Bon Ton Stores (BONT) 10-Q 2017 Q3 Quarterly report

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 28, 2017 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

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

As of November 30, 2017, there were 17,857,465 shares of Common Stock, $.01 par value, and 2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.

PART I:  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

THE BON-TON STORES, INC.

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	October 28,			October 29,			January 28,
(In thousands, except share and per share data)	2017			2016			2017
Assets
Current assets:
Cash and cash equivalents	$	7,268		$	6,975		$	6,736
Merchandise inventories	851,662			945,902			724,454
Prepaid expenses and other current assets	101,915			79,013			98,558
Total current assets	960,845			1,031,890			829,748
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $1,056,353, $1,016,532 and $1,024,435 at October 28, 2017, October 29, 2016 and January 28, 2017, respectively	529,107			606,382			584,803
Intangible assets, net of accumulated amortization of $68,454, $66,533 and $65,646 at October 28, 2017, October 29, 2016 and January 28, 2017, respectively	69,023			77,733			73,111
Other long-term assets	27,620			18,421			17,401
Total assets	$	1,586,595		$	1,734,426		$	1,505,063
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	248,352		$	331,747		$	185,900
Accrued payroll and benefits	22,136			21,693			25,821
Accrued expenses	148,858			156,850			150,441
Revolving credit facility	664,566			—			—
Current maturities of long-term debt	—			57,208			—
Current maturities of capital lease and financing obligations	7,152			5,806			6,685
Total current liabilities	1,091,064			573,304			368,847
Long-term debt, less current maturities	345,302			913,654			848,777
Capital lease and financing obligations, less current maturities	128,719			135,534			133,857
Other long-term liabilities	177,473			180,576			176,363
Total liabilities	1,742,558			1,803,068			1,527,844
Contingencies (Note 10)
Shareholders’ deficit
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 18,195,265, 18,976,168 and 18,972,718 at October 28, 2017, October 29, 2016 and January 28, 2017, respectively	182			190			190
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at October 28, 2017, October 29, 2016 and January 28, 2017, respectively	30			30			30
Treasury stock, at cost — 337,800 shares at October 28, 2017, October 29, 2016 and January 28, 2017	(1,387		)	(1,387		)	(1,387		)
Additional paid-in capital	167,376			166,394			166,932
Accumulated other comprehensive loss	(70,626		)	(73,515		)	(72,909		)
Accumulated deficit	(251,538		)	(160,354		)	(115,637		)
Total shareholders’ deficit	(155,963		)	(68,642		)	(22,781		)
Total liabilities and shareholders’ deficit	$	1,586,595		$	1,734,426		$	1,505,063

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

2

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	THIRTEEN						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
(In thousands, except per share data)	October 28,			October 29,			October 28,			October 29,
(Unaudited)	2017			2016			2017			2016
Net sales	$	545,337		$	589,942		$	1,585,902		$	1,723,309
Other income	17,145			17,333			55,062			51,001
	562,482			607,275			1,640,964			1,774,310
Costs and expenses:
Costs of merchandise sold	365,077			382,892			1,053,833			1,118,078
Selling, general and administrative	202,618			213,816			598,894			641,873
Depreciation and amortization	19,830			22,304			65,172			70,497
Amortization of lease-related interests	954			1,007			2,863			3,022
Impairment charges	71			137			218			315
Loss from operations	(26,068		)	(12,881		)	(80,016		)	(59,475		)
Interest expense, net	18,915			18,183			54,962			48,431
Loss on extinguishment of debt	—			676			559			676
Loss before income taxes	(44,983		)	(31,740		)	(135,537		)	(108,582		)
Income tax benefit	(106		)	(158		)	(136		)	(446		)
Net loss	$	(44,877	)	$	(31,582	)	$	(135,401	)	$	(108,136	)
Per share amounts —
Basic:
Net loss	$	(2.19	)	$	(1.58	)	$	(6.68	)	$	(5.44	)
Diluted:
Net loss	$	(2.19	)	$	(1.58	)	$	(6.68	)	$	(5.44	)

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

3

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	THIRTEEN						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
(In thousands)	October 28,			October 29,			October 28,			October 29,
(Unaudited)	2017			2016			2017			2016
Net loss	$	(44,877	)	$	(31,582	)	$	(135,401	)	$	(108,136	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	765			873			2,283			2,607
Comprehensive loss	$	(44,112	)	$	(30,709	)	$	(133,118	)	$	(105,529	)

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

4

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	THIRTY-NINE
	WEEKS ENDED
(In thousands)	October 28,			October 29,
(Unaudited)	2017			2016
Cash flows from operating activities:
Net loss	$	(135,401	)	$	(108,136	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	65,172			70,497
Amortization of lease-related interests	2,863			3,022
Impairment charges	218			315
Share-based compensation expense	—			2,162
(Gain) loss on sale of property, fixtures and equipment	(5,525		)	197
Reclassifications of accumulated other comprehensive loss	3,851			4,391
Loss on extinguishment of debt	559			676
Amortization of deferred financing costs and debt discount	4,172			3,200
Deferred income tax benefit	(136		)	(446		)
Changes in operating assets and liabilities:
Increase in merchandise inventories	(127,208		)	(234,203		)
(Increase) decrease in prepaid expenses and other current assets	(3,357		)	18,241
(Increase) decrease in other long-term assets	(115		)	1,684
Increase in accounts payable	47,776			161,402
(Decrease) increase in accrued payroll and benefits and accrued expenses	(3,579		)	5,420
Decrease in other long-term liabilities	(9,684		)	(9,394		)
Net cash used in operating activities	(160,394		)	(80,972		)
Cash flows from investing activities:
Capital expenditures	(35,672		)	(43,933		)
Proceeds from sale of property, fixtures and equipment	40,327			8
Net cash provided by (used in) investing activities	4,655			(43,925		)
Cash flows from financing activities:
Payments on debt and capital lease and financing obligations	(387,436		)	(396,347		)
Proceeds from issuance of debt and financing obligations	542,463			519,466
Restricted shares forfeited in lieu of payroll taxes	(64		)	(191		)
Deferred financing costs paid	(13,443		)	(5,563		)
Increase in book overdraft balances	14,751			7,628
Net cash provided by financing activities	156,271			124,993
Net increase in cash and cash equivalents	532			96
Cash and cash equivalents at beginning of period	6,736			6,879
Cash and cash equivalents at end of period	$	7,268		$	6,975

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

5

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

												Accumulated
				Class A					Additional			Other
(In thousands)	Common			Common		Treasury			Paid-in			Comprehensive			Accumulated
(Unaudited)	Stock			Stock		Stock			Capital			Loss			Deficit			Total
BALANCE AT JANUARY 30, 2016	$	185		$	30	$	(1,387	)	$	164,428		$	(76,122	)	$	(52,218	)	$	34,916
Net loss	—			—		—			—			—			(108,136		)	(108,136		)
Other comprehensive income	—			—		—			—			2,607			—			2,607
Restricted shares forfeited in lieu of payroll taxes	(1		)	—		—			(190		)	—			—			(191		)
Share-based compensation expense	6			—		—			2,156			—			—			2,162
BALANCE AT OCTOBER 29, 2016	$	190		$	30	$	(1,387	)	$	166,394		$	(73,515	)	$	(160,354	)	$	(68,642	)
BALANCE AT JANUARY 28, 2017	$	190		$	30	$	(1,387	)	$	166,932		$	(72,909	)	$	(115,637	)	$	(22,781	)
Cumulative adjustment to adopt ASU 2016-09 (Note 1)	—			—		—			500			—			(500		)	—
Net loss	—			—		—			—			—			(135,401		)	(135,401		)
Other comprehensive income	—			—		—			—			2,283			—			2,283
Restricted shares forfeited in lieu of payroll taxes	(8		)	—		—			(56		)	—			—			(64		)
BALANCE AT OCTOBER 28, 2017	$	182		$	30	$	(1,387	)	$	167,376		$	(70,626	)	$	(251,538	)	$	(155,963	)

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

6

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

1.BASIS OF PRESENTATION

The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company incorporated on January 31, 1929.  As of October 28, 2017, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 260 stores, including nine furniture galleries and four clearance centers, in 24 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates.

The accompanying unaudited consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. (the “Parent”) and its subsidiaries (collectively, the “Company”).  All intercompany transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.  In the opinion of management, all adjustments considered necessary for a fair presentation of interim periods have been included.  The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of results for the full fiscal year.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

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

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

Recently Adopted Accounting Standards

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

7

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Recently Issued Accounting Standards

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

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

2.PER-SHARE AMOUNTS

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

	THIRTEEN						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
	October 28,			October 29,			October 28,			October 29,
	2017			2016			2017			2016
Basic Loss Per Common Share
Net loss	$	(44,877	)	$	(31,582	)	$	(135,401	)	$	(108,136	)
Less: Income allocated to participating securities	—			—			—			—
Net loss available to common shareholders	$	(44,877	)	$	(31,582	)	$	(135,401	)	$	(108,136	)
Weighted average common shares outstanding	20,470,443			19,993,316			20,260,412			19,887,654
Basic loss per common share	$	(2.19	)	$	(1.58	)	$	(6.68	)	$	(5.44	)
Diluted Loss Per Common Share
Net loss	$	(44,877	)	$	(31,582	)	$	(135,401	)	$	(108,136	)
Less: Income allocated to participating securities	—			—			—			—
Net loss available to common shareholders	$	(44,877	)	$	(31,582	)	(135,401		)	(108,136		)
Weighted average common shares outstanding	20,470,443			19,993,316			20,260,412			19,887,654
Common shares issuable - stock options	—			—			—			—
Weighted average common shares outstanding assuming dilution	20,470,443			19,993,316			20,260,412			19,887,654
Diluted loss per common share	$	(2.19	)	$	(1.58	)	$	(6.68	)	$	(5.44	)

8

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 701,857 and 1,399,101 for the third quarter in each of 2017 and 2016, respectively, and 1,063,304 and 1,333,897 for the 39 weeks ended October 28, 2017 and October 29, 2016, respectively, were not considered in the calculation of net loss available to common shareholders used for both basic and diluted EPS.

3.FAIR VALUE MEASUREMENTS

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

The carrying values of the Company’s cash and cash equivalents, accounts payable and financial instruments reported within prepaid expenses and other current assets and other long-term assets approximate fair value.

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

					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	$	350,000	$	130,536	$	130,536	$	—	$	—
Senior secured credit facility	666,387		666,387		—		—		666,387
Total	$	1,016,387	$	796,923	$	130,536	$	—	$	666,387

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

					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	$	237,327	$	237,327	$	—	$	—
Senior secured credit facility	572,131		572,131		—		—		572,131
Total	$	979,423	$	809,458	$	237,327	$	—	$	572,131

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

9

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

					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	$	350,000	$	177,331	$	177,331	$	—	$	—
Senior secured credit facility	506,689		506,689		—		—		506,689
Total	$	856,689	$	684,020	$	177,331	$	—	$	506,689

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 28,		October 29,		January 28,
	2017		2016		2017
Other receivables	$	59,411	$	37,335	$	68,270
Prepaid expenses	42,504		41,678		30,288
Total	$	101,915	$	79,013	$	98,558

5.SUPPLEMENTAL CASH FLOW INFORMATION

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

	THIRTY-NINE
	WEEKS ENDED
	October 28,		October 29,
	2017		2016
Cash paid for:
Interest, net of amounts capitalized	$	43,137	$	36,497
Non-cash investing and financing activities:
Property, fixtures and equipment included in accrued expenses	$	2,369	$	2,547

10

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

6.EXIT OR DISPOSAL ACTIVITIES

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

	Termination Benefits			Other Costs			Total
Accrued balance as of January 28, 2017	$	952		$	—		$	952
Provisions
Thirteen weeks ended April 29, 2017	132			239			371
Thirteen weeks ended July 29, 2017	421			34			455
Thirteen weeks ended October 28, 2017	197			366			563
Payments
Thirteen weeks ended April 29, 2017	(666		)	(239		)	(905		)
Thirteen weeks ended July 29, 2017	(313		)	(34		)	(347		)
Thirteen weeks ended October 28, 2017	(213		)	(366		)	(579		)
Accrued balance as of October 28, 2017	$	510		$	—		$	510

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

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

7.EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS

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

	THIRTEEN						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
	October 28,			October 29,			October 28,			October 29,
	2017			2016			2017			2016
Interest cost	$	1,667		$	1,786		$	4,999		$	5,355
Expected return on plan assets	(1,934		)	(2,100		)	(5,801		)	(6,300		)
Recognition of net actuarial loss	1,406			1,571			4,220			4,714
Net periodic benefit expense	$	1,139		$	1,257		$	3,418		$	3,769

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

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

11

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

	THIRTEEN						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
	October 28,			October 29,			October 28,			October 29,
	2017			2016			2017			2016
Interest cost	$	13		$	16		$	39		$	47
Recognition of net actuarial gain	(122		)	(107		)	(369		)	(323		)
Net periodic benefit income	$	(109	)	$	(91	)	$	(330	)	$	(276	)

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

8.DEBT

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

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

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

9.INCOME TAXES

The provisions codified within ASC Topic 740, Income Taxes (“ASC 740”), require companies to assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence using a “more likely than not” standard.  In accordance with ASC 740, the Company maintained a full valuation allowance throughout fiscal 2016 and the 39 weeks ended October 28, 2017 on all of the Company’s net deferred tax assets.  The Company’s deferred tax asset valuation

12

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

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

10.CONTINGENCIES

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

11.COMPREHENSIVE LOSS

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

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

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

12.CONDENSED CONSOLIDATING FINANCIAL INFORMATION

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

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

13

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

of 2017 and 2016 and the 39 weeks ended October 28, 2017 and October 29, 2016 as presented below has been prepared from the books and records maintained by the Parent, the Issuer and the guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor subsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time.

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

October 28, 2017

							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1		$	4,185		$	3,082	$	—		$	7,268
Merchandise inventories	—			551,510			300,152		—			851,662
Prepaid expenses and other current assets	—			95,164			6,931		(180		)	101,915
Total current assets	1			650,859			310,165		(180		)	960,845
Property, fixtures and equipment at cost, net	—			258,610			270,497		—			529,107
Intangible assets, net	—			15,810			53,213		—			69,023
Investment in and advances to affiliates	(155,964		)	441,460			415,489		(700,985		)	—
Other long-term assets	—			29,667			950		(2,997		)	27,620
Total assets	$	(155,963	)	$	1,396,406		$	1,050,314	$	(704,162	)	$	1,586,595
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	—		$	248,352		$	—	$	—		$	248,352
Accrued payroll and benefits	—			18,142			3,994		—			22,136
Accrued expenses	—			85,852			63,186		(180		)	148,858
Revolving credit facility	—			664,566			—		—			664,566
Current maturities of capital lease and financing obligations	—			2,172			4,980		—			7,152
Total current liabilities	—			1,019,084			72,160		(180		)	1,091,064
Long-term debt and capital lease and financing obligations, less current maturities	—			415,679			58,342		—			474,021
Other long-term liabilities	—			124,052			56,418		(2,997		)	177,473
Total liabilities	—			1,558,815			186,920		(3,177		)	1,742,558
Shareholders’ (deficit) equity	(155,963		)	(162,409		)	863,394		(700,985		)	(155,963		)
Total liabilities and shareholders’ (deficit) equity	$	(155,963	)	$	1,396,406		$	1,050,314	$	(704,162	)	$	1,586,595

14

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 29, 2016

							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1		$	4,009		$	2,965	$	—		$	6,975
Merchandise inventories	—			617,470			328,432		—			945,902
Prepaid expenses and other current assets	—			73,354			5,839		(180		)	79,013
Total current assets	1			694,833			337,236		(180		)	1,031,890
Property, fixtures and equipment at cost, net	—			295,459			310,923		—			606,382
Intangible assets, net	—			18,978			58,755		—			77,733
Investment in and advances to affiliates	(68,643		)	507,422			319,008		(757,787		)	—
Other long-term assets	—			20,615			983		(3,177		)	18,421
Total assets	$	(68,642	)	$	1,537,307		$	1,026,905	$	(761,144	)	$	1,734,426
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	—		$	331,747		$	—	$	—		$	331,747
Accrued payroll and benefits	—			17,564			4,129		—			21,693
Accrued expenses	—			83,748			73,282		(180		)	156,850
Current maturities of long-term debt and capital lease and financing obligations	—			58,764			4,250		—			63,014
Total current liabilities	—			491,823			81,661		(180		)	573,304
Long-term debt and capital lease and financing obligations, less current maturities	—			985,866			63,322		—			1,049,188
Other long-term liabilities	—			134,226			49,527		(3,177		)	180,576
Total liabilities	—			1,611,915			194,510		(3,357		)	1,803,068
Shareholders’ (deficit) equity	(68,642		)	(74,608		)	832,395		(757,787		)	(68,642		)
Total liabilities and shareholders’ (deficit) equity	$	(68,642	)	$	1,537,307		$	1,026,905	$	(761,144	)	$	1,734,426

15

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

January 28, 2017

							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	1		$	3,575		$	3,160	$	—		$	6,736
Merchandise inventories	—			475,816			248,638		—			724,454
Prepaid expenses and other current assets	—			94,585			4,153		(180		)	98,558
Total current assets	1			573,976			255,951		(180		)	829,748
Property, fixtures and equipment at cost, net	—			277,511			307,292		—			584,803
Intangible assets, net	—			17,715			55,396		—			73,111
Investment in and advances to affiliates	(22,782		)	414,949			446,521		(838,688		)	—
Other long-term assets	—			19,800			733		(3,132		)	17,401
Total assets	$	(22,781	)	$	1,303,951		$	1,065,893	$	(842,000	)	$	1,505,063
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	—		$	185,900		$	—	$	—		$	185,900
Accrued payroll and benefits	—			21,405			4,416		—			25,821
Accrued expenses	—			70,988			79,633		(180		)	150,441
Current maturities of capital lease and financing obligations	—			1,995			4,690		—			6,685
Total current liabilities	—			280,288			88,739		(180		)	368,847
Long-term debt and capital lease and financing obligations, less current maturities	—			920,782			61,852		—			982,634
Other long-term liabilities	—			132,165			47,330		(3,132		)	176,363
Total liabilities	—			1,333,235			197,921		(3,312		)	1,527,844
Shareholders’ (deficit) equity	(22,781		)	(29,284		)	867,972		(838,688		)	(22,781		)
Total liabilities and shareholders’ (deficit) equity	$	(22,781	)	$	1,303,951		$	1,065,893	$	(842,000	)	$	1,505,063

16

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 28, 2017

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	339,283		$	206,054		$	—		$	545,337
Other income	—			10,835			6,310			—			17,145
	—			350,118			212,364			—			562,482
Costs and expenses:
Costs of merchandise sold	—			229,474			135,603			—			365,077
Selling, general and administrative	—			127,621			79,500			(4,503		)	202,618
Depreciation and amortization	—			10,988			8,842			—			19,830
Amortization of lease-related interests	—			454			500			—			954
Impairment charges	—			71			—			—			71
Loss from operations	—			(18,490		)	(12,081		)	4,503			(26,068		)
Other income (expense):
Intercompany income	—			370			13,783			(14,153		)	—
Equity in (losses) earnings of subsidiaries	(44,983		)	603			—			44,380			—
Interest expense, net	—			(27,466		)	(1,099		)	9,650			(18,915		)
(Loss) income before income taxes	(44,983		)	(44,983		)	603			44,380			(44,983		)
Income tax (benefit) provision	(106		)	(106		)	217			(111		)	(106		)
Net (loss) income	$	(44,877	)	$	(44,877	)	$	386		$	44,491		$	(44,877	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended October 28, 2017

							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(44,877	)	$	(44,877	)	$	386	$	44,491		$	(44,877	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	765			765			—		(765		)	765
Comprehensive (loss) income	$	(44,112	)	$	(44,112	)	$	386	$	43,726		$	(44,112	)

17

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 29, 2016

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	352,724		$	237,218		$	—		$	589,942
Other income	—			10,491			6,842			—			17,333
	—			363,215			244,060			—			607,275
Costs and expenses:
Costs of merchandise sold	—			230,776			152,116			—			382,892
Selling, general and administrative	—			130,023			88,777			(4,984		)	213,816
Depreciation and amortization	—			12,628			9,676			—			22,304
Amortization of lease-related interests	—			467			540			—			1,007
Impairment charges	—			137			—			—			137
Loss from operations	—			(10,816		)	(7,049		)	4,984			(12,881		)
Other income (expense):
Intercompany income	—			406			17,550			(17,956		)	—
Equity in (losses) earnings of subsidiaries	(31,740		)	9,508			—			22,232			—
Interest expense, net	—			(30,162		)	(993		)	12,972			(18,183		)
Loss on extinguishment of debt	—			(676		)	—			—			(676		)
(Loss) income before income taxes	(31,740		)	(31,740		)	9,508			22,232			(31,740		)
Income tax (benefit) provision	(158		)	(158		)	237			(79		)	(158		)
Net (loss) income	$	(31,582	)	$	(31,582	)	$	9,271		$	22,311		$	(31,582	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended October 29, 2016

							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(31,582	)	$	(31,582	)	$	9,271	$	22,311		$	(31,582	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	873			873			—		(873		)	873
Comprehensive (loss) income	$	(30,709	)	$	(30,709	)	$	9,271	$	21,438		$	(30,709	)

18

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 28, 2017

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	988,799		$	597,103		$	—		$	1,585,902
Other income	—			32,330			22,732			—			55,062
	—			1,021,129			619,835			—			1,640,964
Costs and expenses:
Costs of merchandise sold	—			663,709			390,124			—			1,053,833
Selling, general and administrative	—			370,543			242,790			(14,439		)	598,894
Depreciation and amortization	—			36,300			28,872			—			65,172
Amortization of lease-related interests	—			1,363			1,500			—			2,863
Impairment charges	—			218			—			—			218
Loss from operations	—			(51,004		)	(43,451		)	14,439			(80,016		)
Other income (expense):
Intercompany income	—			1,150			42,893			(44,043		)	—
Equity in losses of subsidiaries	(135,537		)	(3,836		)	—			139,373			—
Interest expense, net	—			(81,288		)	(3,278		)	29,604			(54,962		)
Loss on extinguishment of debt	—			(559		)	—			—			(559		)
Loss before income taxes	(135,537		)	(135,537		)	(3,836		)	139,373			(135,537		)
Income tax (benefit) provision	(136		)	(136		)	744			(608		)	(136		)
Net loss	$	(135,401	)	$	(135,401	)	$	(4,580	)	$	139,981		$	(135,401	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive Loss

Thirty-Nine Weeks Ended October 28, 2017

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated
Net loss	$	(135,401	)	$	(135,401	)	$	(4,580	)	$	139,981		$	(135,401	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	2,283			2,283			—			(2,283		)	2,283
Comprehensive loss	$	(133,118	)	$	(133,118	)	$	(4,580	)	$	137,698		$	(133,118	)

19

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 29, 2016

							Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,034,299		$	689,010		$	—		$	1,723,309
Other income	—			31,059			19,942			—			51,001
	—			1,065,358			708,952			—			1,774,310
Costs and expenses:
Costs of merchandise sold	—			675,298			442,780			—			1,118,078
Selling, general and administrative	—			392,228			264,770			(15,125		)	641,873
Depreciation and amortization	—			39,827			30,670			—			70,497
Amortization of lease-related interests	—			1,403			1,619			—			3,022
Impairment charges	—			315			—			—			315
Loss from operations	—			(43,713		)	(30,887		)	15,125			(59,475		)
Other income (expense):
Intercompany income	—			1,307			42,165			(43,472		)	—
Equity in (losses) earnings of subsidiaries	(108,582		)	8,252			—			100,330			—
Interest expense, net	—			(73,752		)	(3,026		)	28,347			(48,431		)
Loss on extinguishment of debt	—			(676		)	—			—			(676		)
(Loss) income before income taxes	(108,582		)	(108,582		)	8,252			100,330			(108,582		)
Income tax (benefit) provision	(446		)	(446		)	706			(260		)	(446		)
Net (loss) income	$	(108,136	)	$	(108,136	)	$	7,546		$	100,590		$	(108,136	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirty-Nine Weeks Ended October 29, 2016

							Guarantor		Consolidating			Company
	Parent			Issuer			Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(108,136	)	$	(108,136	)	$	7,546	$	100,590		$	(108,136	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	2,607			2,607			—		(2,607		)	2,607
Comprehensive (loss) income	$	(105,529	)	$	(105,529	)	$	7,546	$	97,983		$	(105,529	)

20

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 Weeks Ended October 28, 2017

							Guarantor			Consolidating		Company
	Parent			Issuer			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	64		$	(140,178	)	$	(20,280	)	$	—	$	(160,394	)
Cash flows from investing activities:
Capital expenditures	—			(24,795		)	(10,877		)	—		(35,672		)
Proceeds from sale of property, fixtures and equipment	—			6,028			34,299			—		40,327
Net cash (used in) provided by investing activities	—			(18,767		)	23,422			—		4,655
Cash flows from financing activities:
Payments on debt and capital lease and financing obligations	—			(384,216		)	(3,220		)	—		(387,436		)
Proceeds from issuance of debt and financing obligations	—			542,463			—			—		542,463
Deferred financing costs paid	—			(13,443		)	—			—		(13,443		)
Restricted shares forfeited in lieu of payroll taxes	(64		)	—			—			—		(64		)
Increase in book overdraft balances	—			14,751			—			—		14,751
Net cash (used in) provided by financing activities	(64		)	159,555			(3,220		)	—		156,271
Net increase (decrease) in cash and cash equivalents	—			610			(78		)	—		532
Cash and cash equivalents at beginning of period	1			3,575			3,160			—		6,736
Cash and cash equivalents at end of period	$	1		$	4,185		$	3,082		$	—	$	7,268

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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 Weeks Ended October 29, 2016

							Guarantor			Consolidating		Company
	Parent			Issuer			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	191		$	(103,174	)	$	22,011		$	—	$	(80,972	)
Cash flows from investing activities:
Capital expenditures	—			(23,800		)	(20,133		)	—		(43,933		)
Proceeds from sale of property, fixtures and equipment	—			8			—			—		8
Net cash used in investing activities	—			(23,792		)	(20,133		)	—		(43,925		)
Cash flows from financing activities:
Payments on debt and capital lease and financing obligations	—			(393,378		)	(2,969		)	—		(396,347		)
Proceeds from issuance of debt and financing obligations	—			519,466			—			—		519,466
Deferred financing costs paid	—			(5,563		)	—			—		(5,563		)
Restricted shares forfeited in lieu of payroll taxes	(191		)	—			—			—		(191		)
Increase in book overdraft balances	—			7,628			—			—		7,628
Net cash (used in) provided by financing activities	(191		)	128,153			(2,969		)	—		124,993
Net increase (decrease) in cash and cash equivalents	—			1,187			(1,091		)	—		96
Cash and cash equivalents at beginning of period	1			2,822			4,056			—		6,879
Cash and cash equivalents at end of period	$	1		$	4,009		$	2,965		$	—	$	6,975

13.     SUBSEQUENT EVENT

On November 16, 2017, the Company announced it was planning to close at least 40 stores by the end of fiscal 2018.  Related liabilities such as severance, contractual obligations and other accruals, along with potential fixed asset impairments, associated with the store closings will be recorded when the final determination is made regarding which stores will be closed.

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

For purposes of the following discussion, references to the “third quarter of 2017” and the “third quarter of 2016” are to the 13 weeks ended October 28, 2017 and October 29, 2016, respectively.  References to “2017” and “2016” are to the 39 weeks ended October 28, 2017 and October 29, 2016, respectively.  References to “fiscal 2018” are to the 52-week period ending February 2, 2019; references to “fiscal 2017” are to the 53-week period ending February 3, 2018; references to “fiscal 2016” are to the 52-week period ended January 28, 2017.  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 260 stores, including nine furniture galleries and four clearance centers, in 24 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates, encompassing a total of approximately 24 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 2017 Guidance

During the third quarter of 2017, we made progress on a number of our strategic initiatives:

·Experienced strength in key merchandise categories and brands and drove continued double-digit growth in our omnichannel business (reflecting sales via our website, mobile site and our Let Us Find It customer service program) as compared to the third quarter of 2017;

·Continued to effectively execute on a number of profit improvement initiatives, substantially reducing our selling, general and administrative (“SG&A”) expense for the quarter; and

·Maintained careful inventory controls, as we reduced inventory by 10% as compared to the third quarter of 2016.

Comparable store sales decreased 6.6% in the third quarter of 2017, largely due to unseasonably warm weather and the continuation of soft mall traffic trends, although we experienced a favorable 3.1% comparable store sales increase for the four weeks ended November 25, 2017, as compared with the same period in fiscal 2016.  We are taking more aggressive actions to fuel improved performance. We are working to enhance our merchandise assortment, drive growth in omnichannel and implement a more focused marketing strategy to improve traffic and customer engagement. We have retained consultants to assist us with our strategy to improve our competitive position and our financial performance, and we continue to evaluate ways we can improve our performance, including through the previously announced plan to close at least 40 stores by the end of fiscal 2018.

On October 24, 2017, we amended our Second Amended and Restated Loan and Security Agreement (the “Second Amended Revolving Credit Facility”) which provides us with immediate flexibility and additional liquidity under the facility.  See “Liquidity and Capital Resources” for further discussion on this amendment.

On November 16, 2017, we revised our fiscal 2017 guidance. We expect loss per share to be in a range of $2.86 to $3.35, inclusive of a $0.05 per share expense from the 53rd week.

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Updated assumptions reflected in our full-year guidance include the following:

·A comparable store sales decrease ranging from 4.5% to 5.5%, which excludes sales from the 53rd week;

·A gross margin rate ranging from a 50- to 65-basis-point decrease from the fiscal 2016 rate of 35.5%;

·SG&A expense between $836 million and $840 million, including approximately $10 million for the 53rd week, compared to SG&A expense of $880.6 million in fiscal 2016;

·Capital expenditures not to exceed $30 million, net of external contributions; and

·An estimated 20.3 million weighted average diluted shares outstanding.

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 28,		October 29,		October 28,		October 29,
	2017		2016		2017		2016
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Other income	3.1		2.9		3.5		3.0
	103.1		102.9		103.5		103.0
Costs and expenses:
Costs of merchandise sold	66.9		64.9		66.5		64.9
Selling, general and administrative	37.2		36.2		37.8		37.3
Depreciation and amortization	3.6		3.8		4.1		4.1
Amortization of lease-related interests	0.2		0.2		0.2		0.2
Impairment charges	—		—		—		—
Loss from operations	(4.8	)	(2.2	)	(5.0	)	(3.5	)
Interest expense, net	3.5		3.1		3.5		2.8
Loss on extinguishment of debt	—		0.1		—		—
Loss before income taxes	(8.2	)	(5.4	)	(8.5	)	(6.3	)
Income tax benefit	—		—		—		—
Net loss	(8.2	)%	(5.4	)%	(8.5	)%	(6.3	)%

Third Quarter of 2017 Compared with Third Quarter of 2016

Net sales:  Net sales in the third quarter of 2017 were $545.3 million, compared with $589.9 million in the third quarter of 2016, reflecting a decrease of 7.6%.  Comparable store sales decreased 6.6% in the period due to unseasonably warm weather and the continuation of soft mall traffic trends.

The best performing merchandise categories in the third quarter of 2017 were Fine Jewelry (included in Accessories) and Hard Home (included in Home).  Fine Jewelry benefited from the expansion of merchandise to additional doors and higher omnichannel sales. Hard Home primarily benefited from sales in key items.

Merchandise categories that were challenged in the period included Petites’ Sportswear and Coats (both included in Women’s Apparel). Petites’ Sportswear was adversely impacted by the strategic reduction of

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product offerings within certain categories and brands. Coats were adversely impacted by unseasonal weather patterns.

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 $17.1 million in the third quarter of 2017 as compared with $17.3 million in the third quarter of 2016.  The decrease was primarily due to lower revenues associated with our proprietary credit card operations.  Proprietary credit card sales, as a percentage of total sales, increased 90 basis points to 57.9% in the third quarter of 2017.

Costs and expenses: Gross margin in the third quarter of 2017 decreased $26.8 million to $180.3 million as compared with $207.1 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 204 basis points to 33.1% in the third quarter of 2017 from 35.1% in the comparable prior year period, primarily due to an increase in the markdown rate driven by a shift in merchandise mix.

SG&A expense in the third quarter of 2017 decreased $11.2 million to $202.6 million as compared with $213.8 million in the third quarter of 2016. This reduction was largely due to savings associated with prior year closed stores and reductions in medical insurance, payroll, taxes and store occupancy costs. The current period expense rate, 37.2% of net sales, increased 91 basis points from that of the prior year period as a result of decreased sales volume.

Depreciation and amortization expense and amortization of lease-related interests decreased $2.5 million to $20.8 million in the third quarter of 2017 from $23.3 million in the third quarter of 2016.

Interest expense, net:  Net interest expense was $18.9 million in the third quarter of 2017 as compared with $18.2 million in the third quarter of 2016. The increase primarily reflects an increased weighted average interest rate and higher debt levels.

Income tax benefit:  The effective income tax rate in the third quarter in each of 2017 and 2016 largely reflects our valuation allowance position against all net deferred tax assets.  The $0.1 million income tax benefit in the third quarter of 2017 includes a $0.5 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 $0.2 million income tax benefit in the third quarter of 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.

2017 Compared with 2016

Net sales:  Net sales in 2017 were $1,585.9 million, compared with $1,723.3 million in 2016, reflecting a decrease of 8.0%.  Comparable store sales decreased 7.3% in the period due to continued soft mall traffic trends.

The best performing merchandise categories in 2017 were Fine Jewelry (included in Accessories) and Furniture (included in Home).  Fine Jewelry benefited from strong promotional events, the expansion of merchandise to additional doors and higher omnichannel sales. Sales in Furniture increased through the expansion of merchandise to additional doors and sales increases in mattresses.

Merchandise categories that were challenged in the period included Petites’ Sportswear (included in Women’s Apparel) and Accessories. Petites’ Sportswear was adversely impacted by the strategic reduction of product offerings within certain categories and brands. Accessories were adversely affected by lower sales of handbags, specifically within certain key brands.

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 $55.1 million in 2017 as compared with $51.0 million in 2016.  The increase primarily reflects income associated with gift card breakage.

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Costs and expenses: Gross margin in 2017 decreased $73.2 million to $532.1 million as compared with $605.2 million in 2016.   Gross margin as a percentage of net sales decreased 157 basis points to 33.6% in 2017 from 35.1% in 2016, due primarily to an increase in the markdown rate.

SG&A expense in 2017 decreased $43.0 million to $598.9 million as compared with $641.9 million in 2016. This reduction was largely driven by expense control measures, specifically in store expenses, reductions in consulting fees, medical insurance, payroll, taxes and rent, as well as gains associated with various real estate transactions.  The current period expense rate, 37.8% of net sales, increased 52 basis points from that of the prior year as a result of decreased sales volume in the current period.

Depreciation and amortization expense and amortization of lease-related interests decreased $5.5 million to $68.0 million in 2017 from $73.5 million in 2016.

Interest expense, net:  Net interest expense was $55.0 million in 2017 as compared with $48.4 million in 2016.  The increase primarily reflects an increased weighted average interest rate and higher debt levels.

Loss on extinguishment of debt:  In 2017 and 2016, we recorded charges totaling $0.6 million and $0.7 million, respectively, due to the write-off of certain deferred financing fees in connection with amendments to the Second Amended Revolving Credit Facility.

Income tax benefit: The effective income tax rate in each of 2017 and 2016 largely reflects our valuation allowance position against all net deferred tax assets.  The $0.1 million income tax benefit in 2017 includes a $1.6 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 $0.4 million income tax benefit in 2016 includes a $1.8 million benefit from the loss on continuing operations which was partially offset by the 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 $880.0 million Second Amended Revolving Credit Facility (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 28, 2017, we had $7.3 million in cash and cash equivalents and $161.5 million available under our Second Amended Revolving Credit Facility (before taking into account the minimum borrowing availability covenant under such facility, which was $87.5 million at October 28, 2017).  Excess availability was $302.7 million as of the comparable prior year period.  The reduced excess availability primarily reflects the early payment of senior notes due July 2017 and higher borrowings to fund seasonal operations.

On October 24, 2017, The Bon-Ton Department Stores, Inc. and certain subsidiaries as borrowers and certain other subsidiaries as guarantors entered into a Sixth Amendment (the “Sixth Amendment”) to the Second Amended Revolving Credit Facility with Bank of America, N.A., as Agent, and certain financial institutions as lenders. Among other matters, the Sixth Amendment amends required excess availability from 20% to 15% of the lesser of (a) the aggregate commitments and (b) the aggregate borrowing base through December 2, 2017. After December 2, 2017, the required excess availability will be the greater of (a) 20% of the lesser of (i) the aggregate commitments and (ii) the aggregate borrowing base and (b) $132.5 million. Through December 2, 2017, the excess availability will be determined on the basis of the Tranche A Borrowing Base, and not the lower of the Tranche A Commitments and the Tranche A Borrowing Base.

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On April 28, 2017, The Bon-Ton Department Stores, Inc. and certain subsidiaries as borrowers and certain other subsidiaries as guarantors entered into a Fifth Amendment (the “Fifth Amendment”) to the Second Amended Revolving Credit Facility with Bank of America, N.A., as Agent, and certain financial institutions as lenders. The Fifth Amendment extends the maturity date of the $730 million Tranche A of the Second Amended Revolving Credit Facility.  Tranche A is now due to mature on April 28, 2022 provided that Tranche A-1 of the Second Amended Revolving Credit Facility is repaid prior to March 15, 2021 or the maturity of Tranche A-1 is extended to at least April 28, 2022.  If Tranche A-1 is not so repaid or so extended, or is extended to a date earlier than April 28, 2022, Tranche A will mature on the same date as Tranche A-1.  In any event, Tranche A remains subject to a “springing” maturity date that is sixty days prior to the earliest of the maturity date of (1) any senior note debt (which is currently comprised of our 8.00% Second Lien Senior Secured Notes due June 15, 2021) and (2) if incurred, certain permitted debt secured by junior liens. For more information regarding the Second Amended Revolving Credit Facility, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in our Annual Report on Form 10-K filed with the SEC on April 12, 2017.

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.  In addition, our business and liquidity are dependent to a significant degree on our vendors and their factors. The loss of a key vendor, or material changes in support by them or factors, can have a material impact on our business.  Given the Company’s recent operating performance and the conditions in the retail industry environment in general, vendors may seek further assurances or take actions to protect against non-payment of amounts due them. Changes in this area could have a material adverse impact on our liquidity. As a consequence, borrowings under the Second Amended Revolving Credit Facility could reach maximum levels, or could result in required minimum excess availability thresholds not being met as defined above.  To date, we have successfully managed our vendor relationships to maintain inventory purchases on acceptable payment terms.  Based on our current expectations regarding the foregoing factors and our financial performance, we consider our resources (including, but not limited to, cash flows from operations supplemented by borrowings under the Second Amended Revolving Credit 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 $880.0 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.  Management believes that our current balances of cash, projected cash flow from the holiday period and amounts available under our Second Amended Revolving Credit Facility will be adequate to fund short-term and longer term liquidity needs. However, our ability to fund operations and remain in compliance with the financial covenants under our borrowing arrangements is dependent on a number of factors, including our future operating performance and the factors mentioned above, some of which are beyond our control.

We have begun evaluating potential alternatives for the restructuring of our balance sheet and other strategic alternatives, and have engaged AlixPartners LLP and PJT Partners Inc. as advisors. There can be no assurance that any restructuring or other strategic transaction will occur on terms acceptable to us or at all.

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

	THIRTY-NINE
	WEEKS ENDED
	October 28,			October 29,
(Dollars in millions)	2017			2016
Operating activities	$	(160.4	)	$	(81.0	)
Investing activities	4.7			(43.9		)
Financing activities	156.3			125.0

Net cash used in operating activities was $160.4 million and $81.0 million in 2017 and 2016, respectively.  The decrease in cash flow primarily reflects a higher net loss of $27.3 million and a $37.2 million unfavorable change in cash flow from working capital. The decrease in cash flow from working capital was largely due to unfavorable fluctuations of $113.6 million and $21.6 million in cash flows from accounts payable and prepaid expenses, respectively, partially offset by a favorable variance of $107.0 million in cash flows from inventories.

Net cash provided by investing activities was $4.7 million in 2017 compared with net cash used in investing activities of $43.9 million in 2016. In 2017, the inflow of cash includes $39.4 million of proceeds associated with various real estate transactions. Capital expenditures totaled $35.7 million and $43.9 million in 2017 and 2016, respectively, reflecting a planned decrease in capital expenditures. These expenditures do not reflect reductions for external contributions (primarily leasehold improvement and fixture allowances received from landlords or vendors) of $6.8 million and $20.9 million in 2017 and 2016, respectively.  We anticipate that our fiscal 2017 capital expenditures will not exceed $44.1 million (excluding external contributions of $14.1 million, reducing anticipated net capital investments to $30.0 million).

Net cash used in financing activities was $156.3 million and $125.0 million in 2017 and 2016, respectively. The increase in cash used in financing activities is primarily a result of increased net borrowings to support current year operations.

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.

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 28, 2017.

Recently Adopted and Issued Accounting Standards

Recently adopted and issued accounting standards are discussed in Note 1 to the Consolidated Financial Statements.

Forward-Looking Statements

Certain information included in this report and in other communications made by the Company, including the Company’s fiscal 2017 guidance, 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 such as “may,” “could,” “will,” “plan,” “expect,” “anticipate,” “believe,” “estimate,” “project,” “intend,” or other similar expressions, involve important risks and uncertainties that could significantly cause

28

future results to differ from those expressed in any forward-looking statements.  Factors that could cause such differences include, but are not limited to: risks related to retail businesses generally; deterioration of general economic conditions; 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; changes in energy and transportation costs; weather conditions that could negatively impact sales; 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; operational disruptions; unsuccessful marketing initiatives; the ability to improve efficiency through the Company’s eCommerce fulfillment center; changes in, or the failure to successfully implement, our key strategies, including the store rationalization program and initiatives to improve our merchandising, marketing and operations; adverse outcomes in litigation; the ability to obtain financing for working capital, capital expenditures and general corporate purposes; the impact of regulatory requirements; the ability of the Company to change its capital structure; and the financial condition of mall operators.  Any sales results reported herein do not necessarily predict the Company’s performance for the full 2017 holiday season or for the fiscal fourth quarter as a whole.  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 2016 filed with the Securities and Exchange Commission.  We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Financial Instruments

On April 28, 2017, we closed on an extension of our $730 million Tranche A of our Second Amended Revolving Credit Facility in advance of the December 2018 maturity date.  On October 24, 2017, we amended our Second Amended Revolving Credit Facility.  See “Liquidity and Capital Resources” for further discussion on these amendments.

There were no other material changes in our exposures, risk management strategies, or hedging positions since January 28, 2017.  For further information, refer to Item 7A of our fiscal 2016 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 28, 2017 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:

3.1	Amended and Restated Bylaws of the Company as of August 21, 2017 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on August 25, 2017)
10.1	Sixth Amendment to the Second Amended and Restated Loan and Security Agreement as of October 24, 2017 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 27, 2017)
31.1	Certification of William X. Tracy
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 12, 2017	BY:	/s/ William X. Tracy
			William X. Tracy
			President and Chief Executive Officer
			(Principal Executive Officer)
DATE:	December 12, 2017	BY:	/s/ Nancy A. Walsh
			Nancy A. Walsh
			Executive Vice President— Chief Financial Officer
			(Principal Financial Officer)
DATE:	December 12, 2017	BY:	/s/ Michael W. Webb
			Michael W. Webb
			Senior Vice President— Chief Accounting Officer
			(Principal Accounting Officer)

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