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 ~~October 31, 2015~~April 30, 2016		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 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, 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.

Large accelerated
filer o

Accelerated filer x

Non-accelerated filer o

(Do not check if a smaller
reporting company)

Smaller reporting
company 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~~May 27, ~~2015,~~2016, there were ~~18,178,127~~18,613,025 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

	(Unaudited)									(Unaudited)
	October 31,			November 1,			January 31,			April 30,			May 2,			January 30,
(In thousands, except share and per share data)	2015			2014			2015			2016			2015			2016

Assets
Current assets:
Cash and cash equivalents	$	21,667		$	7,516		$	8,753		$	7,807		$	8,711		$	6,879
Merchandise inventories	994,482			970,649			734,956			712,113			738,231			711,699
Prepaid expenses and other current assets	82,647			79,059			93,394			72,246			77,834			97,254
Total current assets	1,098,796			1,057,224			837,103			792,166			824,776			815,832
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $951,138, $922,608 and $910,494 at October 31, 2015, November 1, 2014 and January 31, 2015, respectively	643,511			637,217			641,996
Deferred income taxes	14,546			20,486			15,781
Intangible assets, net of accumulated amortization of $62,412, $62,811 and $64,451 at October 31, 2015, November 1, 2014 and January 31, 2015, respectively	85,417			91,891			90,151
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $974,272, $931,661 and $951,786 at April 30, 2016, May 2, 2015 and January 30, 2016, respectively										623,086			642,268			635,334
Intangible assets, net of accumulated amortization of $63,647, $64,625 and $62,204 at April 30, 2016, May 2, 2015 and January 30, 2016, respectively										80,619			88,538			82,062
Other long-term assets	23,031			23,162			23,483			16,713			14,609			17,398
Total assets	$	1,865,301		$	1,829,980		$	1,608,514		$	1,512,584		$	1,570,191		$	1,550,626

Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	362,042		$	376,070		$	208,882		$	159,818		$	197,789		$	162,831
Accrued payroll and benefits	21,353			24,248			28,848			22,309			21,116			28,527
Accrued expenses	154,831			157,462			158,022			146,585			152,598			147,378
Current maturities of long-term debt	102,997			7,286			6,788			—			209,358			—
Current maturities of obligations under capital leases	5,262			3,888			3,961			5,529			4,061			5,394
Deferred income taxes	24,589			28,784			24,478
Total current liabilities	671,074			597,738			430,979			334,241			584,922			344,130

Long-term debt, less current maturities	902,647			971,608			850,963			864,856			690,648			855,977
Obligations under capital leases, less current maturities	128,089			46,034			45,016			125,269			43,629			126,692
Other long-term liabilities	181,286			165,897			193,908			189,477			196,549			188,911
Total liabilities	1,883,096			1,781,277			1,520,866			1,513,843			1,515,748			1,515,710

Contingencies (Note 10)
Contingencies (Note 9)

Shareholders’ (deficit) 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 18,343,527, 17,818,323 and 17,818,323 at October 31, 2015, November 1, 2014 and January 31, 2015, respectively	183			178			178
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at October 31, 2015, November 1, 2014 and January 31, 2015	30			30			30
Treasury stock, at cost — 337,800 shares at October 31, 2015, November 1, 2014 and January 31, 2015	(1,387		)	(1,387		)	(1,387		)
Common Stock — authorized 40,000,000 shares at $0.01 par value; issued shares of 18,954,675, 18,331,899 and 18,532,577 at April 30, 2016, May 2, 2015 and January 30, 2016, respectively										190			183			185
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, 2016, May 2, 2015 and January 30, 2016										30			30			30
Treasury stock, at cost — 337,800 shares at April 30, 2016, May 2, 2015 and January 30, 2016										(1,387		)	(1,387		)	(1,387		)
Additional paid-in capital	163,747			160,759			161,359			165,199			162,253			164,428
Accumulated other comprehensive loss	(77,573		)	(48,006		)	(80,405		)	(75,255		)	(79,423		)	(76,122		)
(Accumulated deficit) retained earnings	(102,795		)	(62,871		)	7,873
Accumulated deficit										(90,036		)	(27,213		)	(52,218		)
Total shareholders’ (deficit) equity	(17,795		)	48,703			87,648			(1,259		)	54,443			34,916
Total liabilities and shareholders’ (deficit) equity	$	1,865,301		$	1,829,980		$	1,608,514		$	1,512,584		$	1,570,191		$	1,550,626

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	THIRTEEN						THIRTY-NINE						THIRTEEN
	WEEKS ENDED						WEEKS ENDED						WEEKS ENDED
(In thousands, except per share data)	October 31,			November 1,			October 31,			November 1,			April 30,			May 2,
(Unaudited)	2015			2014			2015			2014			2016			2015

Net sales	$	623,400		$	642,735		$	1,789,769		$	1,813,647		$	591,007		$	610,938
Other income	17,497			16,022			49,369			45,780			17,416			16,304
	640,897			658,757			1,839,138			1,859,427			608,423			627,242

Costs and expenses:
Costs of merchandise sold	415,025			409,484			1,170,318			1,159,846			390,913			404,465
Selling, general and administrative	220,183			220,901			654,055			659,027			216,185			218,686
Gain on insurance recovery	—			—			(748		)	—
Depreciation and amortization	22,786			22,073			69,012			67,678			23,194			22,033
Amortization of lease-related interests	1,045			1,101			3,207			3,442			1,007			1,101
Impairment charges	203			273			425			447
(Loss) income from operations	(18,345		)	4,925			(57,131		)	(31,013		)
Loss from operations													(22,876		)	(19,043		)
Interest expense, net	15,846			15,506			46,232			46,224			15,086			15,190
Loss on extinguishment of debt	—			—			4,862			153

Loss before income taxes	(34,191		)	(10,581		)	(108,225		)	(77,390		)	(37,962		)	(34,233		)
Income tax (benefit) provision	(199		)	427			(596		)	1,322
Income tax benefit													(144		)	(159		)

Net loss	$	(33,992	)	$	(11,008	)	$	(107,629	)	$	(78,712	)	$	(37,818	)	$	(34,074	)

Per share amounts —
Basic:
Net loss	$	(1.72	)	$	(0.57	)	$	(5.47	)	$	(4.06	)	$	(1.91	)	$	(1.74	)

Diluted:
Net loss	$	(1.72	)	$	(0.57	)	$	(5.47	)	$	(4.06	)	$	(1.91	)	$	(1.74	)

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	THIRTEEN						THIRTY-NINE						THIRTEEN
	WEEKS ENDED						WEEKS ENDED						WEEKS ENDED
(In thousands)	October 31,			November 1,			October 31,			November 1,			April 30,			May 2,
(Unaudited)	2015			2014			2015			2014			2016			2015

Net loss	$	(33,992	)	$	(11,008	)	$	(107,629	)	$	(78,712	)	$	(37,818	)	$	(34,074	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	944			814			2,832			2,442			867			982
Comprehensive loss	$	(33,048	)	$	(10,194	)	$	(104,797	)	$	(76,270	)	$	(36,951	)	$	(33,092	)

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	THIRTY-NINE						THIRTEEN
	WEEKS ENDED						WEEKS ENDED
(In thousands)	October 31,			November 1,			April 30,			May 2,
(Unaudited)	2015			2014			2016			2015
Cash flows from operating activities:
Net loss	$	(107,629	)	$	(78,712	)	$	(37,818	)	$	(34,074	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	69,012			67,678			23,194			22,033
Amortization of lease-related interests	3,207			3,442			1,007			1,101
Impairment charges	425			447
Share-based compensation expense	2,338			1,902			896			844
Gain on sale of property, fixtures and equipment	(2,457		)	(2,542		)
Loss on sale of property, fixtures and equipment							21			—
Reclassifications of accumulated other comprehensive loss	4,774			2,442			1,464			1,591
Loss on extinguishment of debt	4,862			153
Amortization of deferred financing costs	2,227			2,195			849			747
Deferred income tax (benefit) provision	(596		)	1,318
Deferred income tax benefit							(144		)	(159		)
Changes in operating assets and liabilities:
Increase in merchandise inventories	(259,525		)	(260,915		)	(414		)	(3,274		)
Decrease (increase) in prepaid expenses and other current assets	9,399			(2,774		)
Decrease in prepaid expenses and other current assets							25,008			15,560
Decrease in other long-term assets	290			296			577			484
Increase in accounts payable	151,915			169,757
(Decrease) increase in accrued payroll and benefits and accrued expenses	(6,976		)	1,793
Decrease in other long-term liabilities	(12,005		)	(13,676		)
Net cash used in operating activities	(140,739		)	(107,196		)
Increase (decrease) in accounts payable							2,533			(5,634		)
Decrease in accrued payroll and benefits and accrued expenses							(5,102		)	(10,676		)
Increase (decrease) in other long-term liabilities							207			(6,373		)
Net cash provided by (used in) operating activities							12,278			(17,830		)

Cash flows from investing activities:
Capital expenditures	(70,473		)	(63,961		)	(12,626		)	(24,448		)
Proceeds from insurance claim	1,510			—
Proceeds from sale of property, fixtures and equipment	85,268			5,297			7			—
Net cash provided by (used in) investing activities	16,305			(58,664		)
Net cash used in investing activities							(12,619		)	(24,448		)

Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	(485,015		)	(411,051		)	(144,117		)	(139,000		)
Proceeds from issuance of long-term debt	624,313			575,231			151,461			187,611
Cash dividends paid	(3,014		)	(1,981		)	—			(991		)
Restricted shares forfeited in lieu of payroll taxes	(399		)	(1,937		)	(120		)	(399		)
Proceeds from stock options exercised	454			22			—			454
Deferred financing costs paid	(314		)	(69		)	(495		)	—
Increase in book overdraft balances	1,323			6,103
Decrease in book overdraft balances							(5,460		)	(5,439		)
Net cash provided by financing activities	137,348			166,318			1,269			42,236

Net increase in cash and cash equivalents	12,914			458
Net increase (decrease) in cash and cash equivalents							928			(42		)

Cash and cash equivalents at beginning of period	8,753			7,058			6,879			8,753

Cash and cash equivalents at end of period	$	21,667		$	7,516		$	7,807		$	8,711

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

												Accumulated			(Accumulated																	Accumulated			(Accumulated
				Class A					Additional			Other			Deficit)									Class A					Additional			Other			Deficit)
(In thousands, except per share data)	Common			Common		Treasury			Paid-in			Comprehensive			Retained						Common			Common		Treasury			Paid-in			Comprehensive			Retained
(Unaudited)	Stock			Stock		Stock			Capital			Loss			Earnings			Total			Stock			Stock		Stock			Capital			Loss			Earnings			Total

BALANCE AT FEBRUARY 1, 2014	$	178		$	30	$	(1,387	)	$	160,772		$	(50,448	)	$	18,811		$	127,956

Net loss	—			—		—			—			—			(78,712		)	(78,712		)
Other comprehensive income	—			—		—			—			2,442			—			2,442
Dividends to shareholders, $0.15 per share	—			—		—			—			—			(2,970		)	(2,970		)
Restricted shares forfeited in lieu of payroll taxes	(2		)	—		—			(1,935		)	—			—			(1,937		)
Proceeds from stock options exercised	—			—		—			22			—			—			22
Share-based compensation expense	2			—		—			1,900			—			—			1,902
BALANCE AT NOVEMBER 1, 2014	$	178		$	30	$	(1,387	)	$	160,759		$	(48,006	)	$	(62,871	)	$	48,703

BALANCE AT JANUARY 31, 2015	$	178		$	30	$	(1,387	)	$	161,359		$	(80,405	)	$	7,873		$	87,648		$	178		$	30	$	(1,387	)	$	161,359		$	(80,405	)	$	7,873		$	87,648

Net loss	—			—		—			—			—			(107,629		)	(107,629		)	—			—		—			—			—			(34,074		)	(34,074		)
Other comprehensive income	—			—		—			—			2,832			—			2,832			—			—		—			—			982			—			982
Dividends to shareholders, $0.15 per share	—			—		—			—			—			(3,039		)	(3,039		)
Dividends to shareholders, $0.05 per share																					—			—		—			—			—			(1,012		)	(1,012		)
Restricted shares forfeited in lieu of payroll taxes	(1		)	—		—			(398		)	—			—			(399		)	(1		)	—		—			(398		)	—			—			(399		)
Proceeds from stock options exercised	1			—		—			453			—			—			454			1			—		—			453			—			—			454
Share-based compensation expense	5			—		—			2,333			—			—			2,338			5			—		—			839			—			—			844
BALANCE AT OCTOBER 31, 2015	$	183		$	30	$	(1,387	)	$	163,747		$	(77,573	)	$	(102,795	)	$	(17,795	)
BALANCE AT MAY 2, 2015																					$	183		$	30	$	(1,387	)	$	162,253		$	(79,423	)	$	(27,213	)	$	54,443

BALANCE AT JANUARY 30, 2016																					$	185		$	30	$	(1,387	)	$	164,428		$	(76,122	)	$	(52,218	)	$	34,916

Net loss																					—			—		—			—			—			(37,818		)	(37,818		)
Other comprehensive income																					—			—		—			—			867			—			867
Restricted shares forfeited in lieu of payroll taxes																					—			—		—			(120		)	—			—			(120		)
Share-based compensation expense																					5			—		—			891			—			—			896
BALANCE AT APRIL 30, 2016																					$	190		$	30	$	(1,387	)	$	165,199		$	(75,255	)	$	(90,036	)	$	(1,259	)

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

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 31, 2015,~~April 30, 2016, The Bon-Ton Stores, Inc. operated, through its subsidiaries, ~~270~~267 stores, including nine furniture galleries and four clearance centers, in 26 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 ~~31, 2015.~~30, 2016.

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.

Reclassifications

Certain prior year balances presented in the consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. These reclassifications did not impact the Company’s net loss for the first quarter in each of 2016 and 2015. As a result of adopting Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”) as of January 30, 2016, the Company reclassified the May 2, 2015 consolidated balance sheet resulting in a reduction of $17,373 in long-term deferred income tax assets, a reduction in current deferred income tax liabilities of $26,519 and an increase in other long-term liabilities of $9,146.

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Recently Adopted Accounting Standards

Effective January 31, 2016, the Company adopted ASU No. 2015-03, Interest-Imputation of Interest (“ASU 2015-03”) and ASU No. 2015-15 (an amendment to ASU 2015-03) and retrospectively applied their provisions. The new standards require that debt issuance costs related to a recognized debt liability, other than those relating to line-of-credit arrangements, be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result of adopting this guidance, as of May 2, 2015 and January 30, 2016, the Company reclassified $7,643 and $6,580, respectively, of the unamortized debt issuance costs for all debt instruments except the senior secured credit facility from other long-term assets to long-term debt and current maturities of long-term debt on the consolidated balance sheets.

Effective January 31, 2016, the Company adopted ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software and prospectively applied its provisions. The new standard provides guidance on the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer is required to account for the software license consistent with the acquisition of other software licenses. Conversely, if the arrangement does not include a software license, the customer should account for the arrangement as a service contract. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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 for each period presented:

	THIRTEEN
��	WEEKS ENDED
	April 30,			May 2,
	2016			2015

Basic Loss Per Common Share
Net loss	$	(37,818	)	$	(34,074	)
Less: Income allocated to participating securities	—			—
Net loss available to common shareholders	$	(37,818	)	$	(34,074	)

Weighted average common shares outstanding	19,760,448			19,561,610

Basic loss per common share	$	(1.91	)	$	(1.74	)

Diluted Loss Per Common Share
Net loss	$	(37,818	)	$	(34,074	)
Less: Income allocated to participating securities	—			—
Net loss available to common shareholders	$	(37,818	)	$	(34,074	)

Weighted average common shares outstanding	19,760,448			19,561,610
Common shares issuable - stock options	—			—
Weighted average common shares outstanding assuming dilution	19,760,448			19,561,610

Diluted loss per common share	$	(1.91	)	$	(1.74	)

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

THIRTEEN

THIRTY-NINE

WEEKS ENDED

WEEKS ENDED

October 31,

November 1,

October 31,

November 1,

2015

2014

2015

2014

Basic Loss Per Common Share

Net loss

$
(33,992
)
$
(11,008
)
$
(107,629
)
$
(78,712
)
Less: Income allocated to participating securities

—

—

—

—

Net loss available to common shareholders

$
(33,992
)
$
(11,008
)
$
(107,629
)
$
(78,712
)

Weighted average common shares outstanding

19,742,212

19,470,674

19,674,082

19,393,072

Basic loss per common share

$
(1.72
)
$
(0.57
)
$
(5.47
)
$
(4.06
)

Diluted Loss Per Common Share

Net loss

$
(33,992
)
$
(11,008
)
$
(107,629
)
$
(78,712
)
Less: Income allocated to participating securities

—

—

—

—

Net loss available to common shareholders

$
(33,992
)
$
(11,008
)
(107,629
)
(78,712
)

Weighted average common shares outstanding

19,742,212

19,470,674

19,674,082

19,393,072

Common shares issuable - stock options

—

—

—

—

Weighted average common shares outstanding assuming dilution

19,742,212

19,470,674

19,674,082

19,393,072

Diluted loss per common share

$
(1.72
)
$
(0.57
)
$
(5.47
)
$
(4.06
)

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of ~~1,020,723~~1,220,177 and ~~715,140~~708,961 for the ~~third~~first quarter in each of ~~2015~~2016 and ~~2014, respectively, and 873,250 and 710,101 for the 39 weeks ended October 31,~~ 2015, ~~and November 1, 2014,~~ respectively, were not considered in the calculation of net loss available to common shareholders used for both basic and diluted EPS.

In addition, weighted average stock option shares (non-participating securities) totaling 0 and ~~197,593~~110,196 for the ~~third~~first quarter in each of ~~2015~~2016 and ~~2014, respectively, and 41,001 and 218,184 for the 39 weeks ended October 31,~~ 2015, ~~and November 1, 2014,~~ respectively, were excluded from the computation of diluted weighted average common shares outstanding, as their effect 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 ~~third~~first quarter in each of ~~2015~~2016 and ~~2014,~~2015, these shares would have increased diluted weighted average common shares outstanding by 0 and 86,974, respectively. Had the Company reported net income for the 39 weeks ended October 31, 2015 and November 1, 2014, these shares would have increased diluted weighted average common shares outstanding by 5,597 and 96,646,16,790, respectively.

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

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

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 long-term debt, including current maturities but excluding capital leases and unamortized debt issuance costs, as of ~~October 31, 2015~~April 30, 2016 are as follows:

Fair Value Measurements Using

Carrying
Value

Estimated
Fair Value

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Second lien senior secured notes

$
407,292

$
254,802

$
254,802

$
—

$
—

Mortgage facility

102,997

103,446

—

—

103,446

Senior secured credit facility

495,355

495,355

—

—

495,355

Total

$
1,005,644

$
853,603

$
254,802

$
—

$
598,801

~~The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of November 1, 2014 are as follows:~~

Fair Value Measurements Using

Carrying
Value

Estimated
Fair Value

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Second lien senior secured notes

$
407,292

$
360,792

$
360,792

$
—

$
—

Mortgage facilities

213,292

215,552

—

—

215,552

Senior secured credit facility

358,310

358,310

—

—

358,310

Total

$
978,894

$
934,654

$
360,792

$
—

$
573,862

~~The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of January 31, 2015 are as follows:~~

					Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Second lien senior secured notes	$	407,292	$	204,563	$	204,563	$	—	$	—
Senior secured credit facility	463,898		463,898		—		—		463,898
Total	$	871,190	$	668,461	$	204,563	$	—	$	463,898

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Fair Value Measurements Using

Carrying
Value

Estimated
Fair Value

Quoted
Prices in
Active Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Second lien senior secured notes

$
407,292

$
345,700

$
345,700

$
—

$
—

Mortgage facilities

211,541

214,132

—

—

214,132

Senior secured credit facility

238,918

238,918

—

—

238,918

Total

$
857,751

$
798,750

$
345,700

$
—

$
453,050

					Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Second lien senior secured notes	$	407,292	$	354,228	$	354,228	$	—	$	—
Mortgage facility	209,652		211,637		—		—		211,637
Senior secured credit facility	290,705		290,705		—		—		290,705
Total	$	907,649	$	856,570	$	354,228	$	—	$	502,342

					Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Second lien senior secured notes	$	407,292	$	168,584	$	168,584	$	—	$	—
Senior secured credit facility	455,265		455,265		—		—		455,265
Total	$	862,557	$	623,849	$	168,584	$	—	$	455,265

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:

October 31,

November 1,

January 31,

2015

2014

2015

Other receivables

$
37,375

$
35,264

$
59,734

Prepaid expenses

45,272

43,795

33,660

Total

$
82,647

$
79,059

$
93,394

5.~~SUPPLEMENTAL CASH FLOW INFORMATION~~

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

THIRTY-NINE

WEEKS ENDED

October 31,

November 1,

2015

2014

Cash paid for:

Interest, net of amounts capitalized

$
38,528

$
38,439

Income taxes, net of refunds received

(53
)
(3
)

Non-cash investing and financing activities:

Property, fixtures and equipment included in accrued expenses

$
4,021

$
6,140

Assets acquired under capital lease

88,229

—

Declared dividends to shareholders included in accrued expenses

1,016

989

	April 30,		May 2,		January 30,
	2016		2015		2016
Other receivables	$	39,167	$	35,198	$	60,514
Prepaid expenses	33,079		42,636		36,740
Total	$	72,246	$	77,834	$	97,254

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

5.SUPPLEMENTAL CASH FLOW INFORMATION

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

	THIRTEEN
	WEEKS ENDED
	April 30,		May 2,
	2016		2015

Cash paid for:
Interest, net of amounts capitalized	$	8,668	$	9,315

Non-cash investing and financing activities:
Property, fixtures and equipment included in accrued expenses	$	3,449	$	5,711
Declared dividends to shareholders included in accrued expenses	—		1,012

6. EXIT OR DISPOSAL ACTIVITIES

The following table summarizes exit or disposal activities during the 3913 weeks ended ~~October 31, 2015~~April 30, 2016 related to store closings in fiscal ~~2014,~~2015 and 2016, the consolidation of eCommerce fulfillment activities in connection with the Company’s new eCommerce fulfillment center and the Company’s expense efficiency initiative:

Termination
Benefits

Other
Costs

Total

Accrued balance as of January 31, 2015

$
1,279

$
—

$
1,279

Provisions

Thirteen weeks ended May 2, 2015

(122
)
102

(20
)
Thirteen weeks ended August 1, 2015

245

7

252

Thirteen weeks ended October 31, 2015

(190
)
12

(178
)
Payments

Thirteen weeks ended May 2, 2015

(421
)
(102
)
(523
)
Thirteen weeks ended August 1, 2015

(131
)
(7
)
(138
)
Thirteen weeks ended October 31, 2015

(267
)
(12
)
(279
)
Accrued balance as of October 31, 2015

$
393

$
—

$
393

	Termination Benefits			Other Costs			Total
Accrued balance as of January 30, 2016	$	3,696		$	—		$	3,696
Provisions	421			41			462
Payments	(1,906		)	(41		)	(1,947		)
Accrued balance as of April 30, 2016	$	2,211		$	—		$	2,211

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

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:

THIRTEEN

THIRTY-NINE

WEEKS ENDED

WEEKS ENDED

October 31,

November 1,

October 31,

November 1,

2015

2014

2015

2014

Interest cost

$
1,702

$
1,998

$
5,103

$
5,993

Expected return on plan assets

(2,410
)
(2,490
)
(7,229
)
(7,470
)
Recognition of net actuarial loss

1,698

943

5,094

2,831

Net periodic benefit expense

$
990

$
451

$
2,968

$
1,354

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

	THIRTEEN
	WEEKS ENDED
	April 30,			May 2,
	2016			2015
Interest cost	$	1,785		$	1,701
Expected return on plan assets	(2,100		)	(2,410		)
Recognition of net actuarial loss	1,571			1,698
Net periodic benefit expense	$	1,256		$	989

During the 3913 weeks ended ~~October 31, 2015,~~April 30, 2016, contributions of ~~$10,251~~$185 were made to the Pension Plans. The Company anticipates contributing an additional ~~$3,052~~$517 to fund the Pension Plans in fiscal ~~2015~~2016 for an annual total of ~~$13,303.~~$702.

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:

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

	THIRTEEN						THIRTY-NINE						THIRTEEN
	WEEKS ENDED						WEEKS ENDED						WEEKS ENDED
	October 31,			November 1,			October 31,			November 1,			April 30,			May 2,
	2015			2014			2015			2014			2016			2015
Interest cost	$	16		$	23		$	48		$	67		$	15		$	16
Recognition of net actuarial gain	(107		)	(129		)	(320		)	(389		)	(107		)	(107		)
Net periodic benefit income	$	(91	)	$	(106	)	$	(272	)	$	(322	)	$	(92	)	$	(91	)

During the 3913 weeks ended ~~October 31, 2015,~~April 30, 2016, the Company contributed ~~$70~~$33 to fund the Postretirement Benefit Plan, and anticipates contributing an additional ~~$285~~$294 to fund the Postretirement Benefit Plan in fiscal ~~2015,~~2016, for a net annual total of ~~$355.~~$327.

8.~~SALE-LEASEBACK AND DEBT~~

~~Sale-Leaseback and Mortgage Facility Repayment~~

On June 26, 2015, the Company entered into a sale-leaseback arrangement with an unrelated party. Under the arrangement, the Company sold six retail department stores for $84,000 and leased them back for a period of 20 years with three optional 10-year renewal terms. The basic rent payable in connection with the lease is $6,888 per year, subject to annual adjustments for increases in the Consumer Price Index with a 2% minimum increase and a 4% maximum increase each year.

The leaseback has been accounted for as a capital lease, and the Company recorded a capital lease asset and obligation of $88,229 at the beginning of the lease term. The loss of $1,971 on this transaction was deferred and is being amortized to expense over the term of the lease.

Proceeds from the sale-leaseback transaction, supplemented with borrowings under the Company’s senior secured credit facility, were used to pay the remaining principal balance of $104,538 on one of the two mortgage facilities due in April 2016. As a result of such prepayment, the Company paid an early termination fee of $4,741. Unamortized deferred financing fees of $121 were accelerated on the date of the termination. Fees paid and deferred financing fees accelerated were recognized in loss on extinguishment of debt.

~~Senior Secured Credit Facility~~

On August 28, 2015, pursuant to the terms of a commitment increase letter acknowledgment, the Tranche A revolving commitments under the senior secured credit facility were increased from $575,000 to $650,000. This brought total revolving commitments under the senior secured credit facility to $750,000.

~~See Note 15 for discussion of an additional commitment increase letter acknowledgement under the senior secured credit facility in November 2015.~~

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 ~~2014~~2015 and the ~~39 weeks ended October~~

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

~~31, 2015~~first quarter of 2016 on all of the Company’s net deferred tax assets. The Company’s deferred tax asset valuation allowance totaled ~~$206,338, $176,495~~$202,277, $175,356 and ~~$161,856~~$186,582 as of ~~October 31,~~April 30, 2016, May 2, 2015 ~~November 1, 2014~~ and January ~~31, 2015,~~30, 2016, respectively.

The Company recorded net income tax benefits of ~~$199~~$144 and ~~$596~~$159 for the 13first quarter in each of 2016 and ~~39 weeks ended October 31,~~ 2015, respectively, which ~~include $647~~includes $597 and ~~$1,942~~$609 non-cash income tax benefits from continuing operations during the 13first quarter in each of 2016 and ~~39 weeks ended October 31,~~ 2015, 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 13first quarter in each of 2016 and ~~39 weeks ended October 31,~~ 2015, ~~respectively,~~ which are exactly offset by income tax expense on other

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

comprehensive income. In addition, the net income tax benefits include ~~$448~~$453 and ~~$1,346~~$450 of expense recorded in the 13first quarter in each of 2016 and ~~39 weeks ended October 31,~~ 2015, respectively, for recognition of deferred tax liabilities associated with indefinite-lived assets. The income tax provisions of $427 and $1,322 recorded in the 13 and 39 weeks ended November 1, 2014, respectively, primarily reflect the recognition of deferred tax liabilities associated with indefinite-lived assets.

~~10.~~9. CONTINGENCIES

In November 2014, there was a fire at the Company’s store located in North Riverside, Illinois. The Company filed an insurance claim to cover the inventory loss and property damage. The Company recognized a gain on insurance recovery related to the inventory loss in the fourth quarter of fiscal 2014. In the second quarter of 2015, the Company recognized an additional gain on insurance recovery of $748, which is shown separately in the accompanying consolidated statements of operations.

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.~~10. 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 ~~$647~~$597 and $0$609 for the ~~13 weeks ended~~first quarter in each of ~~October 31,~~2016 and 2015, ~~and November 1, 2014, respectively, and $1,942 and $0 for the 39 weeks ended in each of October 31, 2015 and November 1, 2014,~~ respectively (see Note 9)8).

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

~~12. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES~~11. 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 ~~senior secured credit facility.~~Second Amended and Restated Loan and Security Agreement (the “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.

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

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 ~~and non-guarantor~~ subsidiaries as of ~~October 31,~~April 30, 2016, May 2, 2015 ~~November 1, 2014~~ and January ~~31, 2015~~30, 2016 and for the ~~third~~first quarter in each of ~~2015~~2016 and ~~2014 and the 39 weeks ended October 31,~~ 2015 ~~and November 1, 2014~~ as presented below has been prepared from the books and records maintained by the Parent, 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.

14On January 15, 2016, the Company and certain other subsidiaries as borrowers or obligors (collectively, the “Obligors”) entered into a Consent and Third Amendment to the Second Amended Revolving Credit Facility, which among other changes, provided for the joinders of the special purpose entities (“SPEs”) that had previously participated in the Company’s mortgage loan facility as Obligors under the Second Amended Revolving Credit Facility, and as “Restricted Subsidiaries” and guarantors under the indentures for both the 105/8% second lien senior secured notes due 2017 and the 8.00% second lien senior secured notes due 2021. The SPEs and their assets were then added to the second lien security agreement. For comparative purposes, the condensed consolidating financial information as presented below has been retrospectively adjusted as if the activity described above occurred at the beginning of each period presented.

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

~~October 31,~~April 30, 2016

							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	1		$	3,006		$	4,800	$	—		$	7,807
Merchandise inventories	—			455,428			256,685		—			712,113
Prepaid expenses and other current assets	—			68,015			4,411		(180		)	72,246
Total current assets	1			526,449			265,896		(180		)	792,166
Property, fixtures and equipment at cost, net	—			311,145			311,941		—			623,086
Intangible assets, net	—			20,302			60,317		—			80,619
Investment in and advances to affiliates	(1,260		)	445,980			373,687		(818,407		)	—
Other long-term assets	—			19,024			955		(3,266		)	16,713
Total assets	$	(1,259	)	$	1,322,900		$	1,012,796	$	(821,853	)	$	1,512,584

Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	—		$	159,818		$	—	$	—		$	159,818
Accrued payroll and benefits	—			18,059			4,250		—			22,309
Accrued expenses	—			74,620			72,145		(180		)	146,585
Current maturities of long-term debt and obligations under capital leases	—			1,447			4,082		—			5,529
Total current liabilities	—			253,944			80,477		(180		)	334,241

Long-term debt and obligations under capital leases, less current maturities	—			937,882			52,243		—			990,125
Other long-term liabilities	—			137,104			55,639		(3,266		)	189,477
Total liabilities	—			1,328,930			188,359		(3,446		)	1,513,843

Shareholders’ (deficit) equity	(1,259		)	(6,030		)	824,437		(818,407		)	(1,259		)

Total liabilities and shareholders’ (deficit) equity	$	(1,259	)	$	1,322,900		$	1,012,796	$	(821,853	)	$	1,512,584

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

May 2, 2015

							Guarantor		Non-Guarantor		Consolidating			Company							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Subsidiaries		Eliminations			Consolidated			Parent		Issuer		Subsidiaries		Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	1		$	3,047		$	3,953	$	14,666	$	—		$	21,667		$	1	$	3,254	$	5,456	$	—		$	8,711
Merchandise inventories	—			662,437			332,045		—		—			994,482			—		469,973		268,258		—			738,231
Prepaid expenses and other current assets	—			74,089			6,764		2,262		(468		)	82,647			—		66,680		11,660		(506		)	77,834
Total current assets	1			739,573			342,762		16,928		(468		)	1,098,796			1		539,907		285,374		(506		)	824,776
Property, fixtures and equipment at cost, net	—			328,016			181,627		148,263		(14,395		)	643,511			—		275,383		366,885		—			642,268
Deferred income taxes	—			2,407			12,139		—		—			14,546
Intangible assets, net	—			22,439			62,978		—		—			85,417			—		23,882		64,656		—			88,538
Investment in and advances to affiliates	(17,796		)	449,013			327,242		—		(758,459		)	—			54,442		341,535		413,542		(809,519		)	—
Other long-term assets	—			25,499			850		67		(3,385		)	23,031			—		14,198		411		—			14,609
Total assets	$	(17,795	)	$	1,566,947		$	927,598	$	165,258	$	(776,707	)	$	1,865,301		$	54,443	$	1,194,905	$	1,130,868	$	(810,025	)	$	1,570,191

Liabilities and Shareholders’ (Deficit) Equity
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—		$	362,042		$	—	$	��	$	—		$	362,042		$	—	$	197,789	$	—	$	—		$	197,789
Accrued payroll and benefits	—			17,123			4,230		—		—			21,353			—		17,179		3,937		—			21,116
Accrued expenses	—			85,705			69,413		181		(468		)	154,831			—		80,922		72,182		(506		)	152,598
Current maturities of long-term debt and obligations under capital leases	—			1,343			3,919		102,997		—			108,259			—		471		212,948		—			213,419
Deferred income taxes	—			8,241			16,348		—		—			24,589
Total current liabilities	—			474,454			93,910		103,178		(468		)	671,074			—		296,361		289,067		(506		)	584,922

Long-term debt and obligations under capital leases, less current maturities	—			976,414			54,322		—		—			1,030,736			—		695,713		38,564		—			734,277
Other long-term liabilities	—			137,190			42,860		4,621		(3,385		)	181,286			—		150,210		46,339		—			196,549
Total liabilities	—			1,588,058			191,092		107,799		(3,853		)	1,883,096			—		1,142,284		373,970		(506		)	1,515,748

Shareholders’ (deficit) equity	(17,795		)	(21,111		)	736,506		57,459		(772,854		)	(17,795		)
Shareholders’ equity																	54,443		52,621		756,898		(809,519		)	54,443

Total liabilities and shareholders’ (deficit) equity	$	(17,795	)	$	1,566,947		$	927,598	$	165,258	$	(776,707	)	$	1,865,301
Total liabilities and shareholders’ equity																	$	54,443	$	1,194,905	$	1,130,868	$	(810,025	)	$	1,570,191

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

~~November 1, 2014~~January 30, 2016

					Guarantor		Non-Guarantor		Consolidating			Company						Guarantor		Consolidating			Company
	Parent		Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated		Parent		Issuer		Subsidiaries		Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	1	$	2,879	$	4,636	$	—	$	—		$	7,516	$	1	$	2,822	$	4,056	$	—		$	6,879
Merchandise inventories	—		628,017		342,632		—		—			970,649		—		467,262		244,437		—			711,699
Prepaid expenses and other current assets	—		69,415		6,311		3,839		(506		)	79,059		—		88,346		9,088		(180		)	97,254
Total current assets	1		700,311		353,579		3,839		(506		)	1,057,224		1		558,430		257,581		(180		)	815,832
Property, fixtures and equipment at cost, net	—		259,079		148,437		229,701		—			637,217		—		319,736		315,598		—			635,334
Deferred income taxes	—		3,392		17,094		—		—			20,486
Intangible assets, net	—		25,365		66,526		—		—			91,891		—		20,964		61,098		—			82,062
Investment in and advances to affiliates	48,702		421,602		299,047		—		(769,351		)	—		34,915		437,894		382,958		(855,767		)	—
Other long-term assets	—		22,273		403		486		—			23,162		—		19,846		863		(3,311		)	17,398
Total assets	$	48,703	$	1,432,022	$	885,086	$	234,026	$	(769,857	)	$	1,829,980	$	34,916	$	1,356,870	$	1,018,098	$	(859,258	)	$	1,550,626

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	376,070	$	—	$	—	$	—		$	376,070	$	—	$	162,831	$	—	$	—		$	162,831
Accrued payroll and benefits	—		19,622		4,626		—		—			24,248		—		23,154		5,373		—			28,527
Accrued expenses	—		87,858		70,074		36		(506		)	157,462		—		70,386		77,172		(180		)	147,378
Current maturities of long-term debt and obligations under capital leases	—		451		3,436		7,287		—			11,174		—		1,395		3,999		—			5,394
Deferred income taxes	—		8,382		20,402		—		—			28,784
Total current liabilities	—		492,383		98,538		7,323		(506		)	597,738		—		257,766		86,544		(180		)	344,130

Long-term debt and obligations under capital leases, less current maturities	—		770,946		40,690		206,006		—			1,017,642		—		929,377		53,292		—			982,669
Other long-term liabilities	—		120,767		43,327		1,803		—			165,897		—		138,810		53,412		(3,311		)	188,911
Total liabilities	—		1,384,096		182,555		215,132		(506		)	1,781,277		—		1,325,953		193,248		(3,491		)	1,515,710

Shareholders’ equity	48,703		47,926		702,531		18,894		(769,351		)	48,703		34,916		30,917		824,850		(855,767		)	34,916

Total liabilities and shareholders’ equity	$	48,703	$	1,432,022	$	885,086	$	234,026	$	(769,857	)	$	1,829,980	$	34,916	$	1,356,870	$	1,018,098	$	(859,258	)	$	1,550,626

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating ~~Balance Sheet~~Statement of Operations

~~January 31, 2015~~Thirteen Weeks Ended April 30, 2016

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Assets

Current assets:

Cash and cash equivalents

$
1

$
4,209

$
4,543

$
—

$
—

$
8,753

Merchandise inventories

—

483,270

251,686

—

—

734,956

Prepaid expenses and other current assets

—

74,956

14,906

3,966

(434
)
93,394

Total current assets

1

562,435

271,135

3,966

(434
)
837,103

Property, fixtures and equipment at cost, net

—

268,224

146,793

226,979

—

641,996

Deferred income taxes

—

4,889

10,892

—

—

15,781

Intangible assets, net

—

24,618

65,533

—

—

90,151

Investment in and advances to affiliates

87,647

324,668

435,870

—

(848,185
)
—

Other long-term assets

—

22,685

391

407

—

23,483

Total assets

$
87,648

$
1,207,519

$
930,614

$
231,352

$
(848,619
)
$
1,608,514

Liabilities and Shareholders’ Equity

Current liabilities:

Accounts payable

$
—

$
208,882

$
—

$
—

$
—

$
208,882

Accrued payroll and benefits

—

23,637

5,211

—

—

28,848

Accrued expenses

—

76,599

81,857

—

(434
)
158,022

Current maturities of long-term debt and obligations under capital leases

—

460

3,501

6,788

—

10,749

Deferred income taxes

—

10,081

14,397

—

—

24,478

Total current liabilities

—

319,659

104,966

6,788

(434
)
430,979

Long-term debt and obligations under capital leases, less current maturities

—

651,436

39,790

204,753

—

895,979

Other long-term liabilities

—

150,152

41,921

1,835

—

193,908

Total liabilities

—

1,121,247

186,677

213,376

(434
)
1,520,866

Shareholders’ equity

87,648

86,272

743,937

17,976

(848,185
)
87,648

Total liabilities and shareholders’ equity

$
87,648

$
1,207,519

$
930,614

$
231,352

$
(848,619
)
$
1,608,514

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	357,496		$	233,511		$	—		$	591,007
Other income	—			10,754			6,662			—			17,416
	—			368,250			240,173			—			608,423

Costs and expenses:
Costs of merchandise sold	—			238,589			152,324			—			390,913
Selling, general and administrative	—			133,118			88,183			(5,116		)	216,185
Depreciation and amortization	—			12,902			10,292			—			23,194
Amortization of lease-related interests	—			468			539			—			1,007
Loss from operations	—			(16,827		)	(11,165		)	5,116			(22,876		)

Other income (expense):	��
Intercompany income	—			474			12,009			(12,483		)	—
Equity in losses of subsidiaries	(37,962		)	(178		)	—			38,140			—
Interest expense, net	—			(21,431		)	(1,022		)	7,367			(15,086		)

Loss before income taxes	(37,962		)	(37,962		)	(178		)	38,140			(37,962		)
Income tax (benefit) provision	(144		)	(144		)	235			(91		)	(144		)

Net loss	$	(37,818	)	$	(37,818	)	$	(413	)	$	38,231		$	(37,818	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive Loss

Thirteen Weeks Ended April 30, 2016

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated

Net loss	$	(37,818	)	$	(37,818	)	$	(413	)	$	38,231		$	(37,818	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	867			867			—			(867		)	867
Comprehensive loss	$	(36,951	)	$	(36,951	)	$	(413	)	$	37,364		$	(36,951	)

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirteen Weeks Ended ~~October 31,~~May 2, 2015

							Guarantor			Non-Guarantor			Consolidating			Company									Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated			Parent			Issuer			Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	375,130		$	248,270		$	—		$	—		$	623,400		$	—		$	360,466		$	250,472		$	—		$	610,938
Other income	—			10,726			6,771			—			—			17,497			—			9,470			6,834			—			16,304
	—			385,856			255,041			—			—			640,897			—			369,936			257,306			—			627,242

Costs and expenses:
Costs of merchandise sold	—			252,888			162,137			—			—			415,025			—			239,112			165,353			—			404,465
Selling, general and administrative	—			136,430			88,791			(24		)	(5,014		)	220,183			—			134,831			91,258			(7,403		)	218,686
Depreciation and amortization	—			12,523			8,436			1,989			(162		)	22,786			—			11,208			10,825			—			22,033
Amortization of lease-related interests	—			478			567			—			—			1,045			—			495			606			—			1,101
Impairment charges	—			203			—			—			—			203
Loss from operations	—			(16,666		)	(4,890		)	(1,965		)	5,176			(18,345		)	—			(15,710		)	(10,736		)	7,403			(19,043		)

Other income (expense):
Intercompany income	—			432			6,250			4,320			(11,002		)	—			—			450			11,364			(11,814		)	—
Equity in (losses) earnings of subsidiaries	(34,191		)	1,227			—			—			32,964			—
Equity in losses of subsidiaries																			(34,233		)	(3,557		)	—			37,790			—
Interest expense, net	—			(19,184		)	(981		)	(1,669		)	5,988			(15,846		)	—			(15,416		)	(4,185		)	4,411			(15,190		)

(Loss) income before income taxes	(34,191		)	(34,191		)	379			686			33,126			(34,191		)
Loss before income taxes																			(34,233		)	(34,233		)	(3,557		)	37,790			(34,233		)
Income tax (benefit) provision	(199		)	(199		)	235			—			(36		)	(199		)	(159		)	(159		)	236			(77		)	(159		)

Net (loss) income	$	(33,992	)	$	(33,992	)	$	144		$	686		$	33,162		$	(33,992	)
Net loss																			$	(34,074	)	$	(34,074	)	$	(3,793	)	$	37,867		$	(34,074	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive ~~(Loss) Income~~Loss

Thirteen Weeks Ended ~~October 31,~~May 2, 2015

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net (loss) income

$
(33,992
)
$
(33,992
)
$
144

$
686

$
33,162

$
(33,992
)
Other comprehensive income, net of tax: Pension and postretirement benefit plans

944

944

—

—

(944
)
944

Comprehensive (loss) income

$
(33,048
)
$
(33,048
)
$
144

$
686

$
32,218

$
(33,048
)

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated

Net loss	$	(34,074	)	$	(34,074	)	$	(3,793	)	$	37,867		$	(34,074	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	982			982			—			(982		)	982
Comprehensive loss	$	(33,092	)	$	(33,092	)	$	(3,793	)	$	36,885		$	(33,092	)

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

~~The Bon-Ton Stores, Inc.~~

~~Condensed Consolidating Statement of Operations~~

~~Thirteen Weeks Ended November 1, 2014~~

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net sales

$
—

$
378,279

$
264,456

$
—

$
—

$
642,735

Other income

—

9,457

6,565

—

—

16,022

—

387,736

271,021

—

—

658,757

Costs and expenses:

Costs of merchandise sold

—

243,019

166,465

—

—

409,484

Selling, general and administrative

—

135,706

92,366

32

(7,203
)
220,901

Depreciation and amortization

—

11,130

8,221

2,722

—

22,073

Amortization of lease-related interests

—

495

606

—

—

1,101

Impairment charges

—

273

—

—

—

273

(Loss) income from operations

—

(2,887
)
3,363

(2,754
)
7,203

4,925

Other income (expense):

Intercompany income

—

460

3,289

6,525

(10,274
)
—

Equity in (losses) earnings of subsidiaries

(10,581
)
6,145

—

—

4,436

—

Interest expense, net

—

(14,299
)
(833
)
(3,445
)
3,071

(15,506
)

(Loss) income before income taxes

(10,581
)
(10,581
)
5,819

326

4,436

(10,581
)
Income tax provision

427

427

234

—

(661
)
427

Net (loss) income

$
(11,008
)
$
(11,008
)
$
5,585

$
326

$
5,097

$
(11,008
)

~~The Bon-Ton Stores, Inc.~~

~~Condensed Consolidating Statement of Comprehensive (Loss) Income~~

~~Thirteen Weeks Ended November 1, 2014~~

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net (loss) income

$
(11,008
)
$
(11,008
)
$
5,585

$
326

$
5,097

$
(11,008
)
Other comprehensive income, net of tax:

Pension and postretirement benefit plans

814

814

—

—

(814
)
814

Comprehensive (loss) income

$
(10,194
)
$
(10,194
)
$
5,585

$
326

$
4,283

$
(10,194
)

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

~~The Bon-Ton Stores, Inc.~~

~~Condensed Consolidating Statement of Operations~~

~~Thirty-Nine Weeks Ended October 31, 2015~~

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net sales

$
—

$
1,063,399

$
726,370

$
—

$
—

$
1,789,769

Other income

—

29,346

20,023

—

—

49,369

—

1,092,745

746,393

—

—

1,839,138

Costs and expenses:

Costs of merchandise sold

—

698,924

471,394

—

—

1,170,318

Selling, general and administrative

—

403,537

269,246

(14,549
)
(4,179
)
654,055

Gain on insurance recovery

—

—

(748
)
—

—

(748
)
Depreciation and amortization

—

36,706

25,334

7,188

(216
)
69,012

Amortization of lease-related interests

—

1,467

1,740

—

—

3,207

Impairment charges

—

425

—

—

—

425

(Loss) income from operations

—

(48,314
)
(20,573
)
7,361

4,395

(57,131
)

Other income (expense):

Intercompany income

—

1,328

16,526

16,673

(34,527
)
—

Equity in losses of subsidiaries

(108,225
)
(9,780
)
—

—

118,005

—

Interest expense, net

—

(51,459
)
(2,680
)
(7,830
)
15,737

(46,232
)
Loss on extinguishment of debt

—

—

—

(4,862
)
—

(4,862
)

(Loss) income before income taxes

(108,225
)
(108,225
)
(6,727
)
11,342

103,610

(108,225
)
Income tax (benefit) provision

(596
)
(596
)
703

—

(107
)
(596
)

Net (loss) income

$
(107,629
)
$
(107,629
)
$
(7,430
)
$
11,342

$
103,717

$
(107,629
)

~~The Bon-Ton Stores, Inc.~~

~~Condensed Consolidating Statement of Comprehensive (Loss) Income~~

~~Thirty-Nine Weeks Ended October 31, 2015~~

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net (loss) income

$
(107,629
)
$
(107,629
)
$
(7,430
)
$
11,342

$
103,717

$
(107,629
)
Other comprehensive income, net of tax:

Pension and postretirement benefit plans

2,832

2,832

—

—

(2,832
)
2,832

Comprehensive (loss) income

$
(104,797
)
$
(104,797
)
$
(7,430
)
$
11,342

$
100,885

$
(104,797
)

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

~~The Bon-Ton Stores, Inc.~~

~~Condensed Consolidating Statement of Operations~~

~~Thirty-Nine Weeks Ended November 1, 2014~~

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net sales

$
—

$
1,070,319

$
743,328

$
—

$
—

$
1,813,647

Other income

—

27,137

18,643

—

—

45,780

—

1,097,456

761,971

—

—

1,859,427

Costs and expenses:

Costs of merchandise sold

—

688,176

471,670

—

—

1,159,846

Selling, general and administrative

—

409,091

274,152

(2,307
)
(21,909
)
659,027

Depreciation and amortization

—

34,642

24,811

8,225

—

67,678

Amortization of lease-related interests

—

1,623

1,819

—

—

3,442

Impairment charges

—

447

—

—

—

447

Loss from operations

—

(36,523
)
(10,481
)
(5,918
)
21,909

(31,013
)

Other income (expense):

Intercompany income

—

1,373

12,824

19,792

(33,989
)
—

Equity in (losses) earnings of subsidiaries

(77,390
)
3,103

—

—

74,287

—

Interest expense, net

—

(45,343
)
(2,544
)
(10,417
)
12,080

(46,224
)
Loss on extinguishment of debt

—

—

—

(153
)
—

(153
)

(Loss) income before income taxes

(77,390
)
(77,390
)
(201
)
3,304

74,287

(77,390
)
Income tax provision

1,322

1,322

704

—

(2,026
)
1,322

Net (loss) income

$
(78,712
)
$
(78,712
)
$
(905
)
$
3,304

$
76,313

$
(78,712
)

~~The Bon-Ton Stores, Inc.~~

~~Condensed Consolidating Statement of Comprehensive (Loss) Income~~

~~Thirty-Nine Weeks Ended November 1, 2014~~

Guarantor

Non-Guarantor

Consolidating

Company

Parent

Issuer

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net (loss) income

$
(78,712
)
$
(78,712
)
$
(905
)
$
3,304

$
76,313

$
(78,712
)
Other comprehensive income, net of tax:

Pension and postretirement benefit plans

2,442

2,442

—

—

(2,442
)
2,442

Comprehensive (loss) income

$
(76,270
)
$
(76,270
)
$
(905
)
$
3,304

$
73,871

$
(76,270
)

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Cash Flows

~~Thirty-Nine~~Thirteen Weeks Ended ~~October 31, 2015~~April 30, 2016

							Guarantor			Non-Guarantor			Consolidating			Company									Guarantor			Consolidating		Company
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated			Parent			Issuer			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	3,413		$	(185,446	)	$	16,900		$	32,154		$	(7,760	)	$	(140,739	)
Net cash provided by operating activities																			$	120		$	5,319		$	6,839		$	—	$	12,278

Cash flows from investing activities:
Capital expenditures	—			(54,191		)	(16,282		)	—			—			(70,473		)	—			(7,499		)	(5,127		)	—		(12,626		)
Intercompany investing activity	(454		)	(32,433		)	—			—			32,887			—
Proceeds from insurance claim	—			—			1,510			—			—			1,510
Proceeds from sale of property, fixtures and equipment	—			17,546			66			67,656			—			85,268			—			7			—			—		7
Net cash (used in) provided by investing activities	(454		)	(69,078		)	(14,706		)	67,656			32,887			16,305
Net cash used in investing activities																			—			(7,492		)	(5,127		)	—		(12,619		)

Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	—			(368,946		)	(2,784		)	(113,285		)	—			(485,015		)	—			(143,149		)	(968		)	—		(144,117		)
Proceeds from issuance of long-term debt	—			624,313			—			—			—			624,313			—			151,461			—			—		151,461
Intercompany financing activity	—			(3,014		)	—			28,141			(25,127		)	—
Deferred financing costs paid	—			(314		)	—			—			—			(314		)	—			(495		)	—			—		(495		)
Cash dividends paid	(3,014		)	—			—			—			—			(3,014		)
Restricted shares forfeited in lieu of payroll taxes	(399		)	—			—			—			—			(399		)	(120		)	—			—			—		(120		)
Proceeds from stock options exercised	454			—			—			—			—			454
Increase in book overdraft balances	—			1,323			—			—			—			1,323
Decrease in book overdraft balances																			—			(5,460		)	—			—		(5,460		)
Net cash (used in) provided by financing activities	(2,959		)	253,362			(2,784		)	(85,144		)	(25,127		)	137,348			(120		)	2,357			(968		)	—		1,269

Net (decrease) increase in cash and cash equivalents	—			(1,162		)	(590		)	14,666			—			12,914
Net increase in cash and cash equivalents																			—			184			744			—		928

Cash and cash equivalents at beginning of period	1			4,209			4,543			—			—			8,753			1			2,822			4,056			—		6,879

Cash and cash equivalents at end of period	$	1		$	3,047		$	3,953		$	14,666		$	—		$	21,667		$	1		$	3,006		$	4,800		$	—	$	7,807

2219

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Cash Flows

~~Thirty-Nine~~Thirteen Weeks Ended ~~November 1, 2014~~May 2, 2015

							Guarantor			Non-Guarantor			Consolidating			Company									Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated			Parent			Issuer			Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	3,918		$	(122,314	)	$	12,423		$	6,644		$	(7,867	)	$	(107,196	)	$	1,390		$	(25,585	)	$	9,208		$	(2,843	)	$	(17,830	)

Cash flows from investing activities:
Capital expenditures	—			(54,132		)	(9,829		)	—			—			(63,961		)	—			(20,402		)	(4,046		)	—			(24,448		)
Intercompany investing activity	(22		)	(618		)	—			—			640			—			(454		)	(176		)	—			630			—
Proceeds from sale of property, fixtures and equipment	—			9			288			5,000			—			5,297
Net cash (used in) provided by investing activities	(22		)	(54,741		)	(9,541		)	5,000			640			(58,664		)
Net cash used in investing activities																			(454		)	(20,578		)	(4,046		)	630			(24,448		)

Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	—			(402,239		)	(2,414		)	(6,398		)	—			(411,051		)	—			(135,973		)	(3,027		)	—			(139,000		)
Proceeds from issuance of long-term debt	—			575,231			—			—			—			575,231			—			187,611			—			—			187,611
Intercompany financing activity	—			(1,981		)	—			(5,246		)	7,227			—			—			(991		)	(1,222		)	2,213			—
Deferred financing costs paid	—			(69		)	—			—			—			(69		)
Cash dividends paid	(1,981		)	—			—			—			—			(1,981		)	(991		)	—			—			—			(991		)
Restricted shares forfeited in lieu of payroll taxes	(1,937		)	—			—			—			—			(1,937		)	(399		)	—			—			—			(399		)
Proceeds from stock options exercised	22			—			—			—			—			22			454			—			—			—			454
Increase in book overdraft balances	—			6,103			—			—			—			6,103
Decrease in book overdraft balances																			—			(5,439		)	—			—			(5,439		)
Net cash (used in) provided by financing activities	(3,896		)	177,045			(2,414		)	(11,644		)	7,227			166,318			(936		)	45,208			(4,249		)	2,213			42,236

Net (decrease) increase in cash and cash equivalents	—			(10		)	468			—			—			458			—			(955		)	913			—			(42		)

Cash and cash equivalents at beginning of period	1			2,889			4,168			—			—			7,058			1			4,209			4,543			—			8,753

Cash and cash equivalents at end of period	$	1		$	2,879		$	4,636		$	—		$	—		$	7,516		$	1		$	3,254		$	5,456		$	—		$	8,711

~~13. RECENTLY ISSUED ACCOUNTING STANDARDS~~

~~In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03,~~ ~~Interest-Imputation of Interest~~ (“ASU 2015-03”). The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued ASU No. 2015-15 as an amendment to ASU 2015-03 to provide guidance on presentation and subsequent measurement of debt issuance costs relating to Line-of-Credit Arrangements. The guidance is effective for fiscal years beginning after December 15, 2015. The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

~~In April 2015, the FASB issued ASU No. 2015-04,~~ ~~Compensation-Retirement Benefits~~. The new standard provides a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The guidance is effective for fiscal years beginning after December 15, 2015. The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

~~THE BON-TON STORES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

~~In April 2015, the FASB issued ASU No. 2015-05,~~ ~~Intangibles-Goodwill and Other-Internal-Use Software~~. The new standard provides guidance on the accounting for fees paid by a customer in a cloud computing arrangement, including whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer is required to account for the software license consistent with the acquisition of other software licenses. Conversely, if the arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance is effective for fiscal years beginning after December 15, 2015. The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

~~In August 2015, the FASB issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers: Deferral of the Effective Date.~~ ~~The standard amends ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers,~~ ~~to defer the effective date for all entities by one year. As a result of the deferral, the new guidance is effective for fiscal years beginning after December 15, 2017.~~

~~In November 2015, the FASB issued ASU No. 2015-17,~~ ~~Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.~~ The new standard requires that all deferred tax liabilities and assets be classified as noncurrent. The guidance is effective for fiscal years beginning after December 15, 2016. The Company is currently reviewing the revised guidance and assessing the potential impact on its consolidated financial statements.

~~14. CREDIT CARD PROGRAM AMENDMENT~~

On October 28, 2015, the Company entered into Amendment No. 1 (the “Amendment”) to the Private Label Credit Card Program Agreement (the “Program Agreement”) with Comenity Bank, a subsidiary of Alliance Data Systems Corporation (“ADS”). The Program Agreement had an original term of seven years from the program commencement date of July 24, 2012. The Amendment provides that the original term was extended three years to July 24, 2022, with successive two-year renewal terms thereafter, unless otherwise terminated in accordance with the Program Agreement.

The Amendment provides that, in consideration for the extension of the term, ADS will pay the Company an extension bonus of $6,000, payable $1,000 within five business days of July 24, 2017 and $5,000 within five business days of July 24, 2019, as well as an increased royalty rate based on a percentage of credit card sales during the term of the Program Agreement. The remaining deferred bonus from the original agreement and the deferred bonus received in connection with the Amendment will be amortized over the new extended term of the Program Agreement.

The Amendment also provides that ADS will pay the costs, subject to prescribed maximums, for the reissuance of credit cards in 2016 and either 2018 or 2019. In addition, the Amendment provides for an additional annual contribution by ADS, beginning July 24, 2015, for Company costs associated with the marketing and promotion of the private label credit card program.

~~15.~~12. SUBSEQUENT EVENT

On ~~November 17, 2015, pursuant~~June 1, 2016, the Company entered into an Agreement of Purchase and Sale (“PSA”) for a sale-leaseback transaction with an unrelated party. Under the PSA, the Company agreed to sell three retail department store properties for at least $44,935 and lease them back for a period of 20 years with three optional 10-year renewal terms. The basic rent payable in connection with the ~~terms~~lease will be $3,932, subject to adjustment for increases in the Consumer Price Index. The closing of this transaction is subject to a ~~commitment increase letter acknowledgment,~~due diligence review by the Tranche A revolving commitments under the senior secured credit facility were increased from $650,000 to $730,000. This brings total revolving commitments under the senior secured credit facility to $830,000.purchaser.

2420

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For purposes of the following discussion, references to the ~~“third~~“first quarter of ~~2015”~~2016” and the ~~“third~~“first quarter of ~~2014”~~2015” are to the 13 weeks ended ~~October 31,~~April 30, 2016 and May 2, 2015, ~~and November 1, 2014, respectively. References to “2015” and “2014” are to the 39 weeks ended October 31, 2015 and November 1, 2014,~~ respectively. References to “fiscal 2016” are to the 52-week period ending January 28, 2017; references to “fiscal 2015” are to the 52-week period ~~ending~~ended January 30, ~~2016; references to “fiscal 2014” are to the 52-week period ended January 31, 2015.~~2016. References to the “Company,” “we,” “us,” and “our” refer to The Bon-Ton Stores, Inc. and its subsidiaries.

Overview

General

The Company, a Pennsylvania corporation, is one of the largest regional department store operators in the United States, offering a broad assortment of brand-name fashion apparel and accessories for women, men and children. Our merchandise offerings also include cosmetics, home furnishings and other goods. We currently operate ~~270~~267 stores, including nine furniture galleries and four clearance centers, in 26 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, encompassing a total of approximately 25 million square feet.

We operate in the department store segment of the U.S. retail industry, a highly competitive environment. The department store industry continues to evolve in response to competitive retail formats—mass merchandisers, national chain retailers, specialty retailers and online retailers—and the expansion of mobile technology and social media.

Performance Summary and Fiscal ~~2015~~2016 Guidance

~~Our results were challenged~~Ongoing headwinds in the ~~third~~retail environment, unfavorable weather and a soft Easter all pressured our top-line performance during the first quarter of ~~2015. Sales were pressured~~2016. We saw a slight decrease in merchandise margin and reduced inventory levels by ~~unseasonably warm weather, which significantly impacted~~4.0% on a retail comparable store basis despite the sales pressure, as we maintained disciplined inventory management. In addition, we moved forward with our ~~cold-weather classifications, and by continued weakness in overall traffic trends. Gross margin was similarly pressured by increased markdowns in response~~cost savings initiatives while continuing to sales trends. Recognizing that the competitive environment is likely to continue, we remain focused on creating a differentiated and compelling product assortment and leveraging our home town strategy.carefully manage expenses.

Our revenues in the period benefited from a ~~3.0%~~strong performance in our omnichannel business. We believe that this increase ~~in sales associated with~~is primarily due to further enhancing our ~~proprietary credit card.~~brand positioning and evolving our merchandise offering. Additionally, we realized continued growth in the penetration of proprietary credit card sales to total sales which, at ~~54.5%~~54.9% in the ~~third~~first quarter of ~~2015,~~2016, exceeded that of the prior year by ~~299~~400 basis points. ~~On October 28, 2015, we amended and extended our private label~~Our recently re-launched credit card ~~program agreement~~helped us reconnect with ~~a bank subsidiary of Alliance Data Systems Corporation (“ADS”), extending~~lapsed customers and further our ~~valued partnership~~connection with ~~ADS three years~~our loyal core customers. We intend to ~~July 2022. As a result of the amendment, we~~continue to enhance our online platforms and will ~~receive an increased royalty rate based on a percentage of~~add more mobile friendly access to our ‘Your Rewards’ credit card ~~sales, additional funding for marketing and promotions and an extension bonus.~~customer loyalty program benefits.

~~We completed a $75 million accordion exercise on August 28, 2015 and, subsequent to~~While we do not expect the third quarter of fiscal 2015, completed a second accordion exercise of $80 million that cumulatively expanded our borrowing capabilities under our revolving credit facility by $155 million, bringing total revolving commitments to $830 million. We increased our borrowing capabilities to provide flexibility with refinancing efforts.

~~As we are not anticipating major changes~~headwinds in the retail environment ~~in the near term,~~to ease, we ~~are pursuing~~believe that a number of ~~endeavors~~initiatives we have underway will drive incremental sales in the second half of the year. We remain on track to ~~drive additional process improvements and further reduce expenses. We expect our plan to yield approximately~~achieve $35 million in ~~annual~~gross expense savings as a result of non-customer facing cost reductions in ~~fiscal 2016.~~rent expense, payroll, taxes and benefits. We also anticipate increased costs in advertising, real estate taxes, insurance, pension and wages, notably due to minimum wage laws and merit increases. Based on this, we are anticipating net savings ranging from $21 million to $24 million from 2015 expenses levels. We believe these expense savings, which will benefit ~~selling, general and administrative (“~~SG~~&A”)~~&A expense and gross margin, combined with lower capital spending and inventory levels, will positively impact our fiscal 2016 cash flow.

25On June 1, 2016, we entered into an Agreement of Purchase and Sale (“PSA”) for a sale-leaseback transaction with an unrelated party. Under the PSA, we agreed to sell three retail department store properties for at least $44.9 million and lease them back for a period of 20 years with three optional 10-year renewal terms. The basic rent payable in connection with the lease will be $3.9 million, subject to adjustment for increases in the Consumer Price Index. The closing of this transaction is subject to a due diligence review by the purchaser.

Given ~~our~~the challenging ~~third quarter of 2015 results,~~retail environment and continued declines in mall traffic trends, on May 19, 2016, we ~~have tempered our expectations for the balance of the year and, on November 19, 2015,~~ revised our fiscal ~~2015~~2016 guidance. We ~~now~~ expect ~~earnings~~loss per diluted share in a range of ~~a loss of $2.15~~$0.95 to ~~$2.65.~~$1.45.

Assumptions reflected in our full-year guidance include the following:

· A comparable store sales performance ranging from flat to a decrease of ~~0.5% to 1.5%~~1%;

· A gross margin rate ranging from a ~~decrease of 70~~30- to ~~80 basis points~~50-basis-point increase from the fiscal ~~2014~~2015 rate of ~~35.7%~~34.7%;

· An SG&A expense rate ranging from a ~~30-~~40- to 60-basis-point ~~increase over~~decrease from the fiscal ~~2014~~2015 rate of ~~32.9%~~33.3%;

· Capital expenditures not to exceed ~~$71~~$40 million, net of external contributions; and

· An estimated 20 million weighted average diluted shares outstanding.

Our fiscal 2015 guidance does not reflect any potential impact associated with an early termination of our remaining mortgage facility, thereby excluding the financial effect of the make-whole provision in the agreement, which could range up to approximately $2 million. It also does not include any implementation costs associated with the planned expense reductions in fiscal 2016, as these costs have yet to be determined.

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 (components may not add or subtract to totals due to rounding):

THIRTEEN

THIRTY-NINE

WEEKS ENDED

WEEKS ENDED

October 31,

November 1,

October 31,

November 1,

2015

2014

2015

2014

Net sales

100.0
%
100.0
%
100.0
%
100.0
%
Other income

2.8

2.5

2.8

2.5

102.8

102.5

102.8

102.5

Costs and expenses:

Costs of merchandise sold

66.6

63.7

65.4

64.0

Selling, general and administrative

35.3

34.4

36.5

36.3

Gain on insurance recovery

—

—

—

—

Depreciation and amortization

3.7

3.4

3.9

3.7

Amortization of lease-related interests

0.2

0.2

0.2

0.2

Impairment charges

—

—

—

—

(Loss) income from operations

(2.9
)
0.8

(3.2
)
(1.7
)
Interest expense, net

2.5

2.4

2.6

2.5

Loss on extinguishment of debt

—

—

0.3

—

Loss before income taxes

(5.5
)
(1.6
)
(6.0
)
(4.3
)
Income tax (benefit) provision

—

0.1

—

0.1

Net loss

(5.5
)%
(1.7
)%
(6.0
)%
(4.3
)%

	THIRTEEN
	WEEKS ENDED
	April 30,		May 2,
	2016		2015
Net sales	100.0	%	100.0	%
Other income	2.9		2.7
	102.9		102.7
Costs and expenses:
Costs of merchandise sold	66.1		66.2
Selling, general and administrative	36.6		35.8
Depreciation and amortization	3.9		3.6
Amortization of lease-related interests	0.2		0.2
Loss from operations	(3.9	)	(3.1	)
Interest expense, net	2.6		2.5
Loss before income taxes	(6.4	)	(5.6	)
Income tax benefit	—		—
Net loss	(6.4	)%	(5.6	)%

~~Third~~First Quarter of ~~2015~~2016 Compared with ~~Third~~First Quarter of ~~2014~~2015

Net sales: Net sales in the ~~third~~first quarter of ~~2015~~2016 were ~~$623.4~~$591.0 million, compared with ~~$642.7~~$610.9 million in the ~~third~~first quarter of ~~2014,~~2015, reflecting a decrease of ~~3.0%~~3.3%. Comparable store sales decreased ~~2.6%~~2.9% in the period due to ~~unseasonably warm weather~~the challenged retail environment and continued decline in ~~our markets and the continuation of soft~~mall traffic trends.

The best performing merchandise categories in the ~~third~~first quarter of ~~2015~~2016 were Soft Home, Hard Home (both included in Home) and Men’s Sportswear (included in Men’s Apparel)~~, Young Contemporary Apparel~~. Soft Home benefited from notable sales increases in bedding and ~~Moderate Sportswear (both included~~linens as well as additional promotional events. Sales in ~~Women’s Apparel).~~Hard Home grew as a result of improved performance in basic housewares, cookware and luggage. Men’s Sportswear primarily benefited from ~~the introduction of a new national brand and the~~ strategic expansion of ~~activewear~~national brands to additional doors. Sales in Young Contemporary Apparel grew as a result of continued investment in key items and brands. Moderate Sportswear benefited from the expansion of a key brand and the introduction of a new national brand.

Merchandise categories that were challenged in the period included ~~Petites’~~Accessories, Men’s Furnishings (included in Men’s Apparel) and Better Sportswear ~~and Women’s Sportswear (both included~~(included in Women’s Apparel). Despite growth in certain brands and ~~Footwear. Sales~~product categories, cold weather and poor performing merchandise hampered sales in ~~Petites’~~

Accessories. Men’s Furnishings sales declined due to unfavorable weather trends. Better Sportswear ~~specifically traditional categories, have been challenged~~was impacted by unfavorable sales in ~~2015;~~certain brands and product assortments; we ~~are~~intend to continue directing inventory investment to ~~updated categories~~brands that are performing well. Despite growth in career related merchandise, Women’s Sportswear was adversely impacted by slow sales in seasonal merchandise. Warm weather hampered sales in Footwear but sales are expected to improve as the winter climate takes hold in the future months.

Other income: Other income, which includes income from revenues received under our credit card program agreement, miscellaneous revenue departments and gift and merchandise return card breakage, was ~~$17.5~~$17.4 million in the ~~third~~first quarter of ~~2015~~2016 as compared with ~~$16.0~~$16.3 million in the ~~third~~first quarter of ~~2014.~~2015. The increase primarily reflects increased revenues from our proprietary credit card operations.

Costs and expenses: Gross margin in the ~~third~~first quarter of ~~2015~~2016 decreased ~~$24.9~~$6.4 million to ~~$208.4~~$200.1 million as compared with ~~$233.3~~$206.5 million in the comparable prior year period, primarily due to the decreased sales volume in the current period. Gross margin as a percentage of net sales ~~decreased 286~~increased 6 basis points to ~~33.4%~~33.9% in the ~~third~~first quarter of ~~2015~~2016 from ~~36.3%~~33.8% in the comparable prior year period. This ~~decrease~~rate increase was primarily due to ~~increased net markdowns, an unfavorable cumulative markup percentage and increased~~reductions in delivery expense which were partially offset by higher distribution ~~and delivery~~center costs ~~associated with~~for our omnichannel ~~selling efforts.~~operations.

SG&A expense in the ~~third~~first quarter of ~~2015~~2016 decreased ~~$0.7~~$2.5 million to ~~$220.2~~$216.2 million as compared with ~~$220.9~~$218.7 million in the ~~third~~first quarter of ~~2014.~~2015. This reduction was largely ~~driven by expense control measures and avoidance of costs incurred in the prior year period related~~due to ~~the implementation of our expense efficiency initiative,~~decreased store expenses, partially offset by increased advertising expenses and ~~continued investment in omnichannel operations.~~medical claims. The current period expense rate, ~~35.3%~~36.6% of net sales, increased 9578 basis points from that of the prior year period as a result of the decreased sales volume in the period.

Depreciation and amortization expense and amortization of lease-related interests increased ~~$0.6~~$1.1 million to ~~$23.8~~$24.2 million in the ~~third~~first quarter of ~~2015~~2016 from ~~$23.2~~$23.1 million in the ~~third~~first quarter of ~~2014.~~2015.

Interest expense, net: Net interest expense was ~~$15.8~~$15.1 million in the ~~third~~first quarter of ~~2015~~2016 as compared with ~~$15.5~~$15.2 million in the ~~third~~first quarter of ~~2014.~~2015. The ~~$0.3~~$0.1 million ~~increase~~decrease primarily reflects a reduced weighted average interest rate, partially offset by higher ~~average debt~~borrowing levels.

Income tax ~~(benefit) provision~~benefit: The effective income tax rate in the ~~third~~first quarter in each of ~~2015~~2016 and ~~2014~~2015 largely reflects our valuation allowance position against all net deferred tax assets. The ~~$0.2~~$0.1 million income tax benefit in the ~~third~~first quarter of ~~2015~~2016 includes a $0.6 million benefit from the loss on continuing operations which was partially offset by the recognition of deferred tax liabilities associated with indefinite-lived assets. The ~~income tax provision of $0.4 million in the third quarter of 2014 is due to recognition of deferred tax liabilities associated with indefinite-lived assets.~~

~~2015 Compared with 2014~~

~~Net sales~~~~: Net sales in 2015 were $1,789.8 million, compared with $1,813.6 million in 2014, reflecting a decrease of 1.3%. Comparable store sales decreased 1.0% in the period.~~

~~The best performing merchandise categories in 2015 were Moderate Sportswear and Young Contemporary Apparel (both included in Women’s Apparel) and Furniture (included in Home). Moderate~~

Sportswear benefited from increased inventory investment in key items and growth in our activewear business (including the introduction of a new national brand). Sales in Young Contemporary Apparel grew as a result of continued investment in key items and brands. Furniture achieved success from notable sales increases in key items.

Merchandise categories that were challenged in the period included Petites’ Sportswear and Women’s Sportswear (both included in Women’s Apparel) and Hard Home (included in Home). Sales in Petites’ Sportswear, specifically traditional categories, have been challenged in 2015; we are directing inventory investment to updated categories that are performing well. Women’s Sportswear was adversely impacted by slow sales in traditional categories (including seasonal merchandise), despite growth in casual wear and activewear. Hard Home sales were hampered by slow selling in certain product lines.

~~Other income~~: Other income, which includes income from revenues received under our credit card program agreement, miscellaneous revenue departments and gift and merchandise return card breakage, was $49.4 million in 2015 as compared with $45.8 million in 2014. The increase primarily reflects increased revenues from our proprietary credit card operations.

~~Costs and expenses~~: Gross margin in 2015 decreased $34.3 million to $619.5 million as compared with $653.8 million in 2014. Gross margin as a percentage of net sales decreased 144 basis points to 34.6% in 2015 from 36.0% in 2014, due primarily to increased distribution and delivery costs associated with our omnichannel selling efforts and an unfavorable cumulative markup percentage, partially offset by reduced markdowns.

SG&A expense in 2015 decreased $5.0 million to $654.1 million as compared with $659.0 million in 2014. This reduction was largely driven by expense control measures and avoidance of costs incurred in the prior year in the implementation of our expense efficiency initiative, partially offset by an unfavorable comparison to a prior year gain on sale of assets. The current period expense rate, 36.5% of net sales, decreased 21 basis points from that of the prior year.

Gain on insurance recovery of $0.7 million was due to an insurance settlement in the second quarter of 2015, a residual of claims associated with one store that experienced fire damage in the fourth quarter of fiscal 2014.

~~Depreciation and amortization expense and amortization of lease-related interests increased $1.1 million to $72.2 million in 2015 from $71.1 million in 2014.~~

~~Interest expense, net~~~~: Net interest expense was $46.2 million in both 2015 and 2014. A decrease in borrowing rates was offset by higher average debt levels.~~

~~Loss on extinguishment of debt~~: In 2015, we recorded charges totaling $4.9 million due to the early termination of one of our mortgage facilities. As a result of the prepayment, we paid an early termination fee of $4.7 million. Additionally, unamortized deferred financing fees were accelerated on the date of termination.

~~Income tax (benefit) provision~~~~: The effective income tax rate in each of 2015 and 2014 largely reflects our valuation allowance position against all net deferred tax assets. The $0.6~~$0.2 million income tax benefit in the first quarter of 2015 includes a ~~$1.9~~$0.6 million benefit from the loss on continuing operations which was partially offset by the ~~recognition of deferred tax liabilities associated with indefinite-lived assets. The income tax provision of $1.3 million in 2014 is primarily due to~~ recognition of deferred tax liabilities associated with indefinite-lived assets.

Seasonality

Our 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 the holiday season. Due to the fixed nature of certain costs, SG&A expense is typically higher as a percentage of net sales during the first half of each fiscal year. We typically finance working capital increases in the second half of each fiscal year through additional borrowings under our $830.0 million senior secured Second Amended

and Restated Loan and Security Agreement (the “Second Amended Revolving Credit Facility”) that expires on December 12, 2018 (see “Liquidity and Capital Resources,” below, for further discussion).

Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved for a full fiscal year.

Liquidity and Capital Resources

At ~~October 31, 2015,~~April 30, 2016, we had ~~$21.7~~$7.8 million in cash and cash equivalents and ~~$250.2~~$244.0 million available under our Second Amended Revolving Credit Facility (before taking into account the minimum borrowing availability covenant under such facility). Excess availability was ~~$312.8~~$368.3 million as of the comparable prior year period. The unfavorable excess availability comparison primarily reflects increased direct borrowings to support our operations and, in part, to repay ~~one of~~ our mortgage ~~facilities.~~facility during fiscal 2015.

During the second quarter of 2015, we entered into a sale-leaseback arrangement with an unrelated party. Under the arrangement, we sold six retail department stores for $84.0 million and leased them back for a period of 20 years with three optional 10-year renewal terms. The basic rent payable in connection with the lease is $6.9 million per year, subject to annual adjustments for increases in the Consumer Price Index with a 2% minimum increase and a 4% maximum increase each year. The leaseback has been accounted for as a capital lease, and we recorded a capital lease asset and obligation of $88.2 million at the beginning of the lease term.23

Proceeds from the sale-leaseback transaction, supplemented with borrowings under our Second Amended Revolving Credit Facility, were used to pay the remaining principal balance of $104.5 million on one of the two mortgage facilities due in April 2016. As a result of such prepayment, we paid an early termination fee of $4.7 million.

Current maturities of long-term debt of $103.0 million reflect the outstanding balance of our existing mortgage loan facility which has final payment due April 1, 2016. We are currently reviewing options to address this mortgage facility prior to its due date, including refinancing under our Second Amended Revolving Credit Facility or through other potential sources of financing.

On August 28, 2015, pursuant to the terms of a commitment increase letter acknowledgment, the Tranche A revolving commitments under the Second Amended Revolving Credit Facility were increased from $575.0 million to $650.0 million. This brought total revolving commitments under the Second Amended Revolving Credit Facility to $750.0 million.

On November 17, 2015, pursuant to the terms of a commitment increase letter acknowledgment, the Tranche A revolving commitments under the Second Amended Revolving Credit Facility were increased from $650.0 million to $730.0 million. This brings total revolving commitments under the Second Amended Revolving Credit Facility to $830.0 million.

Typically, cash flows from operations are impacted by the effect on sales of (1) consumer confidence, (2) weather in the geographic markets served by the Company, (3) general economic conditions and (4) 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 our ability to generate sufficient cash flows to operate our business. While the current economic uncertainty affects our assessment of short-term liquidity, we consider our resources (including, but not limited to, cash flows from operations supplemented by borrowings under the Second Amended Revolving Credit ~~Facility, or other potential borrowings)~~Facility) adequate to satisfy our cash needs for at least the next 12 months.

Our primary sources of working capital are cash flows from operations and borrowings under our Second Amended Revolving Credit Facility, which provides for up to $830.0 million in borrowings (limited by amounts available pursuant to a borrowing base calculation). Our business follows a seasonal pattern; working capital fluctuates with seasonal variations, reaching its highest level in October or November to fund the purchase of merchandise inventories prior to the holiday season. The seasonality of our business historically provides greatest cash flow from operations during the holiday season, with fiscal fourth quarter net sales generating the strongest profits of our fiscal year. As holiday sales significantly reduce inventory

levels, this reduction, combined with net income, historically provides us with strong cash flow from operations at the end of our fiscal year.

Cash provided by (used in) ~~provided by~~ our operating, investing and financing activities is summarized as follows:

	THIRTY-NINE						THIRTEEN
	WEEKS ENDED						WEEKS ENDED
	October 31,			November 1,			April 30,			May 2,
(Dollars in millions)	2015			2014			2016			2015

Operating activities	$	(140.7	)	$	(107.2	)	$	12.3		$	(17.8	)
Investing activities	16.3			(58.7		)	(12.6		)	(24.4		)
Financing activities	137.3			166.3			1.3			42.2

Net cash provided by operating activities was $12.3 million in the first quarter of 2016, while net cash used in operating activities ~~was $140.7 million and $107.2~~totaled $17.8 million in ~~2015 and 2014, respectively.~~the first quarter of 2015. The ~~decrease~~increase in cash flow primarily reflects ~~the increased net loss and an unfavorable~~a $26.0 million favorable change in cash flow from working capital. The improvement in cash flow from working capital ~~change~~ was largely due to ~~unfavorable~~favorable fluctuations of $9.4 million in ~~accounts payable and accrued expenses, partially offset by a favorable variance in~~cash flows from prepaid expenses and other current ~~assets.~~assets and $8.2 million in cash flows from accounts payable. In addition, cash flows from long-term liabilities changed favorably by $6.6 million.

Net ~~cash provided by investing activities was $16.3 million in 2015; net~~ cash used in investing activities was ~~$58.7~~$12.6 million and $24.4 million in ~~2014. The current year inflow~~the first quarters of ~~cash reflects $84.0 million of proceeds from the sale of assets associated with the sale-leaseback transaction partially offset by~~2016 and 2015, respectively, reflecting a planned decrease in capital ~~expenditures primarily for our new eCommerce fulfillment center, renovations to support our strategic initiatives and information technology.~~expenditures. Capital expenditures totaled ~~$70.5~~$12.6 million and ~~$64.0~~$24.4 million in ~~2015~~the first quarter in each of 2016 and ~~2014,~~2015, respectively; these expenditures do not reflect reductions for external contributions (primarily leasehold improvement and fixture allowances received from landlords or vendors) of ~~$8.6~~$7.5 million and ~~$14.8~~$0.8 million in ~~2015~~the first quarter in each of 2016 and ~~2014,~~2015, respectively. We anticipate our fiscal ~~2015~~2016 capital expenditures will not exceed ~~$86.3~~$67.3 million (excluding external contributions of ~~$15.3~~$27.3 million, reducing anticipated net capital investments to ~~$71.0~~$40.0 million).

Net cash provided by financing activities was ~~$137.3~~$1.3 million and ~~$166.3~~$42.2 million in the first quarters of 2016 and 2015, ~~and 2014, respectively.~~respectively, reflecting a lower revolver increase in the first quarter of 2016. The ~~decrease in current year cash inflow~~lower revolver increase was primarily due to reduced capital expenditures and the ~~repayment of one of our mortgage facilities, partially offset by increased net borrowings on our Second Amended Revolving Credit Facility to support current year operations and,~~favorable change in ~~part, to repay one of our mortgage facilities.~~working capital.

Aside from planned capital expenditures, the Company’s primary cash requirements will be to service debt and finance working capital increases during peak selling seasons.

We paid a quarterly cash dividend of $0.05 per share on shares of Class A common stock and common stock on February 2, 2015, May 4, 2015, August 3, 2015 and November 2, 2015 to shareholders of record as of January 16, 2015, April 17, 2015, July 17, 2015 and October 16, 2015, respectively. Our Board of Directors has not declared an additional dividend as a result of the current shareholders’ deficit and the requirements of Pennsylvania state law. Our Board of Directors may consider dividends in subsequent periods as it deems appropriate.24

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts and disclosure of contingent assets and liabilities. There have been no significant changes in the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended January ~~31, 2015.~~30, 2016.

Recently ~~Issued~~Adopted Accounting Standards

Recently ~~issued~~adopted accounting standards are discussed in Note 131 to the Consolidated Financial Statements.

Forward-Looking Statements

Certain information included in this report (as well as other communications made or to be made by the Company) and other materials filed or to be filed by the Company with the Securities and Exchange Commission contain 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 or phrases such as “may,” “could,” “would,” “will,” “plan,” “expect,” “believe,” “anticipate,” “estimate,” “project,” “intend,” “look forward to” or other similar expressions, including the Company’s fiscal ~~2015~~2016 guidance and statements regarding enhancements to our online and mobile platforms, anticipated expense savings, future cash flows, inventory management initiatives and projected capital expenditures, 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. Factors that could cause such differences include, but are not limited to, risks related to retail businesses generally; a significant and prolonged deterioration of general economic conditions which could negatively impact the Company, including the potential write-down of the current valuation of intangible assets and deferred taxes; risks related to the Company’s proprietary credit card program; potential increases in pension obligations; consumer spending patterns, debt levels, and the availability and cost of consumer credit; additional competition from existing and new competitors or changes in the competitive environment; inflation; deflation; changes in the costs of fuel and other energy and transportation costs; weather conditions that could negatively impact sales; uncertainties associated with expanding or remodeling existing stores; the ability to attract and retain qualified management; the dependence upon relationships with vendors and their factors; a data security breach or system failure; the ability to reduce or control SG&A expenses, including initiatives to reduce expenses and improve efficiency; operational disruptions; unsuccessful marketing initiatives; the ability to expand capacity and improve efficiency through the Company’s new eCommerce fulfillment center; changes in, or the failure to successfully implement, our key strategies, including initiatives to improve our merchandising, marketing and operations; adverse outcomes in litigation; the incurrence of unplanned capital expenditures; the ability to obtain financing for working capital, capital expenditures and general corporate purposes; the impact of regulatory requirements including the Health Care Reform Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act; the inability or limitations on the Company’s ability to favorably adjust the valuation allowance on deferred tax assets; and the financial condition of mall operators. Additional factors that could cause the Company’s actual results to differ from those contained in these forward-looking statements are discussed in greater detail under Item 1A of the Company’s Annual Report on Form 10-K for fiscal ~~2014~~2015 filed with the Securities and Exchange Commission.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Financial Instruments

In the second quarter of 2015, we repaid the remaining principal balance of $104.5 million on one of the two mortgage facilities due in April 2016, as discussed in “Liquidity and Capital Resources” within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

There were no ~~other~~ material changes in our exposures, risk management strategies, or hedging positions since January ~~31, 2015.~~30, 2016. For further information, refer to Item 7A of our fiscal ~~2014~~2015 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report and, based on this evaluation, concluded that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes to our internal controls over financial reporting that occurred during the thirteen weeks ended ~~October 31, 2015~~April 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

ITEM 6. EXHIBITS

(a) The following exhibits are filed pursuant to the requirements of Item 601 of Regulation S-K:

10.1		~~Commitment Increase Letter Acknowledgment, dated~~Agreement of Purchase and Sale between United Trust Fund Limited Partnership, as ~~of August 28, 2015, made by The Bon-Ton Department Stores, Inc., Carson Pirie Scott II, Inc., Bon-Ton Distribution,~~Purchaser, and Bonstores Realty One, LLC and ~~McRIL,~~Bonstores Realty Two, LLC, as Seller (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on ~~September 2, 2015)~~
~~10.2~~		~~Amendment No.~~June 1, to The Bon-Ton Stores, Inc. Private Label Credit Card Program Agreement dated October 28, 2015 and effective as of October 28, 2015 by and between The Bon-Ton Stores, Inc. and Comenity Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 3, 2015)
~~10.3~~		Employment Agreement dated October 29, 2015 and effective as of November 9, 2015 by and between The Bon-Ton Stores, Inc. and Nancy A. Walsh (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 4, 2015 (“11/4/15 Form 8-K”))
~~10.4~~		~~Restricted Stock Agreement for Nancy A. Walsh (incorporated by reference to Exhibit 10.2 to the 11/4/15 Form 8-K)~~
~~10.5~~		Commitment Increase Letter Acknowledgment, dated November 17, 2015, made by The Bon-Ton Department Stores, Inc., Carson Pirie Scott II, Inc., Bon-Ton Distribution, LLC, and McRIL, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 18, 2015)2016)
31.1		Certification of Kathryn Bufano
31.2		Certification of Nancy A. Walsh
32.1*		Certification Pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			THE BON-TON STORES, INC.


DATE:	~~December 9, 2015~~June 8, 2016	BY:		/s/ Kathryn Bufano
				Kathryn Bufano
				President and
				Chief Executive Officer
				(Principal Executive Officer)


DATE:	~~December 9, 2015~~June 8, 2016	BY:		/s/ Nancy A. Walsh
				Nancy A. Walsh
				Executive Vice President—
				Chief Financial Officer
				(Principal Financial Officer)


DATE:	~~December 9, 2015~~June 8, 2016	BY:		/s/ Michael W. Webb
				Michael W. Webb
				Senior Vice President—
				Chief Accounting Officer
				(Principal Accounting Officer)

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