ITEM 1. BUSINESS.
GENERAL
The Bon-Ton Stores, Inc., together with its subsidiaries, is the successor to S. Grumbacher & Son, a family business founded in 1898, and operates quality fashion department stores offering moderate and better apparel, home furnishings, cosmetics, accessories and shoes. In many of its markets, The Bon-Ton is the primary destination for branded fashion merchandise such as Calvin Klein, Liz Claiborne, Nautica, Ralph Lauren and Tommy Hilfiger. We presently operate 73 stores in secondary markets - 36 stores in Pennsylvania, 26 stores in New York, three stores in each of New Jersey and Maryland and one store in each of Connecticut, New Hampshire, Massachusetts, Vermont and West Virginia. Our strategy focuses on being the premier fashion apparel retailer in markets that demand, but often have limited access to, better branded merchandise.
The Bon-Ton's executive offices are located at 2801 East Market Street, York, Pennsylvania.
MERCHANDISING
The Bon-Ton stores offer moderate and better fashion apparel, home furnishings, cosmetics, accessories, shoes and other items. Sales of apparel constituted 60.7% of sales in 2001. The following chart illustrates sales by product category for 2001, 2000 and 1999:
We carry a number of highly recognized brand names, including Calvin Klein, Cole-Haan, Estee Lauder, Jones New York, Liz Claiborne, Nautica, Nine West, Ralph Lauren and Tommy Hilfiger, and within these brands choose collections which balance fashion, price and selection.
We depend on our relationships with our key vendors and our ability to purchase branded merchandise from them at competitive prices. If we lose the support of these vendors, it could have a material adverse effect on The Bon-Ton.
Complementing branded merchandise, our private brand merchandise provides fashion at competitive pricing under names such as Andrea Viccaro, Jenny Buchanan, Madison & Max and Zigg's. We view this private brand merchandise as a strategic addition to our strong array of highly recognized, quality national brands and as an opportunity to increase brand exclusiveness, customer loyalty and competitive differentiation. Private brand merchandise represented approximately 9.8% of 2001 sales excluding leased department sales.
Our business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the latter half of each year, which includes the back-to-school and holiday seasons.
MARKETING
We attract customers by offering services such as free gift wrap and special order capability. In addition, through our "Certified Value" program, we maintain everyday value prices on staple items such as turtlenecks, T-shirts, shorts and denim within major product groups.
Our advertising and promotional programs are conducted through newspaper advertisements, direct mail and, to a lesser extent, local television and radio. We maintain an in-house advertising group that produces substantially all our print advertising.
MANAGEMENT INFORMATION AND CONTROL SYSTEM
We are continuing to enhance our management information and control system in order to expedite the flow of merchandise through the distribution centers. This should provide improved productivity, lower labor costs and better in-stock availability. We also installed an updated price change system.
CUSTOMER CREDIT
Our customers may pay for their purchases with The Bon-Ton proprietary credit card, Visa, Mastercard, cash or check.
The Bon-Ton credit card holders generally constitute our most loyal and active customers; during 2001, the average dollar amount for proprietary credit card purchases substantially exceeded the average dollar amount for cash purchases. We believe our credit card is a particularly productive tool for customer segmentation and target marketing.
The following table summarizes the percentage of total sales generated by payment type:
TYPE OF PAYMENT
Sales on The Bon-Ton's proprietary credit card represent a significant portion of our business. Deterioration in the quality of these accounts receivable because customers fail to pay on time or at all, or any adverse changes in laws regulating the granting or servicing of credit, could have a material adverse effect on our business and financial condition.
COMPETITION
We face competition for customers from traditional department stores such as those operated by J.C. Penney Company, Inc., Federated Department Stores Inc., The May Department Stores Company, Kohl's Corporation and Sears, Roebuck and Co.; from regional department stores such as Boscov's Department Store, Inc.; from specialty stores; and, to a lesser extent, catalogue and internet retailers. In a number of our markets, we compete with national department store chains which are better established, and in other markets we face potential competition from national chains that have not yet entered such markets. In all markets, we generally compete for customers with department stores offering moderately priced goods. Many of our competitors have substantially greater financial and other resources than The Bon-Ton, and some of our competitors have greater leverage with vendors, which may allow such competitors to obtain merchandise more easily or on better terms. In several of our markets, we compete with department stores which have a larger store or a better location in the market.
We believe we compare favorably with our competitors with respect to quality, depth and breadth of merchandise, prices for comparable quality merchandise, customer service and store environment. We also believe our knowledge of secondary markets, developed over many years of operation, gives us a competitive advantage as we focus on secondary markets as our primary area of operation.
ASSOCIATES
As of February 2, 2002, we had approximately 3,600 full-time and 5,100 part-time associates. We employ additional part-time associates during peak periods. None of our associates are represented by a labor union. We believe that our relationship with our associates is good.
EXECUTIVE OFFICERS
The Executive Officers of the Company are:
Mr. Grumbacher has been Chairman of the Board for more than five years, and has served as Chief Executive Officer since June 2000.
Mr. Baireuther has been Vice Chairman and Chief Administrative Officer since September 2001. From February 2000 to September 2001, he was Executive Vice President - Chief Financial Officer, and for more than three years prior to that time he was Senior Vice President - Chief Financial Officer.
Mr. Tworecke joined the Company in November 1999 as Vice Chairman and Chief Merchandising Officer and a Director. From January 1996 until November 1999, he was President and Chief Operating Officer of Jos. A. Bank Clothiers.
Ms. Derry was appointed Senior Vice President - General Merchandise Manager in February 2001. For more than four years prior to that time, Ms. Derry was a Divisional Merchandise Manager for The Bon-Ton.
Mr. Farrell was appointed Senior Vice President - Stores in June 2000. For more than four years prior to that time, Mr. Farrell was Vice President - Stores for The Bon-Ton.
Mr. Geisenberger was appointed Senior Vice President - General Merchandise Manager in July 2000. For more than four years prior to that time, Mr. Geisenberger was a Divisional Merchandise Manager for The Bon-Ton.
Mr. Harmon joined the Company as Senior Vice President - Sales Promotion, Marketing and Strategic Planning in June 1997. From 1989 to 1997, Mr. Harmon was with The May Department Stores Company, serving in various executive positions.
Mr. McIntyre joined The Bon-Ton as Senior Vice President - Chief Information Officer in June 1997. From 1988 to June 1997, Mr. McIntyre was Senior Vice President - Chief Information Officer for the Cato Corporation, a women's specialty retailer.
Mr. Moore was appointed Senior Vice President - General Merchandise Manager in February 2001. He joined the Company as Vice President - Divisional Merchandise Manager in July 1998. From July 1990 to 1998, Mr. Moore was with Lord & Taylor, most recently as the divisional merchandise manager for men's clothing and furnishings.
Mr. Plowman was appointed Senior Vice President - Finance in September 2001. From May 1999 to September 2001, he was Vice President - Controller, and from August 1997 to May 1999 he was Divisional Vice President - Controller. Prior to that, he was controller for the York Group, Inc., a manufacturing concern.
Mr. Sattler was appointed Senior Vice President - Human Resources and Operations in June 2000. For more than four years prior to that time, Mr. Sattler was Senior Vice President - Operations.
CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING INFORMATION
The Company and its representatives may, from time to time, make written or verbal forward-looking statements. Those statements relate to developments, results, conditions or other events the Company expects or anticipates will occur in the future. Without limiting the foregoing, those statements may relate to future revenues, earnings, store openings, market conditions and the competitive environment. Forward-looking statements are based on management's then-current views and assumptions and, as a result, are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
All forward-looking statements are qualified by the following which contain several of the important factors that could cause actual results to differ materially from those predicted by the forward-looking statements:
Competitive Pressures
Our retail business is highly competitive. We compete for customers, employees, locations, products, services and other important items necessary for the successful operation of our business with local, regional and national retailers. Those competitors, some of which have greater financial and other resources than those of the Company, include department stores, specialty apparel stores, outlet stores, discount stores, general and mass merchandisers, mail-order and electronic commerce retailers, and other forms of retail commerce.
Customer Trends
It is difficult to predict what merchandise consumers will want. A substantial part of our business is dependent on our ability to make correct trend decisions for a wide variety of goods and services. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions could adversely affect short-term results and long-term relationships with our customers.
Credit Operations
Sales of merchandise and services are facilitated by the Company's credit card operations. These credit card operations also generate additional revenue from fees related to extending credit. Our ability to extend credit to our customers depends on many factors, including compliance with federal and state laws which may change from time to time. In addition, changes in credit card use, payment patterns and default rates may result from a variety of economic, legal, social and other factors that we cannot control or predict with certainty. Changes that adversely affect our ability to extend credit and collect payments could negatively affect our results and financial condition.
General Economic Conditions
General economic factors that are beyond our control influence the Company's forecasts and directly affect performance. These factors include interest rates, recession, inflation, deflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that influence consumer confidence and spending. Increasing volatility in financial markets may cause these factors to change with a greater degree of frequency and magnitude.
Product Sourcing
The products we sell are sourced from a wide variety of domestic and international vendors. Our ability to find qualified vendors and access products in a timely and efficient manner is a significant challenge which is typically even more difficult with respect to goods sourced outside of the United
States. Trade restrictions, tariffs, currency exchange rates, transport capacity and costs, and other factors significant to this trade are beyond our control and could adversely affect our business.
Advertising and Marketing Programs
The Company spends extensively on advertising and marketing. Our business depends on high customer traffic in our stores and effective marketing. If our advertising and marketing efforts are not effective, this could negatively affect our results.
Inventory Control
The Company's merchants focus on inventory levels and balance these levels with plans and trends. Excess inventories could result in significant markdowns, which could adversely affect our results.
Cost Containment
The Company's performance depends on appropriate management of its expense structure, including its selling, general and administrative costs. The Company is continuously focused on reducing expenses as a percent of sales. The Company's failure to meet its expense budget or to appropriately reduce expenses during a weak sales season could adversely affect our results.
Other Factors
Other factors that could cause actual results to differ materially from those predicted include: weather, changes in the availability or cost of capital, the availability of suitable new store locations on acceptable terms, shifts in seasonality of shopping patterns, work interruptions, the effect of excess retail capacity in our markets, material acquisitions or dispositions, or adverse results in material litigation.
The foregoing list of important factors is not exclusive, and the Company does not undertake to revise any forward-looking statement to reflect events or circumstances that occur after the date the statement is made.
ITEM 2.
ITEM 2. PROPERTIES.
Our stores, which all operate under "The Bon-Ton" name, vary in size from approximately 33,000 to 160,000 square feet.
The following table sets forth the number of stores at the beginning and end of each of the last five years:
We plan to maintain our growth by expanding and upgrading existing stores and by opening new stores. In addition, we will consider acquisitions of department store companies or their real estate assets if and when such opportunities arise. Our market positioning strategy has been to locate new stores, or acquire existing companies or their stores, in secondary markets generally within or contiguous to existing areas of operation.
The following table provides certain information regarding our store properties:
We lease 65 of our stores and own eight stores, two of which are subject to ground leases. We lease a total of 178,600 square feet for our executive and administrative offices in York, Pennsylvania, lease our 143,700 square foot distribution center in York, Pennsylvania, and lease our 326,000 square foot distribution center in Allentown, Pennsylvania.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
We are a party to legal proceedings and claims which arise during the ordinary course of business. We do not expect the ultimate outcome of all such litigation and claims to have a material adverse effect on our financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the Nasdaq Stock Market (symbol: BONT). There is no established public trading market for the Class A Common Stock. The Class A Common Stock is convertible on a share for share basis into Common Stock. The following table sets forth the high and low
sales price of the Common Stock as furnished by Nasdaq:
On April 5, 2002, there were approximately 336 shareholders of record of Common Stock and five shareholders of record of Class A Common Stock.
We have not paid cash dividends since our initial public offering in September 1991 and do not anticipate paying cash dividends in the foreseeable future. The Company intends to retain its earnings, if any, for operation and expansion of the business. The payment and rate of future dividends, if any, are subject to the discretion of the Board of Directors and will depend upon earnings, financial condition, capital requirements, contractual restrictions under current indebtedness and other factors. Our revolving credit agreement contains restrictions on our ability to pay dividends and make other distributions.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Item 6 is hereby incorporated by reference to the material under "Selected Consolidated Financial and Operating Data" on page 20 of our Annual Report, attached hereto as Exhibit 13.1.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Item 7 is hereby incorporated by reference to the material under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 27 of our Annual Report, attached hereto as Exhibit 13.2.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Item 7A is hereby incorporated by reference to the material under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 21 through 27 of our Annual Report, attached hereto as Exhibit 13.2.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Item 8 is hereby incorporated by reference to the Report of Independent Public Accountants, Consolidated Financial Statements and Notes thereto on pages 28 through 46 of our Annual Report,
attached hereto as Exhibit 13.3.
ITEM 9.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding executive officers is included in Part I under the heading Executive Officers. The remainder of the information called for by this Item will be contained in our Proxy Statement and is hereby incorporated by reference thereto.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item will be contained in our Proxy Statement and is hereby incorporated by reference thereto (other than the information called for by Items 402(k) and (l) of Regulation S-K, which is not incorporated herein by reference).
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item will be contained in our Proxy Statement and is hereby incorporated by reference thereto.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this Item will be contained in our Proxy Statement and is hereby incorporated by reference thereto.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements -- See Item 8 above.
2. Consolidated Financial Statement Schedules -- See the Index to Consolidated Financial Statement Schedules on page.
3. The Securities and Exchange Commission allows us to "incorporate by reference" information into this Form 10-K, which means we can disclose important information by referring to another document filed with the Commission. The following are exhibits to this Form 10-K and, if incorporated by reference, we have indicated the document previously filed with the Commission in which the exhibit was included.
13.1 Page 20 of the Annual Report.
13.2 Pages 21 through 27 of the Annual Report.
13.3 Pages 28 through 46 of the Annual Report.
21. Subsidiaries of The Bon-Ton.
23. Consent of Arthur Andersen LLP.
99.1 Letter to the SEC pursuant to Temporary Rule 3T.
* Constitutes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K filed during the fourth quarter.
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
THE BON-TON STORES, INC.
Dated: April 16, 2002 By: /s/ Tim Grumbacher ----------------------- Tim Grumbacher Chairman of the Board Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To The Bon-Ton Stores, Inc.:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in The Bon-Ton Stores, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated March 6, 2002. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Philadelphia, PA March 6, 2002
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
THE BON-TON STORES, INC. AND SUBSIDIARIES
- -------------- NOTES:
(1) Provision for merchandise returns and loss on credit sales.
(2) Uncollectible accounts written off, net of recoveries.
(3) Store closing expenses, net of recoveries.
(4) Restructuring income, relating to the lease termination as discussed in Note 16 of the financial statements.
EXHIBIT INDEX