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

THE BON-TON STORES, INC.

2801 East Market Street

York, Pennsylvania 17402

(717) 757-7660

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x No o

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of November 30, 2017, there were 17,857,465 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.

CONSOLIDATED BALANCE SHEETS

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

2

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

3

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

4

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

5

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

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

6

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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.  As of October 28, 2017, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 260 stores, including nine furniture galleries and four clearance centers, in 24 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates.

The accompanying unaudited consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. (the “Parent”) and its subsidiaries (collectively, the “Company”).  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 28, 2017.

For purposes of the following discussion, references to the “third quarter of 2017” and the “third quarter of 2016” are to the 13 weeks ended October 28, 2017 and October 29, 2016, respectively.  References to “fiscal 2018” are to the 52 weeks ending February 2, 2019; references to “fiscal 2017” are to the 53 weeks ending February 3, 2018; references to “fiscal 2016” are to the 52 weeks ended January 28, 2017.

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, the valuation of 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 those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Recently Adopted Accounting Standards

Effective January 29, 2017, the Company adopted Accounting Standards Update (“ASU”) No. 2016-09, Stock Compensation.  The new standard is intended to simplify several aspects of the accounting for share-based payment award transactions.  In connection with the adoption of this standard, the Company made a policy election to record the expense associated with forfeitures under its share-based payment plans when they occur (rather than estimating forfeitures and recording over the vesting term of the award).  The Company made this election to reduce the complexity of accounting for its awards.  The Company used a modified retrospective approach to recording this change and recorded a $500 increase to both additional paid-in capital and accumulated deficit at the time of the adoption to eliminate the forfeiture estimates previously recorded for awards outstanding as of January 29, 2017.

7

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).  The new standard provides a single revenue recognition model which is intended to enhance disclosures and improve comparability over a range of industries, companies and geographical boundaries.  ASU 2014-09 creates a five-step model that requires companies to exercise judgment when considering all relevant facts and circumstances in the determination of when and how revenue is recognized. The new guidance is effective for the Company beginning on February 4, 2018.  The Company anticipates it will apply the new guidance retrospectively with the cumulative effect of the adoption recognized as of the date of adoption.

The Company is in the process of completing the required due diligence.  The Company has identified certain impacts to its revenue recognition policy for gift card breakage. Whereas the Company currently recognizes gift card breakage, net of required escheatment, 60 months after the gift card is issued, the new standard will require the Company to recognize gift card breakage, net of required escheatment, over the redemption pattern of gift cards. Additionally, the Company is evaluating its customer loyalty programs to determine if the new guidance requires changes in the accounting for these programs. The Company expects that this standard will not have a material impact on its consolidated financial statements as a whole; however, the Company is continuing to evaluate the impact of adopting this new standard and the final determination may differ from this expectation.

2.                                      PER-SHARE AMOUNTS

The following table presents a reconciliation of net loss and weighted average shares outstanding used in basic and diluted loss per share (“EPS”) calculations for each period presented:

8

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 701,857 and 1,399,101 for the third quarter in each of 2017 and 2016, respectively, and 1,063,304 and 1,333,897 for the 39 weeks ended October 28, 2017 and October 29, 2016, respectively, were not considered in the calculation of net loss available to common shareholders used for both basic and 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 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 and estimated fair value of the Company’s debt, excluding capital lease and financing obligations and unamortized second lien senior secured notes deferred financing costs and discount on senior secured credit facility — Tranche A-1, as of October 28, 2017 are as follows:

The carrying value and estimated fair value of the Company’s debt, excluding capital lease and financing obligations and unamortized second lien senior secured notes deferred financing costs and discount on senior secured credit facility — Tranche A-1, as of October 29, 2016 are as follows:

The carrying value and estimated fair value of the Company’s debt, excluding capital lease and financing obligations and unamortized second lien senior secured notes deferred financing costs and discount on senior secured credit facility — Tranche A-1, as of January 28, 2017 are as follows:

9

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Level 3 fair value estimates are determined by a discounted cash flow analysis utilizing a discount rate the Company believes is appropriate and would be used by market participants.  There was no change in the valuation technique used to determine the Level 3 fair value estimates.

4.                                      SUPPLEMENTAL BALANCE SHEET INFORMATION

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

5.                                      SUPPLEMENTAL CASH FLOW INFORMATION

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

10

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

6.                                      EXIT OR DISPOSAL ACTIVITIES

The following table summarizes exit or disposal activities during the 39 weeks ended October 28, 2017 related to store closings in fiscal 2017 and 2016 and the Company’s expense efficiency initiative:

The above provisions were included within selling, general and administrative expense.

The Company recorded $1,250 and $9,060 of gains related to various real estate transactions which were included in selling, general and administrative expense during the 13 and 39 weeks ended October 28, 2017, respectively.

7.                                      EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS

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

During the 39 weeks ended October 28, 2017, contributions of $434 were made to the Pension Plans.  The Company anticipates contributing an additional $121 to fund the Pension Plans in fiscal 2017 for an annual total of $555.

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 for the Postretirement Benefit Plan includes the following (income) and expense components:

11

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

During the 39 weeks ended October 28, 2017, the Company contributed $73 to fund the Postretirement Benefit Plan, and anticipates contributing an additional $194 to fund the Postretirement Benefit Plan in fiscal 2017 for an annual total of $267.

8.                                      DEBT

On October 24, 2017, The Bon-Ton Department Stores, Inc. and certain subsidiaries as borrowers and certain other subsidiaries as guarantors entered into a Sixth Amendment (the “Sixth Amendment”) to the Second Amended and Restated Loan and Security Agreement (“Second Amended Revolving Credit Facility”) with Bank of America, N.A., as Agent, and certain financial institutions as lenders. Among other matters, the Sixth Amendment amends required excess availability from 20% to 15% of the lesser of (a) the aggregate commitments and (b) the aggregate borrowing base through December 2, 2017. After December 2, 2017, the required excess availability will be the greater of (a) 20% of the lesser of (i) the aggregate commitments and (ii) the aggregate borrowing base and (b) $132,500. Through December 2, 2017, the excess availability will be determined on the basis of the Tranche A Borrowing Base, and not the lower of the Tranche A Commitments and the Tranche A Borrowing Base. As a result of the Sixth Amendment, in accordance with accounting principles generally accepted in the United States, the Company is required to reflect the Second Amended Revolving Credit Facility as a short-term borrowing in its balance sheet, although the outstanding balance does not mature until 2021.

On April 28, 2017, The Bon-Ton Department Stores, Inc. and certain subsidiaries as borrowers and certain other subsidiaries as guarantors entered into a Fifth Amendment (the “Fifth Amendment”) to the Second Amended Revolving Credit Facility. The Fifth Amendment extends the maturity date of the $730,000 Tranche A.  Tranche A is now due to mature on April 28, 2022 provided that Tranche A-1 of the Second Amended Revolving Credit Facility (“Tranche A-1”) is repaid prior to March 15, 2021 or the maturity of Tranche A-1 is extended to at least April 28, 2022.  If Tranche A-1 is not so repaid or so extended, or is extended to a date earlier than April 28, 2022, Tranche A will mature on the same date as Tranche A-1.  In any event, Tranche A remains subject to a “springing” maturity date that is sixty days prior to the earliest of the maturity date of (1) any senior note debt (which is currently comprised of the 8.00% Second Lien Senior Secured Notes due June 15, 2021) and (2) if incurred, certain permitted debt secured by junior liens.

In connection with the Fifth Amendment, the Company incurred a loss on extinguishment of debt of $559 due to the write-off of certain deferred fees.

9.                                      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 fiscal 2016 and the 39 weeks ended October 28, 2017 on all of the Company’s net deferred tax assets.  The Company’s deferred tax asset valuation

12

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

allowance totaled $259,059, $230,298 and $206,089 as of October 28, 2017, October 29, 2016 and January 28, 2017, respectively.

The Company recorded net income tax benefits of $106 and $136 for the 13 and 39 weeks ended October 28, 2017, respectively, which includes $519 and $1,568 non-cash income tax benefits from continuing operations during the 13 and 39 weeks ended October 28, 2017, respectively.  The Company recorded net income tax benefits of $158 and $446 for the 13 and 39 weeks ended October 29, 2016, respectively, which includes $591 and $1,784 non-cash income tax benefits from continuing operations during the 13 and 39 weeks ended October 29, 2016, respectively.  Pursuant to ASC 740, the Company is required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, the Company recorded tax benefits on the losses from continuing operations for the 13 and 39 weeks ended October 28, 2017 and October 29, 2016, which are exactly offset by income tax expense on other comprehensive income. The net income tax expense and benefit includes $413 and $1,432 recorded in the 13 and 39 weeks ended October 28, 2017, respectively, and $433 and $1,338 recorded in the 13 and 39 weeks ended October 29, 2016, respectively, for recognition of deferred tax liabilities associated with indefinite-lived assets.

10.                               CONTINGENCIES

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.

11.                               COMPREHENSIVE LOSS

Accumulated other comprehensive loss is comprised of the net actuarial loss associated with the Pension Plans and Postretirement Benefit Plan.  Other comprehensive income is comprised entirely of the amortization of the net actuarial loss (gain) associated with the Pension Plans and Postretirement Benefit Plan.

The changes recognized within other comprehensive income reflect income tax expense of $519 and $591 for the third quarter in each of 2017 and 2016, respectively, and $1,568 and $1,784 for the 39 weeks ended on each of October 28, 2017 and October 29, 2016, respectively (see Note 9).

The before-tax amount of amortization of net actuarial loss (gain) (see Note 7) was recorded within selling, general and administrative expense.

12.                               CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Certain debt obligations of the Company, which constitute debt obligations of The Bon-Ton Department Stores, Inc. (the “Issuer”), are guaranteed by the Parent and by each of its subsidiaries, other than the Issuer, that is an obligor under the Company’s Second Amended Revolving Credit Facility.  Separate financial statements of the Parent, the Issuer and such subsidiary guarantors are not presented because the guarantees by the Parent and each 100% owned subsidiary guarantor are joint and several, full and unconditional, except for certain customary limitations which are applicable only to a subsidiary guarantor.  These customary limitations include releases of a guarantee (1) if the subsidiary guarantor no longer guarantees other indebtedness of the Issuer; (2) if there is a sale or other disposition of the capital stock of a subsidiary guarantor and if such sale complies with the covenant regarding asset sales; and (3) if the subsidiary guarantor is properly designated as an “unrestricted subsidiary.”

The condensed consolidating financial information for the Parent, the Issuer and the guarantor subsidiaries as of October 28, 2017, October 29, 2016 and January 28, 2017 and for the third quarter in each

13

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

of 2017 and 2016 and the 39 weeks ended October 28, 2017 and October 29, 2016 as presented below has been prepared from the books and records maintained by the Parent, the Issuer and the guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the 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.

Condensed Consolidating Balance Sheet

October 28, 2017