BON-TON STORES, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Tim Grumbacher, Chairman of the Board and Chief Executive Officer of The
Bon-Ton Stores, Inc., certify that:
(1) I have reviewed this quarterly report on Form 10-Q of The
Bon-Ton Stores, Inc.;
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls, and;
20
THE BON-TON STORES, INC. AND SUBSIDIARIES
(6) The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
DATE: December 13, 2002 BY: /s/ Tim Grumbacher
-------------------------- ------------------------------
Tim Grumbacher
Chairman of the Board and
Chief Executive Officer
21
THE BON-TON STORES, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, James H. Baireuther, Vice Chairman, Chief Administrative Officer and Chief
Financial Officer of The Bon-Ton Stores, Inc., certify that:
(1) I have reviewed this quarterly report on Form 10-Q of The
Bon-Ton Stores, Inc.;
(2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
(4) The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
(5) The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls, and;
22
THE BON-TON STORES, INC. AND SUBSIDIARIES
(6) The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
DATE: December 13, 2002 BY: /s/ James H. Baireuther
------------------------- -----------------------------
James H. Baireuther
Vice Chairman, Chief
Administrative Officer and
Chief Financial Officer
23
THE BON-TON STORES, INC. AND SUBSIDIARIES
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with quarterly report of The Bon-Ton Stores, Inc. on Form 10-Q for
the period ending November 2, 2002, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Tim Grumbacher, Chairman of the
Board and Chief Executive Officer of The Bon-Ton Stores, Inc., certify, pursuant
to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13
(a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of The Bon-Ton Stores, Inc.
DATE: December 13, 2002 BY: /s/ Tim Grumbacher
------------------------ --------------------------
Tim Grumbacher
Chairman of the Board and
Chief Executive Officer
In connection with quarterly report of The Bon-Ton Stores, Inc. on Form 10-Q for
the period ending November 2, 2002, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, James H. Baireuther, Vice
Chairman, Chief Administrative Officer and Chief Financial Officer of The
Bon-Ton Stores, Inc., certify, pursuant to section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of section 13
(a) or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of The Bon-Ton Stores, Inc.
DATE: December 13, 2002 BY: /s/ James H. Baireuther
--------------------------- ----------------------------
James H. Baireuther
Vice Chairman, Chief
Administrative Officer and
Chief Financial Officer
24