##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 
 For the Quarter ended October 28, 2006
    
    Commission File Number0-19517
 THE BON-TON STORES, INC.
2801 East Market Street
York, Pennsylvania 17402
 Incorporated in Pennsylvania
    
    IRS No. 23-2835229
 
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  o þ o
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TABLE OF CONTENTS  PART I: FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II: OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESCertification of Byron L. BergrenCertification of Keith E. PlowmanCertification Pursuant to Rules 13a-14(b) and 15d-14(b)    Table of Contents  
 PART I: FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 THE BON-TON STORES, INC.
CONSOLIDATED BALANCE SHEETS
 (In thousands except share and per share data)
    
    October 28,
    
    
    January 28,(Unaudited)
    
    2006
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    22,847
    
    
    $
    9,771Merchandise inventories
    
    
    944,488
    
    
    
    284,584Prepaid expenses and other current assets
    
    
    83,781
    
    
    
    28,412Deferred income taxes
    
    
    8,300
    
    
    
    7,126Total current assets
    
    
    1,059,416
    
    
    
    329,893Property, fixtures and equipment at cost, net of accumulated depreciation and amortization
of $286,103 and $216,740 at October 28, 2006 and January 28, 2006, respectively
    
    
    928,802
    
    
    
    167,679Deferred income taxes
    
    
    66,345
    
    
    
    46,453Goodwill
    
    
    17,095
    
    
    
    2,965Intangible assets, net of accumulated amortization of $9,502 and $5,776 at October 28, 2006
and January 28, 2006, respectively
    
    
    162,634
    
    
    
    5,013Other long-term assets
    
    
    36,440
    
    
    
    9,340Total assets
    
    $
    2,270,732
    
    
    $
    561,343Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    392,279
    
    
    $
    87,318Accrued payroll and benefits
    
    
    63,128
    
    
    
    18,986Accrued expenses
    
    
    141,038
    
    
    
    52,692Current maturities of long-term debt
    
    
    5,425
    
    
    
    961Current maturities of obligations under capital leases
    
    
    1,907
    
    
    
    74Income taxes payable
    
    
    13,408
    
    
    
    26,743Total current liabilities
    
    
    617,185
    
    
    
    186,774Long-term debt, less current maturities
    
    
    1,256,602
    
    
    
    42,491Obligations under capital leases, less current maturities
    
    
    70,110
    
    
    
    24Other long-term liabilities
    
    
    73,210
    
    
    
    39,960Total liabilities
    
    
    2,017,107
    
    
    
    269,249Contingencies (Note 10)Shareholders equity:Preferred Stock  authorized 5,000,000 shares at $0.01 par value; no shares issued
    
    
    
    
    
    
    Common Stock  authorized 40,000,000 shares at $0.01 par value; issued 14,448,529
and 14,195,664 shares at October 28, 2006 and January 28, 2006, respectively
    
    
    144
    
    
    
    142Class A Common Stock  authorized 20,000,000 shares at $0.01 par value; issued
and outstanding 2,951,490 shares at October 28, 2006 and January 28, 2006
    
    
    30
    
    
    
    30Treasury stock, at cost - 337,800 shares at October 28, 2006 and January 28, 2006
    
    
    (1,387
    )
    
    
    (1,387
    )Additional paid-in-capital
    
    
    128,587
    
    
    
    129,614Deferred compensation
    
    
    
    
    
    
    (6,663
    )Accumulated other comprehensive loss
    
    
    (1,327
    )
    
    
    (5
    )Retained earnings
    
    
    127,578
    
    
    
    170,363Total shareholders equity
    
    
    253,625
    
    
    
    292,094Total liabilities and shareholders equity
    
    $
    2,270,732
    
    
    $
    561,343
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THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDED(In thousands except share and per share data)
    
    October 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,(Unaudited)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    804,100
    
    
    $
    285,676
    
    
    $
    2,112,646
    
    
    $
    822,555Other income
    
    
    22,859
    
    
    
    2,126
    
    
    
    57,646
    
    
    
    6,098826,959
    
    
    
    287,802
    
    
    
    2,170,292
    
    
    
    828,653Costs and expenses:Costs of merchandise sold
    
    
    509,829
    
    
    
    189,229
    
    
    
    1,347,342
    
    
    
    530,692Selling, general and administrative
    
    
    273,581
    
    
    
    97,759
    
    
    
    731,722
    
    
    
    285,848Depreciation and amortization
    
    
    29,587
    
    
    
    7,508
    
    
    
    76,672
    
    
    
    21,525Income (loss) from operations
    
    
    13,962
    
    
    
    (6,694
    )
    
    
    14,556
    
    
    
    (9,412
    )Interest expense, net
    
    
    27,929
    
    
    
    2,804
    
    
    
    79,082
    
    
    
    9,710Loss before income taxes
    
    
    (13,967
    )
    
    
    (9,498
    )
    
    
    (64,526
    )
    
    
    (19,122
    )Income tax benefit
    
    
    (3,066
    )
    
    
    (3,198
    )
    
    
    (23,015
    )
    
    
    (6,965
    )Net loss
    
    $
    (10,901
    )
    
    $
    (6,300
    )
    
    $
    (41,511
    )
    
    $
    (12,157
    )Per share amounts Basic:Net loss
    
    $
    (0.66
    )
    
    $
    (0.39
    )
    
    $
    (2.53
    )
    
    $
    (0.75
    )Basic weighted average shares outstanding
    
    
    16,439,314
    
    
    
    16,218,717
    
    
    
    16,420,082
    
    
    
    16,175,790Diluted:Net loss
    
    $
    (0.66
    )
    
    $
    (0.39
    )
    
    $
    (2.53
    )
    
    $
    (0.75
    )Diluted weighted average shares
outstanding
    
    
    16,439,314
    
    
    
    16,218,717
    
    
    
    16,420,082
    
    
    
    16,175,790
  3




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THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 THIRTY-NINEWEEKS ENDED(In thousands)
    
    October 28,
    
    
    October 29,(Unaudited)
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (41,511
    )
    
    $
    (12,157
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:Depreciation and amortization
    
    
    76,672
    
    
    
    21,525Bad debt provision
    
    
    
    
    
    
    1,510Stock-based compensation expense
    
    
    3,834
    
    
    
    1,728Tax benefit of stock option exercises
    
    
    
    
    
    
    533Gain on sale of property, fixtures and equipment
    
    
    (687
    )
    
    
    (132
    )Amortization of deferred financing costs
    
    
    5,469
    
    
    
    1,164Amortization of deferred gain on sale of proprietary credit card portfolio
    
    
    (1,810
    )
    
    
    (742
    )Deferred income tax benefit
    
    
    (2,919
    )
    
    
    (11,362
    )Net transfers of receivables to accounts receivable facility
    
    
    
    
    
    
    (244,000
    )Proceeds from sale of proprietary credit card portfolio
    
    
    
    
    
    
    315,445Loss on sale of proprietary credit card portfolio
    
    
    
    
    
    
    596Changes in operating assets and liabilities, net of effect of acquisition:Increase in merchandise inventories
    
    
    (204,649
    )
    
    
    (121,973
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (40,355
    )
    
    
    21,354(Increase) decrease in other long-term assets
    
    
    (6,633
    )
    
    
    42Increase in accounts payable
    
    
    111,677
    
    
    
    70,435Increase (decrease) in accrued expenses
    
    
    13,758
    
    
    
    (11,116
    )Decrease in income taxes payable
    
    
    (13,335
    )
    
    
    (1,833
    )Increase in other long-term liabilities
    
    
    1,513
    
    
    
    577Net cash (used in) provided by operating activities
    
    
    (98,976
    )
    
    
    31,594Cash flows from investing activities:Capital expenditures
    
    
    (72,954
    )
    
    
    (19,094
    )Acquisition, net of cash acquired
    
    
    (1,047,120
    )
    
    
    Proceeds from sale of property, fixtures and equipment
    
    
    1,557
    
    
    
    102Net cash used in investing activities
    
    
    (1,118,517
    )
    
    
    (18,992
    )Cash flows from financing activities:Payments on long-term debt and capital lease obligations
    
    
    (590,246
    )
    
    
    (280,742
    )Proceeds from issuance of long-term debt
    
    
    1,807,739
    
    
    
    256,000Cash dividends paid
    
    
    (1,274
    )
    
    
    (1,249
    )Proceeds from stock options exercised
    
    
    936
    
    
    
    825Excess tax benefit from exercise of stock options
    
    
    868
    
    
    
    Deferred financing costs paid
    
    
    (27,798
    )
    
    
    (123
    )Decrease in bank overdraft balances
    
    
    40,344
    
    
    
    4,224Net cash provided by (used in) financing activities
    
    
    1,230,569
    
    
    
    (21,065
    )Net increase (decrease) in cash and cash equivalents
    
    
    13,076
    
    
    
    (8,463
    )Cash and cash equivalents at beginning of period
    
    
    9,771
    
    
    
    22,908Cash and cash equivalents at end of period
    
    $
    22,847
    
    
    $
    14,445Supplemental Cash Flow Information:Interest paid
    
    $
    64,330
    
    
    $
    8,420Net income taxes paid
    
    $
    16,585
    
    
    $
    9,876
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THE BON-TON STORES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 AccumulatedOtherClass A
    
    
    
    
    
    
    Additional
    
    
    Deferred
    
    
    Compre-(In thousands except per share data)
    
    Common
    
    
    Common
    
    
    Treasury
    
    
    Paid-in
    
    
    Compen-
    
    
    hensive
    
    
    Retained(Unaudited)
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    sation
    
    
    Loss
    
    
    Earnings
    
    
    TotalBALANCE AT JANUARY 28, 2006
    
    $
    142
    
    
    $
    30
    
    
    $
    (1,387
    )
    
    $
    129,614
    
    
    $
    (6,663
    )
    
    $
    (5
    )
    
    $
    170,363
    
    
    $
    292,094Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,511
    )
    
    
    (41,511
    )Change in fair value of cash flow hedges,
net of $753 tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,322
    )
    
    
    
    
    
    
    (1,322
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,833
    )Adoption of SFAS No. 123R (Note 3)
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (6,658
    )
    
    
    6,663
    
    
    
    
    
    
    
    
    
    
    
    Dividends to shareholders, $0.075 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,274
    )
    
    
    (1,274
    )Stock options exercised
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    935
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    936Stock-based compensation expense
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    3,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,834Tax benefit of stock options and restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    868
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    868BALANCE AT OCTOBER 28, 2006
    
    $
    144
    
    
    $
    30
    
    
    $
    (1,387
    )
    
    $
    128,587
    
    
    $
    
    
    
    $
    (1,327
    )
    
    $
    127,578
    
    
    $
    253,625
  5




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 1. BASIS OF PRESENTATION
       2. CARSONS ACQUISITION
  6




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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
    Preliminary Purchase Price
 Cash purchase
    
    $
    1,040,188Carsons severance
    
    
    514Professional fees incurred
    
    
    11,582Total
    
    $
    1,052,284
 Preliminary Purchase Price Allocation
 Cash and cash equivalents
    
    $
    3,110Merchandise inventories
    
    
    455,255Prepaid expenses
    
    
    15,014Property, fixtures and equipment
    
    
    762,527Deferred income taxes
    
    
    17,397Goodwill
    
    
    14,130Intangible assets
    
    
    161,530Other assets
    
    
    10Total assets acquired
    
    
    1,428,973Accounts payable
    
    
    (158,310
    )Accrued payroll and benefits
    
    
    (34,136
    )Other accrued expenses
    
    
    (79,347
    )Obligations under capital leases
    
    
    (73,000
    )Other liabilities
    
    
    (31,896
    )Total liabilities assumed
    
    
    (376,689
    )Net assets acquired
    
    $
    1,052,284
 7




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
         8




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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
  THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    804,100
    
    
    $
    787,710
    
    
    $
    2,294,253
    
    
    $
    2,268,792Other income
    
    
    22,859
    
    
    
    4,154
    
    
    
    58,673
    
    
    
    12,881Costs and expenses:Costs of merchandise sold
    
    
    509,829
    
    
    
    501,684
    
    
    
    1,479,996
    
    
    
    1,420,974Selling, general and administrative
    
    
    273,581
    
    
    
    266,146
    
    
    
    790,563
    
    
    
    771,207Depreciation and amortization
    
    
    29,587
    
    
    
    29,781
    
    
    
    83,596
    
    
    
    88,818Income (loss) from operations
    
    
    13,962
    
    
    
    (5,747
    )
    
    
    (1,229
    )
    
    
    674Interest expense, net
    
    
    27,929
    
    
    
    27,272
    
    
    
    89,468
    
    
    
    81,858Loss before income taxes
    
    
    (13,967
    )
    
    
    (33,019
    )
    
    
    (90,697
    )
    
    
    (81,184
    )Income tax benefit
    
    
    (3,066
    )
    
    
    (12,595
    )
    
    
    (32,358
    )
    
    
    (31,744
    )Net loss
    
    $
    (10,901
    )
    
    $
    (20,424
    )
    
    $
    (58,339
    )
    
    $
    (49,440
    )Net loss per share:Basic
    
    $
    (0.66
    )
    
    $
    (1.26
    )
    
    $
    (3.55
    )
    
    $
    (3.06
    )Diluted
    
    $
    (0.66
    )
    
    $
    (1.26
    )
    
    $
    (3.55
    )
    
    $
    (3.06
    )
    9




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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 3. STOCK-BASED COMPENSATION
        10




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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 Adoption of SFAS No. 123R
    THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 29,
    
    
    October 29,2005
    
    
    2005Net loss, as reported
    
    $
    (6,300
    )
    
    $
    (12,157
    )Add: Stock-based compensation expense included in net
loss, net of income tax of $168 and $630 for the
thirteen and thirty-nine weeks, respectively
    
    
    378
    
    
    
    1,098Deduct: Total stock-based compensation expense
determined under fair-value-based method for all
awards, net of income tax of $318 and $931 for the
thirteen and thirty-nine weeks, respectively
    
    
    (607
    )
    
    
    (1,626
    )Pro forma net loss
    
    $
    (6,529
    )
    
    $
    (12,685
    )Net loss per share:Basic                        As reported
    
    $
    (0.39
    )
    
    $
    (0.75
    )Pro forma
    
    
    (0.40
    )
    
    
    (0.78
    )Diluted                      As reported
    
    $
    (0.39
    )
    
    $
    (0.75
    )Pro forma
    
    
    (0.40
    )
    
    
    (0.78
    )
 11




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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
     Stock Options
  THIRTY-NINEWEEKS ENDEDOctober 28,
    
    
    October 29,2006
    
    
    2005Weighted average grant date fair value
    
    $
    13.75
    
    
    $
    8.99Weighted average risk-free interest rate
    
    
    4.9%
    
    
    
    4.1%Weighted average expected volatility
    
    
    51.7%
    
    
    
    48.8%Weighted average expected dividend yield
    
    
    0.3%
    
    
    
    0.5%Weighted average expected term (years)
    
    
    4.6
    
    
    
    5.1
 12




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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
    WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingShares
    
    
    Per-Share
    
    
    Contractual
    
    
    AggregateUnder
    
    
    Exercise
    
    
    Term
    
    
    IntrinsicOption
    
    
    Price
    
    
    (Years)
    
    
    ValueOutstanding as of January 28, 2006
    
    
    546,030
    
    
    $
    13.15Granted
    
    
    207,500
    
    
    
    29.23Exercised
    
    
    (114,196
    )
    
    
    8.22Forfeited
    
    
    (10,000
    )
    
    
    19.82Outstanding as of October 28, 2006
    
    
    629,334
    
    
    
    19.25
    
    
    
    6.17
    
    
    $
    10,636Exercisable as of October 28, 2006
    
    
    170,167
    
    
    $
    10.58
    
    
    
    4.73
    
    
    $
    4,351
  13




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THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 Restricted Stock Units
  Weighted AverageRestricted Stock Units
    
    
    Grant-Date Fair ValueFuture
    
    
    
    
    
    
    FuturePerformance
    
    
    Future
    
    
    Performance
    
    
    Futureand Service
    
    
    Service
    
    
    and Service
    
    
    ServiceRequired
    
    
    Required
    
    
    Required
    
    
    RequiredOutstanding as of January 28, 2006
    
    
    
    
    
    
    46,375
    
    
    
    
    
    
    $
    15.09Granted
    
    
    20,259
    
    
    
    16,849
    
    
    $
    21.90
    
    
    
    24.92Outstanding as of October 28, 2006
    
    
    20,259
    
    
    
    63,224
    
    
    
    21.90
    
    
    
    17.71
    Restricted Shares
  WeightedAverageRestricted
    
    
    Grant-DateShares
    
    
    Fair ValueOutstanding as of January 28, 2006
    
    
    471,647
    
    
    $
    17.58Granted
    
    
    149,269
    
    
    
    27.86Forfeited
    
    
    (10,500
    )
    
    
    17.86Outstanding as of October 28, 2006
    
    
    610,416
    
    
    
    20.10
 14




---



##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
   4. PER-SHARE AMOUNTS
  THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic calculation
    
    
    16,439,314
    
    
    
    16,218,717
    
    
    
    16,420,082
    
    
    
    16,175,790Effect of dilutive shares Restricted shares and
restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted calculation
    
    
    16,439,314
    
    
    
    16,218,717
    
    
    
    16,420,082
    
    
    
    16,175,790
  THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Antidilutive shares Restricted
shares and
restricted stock
units
    
    
    661,878
    
    
    
    506,432
    
    
    
    603,619
    
    
    
    454,255Options
    
    
    620,092
    
    
    
    618,778
    
    
    
    569,562
    
    
    
    571,533
 15




---



##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
  THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Effect of dilutive securities Restricted shares and
restricted stock units
    
    
    282,650
    
    
    
    140,082
    
    
    
    246,240
    
    
    
    117,070Options
    
    
    95,891
    
    
    
    174,411
    
    
    
    90,792
    
    
    
    191,418
 5. DEBT
  16




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
     17




---



##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 6. EXIT OR DISPOSAL ACTIVITIES
    InvoluntaryTermination
    
    
    LeaseBenefits
    
    
    Termination
    
    
    TotalBalance as of January 28, 2006
    
    $
    122
    
    
    $
    782
    
    
    $
    904Payments:Thirteen weeks ended April 29, 2006
    
    
    (117
    )
    
    
    (168
    )
    
    
    (285
    )Thirteen weeks ended July 29, 2006
    
    
    (5
    )
    
    
    (90
    )
    
    
    (95
    )Thirteen weeks ended October 28, 2006
    
    
    
    
    
    
    (90
    )
    
    
    (90
    )Balance as of October 28, 2006
    
    $
    
    
    
    $
    434
    
    
    $
    434
  18




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
  InvoluntaryTermination
    
    
    ContractBenefits
    
    
    Termination
    
    
    TotalBalance as of January 28, 2006
    
    $
    168
    
    
    $
    168
    
    
    $
    336Provision:Thirteen weeks ended April 29, 2006
    
    
    15
    
    
    
    
    
    
    
    15Payments:Thirteen weeks ended April 29, 2006
    
    
    (107
    )
    
    
    (31
    )
    
    
    (138
    )Thirteen weeks ended July 29, 2006
    
    
    
    
    
    
    (42
    )
    
    
    (42
    )Thirteen
weeks ended October 28, 2006
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Balance as of October 28, 2006
    
    $
    76
    
    
    $
    63
    
    
    $
    139
  7. INTEGRATION ACTIVITIES
  InvoluntaryTerminationBenefitsProvision:Thirteen weeks ended April 29, 2006
    
    $
    3,066Thirteen weeks ended July 29, 2006
    
    
    1,064Thirteen weeks ended October 28, 2006
    
    
    701Payments:Thirteen weeks ended July 29, 2006
    
    
    (104
    )Thirteen weeks ended October 28, 2006
    
    
    (3,937
    )Balance as of October 28, 2006
    
    $
    790
  19




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
  8. COMPREHENSIVE LOSS
  THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (10,901
    )
    
    $
    (6,300
    )
    
    $
    (41,511
    )
    
    $
    (12,157
    )Other comprehensive (loss) income:Cash flow hedge derivative
(loss) income, net of tax
    
    
    (885
    )
    
    
    87
    
    
    
    (1,322
    )
    
    
    362Comprehensive loss
    
    $
    (11,786
    )
    
    $
    (6,213
    )
    
    $
    (42,833
    )
    
    $
    (11,795
    )
 9. EMPLOYEE BENEFIT PLANS
   THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Experience gain
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (20
    )Service cost
    
    
    20
    
    
    
    18
    
    
    
    60
    
    
    
    54Interest cost
    
    
    53
    
    
    
    55
    
    
    
    158
    
    
    
    164Net periodic benefit expense
    
    $
    73
    
    
    $
    73
    
    
    $
    218
    
    
    $
    198
 20




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
   THIRTEEN
    
    
    PERIOD FROMWEEKS
    
    
    MARCH 5, 2006ENDED
    
    
    THROUGHOctober 28,
    
    
    October 28,2006
    
    
    2006Service cost
    
    $
    29
    
    
    $
    73Interest cost
    
    
    3,170
    
    
    
    7,963Expected return on plan assets
    
    
    (3,723
    )
    
    
    (9,352
    )Net periodic benefit income
    
    $
    (524
    )
    
    $
    (1,316
    )
   10. CONTINGENCIES
  21




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 11. SUBSEQUENT EVENT
   12. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
   22




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 The
Bon-Ton Stores, Inc.
 Condensed Consolidating Balance Sheet
 October 28, 2006
 Bon-Ton(Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    CompanyCompany)
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    1
    
    
    $
    5,990
    
    
    $
    16,856
    
    
    $
    
    
    
    $
    
    
    
    $
    22,847Merchandise inventories
    
    
    
    
    
    
    194,544
    
    
    
    749,944
    
    
    
    
    
    
    
    
    
    
    
    944,488Prepaid expenses and other current assets
    
    
    
    
    
    
    43,582
    
    
    
    38,724
    
    
    
    1,475
    
    
    
    
    
    
    
    83,781Deferred income taxes
    
    
    
    
    
    
    7,776
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    8,300Total current assets
    
    
    1
    
    
    
    251,892
    
    
    
    806,048
    
    
    
    1,475
    
    
    
    
    
    
    
    1,059,416Property, fixtures and equipment at cost, net
    
    
    
    
    
    
    153,079
    
    
    
    433,388
    
    
    
    342,335
    
    
    
    
    
    
    
    928,802Deferred income taxes
    
    
    
    
    
    
    49,472
    
    
    
    16,873
    
    
    
    
    
    
    
    
    
    
    
    66,345Goodwill
    
    
    
    
    
    
    2,965
    
    
    
    14,130
    
    
    
    
    
    
    
    
    
    
    
    17,095Intangible assets, net
    
    
    
    
    
    
    2,657
    
    
    
    159,977
    
    
    
    
    
    
    
    
    
    
    
    162,634Investment in and advances to (from) affiliates
    
    
    253,624
    
    
    
    759,345
    
    
    
    470,118
    
    
    
    1,442
    
    
    
    (1,484,529
    )
    
    
    Other long-term assets
    
    
    
    
    
    
    28,768
    
    
    
    2,186
    
    
    
    5,486
    
    
    
    
    
    
    
    36,440Total assets
    
    $
    253,625
    
    
    $
    1,248,178
    
    
    $
    1,902,720
    
    
    $
    350,738
    
    
    $
    (1,484,529
    )
    
    $
    2,270,732Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    97,369
    
    
    $
    294,910
    
    
    $
    
    
    
    $
    
    
    
    $
    392,279Accrued payroll and benefits
    
    
    
    
    
    
    28,060
    
    
    
    35,068
    
    
    
    
    
    
    
    
    
    
    
    63,128Accrued expenses
    
    
    
    
    
    
    33,192
    
    
    
    106,466
    
    
    
    1,380
    
    
    
    
    
    
    
    141,038Current maturities of long-term debt and obligations
under capital leases
    
    
    
    
    
    
    
    
    
    
    1,907
    
    
    
    5,425
    
    
    
    
    
    
    
    7,332Income taxes payable
    
    
    
    
    
    
    13,408
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,408Total current liabilities
    
    
    
    
    
    
    172,029
    
    
    
    438,351
    
    
    
    6,805
    
    
    
    
    
    
    
    617,185Long-term debt and obligations under capital leases,
less current maturities
    
    
    
    
    
    
    987,895
    
    
    
    70,111
    
    
    
    268,706
    
    
    
    
    
    
    
    1,326,712Other long-term liabilities
    
    
    
    
    
    
    30,935
    
    
    
    42,275
    
    
    
    
    
    
    
    
    
    
    
    73,210Total liabilities
    
    
    
    
    
    
    1,190,859
    
    
    
    550,737
    
    
    
    275,511
    
    
    
    
    
    
    
    2,017,107Shareholders equity
    
    
    253,625
    
    
    
    57,319
    
    
    
    1,351,983
    
    
    
    75,227
    
    
    
    (1,484,529
    )
    
    
    253,625Total liabilities and shareholders equity
    
    $
    253,625
    
    
    $
    1,248,178
    
    
    $
    1,902,720
    
    
    $
    350,738
    
    
    $
    (1,484,529
    )
    
    $
    2,270,732
 23




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 The
Bon-Ton Stores, Inc.
 Condensed Consolidating Statement of Operations
 Thirteen Weeks Ended October 28, 2006
 Bon-Ton(Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    CompanyCompany)
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    138,192
    
    
    $
    665,908
    
    
    $
    
    
    
    $
    
    
    
    $
    804,100Other income
    
    
    
    
    
    
    4,468
    
    
    
    18,391
    
    
    
    
    
    
    
    
    
    
    
    22,859
    
    
    
    142,660
    
    
    
    684,299
    
    
    
    
    
    
    
    
    
    
    
    826,959Costs and expenses:Costs of merchandise sold
    
    
    
    
    
    
    91,687
    
    
    
    418,142
    
    
    
    
    
    
    
    
    
    
    
    509,829Selling, general and administrative
    
    
    
    
    
    
    61,965
    
    
    
    221,052
    
    
    
    
    
    
    
    (9,436
    )
    
    
    273,581Depreciation and amortization
    
    
    
    
    
    
    6,407
    
    
    
    20,053
    
    
    
    3,127
    
    
    
    
    
    
    
    29,587Income (loss) from operations
    
    
    
    
    
    
    (17,399
    )
    
    
    25,052
    
    
    
    (3,127
    )
    
    
    9,436
    
    
    
    13,962Other income (expense):Intercompany rental and royalty income
    
    
    
    
    
    
    
    
    
    
    2,177
    
    
    
    7,259
    
    
    
    (9,436
    )
    
    
    Equity in earnings (losses) of subsidiaries
    
    
    (13,967
    )
    
    
    21,480
    
    
    
    
    
    
    
    
    
    
    
    (7,513
    )
    
    
    Interest expense, net
    
    
    
    
    
    
    (18,048
    )
    
    
    (5,209
    )
    
    
    (4,672
    )
    
    
    
    
    
    
    (27,929
    )Income (loss) before income taxes
    
    
    (13,967
    )
    
    
    (13,967
    )
    
    
    22,020
    
    
    
    (540
    )
    
    
    (7,513
    )
    
    
    (13,967
    )Income tax provision (benefit)
    
    
    (3,066
    )
    
    
    (3,002
    )
    
    
    6,981
    
    
    
    (102
    )
    
    
    (3,877
    )
    
    
    (3,066
    )Net income (loss)
    
    $
    (10,901
    )
    
    $
    (10,965
    )
    
    $
    15,039
    
    
    $
    (438
    )
    
    $
    (3,636
    )
    
    $
    (10,901
    )
 24




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 The
Bon-Ton Stores, Inc.
 Condensed Consolidating Statement of Operations
 Thirteen Weeks Ended October 29, 2005
 Bon-Ton(Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    CompanyCompany)
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    148,837
    
    
    $
    136,839
    
    
    $
    
    
    
    $
    
    
    
    $
    285,676Other income
    
    
    
    
    
    
    1,211
    
    
    
    915
    
    
    
    
    
    
    
    
    
    
    
    2,126
    
    
    
    150,048
    
    
    
    137,754
    
    
    
    
    
    
    
    
    
    
    
    287,802Costs and expenses:Costs of merchandise sold
    
    
    
    
    
    
    97,831
    
    
    
    91,398
    
    
    
    
    
    
    
    
    
    
    
    189,229Selling, general and administrative
    
    
    1
    
    
    
    56,243
    
    
    
    46,925
    
    
    
    
    
    
    
    (5,410
    )
    
    
    97,759Depreciation and amortization
    
    
    
    
    
    
    5,827
    
    
    
    1,355
    
    
    
    326
    
    
    
    
    
    
    
    7,508Income (loss) from operations
    
    
    (1
    )
    
    
    (9,853
    )
    
    
    (1,924
    )
    
    
    (326
    )
    
    
    5,410
    
    
    
    (6,694
    )Other income (expense):Intercompany interest income
    
    
    2,549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,549
    )
    
    
    Intercompany rental and royalty income
    
    
    
    
    
    
    
    
    
    
    4,748
    
    
    
    662
    
    
    
    (5,410
    )
    
    
    Equity in earnings (losses) of subsidiaries
    
    
    (12,046
    )
    
    
    1,491
    
    
    
    
    
    
    
    
    
    
    
    10,555
    
    
    
    Interest expense, net
    
    
    
    
    
    
    (3,684
    )
    
    
    (1,147
    )
    
    
    (522
    )
    
    
    2,549
    
    
    
    (2,804
    )Income (loss) before income taxes
    
    
    (9,498
    )
    
    
    (12,046
    )
    
    
    1,677
    
    
    
    (186
    )
    
    
    10,555
    
    
    
    (9,498
    )Income tax provision (benefit)
    
    
    (3,198
    )
    
    
    (4,056
    )
    
    
    565
    
    
    
    (63
    )
    
    
    3,554
    
    
    
    (3,198
    )Net income (loss)
    
    $
    (6,300
    )
    
    $
    (7,990
    )
    
    $
    1,112
    
    
    $
    (123
    )
    
    $
    7,001
    
    
    $
    (6,300
    )
 25




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 The
Bon-Ton Stores, Inc.
 Condensed Consolidating Statement of Operations
 Thirty-Nine Weeks Ended October 28, 2006
 Bon-Ton(Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    CompanyCompany)
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    414,618
    
    
    $
    1,698,028
    
    
    $
    
    
    
    $
    
    
    
    $
    2,112,646Other income
    
    
    
    
    
    
    14,049
    
    
    
    43,597
    
    
    
    
    
    
    
    
    
    
    
    57,646
    
    
    
    428,667
    
    
    
    1,741,625
    
    
    
    
    
    
    
    
    
    
    
    2,170,292Costs and expenses:Costs of merchandise sold
    
    
    
    
    
    
    283,873
    
    
    
    1,063,469
    
    
    
    
    
    
    
    
    
    
    
    1,347,342Selling, general and administrative
    
    
    2
    
    
    
    177,897
    
    
    
    579,677
    
    
    
    6
    
    
    
    (25,860
    )
    
    
    731,722Depreciation and amortization
    
    
    
    
    
    
    17,756
    
    
    
    49,289
    
    
    
    9,627
    
    
    
    
    
    
    
    76,672Income (loss) from operations
    
    
    (2
    )
    
    
    (50,859
    )
    
    
    49,190
    
    
    
    (9,633
    )
    
    
    25,860
    
    
    
    14,556Other income (expense):Intercompany interest income
    
    
    1,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,700
    )
    
    
    Intercompany rental and royalty income
    
    
    
    
    
    
    
    
    
    
    7,005
    
    
    
    18,855
    
    
    
    (25,860
    )
    
    
    Equity in earnings (losses) of subsidiaries
    
    
    (66,224
    )
    
    
    42,159
    
    
    
    
    
    
    
    
    
    
    
    24,065
    
    
    
    Interest expense, net
    
    
    
    
    
    
    (57,524
    )
    
    
    (11,122
    )
    
    
    (12,136
    )
    
    
    1,700
    
    
    
    (79,082
    )Income (loss) before income taxes
    
    
    (64,526
    )
    
    
    (66,224
    )
    
    
    45,073
    
    
    
    (2,914
    )
    
    
    24,065
    
    
    
    (64,526
    )Income tax provision (benefit)
    
    
    (23,015
    )
    
    
    (23,621
    )
    
    
    16,077
    
    
    
    (1,039
    )
    
    
    8,583
    
    
    
    (23,015
    )Net income (loss)
    
    $
    (41,511
    )
    
    $
    (42,603
    )
    
    $
    28,996
    
    
    $
    (1,875
    )
    
    $
    15,482
    
    
    $
    (41,511
    )
 26




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 The
Bon-Ton Stores, Inc.
 Condensed Consolidating Statement of Operations
 Thirty-Nine Weeks Ended October 29, 2005
 Bon-Ton(Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    CompanyCompany)
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    425,971
    
    
    $
    396,584
    
    
    $
    
    
    
    $
    
    
    
    $
    822,555Other income
    
    
    
    
    
    
    3,197
    
    
    
    2,901
    
    
    
    
    
    
    
    
    
    
    
    6,098
    
    
    
    429,168
    
    
    
    399,485
    
    
    
    
    
    
    
    
    
    
    
    828,653Costs and expenses:Costs of merchandise sold
    
    
    
    
    
    
    275,355
    
    
    
    255,337
    
    
    
    
    
    
    
    
    
    
    
    530,692Selling, general and administrative
    
    
    4
    
    
    
    155,817
    
    
    
    145,355
    
    
    
    1
    
    
    
    (15,329
    )
    
    
    285,848Depreciation and amortization
    
    
    
    
    
    
    16,229
    
    
    
    4,317
    
    
    
    979
    
    
    
    
    
    
    
    21,525Income (loss) from operations
    
    
    (4
    )
    
    
    (18,233
    )
    
    
    (5,524
    )
    
    
    (980
    )
    
    
    15,329
    
    
    
    (9,412
    )Other income (expense):Intercompany interest income
    
    
    7,648
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,648
    )
    
    
    Intercompany rental and royalty income
    
    
    
    
    
    
    
    
    
    
    13,343
    
    
    
    1,986
    
    
    
    (15,329
    )
    
    
    Equity in earnings (losses) of subsidiaries
    
    
    (26,766
    )
    
    
    3,667
    
    
    
    
    
    
    
    
    
    
    
    23,099
    
    
    
    Interest expense, net
    
    
    
    
    
    
    (12,200
    )
    
    
    (3,711
    )
    
    
    (1,447
    )
    
    
    7,648
    
    
    
    (9,710
    )Income (loss) before income taxes
    
    
    (19,122
    )
    
    
    (26,766
    )
    
    
    4,108
    
    
    
    (441
    )
    
    
    23,099
    
    
    
    (19,122
    )Income tax provision (benefit)
    
    
    (6,965
    )
    
    
    (9,749
    )
    
    
    1,496
    
    
    
    (161
    )
    
    
    8,414
    
    
    
    (6,965
    )Net income (loss)
    
    $
    (12,157
    )
    
    $
    (17,017
    )
    
    $
    2,612
    
    
    $
    (280
    )
    
    $
    14,685
    
    
    $
    (12,157
    )
 27




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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, 2006
 Bon-Ton(Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    CompanyCompany)
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:
    
    $
    (539
    )
    
    $
    (144,472
    )
    
    $
    43,231
    
    
    $
    2,804
    
    
    $
    
    
    
    $
    (98,976
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (44,670
    )
    
    
    (28,284
    )
    
    
    
    
    
    
    
    
    
    
    (72,954
    )Acquisition, net of cash acquired
    
    
    
    
    
    
    (1,047,120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,047,120
    )Proceeds from sale of property, fixtures
and equipment
    
    
    
    
    
    
    1,039
    
    
    
    518
    
    
    
    
    
    
    
    
    
    
    
    1,557Net cash used in investing activities
    
    
    
    
    
    
    (1,090,751
    )
    
    
    (27,766
    )
    
    
    
    
    
    
    
    
    
    
    (1,118,517
    )Cash flows from financing activities:Payments on long-term debt and capital
lease obligations
    
    
    
    
    
    
    (586,361
    )
    
    
    (1,081
    )
    
    
    (2,804
    )
    
    
    
    
    
    
    (590,246
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    1,807,739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,807,739Cash dividends paid
    
    
    (1,274
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,274
    )Proceeds from stock options exercised
    
    
    936
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    936Excess tax benefit from exercise of stock options
    
    
    868
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    868Deferred financing costs paid
    
    
    
    
    
    
    (27,798
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,798
    )Increase in bank overdraft balances
    
    
    
    
    
    
    40,180
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    40,344Net cash provided by (used in) financing activities
    
    
    530
    
    
    
    1,233,760
    
    
    
    (917
    )
    
    
    (2,804
    )
    
    
    
    
    
    
    1,230,569Net increase (decrease) in cash and cash
equivalents
    
    
    (9
    )
    
    
    (1,463
    )
    
    
    14,548
    
    
    
    
    
    
    
    
    
    
    
    13,076Cash and cash equivalents at beginning
of period
    
    
    10
    
    
    
    7,453
    
    
    
    2,308
    
    
    
    
    
    
    
    
    
    
    
    9,771Cash and cash equivalents at end of period
    
    $
    1
    
    
    $
    5,990
    
    
    $
    16,856
    
    
    $
    
    
    
    $
    
    
    
    $
    22,847
 28




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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, 2005
 Bon-Ton(Parent
    
    
    
    
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    CompanyCompany)
    
    
    Issuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:
    
    $
    435
    
    
    $
    28,927
    
    
    $
    1,538
    
    
    $
    694
    
    
    $
    
    
    
    $
    31,594Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (13,308
    )
    
    
    (5,786
    )
    
    
    
    
    
    
    
    
    
    
    (19,094
    )Proceeds from sale of property, fixtures
and equipment
    
    
    
    
    
    
    98
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    102Net cash used in investing activities
    
    
    
    
    
    
    (13,210
    )
    
    
    (5,782
    )
    
    
    
    
    
    
    
    
    
    
    (18,992
    )Cash flows from financing activities:Payments on long-term debt and capital
lease obligations
    
    
    
    
    
    
    (279,497
    )
    
    
    (551
    )
    
    
    (694
    )
    
    
    
    
    
    
    (280,742
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    256,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,000Cash dividends paid
    
    
    (1,249
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,249
    )Proceeds from stock options exercised
    
    
    825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    825Deferred financing costs paid
    
    
    
    
    
    
    (123
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123
    )Increase (decrease) in bank overdraft balances
    
    
    
    
    
    
    4,437
    
    
    
    (213
    )
    
    
    
    
    
    
    
    
    
    
    4,224Net cash used in financing activities
    
    
    (424
    )
    
    
    (19,183
    )
    
    
    (764
    )
    
    
    (694
    )
    
    
    
    
    
    
    (21,065
    )Net increase (decrease) in cash and cash
equivalents
    
    
    11
    
    
    
    (3,466
    )
    
    
    (5,008
    )
    
    
    
    
    
    
    
    
    
    
    (8,463
    )Cash and cash equivalents at beginning
of period
    
    
    2
    
    
    
    14,872
    
    
    
    8,034
    
    
    
    
    
    
    
    
    
    
    
    22,908Cash and cash equivalents at end of period
    
    $
    13
    
    
    $
    11,406
    
    
    $
    3,026
    
    
    $
    
    
    
    $
    
    
    
    $
    14,445
 29




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##### Table of Contents



THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands except share and per share data)
 13. FUTURE ACCOUNTING CHANGES
   30




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
     31




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
   Results of Operations
  THIRTEEN
    
    
    THIRTY-NINEWEEKS ENDED
    
    
    WEEKS ENDEDOctober 28,
    
    
    October 29,
    
    
    October 28,
    
    
    October 29,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Other income
    
    
    2.8
    
    
    
    0.7
    
    
    
    2.7
    
    
    
    0.7102.8
    
    
    
    100.7
    
    
    
    102.7
    
    
    
    100.7Costs and expenses:Costs of merchandise sold
    
    
    63.4
    
    
    
    66.2
    
    
    
    63.8
    
    
    
    64.5Selling, general and administrative
    
    
    34.0
    
    
    
    34.2
    
    
    
    34.6
    
    
    
    34.8Depreciation and amortization
    
    
    3.7
    
    
    
    2.6
    
    
    
    3.6
    
    
    
    2.6Income (loss) income from operations
    
    
    1.7
    
    
    
    (2.3
    )
    
    
    0.7
    
    
    
    (1.1
    )Interest expense, net
    
    
    3.5
    
    
    
    1.0
    
    
    
    3.7
    
    
    
    1.2Loss before income taxes
    
    
    (1.8
    )
    
    
    (3.3
    )
    
    
    (3.1
    )
    
    
    (2.3
    )Income tax benefit
    
    
    (0.4
    )
    
    
    (1.1
    )
    
    
    (1.1
    )
    
    
    (0.8
    )Net loss
    
    
    (1.4
    )%
    
    
    (2.2
    )%
    
    
    (2.0
    )%
    
    
    (1.5
    )%
 32




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Thirteen Weeks Ended October 28, 2006 Compared to Thirteen Weeks Ended October 29, 2005
 Net sales
   Other income
 Costs and expenses
 33




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
   Income (loss) from operations
 Interest expense, net
 Income tax benefit
 Net loss
 Thirty-nine Weeks Ended October 28, 2006 Compared to Thirty-nine Weeks Ended October 29, 2005
 Net sales
  34




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Other income
 Costs and expenses
   Income (loss) from operations
 35




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Interest expense, net
 Income tax benefit
 Net loss
 Seasonality and Inflation
    36




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Liquidity and Capital Resources
  October 28,
    
    
    October 29,(Dollars in millions)
    
    2006
    
    
    2005Working capital
    
    $
    442.2
    
    
    $
    229.0Current ratio
    
    
    1.72:1
    
    
    
    1.95:1Debt to total capitalization (1)
    
    
    0.84:1
    
    
    
    0.38:1Unused availability under lines of credit (2)
    
    $
    247.8
    
    
    $
    148.3
 
 (1)
    
    Debt includes obligations under capital leases. Total capitalization includes
shareholders equity, debt and obligations under capital leases.(2)
    
    Subject to a minimum availability covenant of $75 and $10 as of October 28, 2006 and October
29, 2005, respectively.      37




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    38




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
        39




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
   Critical Accounting Policies
   Inventory Valuation
   40




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    Vendor Allowances
  41




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Income Taxes
  Long-lived Assets
   
    
    Significant under-performance of stores relative to historical or projected
future operating results,
    
    Significant changes in the manner of the Companys use of assets or overall
business strategy, and
    
    Significant negative industry or economic trends for a sustained period.
 
 42




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    Goodwill and Intangible Assets
     43




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Insurance Reserve Estimates
  Purchase Accounting
   44




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##### Table of Contents



THE BON-TON STORES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Future Accounting Changes
   Forward-Looking Statements
  45




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##### Table of Contents



THE BON-TON STORES, INC.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk and Financial Instruments
   Expected Maturity Date By Fiscal Year(Dollars in
    
    Remainder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    There-
    
    
    
    
    
    Fairthousands)
    
    of 2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    after
    
    
    Total
    
    
    ValueDebt:Fixed-rate debt
    
    $
    1,288
    
    
    $
    5,524
    
    
    $
    5,880
    
    
    $
    6,356
    
    
    $
    7,822
    
    
    $
    758,262
    
    
    $
    785,132
    
    
    $
    788,320Average fixed rate
    
    
    6.87
    %
    
    
    6.87
    %
    
    
    6.90
    %
    
    
    6.91
    %
    
    
    6.69
    %
    
    
    8.98
    %
    
    
    8.90
    %Variable-rate debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    476,895
    
    
    $
    476,895
    
    
    $
    476,895Average variable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.16
    %
    
    
    7.16
    %Interest Rate Derivatives:Interest rate swapsVariable-to-fixed
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    100,000
    
    
    $
    (2,081
    )Average pay rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.49
    %
    
    
    5.49
    %Average receive rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.48
    %
    
    
    5.48
    %
 46




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##### Table of Contents



THE BON-TON STORES, INC.
 
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
    47




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##### Table of Contents



THE BON-TON STORES, INC.
 
 PART II: OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  Exhibit
    
    
    Description
    
    
    Document Location10.1
    
    
    Severance Pay Plan
    
    
    Exhibit 10.1 to the
Current Report on Form
8-K filed on August 28,
200610.2
    
    
    Employment Agreement with James M.
Zamberlan
    
    
    Exhibit 10.1 to the
Current Report on Form
8-K filed on September
19, 200610.3
    
    
    Asset Purchase Agreement between
Belk, Inc. and The Bon-Ton Stores,
Inc.
    
    
    Exhibit 10.1 to the
Current Report on Form
8-K filed on October
31, 200631.1
    
    
    Certification of Byron L. Bergren
    
    
    Filed herewith.31.2
    
    
    Certification of Keith E. Plowman
    
    
    Filed herewith.32.1
    
    
    Certification Pursuant to Rules
13a-14(b) and 15d-14(b) of the
Securities Exchange Act of 1934
    
    
    Furnished herewith.
 
 SIGNATURES
  THE BON-TON STORES, INC.DATE:      December 6, 2006
    BY:
    /s/  Byron L. BergrenByron L. BergrenPresident and
Chief Executive OfficerDATE:      December 6, 2006
    BY:
    /s/  Keith E. PlowmanKeith E. PlowmanExecutive Vice President,
Chief Financial 
Officer and Principal Accounting Officer 48