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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 May 3, 2003 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 June 10, 2003 there were 12,132,732 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
May 3, February 1,
(In thousands except share and per share data) 2003 2003
- --------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,625 $ 16,796
Trade and other accounts receivable, net of allowance for doubtful accounts and sales
returns of $3,126 and $3,540 at May 3, 2003 and February 1, 2003, respectively 44,257 46,735
Merchandise inventories 171,896 148,618
Prepaid expenses and other current assets 14,966 12,958
Deferred income taxes 3,172 3,205
- -------------------------------------------------------------------------------------------------------------------
Total current assets 245,916 228,312
- -------------------------------------------------------------------------------------------------------------------
Property, fixtures and equipment at cost,
less accumulated depreciation and amortization 132,552 136,201
Deferred income taxes 4,185 3,980
Goodwill and intangible assets 9,414 9,511
Other assets 3,880 4,019
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $395,947 $382,023
===================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 72,103 $ 53,367
Accrued payroll and benefits 9,573 14,037
Accrued expenses 19,762 25,546
Current portion of long-term debt 733 715
Current portion of obligations under capital leases 257 250
Income taxes payable 2,377 5,249
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 104,805 99,164
- -------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 76,104 64,194
Obligations under capital leases, less current maturities 400 468
Other long-term liabilities 5,476 5,851
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 186,785 169,677
- -------------------------------------------------------------------------------------------------------------------
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 12,135,332 and 12,220,285 at May 3, 2003 and February 1, 2003, 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 May 3, 2003 and February 1, 2003 30 30
Treasury stock, at cost - shares of 335,200 and 277,000 at May 3, 2003 and
February 1, 2003, respectively (1,375) (1,132)
Additional paid-in-capital 107,361 107,415
Deferred compensation (142) (222)
Accumulated other comprehensive income (1,893) (1,876)
Retained earnings 105,056 108,006
- -------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 209,162 212,346
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $395,947 $382,023
===================================================================================================================
The accompanying notes are an integral part of these consolidated statements.
2
THE BON-TON STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN
WEEKS ENDED
----------------------------
(In thousands except share and per share data) May 3, May 4,
(Unaudited) 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net sales $ 141,111 $ 150,517
Other income, net 526 534
- -------------------------------------------------------------------------------------------------------------------------
141,637 151,051
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of merchandise sold 88,927 100,397
Selling, general and administrative 51,380 50,636
Depreciation and amortization 4,764 5,057
- -------------------------------------------------------------------------------------------------------------------------
Loss from operations (3,434) (5,039)
Interest expense, net 1,244 1,977
- -------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (4,678) (7,016)
Income tax benefit (1,730) (2,631)
- -------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (2,948) $ (4,385)
=========================================================================================================================
PER SHARE AMOUNTS --
BASIC:
Net loss $ (0.20) $ (0.29)
=========================================================================================================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 15,033,345 15,283,017
DILUTED:
Net loss $ (0.20) $ (0.29)
=========================================================================================================================
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 15,033,345 15,283,017
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
THIRTEEN
WEEKS ENDED
----------------------
(In thousands) May 3, May 4,
(Unaudited) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,948) $ (4,385)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,764 5,057
Changes in operating assets and liabilities, net (18,145) (10,192)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (16,329) (9,520)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (1,031) (1,191)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,031) (1,191)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (27,133) (32,512)
Proceeds from issuance of long-term debt 39,000 48,800
Common shares repurchased (243) (178)
Increase (decrease) in bank overdraft balances, net 565 (3,404)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,189 12,706
Net (decrease) increase in cash and cash equivalents (5,171) 1,995
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,796 9,752
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,625 $ 11,747
===================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,069 $ 2,144
Income taxes paid, net of refunds $ 3,049 $ 10,618
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)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated
on January 31, 1996 as the successor of a company incorporated on January 31,
1929 and currently operates as one business segment, through its subsidiaries,
72 retail department stores located in Pennsylvania, New York, New Jersey,
Maryland, Connecticut, Massachusetts, New Hampshire, Vermont and West Virginia.
1. 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 1, 2003 (the "2002 Annual Report").
2. STOCK-BASED COMPENSATION
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25," issued in March 2000, to
account for its fixed-plan stock options. Under this method, compensation
expense is recorded on the date of the grant only if the current market price of
the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the Company
has elected to continue to apply the intrinsic-value-based method of accounting
described above, and has adopted only the disclosure requirements of SFAS No.
123, as amended by Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation--Transition and Disclosure." No
stock-based employee compensation is reflected in net income for stock options,
as all options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income if the fair-value-based method had been applied to all
outstanding and unvested awards in each period:
5
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
THIRTEEN WEEKS ENDED
----------------------
May 3, May 4,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net loss, as reported $(2,948) $(4,385)
Deduct: Total stock-option-based employee compensation
expense determined under fair-value-based methods
for all awards, net of related tax effects (83) (104)
- ------------------------------------------------------------------------------------------------------------------
Pro forma net loss $(3,031) $(4,489)
==================================================================================================================
Earnings per share
Basic As reported $ (0.20) $ (0.29)
Pro forma (0.20) (0.29)
Diluted As reported $ (0.20) $ (0.29)
Pro forma (0.20) (0.29)
The Company used the Black-Scholes option pricing model to calculate the fair
value of the stock options at the grant date. The following assumptions were
used:
THIRTEEN WEEKS ENDED
--------------------
May 3, May 4,
2003 2002
- ------------------------------------------------------------------------------------------------------------------
Expected option term in years 7.7 7.7
Stock price volatility factor 68.9% 68.9%
Dividend yield 0.0% 0.0%
Risk-free interest rate 3.0% 3.7%
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 loss, is identical in both calculations. The following table
presents a reconciliation of weighted average shares outstanding for the
respective calculations for each period presented on the accompanying
consolidated statements of operations:
THIRTEEN WEEKS ENDED
-----------------------
May 3, May 4,
2003 2002
- --------------------------------------------------------------------------------------------------------------------
Basic calculation 15,033,345 15,283,017
Effect of dilutive shares ---
Restricted Shares - -
Options - -
- --------------------------------------------------------------------------------------------------------------------
Diluted calculation 15,033,345 15,283,017
====================================================================================================================
6
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
The following securities were antidilutive and, therefore, were not
included in the computation of diluted earnings per share amounts for the
periods indicated:
THIRTEEN WEEKS ENDED
---------------------
May 3, May 4,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
Antidilutive shares ---
Restricted Shares 140,000 182,000
Options 948,000 967,000
Certain securities were excluded from the computation of dilutive
shares due to the Company's net loss position in the thirteen weeks ended May 3,
2003 and May 4, 2002. The following table shows the approximate effect of
dilutive securities had the Company reported profit for these periods:
THIRTEEN WEEKS ENDED
--------------------
May 3, May 4,
2003 2002
- ------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities ---
Restricted Shares 96,000 91,000
Options 94,000 86,000
4. EXIT OR DISPOSAL ACTIVITIES
In October 2002, the Company announced it would close its York,
Pennsylvania distribution operations in April 2003 and that all merchandise
processing functions would be consolidated into the Company's existing
Allentown, Pennsylvania distribution center. In addition, the Company announced
it would close its Red Bank, New Jersey store in January 2003. The closings were
completed as scheduled.
The Company elected early adoption of SFAS No. 146, "Accounting for
Exit or Disposal Activities," for these exit activities and, accordingly,
recorded charges of $696 in fiscal 2002 relating to the closures. In addition,
the Company recorded charges of $42 in the thirteen weeks ended May 3, 2003. All
charges were included within selling, general and administrative expense and
related primarily to termination benefits for affected associates and other
costs to consolidate the distribution centers.
Total costs relating to the closures are estimated at $738, with $404
for termination benefits and $334 for other costs.
7
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Following is a reconciliation of accruals as of February 1, 2003 and
May 3, 2003 related to the distribution center and store closures:
February 1, May 3,
2003 Fiscal 2003 Fiscal 2003 2003
Balance Provision Payments Balance
- -----------------------------------------------------------------------------------------------
Termination benefits $ 220 $ 58 $ 278 $ -
Other closing costs 255 (16) 89 150
- ----------------------------------------------------------------------------------------------
Total $ 475 $ 42 $ 367 $ 150
==============================================================================================
As of May 3, 2003, the remaining distribution center rental obligation
through lease expiration in December 2020 is $9,737. The Company will continue
to utilize a portion of this facility for its data processing operations center
and intends to sublet the remaining space. The Company anticipates that the fair
market value of any sublet income will equal or exceed its remaining rent
obligation.
5. SALE OF RECEIVABLES
The Company securitizes its proprietary credit card portfolio through
an accounts receivable facility (the "Facility"). Under the securitization
agreement, which is contingent upon receivables meeting certain performance
criteria, the Company has the option to sell through The Bon-Ton Receivables
Partnership, LP ("BTRLP"), a wholly owned subsidiary of the Company and
qualifying special purpose entity under SFAS No. 140, up to $150,000 of an
undivided percentage interest in the receivables on a limited recourse basis. In
connection with the securitization agreement, the Company retains servicing
responsibilities, subordinated interests and an interest-only strip, all of
which are retained interests in the securitized receivables. The Company retains
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 other assets for failure of 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.
As of May 3, 2003 and February 1, 2003, credit card receivables were
sold under the securitization agreement in the amount of $135,600 and $145,000,
respectively, and the Company had subordinated interests of $43,332 and $44,520,
respectively, related to the amounts sold that were included in the accompanying
Consolidated Balance Sheets as trade and other accounts receivable. The Company
accounts for its subordinated interest in the receivables in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company has not recognized any unrealized gains or losses on
its subordinated interest, as the current carrying value of customer revolving
charge accounts receivable is a reasonable estimate of fair value and average
interest rates approximate current market origination rates. Subordinated
interests as of May 3, 2003 and February 1, 2003 included restricted cash of
$7,018 and $6,222, respectively, required based upon the terms of the Company's
accounts receivable facility agreement.
8
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
New receivables are sold on a continual basis to replenish each
investor's respective level of participation in receivables that have been
repaid by credit card holders.
During the thirteen weeks ended May 3, 2003 and May 4, 2002, the
Company recognized securitization income of $2,550 and $2,886, respectively, on
securitization of credit card loans. This income is reported as a component of
selling, general and administrative expenses.
The Company retained net proceeds from servicing fees, which it
reported as a component of selling, general and administrative expenses, of $687
and $741 for the thirteen weeks ended May 3, 2003 and May 4, 2002, respectively.
As of May 3, 2003, $4,252 of the total managed credit card receivables were 61
days or more past due. Net credit losses on the total managed credit card
receivables were $1,925 and $1,780 for the thirteen weeks ended May 3, 2003 and
May 4, 2002, respectively.
6. STOCK REPURCHASES
On February 7, 2002, the Company announced a stock repurchase program
authorizing the purchase of up to $2,500 of Company stock from time to time.
During the thirteen weeks ended May 3, 2003, the Company purchased 58,200 shares
at a cost of $243. On a cumulative basis, since February 7, 2002 the Company has
purchased 335,200 shares at a cost of $1,375 pursuant to this stock purchase
program. Treasury stock is accounted for by the cost method.
7. IMPLEMENTATION OF NEW ACCOUNTING STANDARD
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) collectable, (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 allowances 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
by the Company as a reduction of the related advertising costs that have been
incurred and reflected in selling, general and administrative expenses.
In November 2002, the Emerging Issues Task Force issued Consensus No.
02-16, "Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor" ("EITF 02-16"), which is effective
prospectively for all vendor arrangements entered into after December 31, 2002.
EITF 02-16 requires that consideration received from vendors be considered a
reduction of the prices of vendors' products and shown as a reduction of cost of
sales when recognized in the income statement of the customer. If the
consideration represents a reimbursement of specific incremental identifiable
costs incurred, these amounts should be offset against the related costs with
any excess
9
THE BON-TON STORES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
consideration recorded in cost of sales. The Company's current accounting
policies are consistent with the provisions of EITF 02-16 and, therefore,
adoption of EITF 02-16 did not have a material impact on the Company's financial
position or results of operations in fiscal 2002 or the thirteen weeks ended May
3, 2003.
8. SUBSEQUENT EVENTS
On May 21, 2003, the Company amended and restated its revolving credit
facility agreement. The new agreement reduces the line of credit from $175,000
to $150,000; modifies certain borrowing availability, interest and fee
calculation elements; and extends the agreement expiration date from April 2004
to April 2008.
On June 3, 2003, the Board of Directors of the Company declared a
quarterly cash dividend of $0.025 per share on Class A Common Stock and Common
Stock of the Company, payable July 15, 2003 to shareholders of record as of July
1, 2003.
10
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
WEEKS ENDED
----------------------------
May 3, May 4,
2003 2002
- ------------------------------------------------------------------------------------------------------------
Net sales 100.0 % 100.0%
Other income, net 0.4 0.4
- ----------------------------------------------------------------------------------------------------------
100.4 100.4
- ----------------------------------------------------------------------------------------------------------
Costs and expenses:
Costs of merchandise sold 63.0 66.7
Selling, general and administrative 36.4 33.6
Depreciation and amortization 3.4 3.4
- ----------------------------------------------------------------------------------------------------------
Loss from operations (2.4) (3.3)
Interest expense, net 0.9 1.3
- ----------------------------------------------------------------------------------------------------------
Loss before income taxes (3.3) (4.7)
Income tax benefit (1.2) (1.7)
- ----------------------------------------------------------------------------------------------------------
Net loss (2.1)% (2.9)%
- ----------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED MAY 3, 2003 COMPARED TO THIRTEEN WEEKS ENDED MAY 4, 2002
For purposes of the following discussions, all references to "first
quarter of 2003" and "first quarter of 2002" are to the Company's thirteen-week
period ended May 3, 2003 and May 4, 2002, respectively.
NET SALES. Net sales for the first quarter of 2003 were $141.1 million,
reflecting a decrease of 6.2% from the same period last year. Comparable store
sales for the first quarter of 2003 decreased 5.6%. Business families recording
sales increases for the first quarter of 2003 were Coats, Accessories and Shoes.
Business families reflecting the sharpest sales decreases were Dresses, Men's
Collections, Misses' Sportswear and Petites.
OTHER INCOME, NET. Net other income, principally income from leased
departments, remained constant at 0.4% of net sales in the first quarter of 2003
and 2002.
COSTS AND EXPENSES. Gross margin as a percentage of net sales increased
3.7 percentage points to 37.0% for the quarter ended May 3, 2003 from 33.3% for
the comparable period last year, primarily as a result of decreases in markdowns
on seasonal merchandise and inventory shrinkage accrual rates. During the first
quarter of 2002, as an aggressive response to a difficult retail environment and
increased price competition, the Company accelerated the timing of markdowns on
11
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
seasonal merchandise; this accelerated cadence for seasonal merchandise
markdowns has been continued through the first quarter of 2003. To implement
this accelerated cadence, the Company recognized increased markdowns in the
first quarter of 2002. The increase in the gross margin rate in the first
quarter of 2003 as compared to the first quarter of 2002 was principally due to
this accelerated recognition of markdowns implemented in the first quarter of
2002, combined with lower promotional markdowns and a reduction in inventory
shrinkage accrual rates in the first quarter of 2003. Gross margin dollars
increased $2.1 million over the first quarter of 2002 as a result of the
increased gross margin rate.
Selling, general and administrative expenses for the first quarter of
2003 were $51.4 million, $0.7 million above the first quarter of 2002. The
increase in selling, general and administrative dollars was principally
attributable to increased advertising, utilities and purchased services,
partially offset by a reduction in payroll expense. The current year expense
rate increased 2.8 percentage points to 36.4% of net sales, relative to 33.6% of
net sales in the first quarter of 2002. The rate increase was largely due to the
lower level of sales.
Depreciation and amortization in the first quarter of 2003 was $4.8
million, a decrease of $0.3 million compared to $5.1 million in the first
quarter of 2002. The decrease was primarily due to prior year depreciation on
assets at the Red Bank, New Jersey store closed in January 2003.
LOSS FROM OPERATIONS. Loss from operations in the first quarter of 2003
was $3.4 million, or 2.4% of net sales, compared to loss from operations of $5.0
million, or 3.3% of net sales, in the first quarter of 2002.
INTEREST EXPENSE, NET. Net interest expense was $1.2 million, or 0.9%
of net sales, in the first quarter of 2003 compared to $2.0 million, or 1.3% of
net sales, in the first quarter of 2002. The decrease in net interest expense
was primarily due to favorable fair market value adjustments on interest rate
swap agreements. Specifically, interest expense for the thirteen weeks ended May
3, 2003 and May 4, 2002 included a reduction of interest expense of $0.7 million
and an increase in interest expense of $0.1 million, respectively, related to
fair market value adjustments on interest rate swaps.
INCOME TAX BENEFIT. The effective tax rate decreased 0.5 percentage
point to 37.0% in the first quarter of 2003 from to 37.5% in the prior year
period.
NET LOSS. Net loss in the first quarter of 2003 was $2.9 million, or
2.1% of net sales, compared to net loss of $4.4 million, or 2.9% of net sales,
in the first quarter of 2002.
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.
12
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 quarters ended May 3, 2003 and May 4, 2002.
However, there can be no assurance that the Company's business will not be
affected by inflationary adjustments in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are currently met through a
combination of cash, borrowings under its revolving credit facility and proceeds
from its accounts receivable facility.
The following table summarizes material measures of the Company's
liquidity and capital resources:
May 3, May 4,
(Dollars in millions) 2003 2002
- -----------------------------------------------------------------------------------------------------------
Working capital $ 141.1 $ 132.3
Current ratio 2.35:1 2.42:1
Debt to total capitalization (debt plus equity) 0.27:1 0.30:1
Unused availability under revolving credit facility $ 67.3 $ 67.5
For the quarter ended May 3, 2003, net cash used in operating
activities was $16.3 million as compared to net cash used of $9.5 million for
the comparable period last year. The increase in net cash used in 2003 was
primarily attributable to an increase in working capital requirements,
particularly increased merchandise inventories, partially offset by increased
accounts payable and decreased income taxes.
Net cash used in investing activities was $1.0 million in 2003 compared
to $1.2 million for the comparable period last year. This reduction reflects
differences in the timing of capital projects.
Net cash provided by financing activities amounted to $12.2 million for
2003 compared to $12.7 million for the comparable period of 2002. The decrease
in cash provided by financing activities in 2003 was primarily attributable to a
reduction in proceeds from issuance of long-term debt largely offset by
decreased payments on the Company's revolving credit facility and increased bank
overdrafts.
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.
13
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The accounts receivable facility agreement expires in January 2004. The
Company anticipates that it will be able to renew or replace this agreement with
an agreement of substantially comparable terms.
On May 21, 2003, the Company amended and restated its revolving credit
facility agreement. The new revolving credit facility agreement reduces the line
of credit from $175.0 million to $150.0 million; modifies certain borrowing
availability, interest and fee calculation elements; and extends the agreement
expiration date from April 2004 to April 2008. The Company negotiated the $25.0
million reduction in the line of credit, which the Company anticipates will
yield lower fee charges without materially impacting the Company's total
availability.
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 probable 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.
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 Statement of Financial Accounting Standards ("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 sells undivided percentage ownership interests in certain
of its credit card accounts receivable to unrelated third-parties under a $150.0
million accounts receivable securitization facility. The unrelated
third-parties, referred to as the conduit, have purchased a $135.6 million
interest in the accounts receivable under this facility at May 3, 2003. The
Company is responsible for servicing these accounts, retains a servicing fee and
bears the risk of non-collection (limited to its retained interests in the
accounts receivable). Associated off-balance-sheet assets and related debt were
$135.6 million at May 3, 2003 and $145.0 million at February 1, 2003. Upon the
facility's termination, the conduit would be entitled to all cash collections on
the accounts receivable until its investment ($135.6 million at May 3, 2003) and
accrued discounts are repaid. Accordingly, upon termination of the facility, the
assets of the facility would not be available to the Company until all amounts
due to the conduit have been paid in full.
14
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Based upon the terms of the accounts receivable facility, the accounts
receivable transactions qualify for "sale treatment" under generally accepted
accounting principles. This treatment requires the Company to account for
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 a factor in the Company's ability to raise capital; however,
results of operations would not be significantly impacted.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of financial condition and
results of operations are based upon the condensed 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 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.
Critical accounting policies are defined as those that are reflective
of significant judgments and uncertainties, and could potentially lead to
materially different results under different assumptions and conditions. The
Company believes its critical accounting policies are 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
credit-worthiness. The Company continually monitors collections and payments
from customers and maintains an allowance for estimated credit losses based upon
its historical experience, how delinquent accounts ultimately charge-off, aging
of accounts 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 the Company could be materially reduced.
The allowance for doubtful accounts and sales returns was $3.1 million and $3.5
million as of May 3, 2003 and February 1, 2003, respectively.
15
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 is derived 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. 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.
Inherent in the retail inventory method calculation are certain
significant management judgments and estimates including, among others,
merchandise markups, markdowns and shrinkage, which significantly impact both
the ending inventory valuation at cost and resulting gross margin. These
significant estimates, coupled with the fact that the retail inventory method is
an averaging process, can, under certain circumstances, result in individual
inventory components with cost above related net realizable value. Factors that
can lead to this result include applying the retail inventory method to a group
of products that is not fairly uniform in terms of its cost, selling price
relationship and turnover; or applying the retail inventory method to
transactions over a period of time that includes different rates of gross
profit, such as those relating to seasonal merchandise. In addition, failure to
take timely markdowns can result in an overstatement of cost under the lower of
cost or market principle. Management believes that the Company's retail
inventory method provides an inventory valuation that approximates cost and
results in carrying inventory in the aggregate at the lower of cost or market.
The Company regularly reviews inventory on hand and records a provision
for excess or old inventory based primarily on an estimated forecast of
merchandise demand for the selling season. Demand for merchandise can fluctuate
greatly; a significant increase in the demand for merchandise could result in a
short-term increase in the cost of inventory purchases while a significant
decrease in demand could result in an increase in the amount of excess inventory
on-hand. Additionally, estimates of future merchandise demand may prove to be
inaccurate, in which case the Company may have understated or overstated the
provision required for excess or old inventory. If the Company's inventory is
determined to be overvalued in the future, the Company would be required to
recognize such costs in the costs of goods sold and reduce operating income at
the time of such determination. Likewise, if inventory is later determined to be
undervalued, the Company may have overstated the costs of goods sold in previous
periods and would be required to recognize additional operating income at the
time of such determination. Therefore, although every effort is made to ensure
the accuracy of forecasts of future merchandise demand, any significant
unanticipated changes in demand or the economy in the Company's markets could
have a significant impact on the value of the Company's inventory and reported
operating results.
As is currently the case with many companies in the retail industry,
the Company's LIFO calculations have yielded inventory increases in recent years
due to deflation reflected in price indices used. This is the result of the LIFO
method whereby merchandise sold is valued at the cost of more recent inventory
purchases (which the deflationary indices indicate to be lower), resulting in
the general inventory on-hand being carried at the older, higher costs. Given
these higher values and the promotional retail environment, the Company reduced
the carrying value of its LIFO inventories by $7.1 million as of May 3, 2003 and
February 1, 2003 to a net realizable value (NRV). Inherent in
16
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
these NRV assessments and related reserves are significant management judgments
and estimates regarding future merchandise selling costs and pricing. Should
these estimates prove to be inaccurate, the Company may have overstated or
understated its inventory carrying value. In such cases, the Company would be
required to recognize cost increases or decreases in costs of goods sold, and
impact operating income accordingly, at the time of such determination.
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) collectable, (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 allowances 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
by the Company as a reduction of the related advertising costs that have been
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 or tax carry-back availability and, to the extent the 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 $7.4 million and $7.2 million as of May 3,
2003 and February 1, 2003, respectively. 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. If actual
results differ from these estimates or these estimates are adjusted in future
periods, the Company may need to establish a valuation allowance, which could
materially impact its financial position and results of operations.
Legislation changes currently proposed by certain states in which the
Company operates could have a materially adverse impact on future operating
results of the Company. These legislation changes principally involve state
income tax laws.
17
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LONG-LIVED ASSETS
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 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 also result in shortened useful lives.
Net property, fixtures and equipment amounted to $132.6 million and $136.2
million as of May 3, 2003 and February 1, 2003, respectively.
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. Factors that could trigger an impairment
review include the following:
- - Significant under-performance of stores relative to historical or projected
operating results,
- - Significant changes in the manner of the Company's use of assets or overall
business strategy, and
- - Significant negative industry or economic trends for a sustained period.
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. Should cash flow estimates differ significantly from actual
results, an impairment could arise and materially impact the Company's financial
position and results of operations.
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 prove to be substantially different from the Company's
expectations, the carrying value of new stores may ultimately become impaired.
The Company has identified assets in the New York market with a net
book value of approximately $4.0 million that have under-performed relative to
the Company average. The Company has taken steps to address these issues and
currently forecasts no impairment charge. Should the Company's efforts prove
unsuccessful or economic conditions change, the carrying value of these assets
may ultimately become impaired.
18
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GOODWILL AND INTANGIBLE ASSETS
Net goodwill was $3.0 million as of May 3, 2003 and February 1, 2003.
Intangible assets are comprised of lease interests that 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. Net intangible assets amounted to
$6.4 million and $6.5 million as of May 3, 2003 and February 1, 2003,
respectively.
As a result of the Company's adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," the
Company annually reviews goodwill and other intangible assets that have
indefinite lives for impairment and when events or changes in circumstances
indicate the carrying value of these assets might exceed their current fair
values. The Company determines fair value using discounted cash flow analysis,
which requires certain assumptions and estimates regarding industry economic
factors and future profitability of acquired businesses. It is the Company's
policy to conduct impairment testing based on its most current business plans,
which reflect anticipated changes in the economy and the industry. If actual
results prove inconsistent with Company assumptions and judgments, the Company
could be exposed to a material impairment charge.
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 facility"). The sale of
receivables is to The Bon-Ton Receivables Partnership, LP ("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 may sell accounts receivable with a purchase price up to $150 million
through the facility to a conduit on a revolving basis.
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 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.
19
THE BON-TON STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.
The Company recognized securitization income of $2.6 million and $2.9
million for the thirteen weeks ended May 3, 2003 and May 4, 2002, respectively.
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 1, 2003.
20
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 2002 Annual Report, have changed materially since the Company's disclosure
in its 2002 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and the
Chief Financial Officer, have evaluated the effectiveness of the Company's
"disclosure controls and procedures" (as defined in Exchange Act Rules 13a-14
and 15d-14), within 90 days of the filing date of this Quarterly Report on Form
10-Q, and based upon their evaluation, have 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 2002 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:
10.1 Amended and Restated Credit Agreement (Revolving Credit
Facility)
99.1 Certifications Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K filed during the quarter:
No Reports on Form 8-K were filed during the thirteen weeks ended May
3, 2003. The following Reports on Form 8-K were filed subsequent to May 3, 2003:
A Current Report on Form 8-K dated May 22, 2003 was filed with the
Securities and Exchange Commission on May 22, 2003 to report, under
Item 9 (pursuant to Item 12), that the Registrant issued a press
release with respect to its results of operations for the thirteen
weeks ended May 3, 2003.
A Current Report on Form 8-K dated June 6, 2003 was filed with the
Securities and Exchange Commission on June 6, 2003 to report, under
Item 5, that the Registrant issued a press release with respect to a
dividend declaration.
21
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: June 16, 2003 BY: /s/ Tim Grumbacher
------------------------------------
Tim Grumbacher
Chairman of the Board and
Chief Executive Officer
DATE: June 16, 2003 BY: /s/ James H. Baireuther
------------------------------------
James H. Baireuther
Vice Chairman, Chief
Administrative Officer and
Chief Financial Officer
22
THE BON-TON STORES, INC. AND SUBSIDIARIES
CERTIFICATION
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 officer 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 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 officer 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;
6) The registrant's other certifying officer 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: June 16, 2003 By: /s/ Tim Grumbacher
-----------------------
Tim Grumbacher
Chairman of the Board and
Chief Executive Officer
23
THE BON-TON STORES, INC. AND SUBSIDIARIES
CERTIFICATION
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 officer 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 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 officer 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;
6) The registrant's other certifying officer 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: June 16, 2003 By: /s/ James H. Baireuther
----------------------------
James H. Baireuther
Vice Chairman, Chief Administrative
Officer and Chief Financial Officer
24