Form 10-Q BON TON STORES INC For: May 02

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June 10, 2015 2:50 PM EDT

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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 May 2, 2015		Commission File Number
		0-19517

THE BON-TON STORES, INC.

2801 East Market Street

York, Pennsylvania 17402

(717) 757-7660

Incorporated in Pennsylvania

IRS No. 23-2835229

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

Large accelerated filer o		Accelerated filer x

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

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

As of May 29, 2015, there were 17,996,099 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)
	May 2,			May 3,			January 31,
(In thousands, except share and per share data)	2015			2014			2015

Assets
Current assets:
Cash and cash equivalents	$	8,711		$	8,221		$	8,753
Merchandise inventories	738,231			711,780			734,956
Prepaid expenses and other current assets	77,834			73,138			93,394
Total current assets	824,776			793,139			837,103
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $931,661, $878,222 and $910,494 at May 2, 2015, May 3, 2014 and January 31, 2015, respectively	642,268			629,453			641,996
Deferred income taxes	17,373			18,261			15,781
Intangible assets, net of accumulated amortization of $64,625, $63,823 and $64,451 at May 2, 2015, May 3, 2014 and January 31, 2015, respectively	88,538			101,045			90,151
Other long-term assets	22,252			24,684			23,483
Total assets	$	1,595,207		$	1,566,582		$	1,608,514

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	197,789		$	188,169		$	208,882
Accrued payroll and benefits	21,116			21,575			28,848
Accrued expenses	152,598			152,328			158,022
Current maturities of long-term debt	209,652			7,058			6,788
Current maturities of obligations under capital leases	4,061			3,785			3,961
Deferred income taxes	26,519			25,686			24,478
Total current liabilities	611,735			398,601			430,979

Long-term debt, less current maturities	697,997			844,080			850,963
Obligations under capital leases, less current maturities	43,629			47,690			45,016
Other long-term liabilities	187,403			180,153			193,908
Total liabilities	1,540,764			1,470,524			1,520,866

Contingencies (Note 9)

Shareholders’ equity
Preferred Stock — authorized 5,000,000 shares at $0.01 par value; no shares issued	—			—			—
Common Stock — authorized 40,000,000 shares at $0.01 par value; issued shares of 18,331,899, 17,831,500 and 17,818,323 at May 2, 2015, May 3, 2014 and January 31, 2015, respectively	183			178			178
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at May 2, 2015, May 3, 2014 and January 31, 2015	30			30			30
Treasury stock, at cost — 337,800 shares at May 2, 2015, May 3, 2014 and January 31, 2015	(1,387		)	(1,387		)	(1,387		)
Additional paid-in capital	162,253			160,564			161,359
Accumulated other comprehensive loss	(79,423		)	(49,634		)	(80,405		)
(Accumulated deficit) retained earnings	(27,213		)	(13,693		)	7,873
Total shareholders’ equity	54,443			96,058			87,648
Total liabilities and shareholders’ equity	$	1,595,207		$	1,566,582		$	1,608,514

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	THIRTEEN
	WEEKS ENDED
(In thousands, except per share data)	May 2,			May 3,
(Unaudited)	2015			2014

Net sales	$	610,938		$	607,460
Other income	16,304			15,073
	627,242			622,533

Costs and expenses:
Costs of merchandise sold	404,465			393,110
Selling, general and administrative	218,686			222,319
Depreciation and amortization	22,033			21,562
Amortization of lease-related interests	1,101			1,182
Loss from operations	(19,043		)	(15,640		)
Interest expense, net	15,190			15,271
Loss on extinguishment of debt	—			153

Loss before income taxes	(34,233		)	(31,064		)
Income tax (benefit) provision	(159		)	448

Net loss	$	(34,074	)	$	(31,512	)

Per share amounts —
Basic:
Net loss	$	(1.74	)	$	(1.63	)

Diluted:
Net loss	$	(1.74	)	$	(1.63	)

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	THIRTEEN
	WEEKS ENDED
(In thousands)	May 2,			May 3,
(Unaudited)	2015			2014

Net loss	$	(34,074	)	$	(31,512	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	982			814
Comprehensive loss	$	(33,092	)	$	(30,698	)

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	THIRTEEN
	WEEKS ENDED
(In thousands)	May 2,			May 3,
(Unaudited)	2015			2014
Cash flows from operating activities:
Net loss	$	(34,074	)	$	(31,512	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	22,033			21,562
Amortization of lease-related interests	1,101			1,182
Share-based compensation expense	844			1,253
Gain on sale of property, fixtures and equipment	—			(2,303		)
Reclassifications of accumulated other comprehensive loss	1,591			814
Loss on extinguishment of debt	—			153
Amortization of deferred financing costs	747			724
Deferred income tax (benefit) provision	(159		)	445
Changes in operating assets and liabilities:
Increase in merchandise inventories	(3,274		)	(2,047		)
Decrease in prepaid expenses and other current assets	15,560			3,147
Decrease in other long-term assets	484			212
Decrease in accounts payable	(5,634		)	(4,134		)
Decrease in accrued payroll and benefits and accrued expenses	(10,676		)	(3,010		)
Decrease in other long-term liabilities	(6,373		)	(2,289		)
Net cash used in operating activities	(17,830		)	(15,803		)

Cash flows from investing activities:
Capital expenditures	(24,448		)	(15,433		)
Proceeds from sale of property, fixtures and equipment	—			5,000
Net cash used in investing activities	(24,448		)	(10,433		)

Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	(139,000		)	(139,750		)
Proceeds from issuance of long-term debt	187,611			177,728
Cash dividends paid	(991		)	(985		)
Restricted shares forfeited in lieu of payroll taxes	(399		)	(1,461		)
Proceeds from stock options exercised	454			—
Deferred financing costs paid	—			(35		)
Decrease in book overdraft balances	(5,439		)	(8,098		)
Net cash provided by financing activities	42,236			27,399

Net (decrease) increase in cash and cash equivalents	(42		)	1,163

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

Cash and cash equivalents at end of period	$	8,711		$	8,221

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

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

Net loss	—			—		—			—			—			(31,512		)	(31,512		)
Other comprehensive income	—			—		—			—			814			—			814
Dividends to shareholders, $0.05 per share	—			—		—			—			—			(992		)	(992		)
Restricted shares forfeited in lieu of payroll taxes	—			—		—			(1,461		)	—			—			(1,461		)
Share-based compensation expense	—			—		—			1,253			—			—			1,253
BALANCE AT MAY 3, 2014	$	178		$	30	$	(1,387	)	$	160,564		$	(49,634	)	$	(13,693	)	$	96,058

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

Net loss	—			—		—			—			—			(34,074		)	(34,074		)
Other comprehensive income	—			—		—			—			982			—			982
Dividends to shareholders, $0.05 per share	—			—		—			—			—			(1,012		)	(1,012		)
Restricted shares forfeited in lieu of payroll taxes	(1		)	—		—			(398		)	—			—			(399		)
Proceeds from stock options exercised	1			—		—			453			—			—			454
Share-based compensation expense	5			—		—			839			—			—			844
BALANCE AT MAY 2, 2015	$	183		$	30	$	(1,387	)	$	162,253		$	(79,423	)	$	(27,213	)	$	54,443

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

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

1. BASIS OF PRESENTATION

The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company incorporated on January 31, 1929. As of May 2, 2015, The Bon-Ton Stores, Inc. operated, through its subsidiaries, 270 stores, including nine furniture galleries and four clearance centers, in 26 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates.

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

The unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of management, all adjustments considered necessary for a fair presentation of interim periods have been included. The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of results for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015.

For purposes of the following discussion, references to the “first quarter of 2015” and the “first quarter of 2014” are to the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. References to “fiscal 2015” are to the 52 weeks ending January 30, 2016; references to “fiscal 2014” are to the 52 weeks ended January 31, 2015.

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.

2. PER-SHARE AMOUNTS

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

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

	THIRTEEN
	WEEKS ENDED
	May 2,			May 3,
	2015			2014

Basic Loss Per Common Share
Net loss	$	(34,074	)	$	(31,512	)
Less: Income allocated to participating securities	—			—
Net loss available to common shareholders	$	(34,074	)	$	(31,512	)

Weighted average common shares outstanding	19,561,610			19,281,718

Basic loss per common share	$	(1.74	)	$	(1.63	)

Diluted Loss Per Common Share
Net loss	$	(34,074	)	$	(31,512	)
Less: Income allocated to participating securities	—			—
Net loss available to common shareholders	$	(34,074	)	$	(31,512	)

Weighted average common shares outstanding	19,561,610			19,281,718
Common shares issuable - stock options	—			—
Weighted average common shares outstanding assuming dilution	19,561,610			19,281,718

Diluted loss per common share	$	(1.74	)	$	(1.63	)

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 708,961 and 729,534 for the first quarter in each of 2015 and 2014, respectively, were not considered in the calculation of net loss available to common shareholders used for both basic and diluted EPS.

In addition, weighted average stock option shares (non-participating securities) totaling 110,196 and 256,008 for the first quarter in each of 2015 and 2014, respectively, were excluded from the computation of diluted weighted average common shares outstanding, as their effect would have been antidilutive. Certain of these stock option shares were excluded solely due to the Company’s net loss position. Had the Company reported net income for the first quarter in each of 2015 and 2014, these shares would have increased diluted weighted average common shares outstanding by 16,790 and 103,150, respectively.

3. FAIR VALUE MEASUREMENTS

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

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of May 2, 2015 are as follows:

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

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of May 3, 2014 are as follows:

					Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Second lien senior secured notes	$	407,292	$	392,234	$	392,234	$	—	$	—
Mortgage facilities	216,710		218,315		—		—		218,315
Senior secured credit facility	227,136		227,136		—		—		227,136
Total	$	851,138	$	837,685	$	392,234	$	—	$	445,451

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

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

					Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Second lien senior secured notes	$	407,292	$	345,700	$	345,700	$	—	$	—
Mortgage facilities	211,541		214,132		—		—		214,132
Senior secured credit facility	238,918		238,918		—		—		238,918
Total	$	857,751	$	798,750	$	345,700	$	—	$	453,050

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:

	May 2,		May 3,		January 31,
	2015		2014		2015
Other receivables	$	35,198	$	32,040	$	59,734
Prepaid expenses	42,636		41,098		33,660
Total	$	77,834	$	73,138	$	93,394

5. SUPPLEMENTAL CASH FLOW INFORMATION

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

	THIRTEEN
	WEEKS ENDED
	May 2,		May 3,
	2015		2014

Cash paid for:
Interest, net of amounts capitalized	$	9,315	$	9,512
Income taxes, net of refunds received	—		(3		)

Non-cash investing and financing activities:
Property, fixtures and equipment included in accrued expenses	$	5,711	$	4,216
Declared dividends to shareholders included in accrued expenses	1,012		992

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 first quarter of 2015 related to store closings in fiscal 2014, the consolidation of eCommerce fulfillment activities in advance of the Company’s new eCommerce fulfillment center and the Company’s expense efficiency initiative:

	Termination Benefits			Other Costs			Total
Accrued balance as of January 31, 2015	$	1,279		$	—		$	1,279
Provisions	(122		)	102			(20		)
Payments	(421		)	(102		)	(523		)
Accrued balance as of May 2, 2015	$	736		$	—		$	736

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

7. EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS

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

	THIRTEEN
	WEEKS ENDED
	May 2,			May 3,
	2015			2014
Interest cost	$	1,701		$	1,997
Expected return on plan assets	(2,410		)	(2,490		)
Recognition of net actuarial loss	1,698			944
Net periodic benefit expense	$	989		$	451

During the first quarter of 2015, contributions of $3,102 were made to the Pension Plans. The Company anticipates contributing an additional $3,575 to fund the Pension Plans in fiscal 2015 for an annual total of $6,677.

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

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

	THIRTEEN
	WEEKS ENDED
	May 2,			May 3,
	2015			2014
Interest cost	$	16		$	22
Recognition of net actuarial gain	(107		)	(130		)
Net periodic benefit income	$	(91	)	$	(108	)

During the first quarter of 2015, the Company contributed $20 to fund the Postretirement Benefit Plan, and anticipates contributing an additional $335 to fund the Postretirement Benefit Plan in fiscal 2015, for a net annual total of $355.

8. INCOME TAXES

The provisions codified within ASC Topic 740, Income Taxes (“ASC 740”), require companies to assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence using a “more likely than not” standard. In accordance with ASC 740, the Company maintained a full valuation allowance throughout fiscal 2014 and the first quarter of 2015 on all of the Company’s net deferred tax assets. The Company’s deferred tax asset valuation allowance totaled $175,356, $156,846 and $161,856 as of May 2, 2015, May 3, 2014 and January 31, 2015, respectively.

The Company recorded a net income tax benefit of $159 which includes a $609 non-cash income tax benefit from continuing operations during the first quarter of 2015. 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 a tax benefit on the loss from continuing operations for the first quarter of 2015, which is exactly offset by income tax expense on other comprehensive income. In addition, the net income tax benefit includes $450 for recognition of deferred tax liabilities associated with indefinite-lived assets. The income tax provision of $448 recorded in the first quarter of 2014 primarily reflects the recognition of deferred tax liabilities associated with indefinite-lived assets.

9. 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.

10. COMPREHENSIVE LOSS

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

The changes recognized within other comprehensive income reflect income tax expense of $609 and $0 for the first quarters of 2015 and 2014, respectively (see Note 8).

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

11. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

Certain debt obligations of the Company, which constitute debt obligations of The Bon-Ton Department Stores, Inc. (the “Issuer”), are guaranteed by the Parent and by each of its subsidiaries, other than the Issuer, that is an obligor under the Company’s senior secured credit facility. 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 and non-guarantor subsidiaries as of May 2, 2015, May 3, 2014 and January 31, 2015 and for the first quarter in each of 2015 and 2014 as presented below has been prepared from the books and records maintained by the Parent, the Issuer and the guarantor and non-guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor and non-guarantor subsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time.

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

May 2, 2015

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

Assets
Current assets:
Cash and cash equivalents	$	1	$	3,254	$	5,456	$	—	$	—		$	8,711
Merchandise inventories	—		469,973		268,258		—		—			738,231
Prepaid expenses and other current assets	—		66,680		7,374		4,286		(506		)	77,834
Total current assets	1		539,907		281,088		4,286		(506		)	824,776
Property, fixtures and equipment at cost, net	—		275,383		142,628		224,257		—			642,268
Deferred income taxes	—		4,235		13,138		—		—			17,373
Intangible assets, net	—		23,882		64,656		—		—			88,538
Investment in and advances to affiliates	54,442		341,535		413,542		—		(809,519		)	—
Other long-term assets	—		21,547		374		331		—			22,252
Total assets	$	54,443	$	1,206,489	$	915,426	$	228,874	$	(810,025	)	$	1,595,207

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	197,789	$	—	$	—	$	—		$	197,789
Accrued payroll and benefits	—		17,179		3,937		—		—			21,116
Accrued expenses	—		80,922		72,110		72		(506		)	152,598
Current maturities of long-term debt and obligations under capital leases	—		471		3,590		209,652		—			213,713
Deferred income taxes	—		9,640		16,879		—		—			26,519
Total current liabilities	—		306,001		96,516		209,724		(506		)	611,735

Long-term debt and obligations under capital leases, less current maturities	—		703,062		38,564		—		—			741,626
Other long-term liabilities	—		144,805		40,729		1,869		—			187,403
Total liabilities	—		1,153,868		175,809		211,593		(506		)	1,540,764

Shareholders’ equity	54,443		52,621		739,617		17,281		(809,519		)	54,443

Total liabilities and shareholders’ equity	$	54,443	$	1,206,489	$	915,426	$	228,874	$	(810,025	)	$	1,595,207

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

May 3, 2014

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

Assets
Current assets:
Cash and cash equivalents	$	1	$	3,042	$	5,178	$	—	$	—		$	8,221
Merchandise inventories	—		447,439		264,341		—		—			711,780
Prepaid expenses and other current assets	—		66,035		4,504		3,177		(578		)	73,138
Total current assets	1		516,516		274,023		3,177		(578		)	793,139
Property, fixtures and equipment at cost, net	—		241,984		152,326		235,143		—			629,453
Deferred income taxes	—		1,062		17,199		—		—			18,261
Intangible assets, net	—		32,734		68,311		—		—			101,045
Investment in and advances to affiliates	96,057		343,552		377,779		—		(817,388		)	—
Other long-term assets	—		23,552		491		641		—			24,684
Total assets	$	96,058	$	1,159,400	$	890,129	$	238,961	$	(817,966	)	$	1,566,582

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	188,169	$	—	$	—	$	—		$	188,169
Accrued payroll and benefits	—		17,529		4,046		—		—			21,575
Accrued expenses	—		79,855		72,939		112		(578		)	152,328
Current maturities of long-term debt and obligations under capital leases	—		454		3,330		7,059		—			10,843
Deferred income taxes	—		5,882		19,804		—		—			25,686
Total current liabilities	—		291,889		100,119		7,171		(578		)	398,601

Long-term debt and obligations under capital leases, less current maturities	—		639,964		42,154		209,652		—			891,770
Other long-term liabilities	—		132,091		46,323		1,739		—			180,153
Total liabilities	—		1,063,944		188,596		218,562		(578		)	1,470,524

Shareholders’ equity	96,058		95,456		701,533		20,399		(817,388		)	96,058

Total liabilities and shareholders’ equity	$	96,058	$	1,159,400	$	890,129	$	238,961	$	(817,966	)	$	1,566,582

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 31, 2015

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

Assets
Current assets:
Cash and cash equivalents	$	1	$	4,209	$	4,543	$	—	$	—		$	8,753
Merchandise inventories	—		483,270		251,686		—		—			734,956
Prepaid expenses and other current assets	—		74,956		14,906		3,966		(434		)	93,394
Total current assets	1		562,435		271,135		3,966		(434		)	837,103
Property, fixtures and equipment at cost, net	—		268,224		146,793		226,979		—			641,996
Deferred income taxes	—		4,889		10,892		—		—			15,781
Intangible assets, net	—		24,618		65,533		—		—			90,151
Investment in and advances to affiliates	87,647		324,668		435,870		—		(848,185		)	—
Other long-term assets	—		22,685		391		407		—			23,483
Total assets	$	87,648	$	1,207,519	$	930,614	$	231,352	$	(848,619	)	$	1,608,514

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	208,882	$	—	$	—	$	—		$	208,882
Accrued payroll and benefits	—		23,637		5,211		—		—			28,848
Accrued expenses	—		76,599		81,857		—		(434		)	158,022
Current maturities of long-term debt and obligations under capital leases	—		460		3,501		6,788		—			10,749
Deferred income taxes	—		10,081		14,397		—		—			24,478
Total current liabilities	—		319,659		104,966		6,788		(434		)	430,979

Long-term debt and obligations under capital leases, less current maturities	—		651,436		39,790		204,753		—			895,979
Other long-term liabilities	—		150,152		41,921		1,835		—			193,908
Total liabilities	—		1,121,247		186,677		213,376		(434		)	1,520,866

Shareholders’ equity	87,648		86,272		743,937		17,976		(848,185		)	87,648

Total liabilities and shareholders’ equity	$	87,648	$	1,207,519	$	930,614	$	231,352	$	(848,619	)	$	1,608,514

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 May 2, 2015

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

Net sales	$	—		$	360,466		$	250,472		$	—		$	—		$	610,938
Other income	—			9,470			6,834			—			—			16,304
	—			369,936			257,306			—			—			627,242

Costs and expenses:
Costs of merchandise sold	—			239,112			165,353			—			—			404,465
Selling, general and administrative	—			134,831			91,223			35			(7,403		)	218,686
Depreciation and amortization	—			11,208			8,104			2,721			—			22,033
Amortization of lease-related interests	—			495			606			—			—			1,101
Loss from operations	—			(15,710		)	(7,980		)	(2,756		)	7,403			(19,043		)

Other income (expense):
Intercompany income	—			450			4,694			6,670			(11,814		)	—
Equity in losses of subsidiaries	(34,233		)	(3,557		)	—			—			37,790			—
Interest expense, net	—			(15,416		)	(798		)	(3,387		)	4,411			(15,190		)

(Loss) income before income taxes	(34,233		)	(34,233		)	(4,084		)	527			37,790			(34,233		)
Income tax (benefit) provision	(159		)	(159		)	236			—			(77		)	(159		)

Net (loss) income	$	(34,074	)	$	(34,074	)	$	(4,320	)	$	527		$	37,867		$	(34,074	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended May 2, 2015

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

Net (loss) income	$	(34,074	)	$	(34,074	)	$	(4,320	)	$	527	$	37,867		$	(34,074	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	982			982			—			—		(982		)	982
Comprehensive (loss) income	$	(33,092	)	$	(33,092	)	$	(4,320	)	$	527	$	36,885		$	(33,092	)

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirteen Weeks Ended May 3, 2014

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

Net sales	$	—		$	360,200		$	247,260		$	—		$	—		$	607,460
Other income	—			9,002			6,071			—			—			15,073
	—			369,202			253,331			—			—			622,533

Costs and expenses:
Costs of merchandise sold	—			234,367			158,743			—			—			393,110
Selling, general and administrative	—			139,676			92,440			(2,371		)	(7,426		)	222,319
Depreciation and amortization	—			11,066			7,714			2,782			—			21,562
Amortization of lease-related interests	—			576			606			—			—			1,182
Loss from operations	—			(16,483		)	(6,172		)	(411		)	7,426			(15,640		)

Other income (expense):
Intercompany income	—			464			5,366			6,670			(12,500		)	—
Equity in (losses) income of subsidiaries	(31,064		)	944			—			—			30,120			—
Interest expense, net	—			(15,989		)	(862		)	(3,494		)	5,074			(15,271		)
Loss on extinguishment of debt	—			—			—			(153		)	—			(153		)

(Loss) income before income taxes	(31,064		)	(31,064		)	(1,668		)	2,612			30,120			(31,064		)
Income tax provision	448			448			235			—			(683		)	448

Net (loss) income	$	(31,512	)	$	(31,512	)	$	(1,903	)	$	2,612		$	30,803		$	(31,512	)

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended May 3, 2014

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

Net (loss) income	$	(31,512	)	$	(31,512	)	$	(1,903	)	$	2,612	$	30,803		$	(31,512	)
Other comprehensive income, net of tax:
Pension and postretirement benefit plans	814			814			—			—		(814		)	814
Comprehensive (loss) income	$	(30,698	)	$	(30,698	)	$	(1,903	)	$	2,612	$	29,989		$	(30,698	)

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

Thirteen Weeks Ended May 2, 2015

							Guarantor			Non-Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	1,390		$	(25,585	)	$	6,097		$	3,111		$	(2,843	)	$	(17,830	)

Cash flows from investing activities:
Capital expenditures	—			(20,402		)	(4,046		)	—			—			(24,448		)
Intercompany investing activity	(454		)	(176		)	—			—			630			—
Net cash used in investing activities	(454		)	(20,578		)	(4,046		)	—			630			(24,448		)

Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	—			(135,973		)	(1,138		)	(1,889		)	—			(139,000		)
Proceeds from issuance of long-term debt	—			187,611			—			—			—			187,611
Intercompany financing activity	—			(991		)	—			(1,222		)	2,213			—
Cash dividends paid	(991		)	—			—			—			—			(991		)
Restricted shares forfeited in lieu of payroll taxes	(399		)	—			—			—			—			(399		)
Proceeds from stock options exercised	454			—			—			—			—			454
Decrease in book overdraft balances	—			(5,439		)	—			—			—			(5,439		)
Net cash (used in) provided by financing activities	(936		)	45,208			(1,138		)	(3,111		)	2,213			42,236

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

Cash and cash equivalents at beginning of period	1			4,209			4,543			—			—			8,753

Cash and cash equivalents at end of period	$	1		$	3,254		$	5,456		$	—		$	—		$	8,711

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

Thirteen Weeks Ended May 3, 2014

							Guarantor			Non-Guarantor			Consolidating			Company
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	2,446		$	(18,857	)	$	3,702		$	1,027		$	(4,121	)	$	(15,803	)

Cash flows from investing activities:
Capital expenditures	—			(13,797		)	(1,636		)	—			—			(15,433		)
Intercompany investing activity	—			(88		)	—			—			88			—
Proceeds from sale of property, fixtures and equipment	—			—			—			5,000			—			5,000
Net cash (used in) provided by investing activities	—			(13,885		)	(1,636		)	5,000			88			(10,433		)

Cash flows from financing activities:
Payments on long-term debt and capital lease obligations	—			(135,715		)	(1,056		)	(2,979		)	—			(139,750		)
Proceeds from issuance of long-term debt	—			177,728			—			—			—			177,728
Intercompany financing activity	—			(985		)	—			(3,048		)	4,033			—
Deferred financing costs paid	—			(35		)	—			—			—			(35		)
Cash dividends paid	(985		)	—			—			—			—			(985		)
Restricted shares forfeited in lieu of payroll taxes	(1,461		)	—			—			—			—			(1,461		)
Decrease in book overdraft balances	—			(8,098		)	—			—			—			(8,098		)
Net cash (used in) provided by financing activities	(2,446		)	32,895			(1,056		)	(6,027		)	4,033			27,399

Net increase in cash and cash equivalents	—			153			1,010			—			—			1,163

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

Cash and cash equivalents at end of period	$	1		$	3,042		$	5,178		$	—		$	—		$	8,221

12. RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

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

13. SUBSEQUENT EVENT

On May 19, 2015, the Company declared a quarterly cash dividend of $0.05 per share on shares of Class A common stock and common stock, payable August 3, 2015 to shareholders of record as of July 17, 2015.

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

For purposes of the following discussion, references to the “first quarter of 2015” and the “first quarter of 2014” are to the 13 weeks ended May 2, 2015 and May 3, 2014, respectively. References to “fiscal 2015” are to the 52-week period ending January 30, 2016; references to “fiscal 2014” are to the 52-week period ended January 31, 2015. References to the “Company,” “we,” “us,” and “our” refer to The Bon-Ton Stores, Inc. and its subsidiaries.

Overview

General

The Company, a Pennsylvania corporation, is one of the largest regional department store operators in the United States, offering a broad assortment of brand-name fashion apparel and accessories for women, men and children. Our merchandise offerings also include cosmetics, home furnishings and other goods. We currently operate 270 stores, including nine furniture galleries and four clearance centers, in 26 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates, encompassing a total of approximately 25 million square feet.

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

Performance Summary and Fiscal 2015 Guidance

In the first quarter of 2015, we continued to take actions to address our operating performance and focus on strategies to accelerate sales growth and improve our financial results. Despite top-line pressures, we achieved a comparable store sales increase of 0.8%, with growth in both brick and mortar and eCommerce channels. We also effectively controlled our selling, general and administrative (“SG&A”) expense, resulting in a reduction in both dollars and rate, as we realized benefits from the expense efficiency initiatives implemented during fiscal 2014.

Our revenues in the period benefited from increased proprietary credit card sales. Additionally, we realized continued growth in the penetration of proprietary credit card sales to total sales which, at 50.9% in the first quarter of 2015, exceeded that of the prior year period by 159 basis points. We believe that this increase reflects a favorable response to our “Your Rewards” credit card customer loyalty program and confirms our meaningful engagement with this core customer. To further expand our propriety credit card customer base, we are renewing our efforts with regard to new customer acquisition via our loyalty program.

We believe we have improved the composition of our inventory through the continued refinement of our merchandise assortment of both national and private brands, growing underpenetrated vendors and targeting new vendor opportunities. Private brand goods are a key driver of profitable growth, and we are focusing on significant growth trends in active categories and seasonal classifications.

We maintained our focus on our localization initiative, tailoring merchandise assortments and marketing programs to better align with customer preferences in a market. Our smaller stores, in particular, continue to benefit from this initiative, achieving sales increases in the first quarter of 2015 that exceeded company average.

We are making the systems and infrastructure investments necessary to enhance efficiencies and customer service. We are looking forward to the fall opening of our new state-of-the-art 743,000 square foot eCommerce fulfillment center in West Jefferson, Ohio. We believe this new facility presents a significant opportunity for us to expand our shipping capacity and improve operational efficiencies as we consolidate from five omnichannel centers to one and close two temporary facilities as part of this process.

Based on our performance in the first quarter of 2015, we expect comparable store sales growth to be 2.0% to 2.5% in fiscal 2015, and on May 21, 2015, we reaffirmed our fiscal 2015 guidance of earnings per diluted share in a range of a loss of $0.25 to earnings of $0.25. Our fiscal 2015 guidance does not reflect any potential impact associated with an early termination of our mortgage facilities, thereby excluding the financial effect of the make-whole provision in the agreements, which could range up to approximately $10 million.

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
	WEEKS ENDED
	May 2,		May 3,
	2015		2014
Net sales	100.0	%	100.0	%
Other income	2.7		2.5
	102.7		102.5
Costs and expenses:
Costs of merchandise sold	66.2		64.7
Selling, general and administrative	35.8		36.6
Depreciation and amortization	3.6		3.5
Amortization of lease-related interests	0.2		0.2
Loss from operations	(3.1	)	(2.6	)
Interest expense, net	2.5		2.5
Loss on extinguishment of debt	—		—
Loss before income taxes	(5.6	)	(5.1	)
Income tax (benefit) provision	—		0.1
Net loss	(5.6	)%	(5.2	)%

First Quarter of 2015 Compared with First Quarter of 2014

Net sales: Net sales in the first quarter of 2015 were $610.9 million, compared with $607.5 million in the first quarter of 2014, reflecting an increase of 0.6%. Comparable store sales increased 0.8% in the period.

The best performing merchandise categories in the first quarter of 2015 were Men’s Furnishings (included in Men’s Apparel), Moderate Sportswear (included in Women’s Apparel) and Footwear. Men’s Furnishings primarily benefited from the improvement in career related merchandise and outerwear due to a longer cold weather season. Moderate Sportswear benefited from inventory investment in seasonal key items and momentum in our activewear. Sales in Footwear increased as a result of the expansion of assortment in key brands and merchandise.

Merchandise categories that were challenged in the period included Petites’ Sportswear (included in Women’s Apparel), Hard Home (included in Home) and Cosmetics. Sales in Petites’ Sportswear have remained challenged; however, performance within growth strategy brands has been strong despite decreases in certain traditional categories. Slow selling of basic hardwares and small electronics hampered sales in Hard Home. Cosmetic sales were adversely affected by a reduction in promotional events.

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 $16.3 million in the first quarter of 2015 as compared with $15.1 million in the first quarter of 2014. The increase primarily reflects increased revenues from our proprietary credit card operations.

Costs and expenses: Gross margin in the first quarter of 2015 decreased $7.9 million to $206.5 million as compared with $214.4 million in the comparable prior year period. Gross margin as a percentage of net sales decreased 149 basis points to 33.8% in the first quarter of 2015 from 35.3% in the comparable prior year period, due primarily to increased distribution and delivery costs associated with our omnichannel selling efforts and an unfavorable comparison to prior year permanent markdowns.

SG&A expense in the first quarter of 2015 decreased $3.6 million to $218.7 million as compared with $222.3 million in the first quarter of 2014. This reduction was largely driven by expense control measures and avoidance of costs incurred in the prior year period in the implementation of our expense efficiency initiative, partially offset by an unfavorable comparison to a prior year gain on the sale of assets. The current period expense rate, 35.8% of net sales, decreased 80 basis points from that of the prior year period.

Depreciation and amortization expense and amortization of lease-related interests increased $0.4 million to $23.1 million in the first quarter of 2015 from $22.7 million in the first quarter of 2014.

Interest expense, net: Net interest expense was $15.2 million in the first quarter of 2015 as compared with $15.3 million in the first quarter of 2014. Despite an increase in debt levels, the $0.1 million decrease primarily reflects reductions in the borrowing rates associated with our revolving credit facility.

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

Seasonality

Our business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the second half of each fiscal year, which includes the holiday season. Due to the fixed nature of certain costs, SG&A expense is typically higher as a percentage of net sales during the first half of each fiscal year. We typically finance working capital increases in the second half of each fiscal year through additional borrowings under our $675.0 million senior secured Second Amended and Restated Loan and Security Agreement (the “Second Amended Revolving Credit Facility”) that expires on December 12, 2018.

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 May 2, 2015, we had $8.7 million in cash and cash equivalents and $368.3 million available under our Second Amended Revolving Credit Facility (before taking into account the minimum borrowing availability covenant under such facility). Excess availability was $439.0 million as of the comparable prior year period. The unfavorable excess availability comparison primarily reflects increased direct borrowings to support our operations.

Typically, cash flows from operations are impacted by the effect on sales of (1) consumer confidence, (2) weather in the geographic markets served by the Company, (3) general economic conditions and (4) competitive conditions existing in the retail industry. A downturn in any single factor or a combination of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate our business. While the current economic uncertainty affects our assessment of short-term liquidity, we consider our resources (including, but not limited to, cash flows from operations supplemented by borrowings under the Second Amended Revolving Credit Facility) adequate to satisfy our cash needs for at least the next 12 months.

Current maturities of long-term debt of $209.7 million reflects the outstanding balances of our existing mortgage loan facilities which have final payments due April 1, 2016. We are currently reviewing options to address these mortgage facilities prior to their due date.

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 $675.0 million in borrowings (limited by amounts available pursuant to a borrowing base calculation). Our business follows a seasonal pattern; working capital fluctuates with seasonal variations, reaching its highest level in October or November to fund the purchase of merchandise inventories prior to the holiday season. The seasonality of our business historically provides greatest cash flow from operations during the holiday season, with fiscal fourth quarter net sales generating the strongest profits of our fiscal year. As holiday sales significantly reduce inventory levels, this reduction, combined with net income, historically provides us with strong cash flow from operations at the end of our fiscal year.

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

	THIRTEEN
	WEEKS ENDED
	May 2,			May 3,
(Dollars in millions)	2015			2014

Operating activities	$	(17.8	)	$	(15.8	)
Investing activities	(24.4		)	(10.4		)
Financing activities	42.2			27.4

Net cash used in operating activities was $17.8 million and $15.8 million in the first quarter in each of 2015 and 2014, respectively. The increase in cash outflow primarily reflects the increased net loss, partially offset by slightly improved cash flow from working capital. The improved working capital was largely due to a favorable change in prepaid expenses and other current assets partially offset by an unfavorable change in accrued expenses.

Net cash used in investing activities in the current year primarily reflects capital expenditures for our new eCommerce fulfillment center, renovations to support our strategic initiatives and information technology. Capital expenditures totaled $24.4 million and $15.4 million in the first quarter in each of 2015 and 2014, respectively; these expenditures do not reflect reductions for external contributions (primarily leasehold improvement and fixture allowances received from landlords or vendors) of $0.8 million and $5.6 million in the first quarter in each of 2015 and 2014, respectively. We anticipate our fiscal 2015 capital expenditures will not exceed $93.6 million (excluding external contributions of $18.6 million, reducing anticipated net capital investments to $75.0 million).

Net cash provided by financing activities was $42.2 million and $27.4 million in the first quarter in each of 2015 and 2014, respectively. The increased cash inflow in the current year primarily reflects higher net borrowings to support current year operating and investing activities.

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

We paid a quarterly cash dividend of $0.05 per share on shares of Class A common stock and common stock on February 2, 2015 and May 4, 2015 to shareholders of record as of January 16, 2015 and April 17, 2015, respectively. Additionally, on May 19, 2015, we declared a quarterly cash dividend of $0.05 per share, payable August 3, 2015 to shareholders of record as of July 17, 2015. Our Board of Directors may consider dividends in subsequent periods as it deems appropriate.

Critical Accounting Policies and Estimates

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

Recently Issued Accounting Standards

Recently issued accounting standards are discussed in Note 12 to the Consolidated Financial Statements.

Forward-Looking Statements

Certain information included in this report (as well as other communications made or to be made by the Company) and other materials filed or to be filed by the Company with the Securities and Exchange Commission contain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which may be identified by words or phrases such as “may,” “could,” “would,” “will,” “plan,” “expect,” “believe,” “anticipate,” “estimate,” “project,” “intend,” “look forward to” or other similar expressions, including the Company’s fiscal 2015 guidance, involve important risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. Factors that could cause such differences include, but are not limited to, risks related to retail businesses generally; a significant and prolonged deterioration of general economic conditions which could negatively impact the Company, including the potential write-down of the current valuation of intangible assets and deferred taxes; risks related to the Company’s proprietary credit card program; potential increases in pension obligations; consumer spending patterns, debt levels, and the availability and cost of consumer credit; additional competition from existing and new competitors; inflation; deflation; changes in the costs of fuel and other energy and transportation costs; weather conditions that could negatively impact sales; uncertainties associated with expanding or remodeling existing stores; the ability to attract and retain qualified management; the dependence upon relationships with vendors and their factors; a data security breach or system failure; the ability to reduce or control SG&A expenses, including initiatives to reduce expenses and improve efficiency; operational disruptions; unsuccessful marketing initiatives; the ability to expand capacity and improve efficiency through the Company’s new eCommerce fulfillment center; changes in, or the failure to successfully implement, our key strategies, including initiatives to improve our merchandising, marketing and operations; adverse outcomes in litigation; the incurrence of unplanned capital expenditures; the ability to obtain financing for working capital, capital expenditures and general corporate purposes; the impact of regulatory requirements including the Health Care Reform Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act; the inability or limitations on the Company’s ability to favorably adjust the valuation allowance on deferred tax assets; and the financial condition of mall operators. Additional factors that could cause the Company’s actual results to differ from those contained in these forward-looking statements are discussed in greater detail under Item 1A of the Company’s Annual Report on Form 10-K for fiscal 2014 filed with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Financial Instruments

There were no material changes in our exposures, risk management strategies, or hedging positions since January 31, 2015. For further information, refer to Item 7A of our fiscal 2014 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 May 2, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 6. EXHIBITS

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

31.1	Certification of Kathryn Bufano
31.2	Certification of Keith E. Plowman
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.

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:	June 10, 2015	BY:	/s/ Kathryn Bufano
			Kathryn Bufano
			President and
			Chief Executive Officer
			(Principal Executive Officer)

DATE:	June 10, 2015	BY:	/s/ Keith E. Plowman
			Keith E. Plowman
			Executive Vice President—
			Chief Financial Officer
			(Principal Financial Officer)

DATE:	June 10, 2015	BY:	/s/ Michael W. Webb
			Michael W. Webb
			Group Vice President—
			Chief Accounting Officer
			(Principal Accounting Officer)

EXHIBIT 31.1

CERTIFICATION OF KATHRYN BUFANO

I, Kathryn Bufano, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of The Bon-Ton Stores, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE: June 10, 2015	By:	/s/ Kathryn Bufano
		Kathryn Bufano
		President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF KEITH E. PLOWMAN

I, Keith E. Plowman, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of The Bon-Ton Stores, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE: June 10, 2015	By:	/s/ Keith E. Plowman
		Keith E. Plowman
		Executive Vice President—
		Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Bon-Ton Stores, Inc. on Form 10-Q for the period ended May 2, 2015, as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned officers of The Bon-Ton Stores, Inc., certifies pursuant to 18 U.S.C. Section 1350, that, to his/her respective knowledge:

1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of The Bon-Ton Stores, Inc.

DATE: June 10, 2015	By:	/s/ Kathryn Bufano
	Kathryn Bufano
	President and Chief Executive Officer


	By:	/s/ Keith E. Plowman
	Keith E. Plowman
	Executive Vice President—
	Chief Financial Officer

A signed original of this written statement has been provided to The Bon-Ton Stores, Inc. and will be retained by The Bon-Ton Stores, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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