UNITED STATES
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 April 30, 2011		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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of May 27, 2011, there were 16,744,259 shares of Common Stock, $.01 par value, and 2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.

 

 

PART I: FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

THE BON-TON STORES, INC.

(In thousands except share and per share data)		April 30,				January 29,
(Unaudited)		2011				2011
Assets
Current assets:
Cash and cash equivalents		$	13,596			$	16,339
Merchandise inventories			703,845				682,324
Prepaid expenses and other current assets			63,537				78,418
Total current assets			780,978				777,081
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $681,281 and $657,541 at April 30, 2011 and January 29, 2011, respectively			685,698				703,432
Deferred income taxes			9,232				9,587
Intangible assets, net of accumulated amortization of $48,342 and $46,245 at April 30, 2011 and January 29, 2011, respectively			127,982				130,080
Other long-term assets			33,432				36,059
Total assets		$	1,637,322			$	1,656,239
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	197,494			$	175,249
Accrued payroll and benefits			32,808				45,769
Accrued expenses			145,577				167,204
Current maturities of long-term debt			7,060				6,978
Current maturities of obligations under capital leases			5,773				5,825
Deferred income taxes			12,774				12,709
Income taxes payable			503				137
Total current liabilities			401,989				413,871
Long-term debt, less current maturities			891,751				856,687
Obligations under capital leases, less current maturities			59,708				61,043
Other long-term liabilities			138,475				141,286
Total liabilities			1,491,923				1,472,887
Contingencies (Note 11)
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 shares of 17,080,959 and 16,520,859 at April 30, 2011 and January 29, 2011, respectively			171				165
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at April 30, 2011 and January 29, 2011			30				30
Treasury stock, at cost — 337,800 shares at April 30, 2011 and January 29, 2011			(1,387	)			(1,387	)
Additional paid-in capital			151,352				153,331
Accumulated other comprehensive loss			(35,543	)			(36,498	)
Retained earnings			30,776				67,711
Total shareholders’ equity			145,399				183,352
Total liabilities and shareholders’ equity		$	1,637,322			$	1,656,239

The accompanying notes are an integral part of these consolidated financial statements.

THE BON-TON STORES, INC.

		THIRTEEN
		WEEKS ENDED
(In thousands except per share data)		April 30,				May 1,
(Unaudited)		2011				2010
Net sales		$	649,881			$	661,373
Other income			14,600				13,838
			664,481				675,211
Costs and expenses:
Costs of merchandise sold			419,267				414,340
Selling, general and administrative			222,039				227,913
Depreciation and amortization			24,513				26,224
Amortization of lease-related interests			1,195				1,146
(Loss) income from operations			(2,533	)			5,588
Interest expense, net			23,305				28,513
Loss on extinguishment of debt			9,450				—
Loss before income taxes			(35,288	)			(22,925	)
Income tax provision			700				617
Net loss		$	(35,988	)		$	(23,542	)
Per share amounts —
Basic:
Net loss		$	(2.01	)		$	(1.33	)
Diluted:
Net loss		$	(2.01	)		$	(1.33	)

The accompanying notes are an integral part of these consolidated financial statements.

THE BON-TON STORES, INC.

		THIRTEEN
		WEEKS ENDED
(In thousands)		April 30,				May 1,
(Unaudited)		2011				2010
Cash flows from operating activities:
Net loss		$	(35,988	)		$	(23,542	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			24,513				26,224
Amortization of lease-related interests			1,195				1,146
Share-based compensation expense			1,258				1,347
Loss (gain) on sale of property, fixtures and equipment			6				(11	)
Reclassifications of other comprehensive loss			955				1,941
Loss on extinguishment of debt			9,450				—
Amortization of deferred financing costs			2,124				2,287
Amortization of deferred gain on sale of proprietary credit card portfolio			(603	)			(603	)
Deferred income tax provision			419				405
Changes in operating assets and liabilities:
Increase in merchandise inventories			(21,520	)			(16,687	)
Decrease in prepaid expenses and other current assets			14,881				13,720
Decrease in other long-term assets			678				3,495
Increase in accounts payable			22,571				28,802
Decrease in accrued payroll and benefits and accrued expenses			(31,318	)			(30,270	)
Increase in income taxes payable			367				128
(Decrease) increase in other long-term liabilities			(1,815	)			779
Net cash (used in) provided by operating activities			(12,827	)			9,161
Cash flows from investing activities:
Capital expenditures			(7,843	)			(6,592	)
Proceeds from sale of property, fixtures and equipment			15				15
Net cash used in investing activities			(7,828	)			(6,577	)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations			(214,689	)			(144,889	)
Proceeds from issuance of long-term debt			244,684				150,065
Restricted shares forfeited in lieu of payroll taxes			(3,555	)			(4,083	)
Proceeds from stock options exercised			324				—
Deferred financing costs paid			(5,861	)			(515	)
Decrease in book overdraft balances			(2,991	)			(5,618	)
Net cash provided by (used in) financing activities			17,912				(5,040	)
Net decrease in cash and cash equivalents			(2,743	)			(2,456	)
Cash and cash equivalents at beginning of period			16,339				18,922
Cash and cash equivalents at end of period		$	13,596			$	16,466

The accompanying notes are an integral part of these consolidated financial statements.

THE BON-TON STORES, INC.

																		Accumulated
																		Other
						Class A								Additional				Compre-
(In thousands except per share data)		Common				Common				Treasury				Paid-in				hensive				Retained
(Unaudited)		Stock				Stock				Stock				Capital				Loss				Earnings				Total
BALANCE AT JANUARY 29, 2011		$	165			$	30			$	(1,387	)		$	153,331			$	(36,498	)		$	67,711			$	183,352
Comprehensive loss (Note 12):
Net loss			—				—				—				—				—				(35,988	)			(35,988	)
Pension and postretirement benefit plans			—				—				—				—				503				—				503
Cash flow derivatives			—				—				—				—				452				—				452
Total comprehensive loss																											(35,033	)
Dividends to shareholders, $0.05 per share			—				—				—				—				—				(947	)			(947	)
Restricted shares forfeited in lieu of payroll taxes			(2	)			—				—				(3,553	)			—				—				(3,555	)
Proceeds from stock options exercised			1				—				—				323				—				—				324
Share-based compensation expense			7				—				—				1,251				—				—				1,258
BALANCE AT APRIL 30, 2011		$	171			$	30			$	(1,387	)		$	151,352			$	(35,543	)		$	30,776			$	145,399

The accompanying notes are an integral part of these consolidated financial statements.

THE BON-TON STORES, INC.

1. BASIS OF PRESENTATION

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. The Bon-Ton Stores, Inc. operates, through its subsidiaries, 275 stores in 23 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s and Younkers nameplates and, in the Detroit, Michigan area, under the Parisian nameplate. The Bon-Ton Stores, Inc. conducts its operations through one business segment.

The accompanying unaudited consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. and its wholly owned subsidiaries (collectively, “the Company”). Variable interest entities are consolidated where it has been determined the Company is the primary beneficiary of those entities’ operations. All intercompany transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of management, all adjustments 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 the interim periods presented are not necessarily indicative of results for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2011.

All references to the “first quarter of 2011” and the “first quarter of 2010” are to the thirteen weeks ended April 30, 2011 and May 1, 2010, respectively. All references to “2011” are to the fifty-two weeks ending January 28, 2012; references to “2010” are to the fifty-two weeks ended January 29, 2011.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions about future events. These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and the reported amounts of revenues and expenses. Such estimates include those related to merchandise returns, inventories, long-lived assets, intangible assets, insurance reserves, contingencies, litigation and assumptions used in the calculation of income taxes and retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from further changes in the economic environment will be reflected in the financial statements in future periods.

Previously Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which requires disclosures regarding recurring or nonrecurring fair value measurements. The Company adopted certain required provisions of ASU 2010-06 in the first quarter of 2010. In the first quarter of 2011, the Company adopted the remaining provision of ASU 2010-06 requiring companies to provide information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. As the Company has no financial assets or liabilities carried at fair value and measured on a recurring basis categorized as a Level 3 fair value measurement, there are no additional disclosure requirements. See Note 3.

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

2. PER-SHARE AMOUNTS

The following table presents a reconciliation of net loss and weighted average shares outstanding used in basic and diluted earnings (loss) per share (“EPS”) calculations in the first quarter in each of 2011 and 2010:

		THIRTEEN
		WEEKS ENDED
		April 30,				May 1,
		2011				2010
Basic Loss Per Common Share
Net loss		$	(35,988	)		$	(23,542	)
Less: Income allocated to participating securities			—				—
Net loss available to common shareholders		$	(35,988	)		$	(23,542	)
Weighted average common shares outstanding			17,943,590				17,683,005
Basic loss per common share		$	(2.01	)		$	(1.33	)
Diluted Loss Per Common Share
Net loss		$	(35,988	)		$	(23,542	)
Less: Income allocated to participating securities			—				—
Net loss available to common shareholders		$	(35,988	)		$	(23,542	)
Weighted average common shares outstanding			17,943,590				17,683,005
Common shares issuable — stock options			—				—
Weighted average common shares outstanding assuming dilution			17,943,590				17,683,005
Diluted loss per common share		$	(2.01	)		$	(1.33	)

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 1,345,724 and 1,008,889 for the first quarter in each of 2011 and 2010, respectively, were excluded from the calculation of both basic and diluted EPS.

In addition, weighted average stock option shares (non-participating securities) of 1,022,812 and 1,065,727 for the first quarter in each of 2011 and 2010, respectively, were excluded from the calculation of diluted EPS as they would have been antidilutive. Certain of these stock option shares were excluded solely due to the Company’s net loss position. Had the Company reported net income for the first quarter in each of 2011 and 2010, these shares would have had an effect of 317,738 and 273,256 dilutive shares, respectively, for purposes of calculating diluted EPS.

3. FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value and establishes a framework for measuring fair value. ASC 820 establishes fair value hierarchy levels that prioritize the inputs used in valuations determining fair value. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs are primarily quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs based on the Company’s own assumptions.

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

As of April 30, 2011 and January 29, 2011, the Company held two interest rate swap contracts required to be measured at fair value on a recurring basis (see Note 4). The fair values of these interest rate swap contracts are derived from discounted cash flow analysis utilizing an interest rate yield curve that is readily available to the public or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized these interest rate swap contracts as a Level 2 fair value measurement. There has been no change in the valuation technique used to determine the fair value of the interest rate swap contracts.

The interest rate swap liability comprises the entirety of the Company’s financial assets and liabilities carried at fair value and measured on a recurring basis. The carrying value of the interest rate swap liability as of April 30, 2011 and January 29, 2011 is as follows:

										Significant
						Quoted Prices				Other				Significant
						in Active				Observable				Unobservable
						Markets				Inputs				Inputs
		Carrying Value				(Level 1)				(Level 2)				(Level 3)
April 30, 2011		$	1,049			$	—			$	1,049			$	—
January 29, 2011		$	2,288			$	—			$	2,288			$	—

The carrying values of the Company’s cash and cash equivalents, accounts payable and financial instruments reported within prepaid expenses and other current assets and other long-term assets approximate fair value. The carrying value of the Company’s long-term debt, including current maturities but excluding capital leases, was $898,811 and $863,665 at April 30, 2011 and January 29, 2011, respectively, and the estimated fair value was $905,254 and $869,539 at April 30, 2011 and January 29, 2011, respectively. The fair value estimate of the Company’s long-term debt is based on quoted market rates available to the Company or discounted cash flow analysis as appropriate.

4. INTEREST RATE DERIVATIVES

It is the policy of the Company to identify on a continuing basis the need for debt capital and evaluate financial risks inherent in funding the Company with debt capital. In conjunction with this ongoing review, the debt portfolio and hedging program of the Company is managed to: (1) reduce funding risk with respect to borrowings made or to be made by the Company to preserve the Company’s access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) control the aggregate interest rate risk of the debt portfolio. The Company entered into interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio in order to maintain an appropriate balance of fixed-rate and variable-rate debt and to mitigate the impact of volatile interest rates. These derivatives are accounted for in accordance with ASC 815, Derivatives and Hedging (“ASC 815”).

On the date the derivative instrument is entered into, the Company designates the derivative as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). Changes in the fair value of a derivative that is designated as, and meets all required criteria for, a cash flow hedge are recorded in other comprehensive income or loss and reclassified into the statement of operations as the underlying hedged item affects earnings, such as when quarterly settlements are made on the hedged forecasted transaction. The portion of the change in fair value of a derivative associated with hedge ineffectiveness or the component of a derivative instrument excluded from the assessment of hedge effectiveness, if any, is recorded in the current statement of operations. Also, changes in the fair value of a derivative that is not designated as a hedge, if any, are entirely recorded in the statement of operations. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions; this process includes relating all derivatives that are designated as cash flow hedges to specific balance sheet assets or liabilities. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the respective derivative. In addition, if the forecasted transaction is no longer probable of occurring, any amounts in accumulated other comprehensive income or loss (“AOCI”) related to the derivative are recorded in the statement of operations for the current period.

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

The Company has two interest rate swap contracts to effectively convert a portion of its variable-rate debt to fixed-rate debt, both of which were entered into on July 14, 2006 and expire on July 14, 2011. These contracts entail the exchange of fixed-rate and floating-rate interest payments periodically over the life of the agreement. The floating-rate interest payments are based on three-month LIBOR rates. The following indicates the notional amounts of the interest rate swap contracts and the range of fixed-rates associated with these contracts:

Fixed swaps (notional amount)		$	100,000
Range of pay rate			5.48%-5.49	%

On December 4, 2009, the Company amended and restated its prior senior secured credit facility, at which time the Company de-designated and re-measured its two interest rate swaps and discontinued hedge accounting prospectively in accordance with ASC 815. Specifically, ASC 815 requires the immediate recognition of the expected cumulative ineffectiveness, with the remaining amount to remain in AOCI and be reclassified into the statement of operations as the originally hedged forecasted transactions affect the statement of operations. All changes in fair value after December 4, 2009 are recognized in interest expense.

The following table summarizes the fair value (see Note 3) and presentation in the consolidated balance sheet:

		Balance Sheet Location		Derivative Assets				Derivative Liabilities
April 30, 2011		Accrued expenses		$	—			$	1,049
January 29, 2011		Accrued expenses		$	—			$	2,288

The following table summarizes the effect of the interest rate swaps on the consolidated statement of operations and AOCI, after being de-designated on December 4, 2009:

Amount of

Location of Loss

Amount of Loss

Loss

Reclassified from

Reclassified

Location of Loss

Recognized

AOCI to the

from AOCI to

Recognized in

in the

Statement of

the Statement

the Statement of

Statement of

Operations

of Operations

Operations

Operations

13 Weeks Ended April 30, 2011

Interest expense, net

$

452

Interest expense, net

$

56

13 Weeks Ended May 1, 2010

Interest expense, net

$

971

Interest expense, net

$

406

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

At April 30, 2011, it is expected that the remaining $754 of losses in AOCI related to interest rate swaps will be reclassified into the statement of operations within the next three months.

5. SUPPLEMENTAL BALANCE SHEET INFORMATION

Prepaid expenses and other current assets were comprised of the following:

		April 30,				January 29,
		2011				2011
Prepaid expenses		$	34,829			$	28,367
Other receivables			28,708				50,051
Total		$	63,537			$	78,418

6. SUPPLEMENTAL CASH FLOW INFORMATION

The following supplemental cash flow information is provided for the periods reported:

		THIRTEEN
		WEEKS ENDED
		April 30,				May 1,
		2011				2010
Cash paid for:
Interest, net of amounts capitalized		$	37,629			$	39,661
Income taxes, net of refunds received			333				(75	)
Non-cash investing and financing activities:
Property, fixtures and equipment included in accrued expenses		$	2,142			$	1,870
Declared dividends to shareholders included in accrued expenses			947				—

7. EXIT OR DISPOSAL ACTIVITIES

The following table summarizes exit or disposal activities during the first quarter of 2011 related to involuntary associate termination costs and other closing costs associated with the Company’s store closings in 2010 and the lease termination costs associated with the relocation of a store in 2011:

		Termination				Other
		Benefits				Costs				Total
Balance as of January 29, 2011		$	109			$	88			$	197
Provision			(10	)			922				912
Payments			(99	)			(83	)			(182	)
Balance as of April 30, 2011		$	—			$	927			$	927

The above provision was included within selling, general and administrative expense.

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

8. EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS

The Company provides benefits to certain current and former associates who are eligible under a defined benefit pension plan and various supplemental pension plans (collectively, the “Pension Plans”). Net periodic benefit expense for the Pension Plans includes the following (income) and expense components:

		THIRTEEN
		WEEKS ENDED
		April 30,				May 1,
		2011				2010
Interest cost		$	2,373			$	2,543
Expected return on plan assets			(2,359	)			(1,977	)
Recognition of net actuarial loss			628				970
Net periodic benefit expense		$	642			$	1,536

During the first quarter of 2011, contributions of $203 were made to the Pension Plans. The Company anticipates contributing an additional $615 to fund the Pension Plans in 2011 for an annual total of $818.

The Company also provides medical and life insurance benefits to certain former associates under a postretirement benefit plan (“Postretirement Benefit Plan”). Net periodic benefit (income) expense for the Postretirement Benefit Plan includes the following (income) and expense components:

		THIRTEEN
		WEEKS ENDED
		April 30,				May 1,
		2011				2010
Interest cost		$	45			$	81
Recognition of net actuarial gain			(125	)			—
Net periodic benefit (income) expense		$	(80	)		$	81

During the first quarter of 2011, the Company contributed $74 to fund the Postretirement Benefit Plan, and anticipates contributing an additional $532 in 2011 for a net annual total of $606.

9. LONG-TERM DEBT

On January 31, 2011, the Company voluntarily prepaid its outstanding indebtedness under its Second Lien Loan and Security Agreement that provided for $75,000 of term loans expiring November 18, 2013 (the “Term Loan Facility”). As a result of such prepayment, the Term Loan Facility was terminated. As provided in the Term Loan Facility, the Company paid an early termination fee of $3,750 (5.0% of the principal amount repaid) and $14 in legal fees simultaneously with the prepayment of the outstanding indebtedness. In addition, $4,415 of unamortized deferred financing fees related to the facility was accelerated on the date of termination. Fees paid and deferred financing fees accelerated were recognized in loss on extinguishment of debt.

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

On March 21, 2011, The Bon-Ton Department Stores, Inc.; The Elder-Beerman Stores Corp.; Carson Pirie Scott II, Inc.; Bon-Ton Distribution, Inc.; and McRIL, LLC, as borrowers (the “Borrowers”), and the Company and certain other subsidiaries as obligors (together with the Borrowers and the Company, the “Obligors”) entered into a $625,000 senior secured asset-based Second Amended and Restated Loan and Security Agreement that expires on March 21, 2016, subject to the maturity of the senior unsecured notes and certain other debt of the Company (the “Second Amended Revolving Credit Facility”). The Second Amended Revolving Credit Facility replaced the Company’s prior $675,000 revolving credit facility, which was scheduled to mature on June 4, 2013. The proceeds of the Second Amended Revolving Credit Facility were used to pay the outstanding balance under the pre-existing revolving credit facility and will be used for other general corporate purposes. Unamortized deferred financing fees of $1,271 related to the prior facility were accelerated on the date of the agreement and recognized in loss on extinguishment of debt.

All borrowings under the Second Amended Revolving Credit Facility are limited by amounts available pursuant to a borrowing base calculation, which is based on percentages of eligible inventory, real estate and credit card receivables, in each case subject to reductions for applicable reserves. Borrowings will be at either (1) adjusted LIBOR (based on the British Bankers Association per annum LIBOR Rate for an interest period selected by the Company) plus an applicable margin or (2) a base rate (based on the highest of (a) the Federal Funds Rate plus 0.5%, (b) the Bank of America prime rate, and (c) Adjusted LIBOR based on an interest period of one month plus 1.0%) plus the applicable margin. The applicable margin is determined based upon the excess availability under the Second Amended Revolving Credit Facility. The Borrowers are required to pay an unused line fee to the lenders for unused commitments at a rate of 0.375% to 0.50% per annum, based upon the unused portion of the total commitment under the Second Amended Revolving Credit Facility.

The Second Amended Revolving Credit Facility is secured by a first priority security position on substantially all of the current and future assets of the Company, including, but not limited to, inventory, general intangibles, trademarks, equipment, certain real estate and proceeds from any of the foregoing, subject to certain exceptions and liens.

The financial covenant contained in the Second Amended Revolving Credit Facility requires that the minimum excess availability be an amount greater than or equal to the greater of (1) 10% of the lesser of: (a) the aggregate commitments at such time and (b) the aggregate borrowing base at such time and (2) $50,000. Other covenants continue the requirements of the prior revolving credit facility and require that the Company provide the lenders with certain financial statements, forecasts and other reports, borrowing base certificates and notices, and comply with various federal, state and local rules and regulations. In addition, there are certain limitations on the Obligors and their subsidiaries, including limitations on: any debt the Obligors may have in addition to the existing debt and the terms of that additional debt; acquisitions, joint ventures and investments; mergers and consolidations; dispositions of property; dividends by the Obligors or their subsidiaries (dividends paid may not exceed $10,000 in any year or $30,000 during the term of the agreement; however, additional dividends may be paid subject to meeting other requirements); transactions with affiliates; changes in the business or corporate structure of the Obligors or their subsidiaries; prepaying, redeeming or repurchasing certain debt; changes in accounting policies or reporting practices, unless required by generally accepted accounting principles; and speculative transactions.

As of April 30, 2011, the Company had borrowings of $144,680 under the Second Amended Revolving Credit Facility, with $411,257 of borrowing availability (before taking into account the minimum borrowing availability covenant).

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

10. INCOME TAXES

The provisions codified within ASC Topic 740, Income Taxes (“ASC 740”), require companies to assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence using a “more likely than not” standard. In accordance with ASC 740, the Company maintained a full valuation allowance throughout 2010 and the first quarter of 2011 on all the Company’s net deferred tax assets. The Company’s deferred tax asset valuation allowance totaled $140,972 and $126,333 at April 30, 2011 and January 29, 2011, respectively.

Given the Company’s valuation allowance position, no tax benefit was recognized on the Company’s loss before income taxes in the first quarter in each of 2011 and 2010. The income tax provision of $700 and $617 recorded in the first quarter in each of 2011 and 2010, respectively, reflects certain state income tax expense and recognition of deferred tax liabilities associated with indefinite-lived assets.

As of April 30, 2011, it is reasonably possible that gross unrecognized tax benefits could decrease by $328 within the next 12 months due to the expiration of certain statutes of limitations and potential resolution of audits with respect to state tax positions.

11. CONTINGENCIES

In October 2010, the Company became aware that a third-party it had contracted with as its agent to receive, monitor and pay utility bills for the Company’s properties was delinquent in its payment of the Company’s utility bills, despite timely receipt of funds from the Company. Approximately $3.1 million was paid to the third-party agent and not properly remitted to the utility companies. On November 3, 2010, the Company filed suit against this third-party agent, Utility Account Billing Services, Inc., and its affiliate Synergy Energy Holdings, LLC, in Supreme Court, State of New York, County of Erie. The suit seeks damages in the amount of the Company’s loss for breach of contract, unjust enrichment, breach of fiduciary duty and conversion. Additionally, on November 3, 2010, the Company put its insurance carrier on notice of a claim under its commercial crime policy and on January 20, 2011, the Company filed a proof of loss.

The Company is party to legal proceedings and claims that arise during the ordinary course of business. In the opinion of management, the ultimate outcome of any such litigation and claims will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

12. COMPREHENSIVE LOSS

Comprehensive loss was determined as follows:

		THIRTEEN
		WEEKS ENDED
		April 30,				May 1,
		2011				2010
Net loss		$	(35,988	)		$	(23,542	)
Other comprehensive income:
Amortization of pension and postretirement benefit plans			503				970
Amortization of cash flow derivatives			452				971
Comprehensive loss		$	(35,033	)		$	(21,601	)

As a result of the deferred tax asset valuation allowance maintained throughout 2010 and the first quarter of 2011, the changes recognized within other comprehensive income (loss) in the first quarter in each of 2011 and 2010 were recorded on a gross basis.

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

13. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

On March 6, 2006, The Bon-Ton Department Stores, Inc. (the “Issuer”), a wholly owned subsidiary of the Company, entered into an Indenture with The Bank of New York, as trustee, under which the Issuer issued $510,000 aggregate principal amount of its 10-1/4% Senior Notes due 2014. The Notes are guaranteed on a senior unsecured basis by the Company and by each of the Company’s subsidiaries, other than the Issuer, that is an Obligor under the Company’s senior secured credit facility. The guarantees are full and unconditional and joint and several.

The condensed consolidating financial information for the Company, the Issuer and the Company’s guarantor and non-guarantor subsidiaries as of April 30, 2011 and January 29, 2011 and for the first quarter in each of 2011 and 2010 as presented below has been prepared from the books and records maintained by the Company, the Issuer and the guarantor and non-guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor and non-guarantor subsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time.

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
April 30, 2011

		Bon-Ton
		(Parent								Guarantor				Non-Guarantor				Consolidating				Company
		Company)				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	1			$	3,497			$	10,098			$	—			$	—			$	13,596
Merchandise inventories			—				345,244				358,601				—				—				703,845
Prepaid expenses and other current assets			—				50,612				12,879				580				(534	)			63,537
Total current assets			1				399,353				381,578				580				(534	)			780,978
Property, fixtures and equipment at cost, net			—				186,791				223,427				275,480				—				685,698
Deferred income taxes			—				3,639				5,593				—				—				9,232
Intangible assets, net			—				53,916				74,066				—				—				127,982
Investment in and advances to affiliates			145,398				493,333				187,404				316				(826,451	)			—
Other long-term assets			—				28,332				1,539				3,561				—				33,432
Total assets		$	145,399			$	1,165,364			$	873,607			$	279,937			$	(826,985	)		$	1,637,322
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	—			$	197,494			$	—			$	—			$	—			$	197,494
Accrued payroll and benefits			—				21,976				10,832				—				—				32,808
Accrued expenses			—				61,497				83,323				1,291				(534	)			145,577
Current maturities of long-term debt and obligations under capital leases			—				3,128				2,645				7,060				—				12,833
Deferred income taxes			—				5,869				6,905				—				—				12,774
Income taxes payable			—				489				14				—				—				503
Total current liabilities			—				290,453				103,719				8,351				(534	)			401,989
Long-term debt and obligations under capital leases, less current maturities			—				662,716				51,672				237,071				—				951,459
Other long-term liabilities			—				92,283				44,793				1,399				—				138,475
Total liabilities			—				1,045,452				200,184				246,821				(534	)			1,491,923
Shareholders’ equity			145,399				119,912				673,423				33,116				(826,451	)			145,399
Total liabilities and shareholders’ equity		$	145,399			$	1,165,364			$	873,607			$	279,937			$	(826,985	)		$	1,637,322

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
January 29, 2011

		Bon-Ton
		(Parent								Guarantor				Non-Guarantor				Consolidating				Company
		Company)				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	1			$	5,841			$	10,497			$	—			$	—			$	16,339
Merchandise inventories			—				340,649				341,675				—				—				682,324
Prepaid expenses and other current assets			—				65,500				12,752				628				(462	)			78,418
Total current assets			1				411,990				364,924				628				(462	)			777,081
Property, fixtures and equipment at cost, net			—				194,874				230,138				278,420				—				703,432
Deferred income taxes			—				3,705				5,882				—				—				9,587
Intangible assets, net			—				54,954				75,126				—				—				130,080
Investment in and advances to affiliates			183,351				480,419				208,096				316				(872,182	)			—
Other long-term assets			—				30,337				1,594				4,128				—				36,059
Total assets		$	183,352			$	1,176,279			$	885,760			$	283,492			$	(872,644	)		$	1,656,239
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	—			$	175,249			$	—			$	—			$	—			$	175,249
Accrued payroll and benefits			—				37,796				7,973				—				—				45,769
Accrued expenses			—				77,743				88,663				1,260				(462	)			167,204
Current maturities of long-term debt and obligations under capital leases			—				3,229				2,596				6,978				—				12,803
Deferred income taxes			—				5,748				6,961				—				—				12,709
Income taxes payable			—				46				91				—				—				137
Total current liabilities			—				299,811				106,284				8,238				(462	)			413,871
Long-term debt and obligations under capital leases, less current maturities			—				626,475				52,353				238,902				—				917,730
Other long-term liabilities			—				94,425				45,487				1,374				—				141,286
Total liabilities			—				1,020,711				204,124				248,514				(462	)			1,472,887
Shareholders’ equity			183,352				155,568				681,636				34,978				(872,182	)			183,352
Total liabilities and shareholders’ equity		$	183,352			$	1,176,279			$	885,760			$	283,492			$	(872,644	)		$	1,656,239

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended April 30, 2011

		Bon-Ton
		(Parent								Guarantor				Non-Guarantor				Consolidating				Company
		Company)				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	282,229			$	367,652			$	—			$	—			$	649,881
Other income			—				6,030				8,570				—				—				14,600
			—				288,259				376,222				—				—				664,481
Costs and expenses:
Costs of merchandise sold			—				181,973				237,294				—				—				419,267
Selling, general and administrative			—				100,977				129,809				25				(8,772	)			222,039
Depreciation and amortization			—				9,286				12,287				2,940				—				24,513
Amortization of lease-related interests			—				617				578				—				—				1,195
Loss from operations			—				(4,594	)			(3,746	)			(2,965	)			8,772				(2,533	)
Other income (expense):
Intercompany rental and royalty income			—				—				1,585				7,187				(8,772	)			—
Equity in losses of subsidiaries			(35,288	)			(4,918	)			—				—				40,206				—
Interest expense, net			—				(16,326	)			(2,975	)			(4,004	)			—				(23,305	)
Loss on extinguishment of debt			—				(9,450	)			—				—				—				(9,450	)
(Loss) income before income taxes			(35,288	)			(35,288	)			(5,136	)			218				40,206				(35,288	)
Income tax provision			700				700				365				—				(1,065	)			700
Net (loss) income		$	(35,988	)		$	(35,988	)		$	(5,501	)		$	218			$	41,271			$	(35,988	)

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)

The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended May 1, 2010

		Bon-Ton
		(Parent								Guarantor				Non-Guarantor				Consolidating				Company
		Company)				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	287,111			$	374,262			$	—			$	—			$	661,373
Other income			—				5,591				8,247				—				—				13,838
			—				292,702				382,509				—				—				675,211
Costs and expenses:
Costs of merchandise sold			—				179,070				235,270				—				—				414,340
Selling, general and administrative			—				104,597				132,131				24				(8,839	)			227,913
Depreciation and amortization			—				10,422				12,881				2,921				—				26,224
Amortization of lease-related interests			—				662				484				—				—				1,146
(Loss) income from operations			—				(2,049	)			1,743				(2,945	)			8,839				5,588
Other income (expense):
Intercompany rental and royalty income			—				—				1,652				7,187				(8,839	)			—
Equity in losses of subsidiaries			(22,925	)			(112	)			—				—				23,037				—
Interest expense, net			—				(20,764	)			(3,625	)			(4,124	)			—				(28,513	)
(Loss) income before income taxes			(22,925	)			(22,925	)			(230	)			118				23,037				(22,925	)
Income tax provision			617				617				314				—				(931	)			617
Net (loss) income		$	(23,542	)		$	(23,542	)		$	(544	)		$	118			$	23,968			$	(23,542	)