SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

2801 East Market Street

York, Pennsylvania 17402

(717) 757-7660

www.bonton.com

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

     The Company has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months and has been subject to such filing requirements for the past 90 days.

     The Company is an accelerated filer (as defined in Rule 12b-2 of the Act).

     Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is contained in the Company’s proxy statement incorporated by reference in Part III of this Form 10-K.

     As of the last business day of the Company’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the Company was approximately $128.2 million, based upon the closing price of $13.81 per share.*

     As of April 8, 2005, there were 13,666,932 shares of Common Stock, $.01 par value, and 2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement for the 2005 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference in Part III to the extent described in Part III.

          References to a year in this Form 10-K refer to The Bon-Ton Stores, Inc. fiscal year, which is the 52 or 53 week period ending on the Saturday nearer January 31 of the following calendar year (e.g., a reference to fiscal 2004 is a reference to the fiscal year ended January 29, 2005).

PART I

Item 1.     Business.

General

          The Bon-Ton Stores, Inc. (the “Company”) is a Pennsylvania corporation. The Company and its predecessors have been operating department stores since 1898.

          As of January 29, 2005, the Company operated 139 department stores and two furniture stores in sixteen states from the Northeast to the Midwest under the names “Bon-Ton” and “Elder-Beerman.” The stores carry a broad assortment of quality, brand-name fashion apparel and accessories for women, men and children, cosmetics, furnishings and other goods.

          The Company’s executive offices are located at 2801 East Market Street, York, Pennsylvania.

Merchandising

          Our stores offer opening price point, moderate and better merchandise in apparel, home furnishings, cosmetics, accessories, shoes and other categories. Sales of apparel constituted 54.5%, 56.5% and 59.7% of net sales for fiscal 2004, 2003 and 2002, respectively. Elder-Beerman store sales from October 24, 2003 (the acquisition date) through January 31, 2004 are included in fiscal 2003, while fiscal 2002 does not include Elder-Beerman store sales. The following table illustrates net sales by product category for fiscal 2004, 2003 and 2002:

          We carry a number of highly recognized brand names, including Calvin Klein, Estee Lauder, Liz Claiborne, Nautica, Nine West, Ralph Lauren, Van Heusen, Sag Harbor, OshKosh, Easy Spirit, Pfaltzgraff and Tommy Hilfiger. Within these brands, we select collections which balance fashion, price and selection.

          We depend on our relationships with our key vendors to secure branded merchandise. If we lose the support of these vendors, it could have a material adverse effect on the Company.

          Complementing branded merchandise, our private brand merchandise provides fashion at competitive pricing under names such as Andrea Viccaro, Jenny Buchanan, Madison & Max and Statements.bt. We view this private brand merchandise as a strategic addition to our strong array of highly recognized, quality national brands and as an opportunity to increase brand exclusiveness,

          Our business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the latter half of each year, which includes the back-to-school and holiday seasons.

Marketing

          The Company’s primary target customers are women between the ages of thirty-five and sixty-five with annual household incomes between $35,000 and $100,000. Advertising messages are focused on communicating the Company’s merchandise offerings and the strong quality/ value relationship in those offerings. The Company employs advertising programs that include print and broadcast as well as creative in-store signing, displays and special promotions. Newspaper inserts are used on a regular cadence. The Company also uses television in markets where it is productive and cost efficient. The Company uses a database targeting system facilitating focused direct mail to our preferred charge customers who are most likely to respond to a merchandise offering.

Customer Credit

          Our customers may pay for their purchases with Bon-Ton and Elder-Beerman proprietary credit cards; third party credit cards such as Visa, Mastercard and Discover; cash or check.

          Our proprietary credit card holders generally constitute our most loyal and active customers. During fiscal 2004, the average dollar amount for proprietary credit card purchases substantially exceeded the average dollar amount for cash purchases. We believe our credit cards are a particularly productive tool for customer segmentation and target marketing.

          The following table summarizes the percentage of total fiscal year sales generated by payment type (sales made at Elder-Beerman stores prior to the acquisition on October 24, 2003 are excluded):

Competition

          We face competition for customers from traditional department stores, mass merchandisers, specialty stores, off-price and discount stores, and, to a lesser extent, catalogue and internet retailers. Many of our competitors have substantially greater financial and other resources than the Company, and some of our competitors have greater leverage with vendors, which may allow such competitors to obtain merchandise more easily or on better terms.

          We believe we compare favorably with our competitors with respect to quality, assortment of merchandise, prices for comparable quality merchandise, customer service and store environment. We also believe our knowledge of secondary markets, developed over many years of operation, gives us a competitive advantage as we focus on secondary markets as our primary area of operation.

          As of January 29, 2005, we had approximately 12,600 full-time and part-time associates. We employ additional part-time associates during peak periods. None of our associates are represented by a labor union. We believe that our relationship with our associates is good.

Available Information

          Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available without charge on our website, www.bonton.com, as soon as reasonably practicable after they are filed electronically with the SEC.

          We also make available on our website, free of charge, the following documents:

Executive Officers

          The executive officers of the Company, their ages (as of April 8, 2005) and their positions, are as follows:

          Mr. Bergren was named President and Chief Executive Officer in August 2004. Mr. Bergren joined the Company in November 2003 as Vice Chairman and served as President and Chief Executive Officer of The Elder-Beerman Stores Corp. from February 2002 through August 2004. He served as Chairman of the Southern Division of Belk, Inc. from 1999 to February 2002, as Partner of the Florida Division of Belk, Inc. from 1992 to 1999, and in senior executive positions at Belk Stores from 1985 to 1992.

          Mr. Zant joined the Company as Vice Chairman and Chief Merchandising Officer in January 2005. From July 2002 to December 2004, he was Executive Vice President — General Merchan-

          Mr. Zamberlan was appointed Executive Vice President — Stores in November 2004. He has served as Executive Vice President — Stores for The Elder-Beerman Stores Corp. for more than five years.

          Mr. Clouser was appointed Senior Vice President — Human Resources in February 2005. He served as Vice President — Employment and Training from April 2004 to February 2005, and for more than four years prior to that time, was Senior Vice President — Human Resources at The Elder-Beerman Stores Corp.

          Ms. Derry was appointed Senior Vice President — General Merchandise Manager in February 2001. For more than two years prior to that time, Ms. Derry was a Divisional Merchandise Manager for Bon-Ton.

          Mr. Farrell was appointed Senior Vice President — Stores in June 2000. Prior to that time, Mr. Farrell was Vice President — Stores for Bon-Ton.

          Mr. Geisenberger was appointed Senior Vice President — Marketing and Sales Promotion in May 2004. From July 2000 to May 2004, he was Senior Vice President — General Merchandise Manager. Prior to that time, Mr. Geisenberger was a Divisional Merchandise Manager for Bon-Ton.

          Mr. Gleason was appointed Senior Vice President — Credit in May 2004. For more than four years prior to that time, he was Vice President — Credit.

          Mr. Lance was named Senior Vice President — Chief Information Officer in November 2003. For more than five years prior to that time, he served as Senior Vice President — Information Systems at The Elder-Beerman Stores Corp.

          Mr. Plowman was appointed Senior Vice President — Finance in September 2001 and, in June 2003, was named Principal Accounting Officer. From May 1999 to September 2001, he was Vice President — Controller, and prior to that time he was Divisional Vice President — Controller, of the Company.

          Ms. Rivera was named Senior Vice President — General Merchandise Manager in February 2004. From March 2003 to February 2004, she was Vice President — Merchandising, and for more than five years prior to that time, Ms. Rivera was a Divisional Merchandise Manager for Bon-Ton.

          Mr. Sears was named Senior Vice President — General Merchandise Manager in March 2005. From December 1999 to March 2005, he was Senior Vice President — General Merchandise Manager for the Proffitts Division of Saks Incorporated.

          Messrs. Grumbacher, Baireuther, McIntyre and Sattler have been executive officers of the Company for more than five years.

Cautionary Statements Relating to Forward-Looking Information and Risk Factors

          The Company has made, in this Form 10-K, forward-looking statements relating to developments, results, conditions or other events the Company expects or anticipates will occur. These statements may relate to revenues, earnings, store openings, market conditions and the competitive environment. The words “believe,” “may,” “will,” “estimate,” “intend,” “expect,” “anticipate” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. Forward-looking statements are based on management’s then-current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Risks Related to Our Business, Finances and Operations

          On October 24, 2003, we acquired all of the issued and outstanding capital stock of The Elder-Beerman Stores Corp. (“Elder-Beerman”). Failure to achieve additional synergies related to the acquisition of Elder-Beerman may cause significant operating inefficiencies and could adversely affect our profitability and the price of our stock.

          It is difficult to predict what merchandise consumers will want. A substantial part of our business is dependent on our ability to make correct trend decisions for a wide variety of goods and services. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions could adversely affect short-term results and long-term relationships with our customers.

          Our merchants focus on inventory levels and balance these levels with plans and trends. If our inventories become too large, we may have to “mark down,” or decrease the sales price of, significant amounts of our inventory, which could reduce our revenues.

          Our performance depends on appropriate management of our expense structure, including our selling, general and administrative costs. If we fail to meet our expense budget or to appropriately reduce expenses during a weak sales season, our results of operations could be adversely affected.

          As of January 29, 2005, we had total debt of $179.1 million. We will have significant debt service obligations, consisting of required cash payments of principal and interest, for the foreseeable future. Our ability to service our indebtedness will depend upon, among other things, our ability to replenish inventory, generate sales and maintain our stores. In the event we are unable to meet our debt service obligations or in the event we default in some other manner under our credit agreements, the lenders thereunder could elect to declare all borrowings outstanding, together with accrued and unpaid interest and other fees, immediately due and payable.

          Our primary credit agreement contains a number of covenants that limit the discretion of our management with respect to certain business matters. The credit facility agreement, among other things, restricts our ability to:

          The occurrence of an event of default under the agreements governing our debt would permit acceleration of the related debt, which could harm our business, profitability and growth prospects.

          Our operating challenges and management responsibilities have increased as we have grown and will continue to increase if we grow as planned. Successful future growth will require that we continue to expand and improve our internal systems and our operations. Our business plan depends on our ability to operate new retail stores and to convert, where applicable, the formats of existing stores on a profitable basis. In addition, we will need to identify, hire and retain a sufficient number of qualified personnel to work in our new stores. These objectives have created and may continue to create additional pressure on our staff and on our operating systems. We cannot assure you that our business plan will be successful, or that we will achieve our objectives as quickly or as effectively as we hope.

          Sales of merchandise and services are facilitated by our credit card operations. These credit card operations also generate additional revenue from fees related to extending credit. Our ability to extend credit to our customers depends on many factors, including compliance with federal and state laws which may change from time to time. In addition, changes in credit card use, payment patterns and default rates may result from a variety of economic, legal, social and other factors that we cannot control or predict with certainty. Changes that adversely affect our ability to extend credit and collect payments could negatively affect our results of operations and financial condition.

          The products we sell are sourced from a wide variety of domestic and international vendors. Our ability to find qualified vendors and source products in a timely and cost-effective manner, including obtaining vendor allowances in support of the Company’s advertising and

          We believe that our success depends to a significant degree upon the continued contributions of our executive officers and other key personnel, both individually and as a group. Our future performance will be substantially dependent on our ability to retain or replace such key personnel and the inability to retain or replace such personnel could prevent us from executing our business strategy.

          We spend extensively on advertising and marketing. Our business depends on effective marketing to generate high customer traffic in our stores. If our advertising and marketing efforts are not effective, our results could be negatively affected.

          If we are unable to successfully complete acquisitions or to effectively integrate acquired businesses, our ability to grow our business or to operate our business effectively could be reduced, and our financial condition and operating results could suffer. The consummation and integration of acquisitions involve many risks, including the risk of:

          Our failure to effectively consummate acquisitions and integrate newly acquired businesses could have a material adverse effect on our financial condition and results of operations.

          Tim Grumbacher, trusts for the benefit of members of Mr. Grumbacher’s family and The Grumbacher Family Foundation, collectively, currently beneficially own shares of our outstanding common stock (which is entitled to one vote per share) and shares of our Class A common stock (which is entitled to ten votes per share) representing approximately 64% of the votes eligible to be cast by shareholders in the election of directors and generally. Accordingly, Mr. Grumbacher has the power to control all matters requiring the approval of our shareholders, including the election

Risks Related to our Industry

          We compete primarily with other department stores, many of which are units of national or regional chains that have significant financial and marketing resources. The principal competitive factors in our business are price, quality, selection of merchandise, reputation, store location, advertising and customer service. We cannot assure you that we will be able to compete successfully against existing or future competitors. Our expansion into new markets served by our competitors and the entry of new competitors into, or expansion of existing competitors in, our markets could have a material adverse effect on our business, financial condition and results of operations.

          We rely on in-store sales for a substantial majority of our revenues. Internet retailing is extremely competitive and could result in fewer sales and lower margins. A significant shift in customer buying patterns from in-store purchases to purchases via the Internet could have a material adverse effect on our business and results of operations.

          Our stores experience seasonal fluctuations in net sales and consequently in operating income, with peak sales occurring during the back-to-school and holiday seasons. In addition, extreme or unseasonable weather can affect our sales. Any decrease in net sales or margins during our peak selling periods, decrease in the availability of working capital needed in the months before these periods or reduction in vendor allowances could have a material adverse effect on our business, financial condition and results of operations. We usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a significant amount of inventory, especially before the peak selling periods. If we are not successful in selling our inventory, especially during our peak selling periods, we may be forced to rely on markdowns or promotional sales to dispose of the inventory or we may not be able to sell the inventory at all, which could have a material adverse effect on our business, financial condition and results of operations.

          General economic factors that are beyond our control influence our forecasts and directly affect performance. These factors include interest rates, recession, inflation, deflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that can adversely influence consumer confidence and spending and, in turn, our sales. Increasing volatility in financial markets may cause these factors to change with a greater degree of frequency and magnitude.

          The market price of our common stock has been and may continue to be volatile and may be significantly affected by:

          In addition, the stock market has, recently and from time to time, experienced significant price and volume fluctuations that have adversely affected the market prices of securities of companies without regard to their operating performances.

          Certain provisions of our articles of incorporation and by-laws, as well as provisions of the Pennsylvania Business Corporation Law, could have the effect of deterring takeovers or delaying or preventing changes in control or management of the Company that our shareholders consider favorable and could depress the market value of our common stock.

          Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, which is applicable to us, may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the shares held by shareholders. In general, Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law delays for five years and imposes conditions upon “business combinations” between an “interested shareholder” and us, unless prior approval by our board of directors is given. The term “business combination” is defined broadly to include various merger, consolidation, division, exchange or sale transactions, including transactions using our assets for purchase price amortization or refinancing purposes. An “interested shareholder,” in general, would be a beneficial owner of shares entitling that person to cast at least 20% of the votes that all shareholders would be entitled to cast in an election of directors.

          Because a significant portion of our business is apparel and subject to weather conditions in our markets, our operating results may be unexpectedly and adversely affected by inclement weather. Frequent or unusually heavy snow, ice or rain storms or extended periods of unseasonable temperatures in our markets could adversely affect our performance.

          Our performance is dependent on attracting and retaining a large and growing number of quality associates. Many of those associates are in entry level or part time positions with historically high rates of turnover. Our ability to meet our labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. Changes that adversely impact our ability to attract and retain quality associates could adversely affect our performance.

          Various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Additionally, we are regularly involved in various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our business operations and financial performance.

          Other factors that could cause actual results to differ materially from those predicted and that may adversely affect our ability to grow include: changes in the availability or cost of capital, the availability of suitable new store locations on acceptable terms, shifts in seasonality of shopping patterns, work interruptions, the effect of excess retail capacity in our markets and material acquisitions or dispositions.

          The Company does not undertake to revise any forward-looking statement to reflect events or circumstances that occur after the date the statement is made.

Item 2.     Properties.

          The properties of the Company consist primarily of stores and related facilities, including distribution centers. The Company also leases other properties, including corporate office space in York, Pennsylvania. As of January 29, 2005, the Company operated 141 stores in sixteen states in the Northeast and Midwest, comprising a total of approximately 11,900,000 square feet. Of such stores, ten were owned, 129 were leased and two stores were operated under arrangements where the Company owned the building and leased the land. Pursuant to various leases or shopping center agreements, the Company is obligated to operate certain stores for periods of up to twenty years. Some of these agreements require that the stores be operated under a particular name. Most leases require the Company pay real estate taxes, maintenance and other costs; some also require additional payments based on percentages of sales. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time.

Item 3.     Legal Proceedings.

          We are a party to legal proceedings and claims which arise during the ordinary course of business. We do not expect the ultimate outcome of any of such litigation and claims will have a material adverse effect on our financial position, results of operations or liquidity.

          None.

PART II

          The Company’s common stock is traded on the Nasdaq Stock Market (symbol: BONT). There is no established public trading market for the Class A common stock. The Class A common stock is convertible on a share-for-share basis into common stock at the option of the holder. The following table sets forth the high and low sales price of the common stock for the periods indicated as furnished by Nasdaq:

          On April 8, 2005, there were approximately 229 shareholders of record of common stock and five shareholders of record of Class A common stock.

          For purposes of the following discussions, all references to “fiscal 2004,” “fiscal 2003” and “fiscal 2002” are to the fifty-two weeks ending January 29, 2005, January 31, 2004 and February 1, 2003, respectively.

Overview

          The Company is a traditional department store retailer with a 107-year history of providing quality merchandise to its customers in secondary markets. In October 2003, the Company acquired Elder-Beerman, nearly doubling its number of stores and adding 5.7 million square feet of retail space. The Company currently operates 139 department stores and two furniture stores in sixteen states, from the Northeast to the Midwest, under the Bon-Ton and Elder-Beerman names. The stores carry a broad assortment of quality brand-name and private label fashion apparel and accessories for women, men and children, as well as distinctive cosmetics and home furnishings. The Company’s strategy is to profitably sell merchandise by providing its customers with differentiated fashion merchandise at compelling value in the markets the Company serves.

          The Company’s revenues are generated through sales in existing stores and new stores opened through expansion and acquisition. During fiscal 2004, the Company’s total sales increased 41.4% to $1,310.4 million, including $607.0 million from the acquired Elder-Beerman stores, compared to $926.4 million in fiscal 2003. Fiscal 2003 included sales of $229.9 million from the Elder-Beerman stores. Comparable store sales for fiscal 2004, which do not include Elder-Beerman stores, increased 0.9% from fiscal 2003.

          The retail industry is highly competitive, as evidenced by the Company’s marginal performance in comparable store sales over the past several years. The Company anticipates these competitive pressures and challenges will continue. As a result, the Company plans to continue its highly promotional posture and emphasis on offering a wide range of value. Additionally, expansion of the Company’s private labels and growth of exclusive brands support its strategy of product differentiation and provide the opportunity for increased sales at a higher gross margin.

          In light of continued economic uncertainty, the Company is focusing its efforts on asset and overhead cost management to improve its financial position. The Company is focused on improving its return on inventory investment. Additionally, through the continuing comprehensive review of store and corporate operating expenses, the Company looks for meaningful ways to improve its ratio of expenses to sales. Execution of these initiatives is necessary to achieve earnings growth in light of the minimal comparable store sales growth.

          In October 2003, the Company added sixty-seven department stores and two furniture stores as a result of its acquisition of Elder-Beerman. The Company’s consolidated balance sheet and consolidated statement of income for fiscal 2003 include Elder-Beerman operations for the period from October 24, 2003 through January 31, 2004. The Company believes that its fiscal 2003 operating results are not comparable to results for fiscal 2004 due to the timing of the Elder-Beerman acquisition. Specifically, the Company included Elder-Beerman’s most profitable quarter in the Company’s fiscal 2003 operating results without having to recognize the first three quarters of the year, which traditionally reflect a net loss.

          As a result of the acquisition, the Company has increased its debt levels and, accordingly, its exposure to interest rate fluctuations.

          In 2004 the Company closed its Pottstown, Pennsylvania store. The pre-tax cost of closing this location was $1.8 million. The Company previously identified this store as under-performing and, in fiscal 2002, recorded an impairment charge related to long-lived assets at this location.

          In a February 2005 letter to the American Institute of Certified Public Accountants, the Securities and Exchange Commission (the “SEC”) clarified its position regarding certain lease accounting practices. The SEC’s letter specifically addressed the depreciable life of leasehold improvements, rent holidays and landlord-tenant incentives. Similar to other retailers, the Company reviewed its historical treatment of these lease issues. After assessing its findings using the guidelines in SEC Staff Accounting Bulletin No. 99, the Company recorded a cumulative pre-tax expense of $0.5 million in the fourth quarter of fiscal 2004 and concluded that restatement of the Company’s financial statements for prior years would not be required.

Results of Operations

          The following table summarizes changes in selected operating indicators, illustrating the relationship of various income and expense items to net sales for each fiscal year presented (components may not add or subtract to totals due to rounding):

          Net sales: Net sales were $1,310.4 million for fiscal 2004, an increase of $384.0 million, or 41.4%, compared to fiscal 2003. Net sales include $607.0 million and $229.9 million from Elder-Beerman operations for fiscal 2004 and for the period from October 24, 2003 through January 31, 2004, respectively. Comparable store sales, which exclude the impact of Elder-Beerman, increased 0.9% in fiscal 2004. Merchandise departments recording comparable store sales increases were Home, Misses Sportswear (included in Women’s Clothing), Shoes, Accessories, and Cosmetics. Home sales significantly increased due to the opening of five furniture galleries in fiscal 2004 and adopting Elder-Beerman’s practice of item intensification. Increased sales in Misses Sportswear reflect a positive customer response to improved fashion offerings. Shoe sales increased as customers responded favorably to an open-selling layout in the stores, which was initiated in fiscal 2003 and finalized in fiscal 2004. The Accessories sales increase was driven by growth in the Company’s private label costume jewelry and cold weather fashion items. Cosmetics benefited from the new product launch of the anti-aging cream Strivectin. Merchandise categories reflecting the sharpest declines were Juniors’, Children’s, Men’s, and Dresses, Petites and Coats (included in Women’s Clothing). These merchandise departments, with the exception of Petites and Coats, have experienced an overall sales decline in each of the last three years. The Company is addressing this trend by focusing on increased product differentiation and improved merchandise assortments in these areas.

          Elder-Beerman sales were not included in comparable store sales. For informational purposes only, Elder-Beerman comparable store sales for the fifty-two weeks ended January 31, 2004 decreased 2.4%. On a combined basis, Bon-Ton and Elder-Beerman comparable store sales for fiscal 2004 decreased 0.6%.

          Other income: Other income, which contains net income from leased departments and other customer revenues, increased $3.3 million in fiscal 2004 over fiscal 2003 primarily due to the impact of Elder-Beerman leased departments and expanded furniture operations.

          Costs and expenses: Gross margin dollars for fiscal 2004 increased $144.8 million, or 43.2%, over fiscal 2003, primarily due to the addition of Elder-Beerman operations. Gross margin as a percentage of net sales was 36.6% in fiscal 2004, an increase of 0.4 percentage point from 36.2% in fiscal 2003. The increase in gross margin rate reflects an increased markup rate.

          Selling, general and administrative expenses for fiscal 2004 were $415.9 million, or 31.7% of net sales, compared to $273.4 million, or 29.5% of net sales, in fiscal 2003. This increase was largely due to an additional $118.7 million from Elder-Beerman operations. Additional increases in integration expenses, advertising expenses, accounts receivable facility expenses, store closing expenses and a prior year gain on the sale of the Harrisburg distribution center were partially offset by a decrease in store payroll expenses and an increase in securitization income.

          Depreciation and amortization increased $2.2 million, to $27.8 million, in fiscal 2004 from $25.6 million in fiscal 2003. The increase principally reflects the impact of Elder-Beerman depreciation and amortization of $3.7 million, asset impairment charges on long-lived assets of certain stores of $0.9 million and a $0.5 million cumulative charge pursuant to a review of the Company’s historical lease accounting. In fiscal 2003 the Company recorded a charge of $2.4 million for the write-off of duplicate information systems software due to the acquisition of Elder-Beerman. Additionally, the Company recognized approximately $0.8 million of impairment charges on the long-lived assets of certain stores during fiscal 2003.

          Income from operations: Income from operations in fiscal 2004 was $45.5 million, or 3.5% of net sales, compared to $42.0 million, or 4.5% of net sales, in fiscal 2003. The decrease in rate is principally attributable to the timing of the Elder-Beerman acquisition, which resulted in the inclusion of only its most profitable quarter in fiscal 2003.

          Income taxes: The effective tax rate for fiscal 2004 was 37.1% compared to 37.5% for fiscal 2003.

          Net income: Net income in fiscal 2004 was $20.2 million, or 1.5% of net sales, compared to $20.6 million, or 2.2% of net sales, in fiscal 2003.

Fiscal 2003 Compared to Fiscal 2002

          Net sales: Net sales were $926.4 million for fiscal 2003, an increase of $213.2 million, or 29.9%, compared to fiscal 2002. Net sales include $229.9 million from Elder-Beerman operations for the period from October 24, 2003 through January 31, 2004. Comparable store sales, which exclude the impact of Elder-Beerman, decreased 2.0% in fiscal 2003. The decrease in the Company’s comparable store sales coincided with a general economic decline and deteriorating consumer confidence. Merchandise departments recording comparable store sales increases were Shoes, Intimate Apparel and Accessories. The favorable results in these departments were driven by fresh inventories, intensification of key vendors and compelling values. Additionally, the customer responded favorably to open-selling in the Company’s Shoe departments. Merchandise departments reflecting the sharpest comparable store sales declines were Dresses and Special Sizes (included in Women’s Clothing), Men’s Sportswear (included in Men’s Clothing) and Children’s.

          Elder-Beerman sales were not included in comparable store sales. For informational purposes only, Elder-Beerman comparable store sales for the fifty-two weeks ended January 31, 2004 decreased 2.5%. On a combined basis, Bon-Ton and Elder-Beerman comparable store sales for fiscal 2003 decreased 2.2%.

          Other income: Other income, which contains net income from leased departments and other customer revenues, increased $2.1 million in fiscal 2003 over fiscal 2002 primarily due to the impact of Elder-Beerman leased departments and larger furniture operations.

          Costs and expenses: Gross margin dollars for fiscal 2003 increased $74.0 million, or 28.3% over fiscal 2002, primarily due to the impact of Elder-Beerman operations. Gross margin as a percentage of net sales was 36.2% in fiscal 2003, a decrease of 0.4 percentage point from 36.6% in fiscal 2002. The decrease in gross margin rate reflects the inclusion of Elder-Beerman sales at lower gross margin, offset in part by increased vendor support, reduced seasonal carry-over merchandise and increased markup rate for comparable store sales.

          Selling, general and administrative expenses for fiscal 2003 were $273.4 million, or 29.5% of net sales, compared to $217.4 million, or 30.5% of net sales, in fiscal 2002. This increase was largely due to the additional $56.2 million from Elder-Beerman operations, while the rate was positively impacted by the inclusion of Elder-Beerman net sales. Increases in advertising expense, rent expense, distribution expense, store pre-opening expense and financing fees were offset by a decrease in store payroll, a gain on the sale of the Harrisburg distribution center and reduced bad debt expense.

          Depreciation and amortization increased $2.9 million, to $25.6 million, in fiscal 2003 from $22.8 million in fiscal 2002. The increase principally reflects the impact of Elder-Beerman depreciation and amortization of $2.0 million, asset impairment losses on long-lived assets of certain stores of $0.8 million, and a charge of $2.4 million for the write-off of duplicate information systems software due to the acquisition of Elder-Beerman. In fiscal 2002, the Company recognized approximately $2.0 million of impairment losses on the long-lived assets of certain stores.

          Interest expense, net: Net interest expense in fiscal 2003 decreased $0.4 million to $9.0 million, or 1.0% of net sales, from $9.4 million, or 1.3% of net sales, in fiscal 2002. The decrease in net interest expense was primarily due to fair market value adjustments on interest rate swap agreements. Interest expense in fiscal 2003 and 2002 included a reduction of interest expense of $1.7 million and an increase in interest expense of $1.4 million, respectively, related to fair market value adjustments on interest rate swaps. This decrease in interest expense was largely offset by increased interest expense and financing fees expense on borrowings incurred to finance the Elder-Beerman acquisition.

          Income taxes: The effective tax rate remained constant at 37.5% in fiscal 2003 and fiscal 2002.

          Net income: Net income in fiscal 2003 was $20.6 million, or 2.2% of net sales, compared to $9.6 million, or 1.3% of net sales, in fiscal 2002.

Liquidity and Capital Resources

          The following table summarizes material measures of the Company’s liquidity and capital resources:

          The Company’s primary sources of working capital are cash flows from operations, borrowings under its revolving credit facility and proceeds from its accounts receivable facility. The Company’s business follows a seasonal pattern and working capital fluctuates with seasonal variations, reaching its highest level in October or November. Fiscal years ended January 29, 2005 and January 31, 2004 include Elder-Beerman operations. Increases in working capital and the current ratio for fiscal 2004, as compared to fiscal 2003, principally reflect an increase in merchandise inventories. The increase in working capital for fiscal 2003 as compared to fiscal 2002 was principally due to the acquisition of Elder-Beerman working capital, which was funded with long-term debt. The debt to total capitalization ratio increased in fiscal 2003 over fiscal 2002 due to the additional long-term debt assumed to fund the Elder-Beerman acquisition in October 2003.

          Net cash provided by operating activities amounted to $28.9 million in fiscal 2004, $155.9 million in fiscal 2003 and $28.4 million in fiscal 2002. The decrease in net cash provided by operating activities in fiscal 2004 compared to fiscal 2003 primarily reflects increases in inventories in fiscal 2004 and the timing of the acquisition of Elder-Beerman in fiscal 2003. Fiscal 2003 cash flows reflect the net cash used in operating activities for only a partial year of the acquired Elder-Beerman operations and the sale of Elder-Beerman accounts receivable.

          Net cash used in investing activities amounted to $31.4 million, $116.6 million and $14.8 million in fiscal 2004, 2003 and 2002, respectively. Capital expenditures in fiscal 2004 were $11.3 million higher than in fiscal 2003 due to integrating the point-of-sale system, other information system enhancements and a full year of Elder-Beerman operations. Fiscal 2003 includes

          Net cash provided by financing activities amounted to $7.9 million in fiscal 2004 versus net cash used of $36.3 million and $6.6 million in fiscal 2003 and 2002, respectively. The fiscal 2004 increase in net cash provided by financing activities principally reflects additional borrowings to fund working capital increases, partially offset by lower finance fees paid. Fiscal 2003 includes finance fees paid in connection with the acquisition of Elder-Beerman.

          In October 2003, the Company amended and restated its revolving credit facility agreement (the “credit agreement”). The credit agreement provides a revolving line of credit of $300.0 million and a term loan in the amount of $25.0 million. The Company reduced the term loan to $19.0 million in June 2004. The current credit agreement expires in October 2007. The revolving credit line interest rate, based on LIBOR or an index rate plus an applicable margin, and fee charges are determined by a formula based upon the Company’s borrowing availability. Under the credit agreement, the Company incurs fees at a rate of 0.375 percentage point on unused lines of credit. The term loan interest rate is based on LIBOR plus an applicable margin. Financial covenants contained in the credit agreement include the following: A limitation on fiscal 2005 capital expenditures of $53.5 million, minimum borrowing availability of $10.0 million and a fixed charge coverage ratio of 1.0-to-1. The fixed charge coverage ratio is defined as earnings before interest, taxes, depreciation and amortization divided by interest expense, capital expenditures, tax payments and scheduled debt payments — measured at fiscal quarter-end based on the immediately preceding four fiscal quarters. Total borrowings under the credit agreement were $160.4 million and $152.0 million at January 29, 2005 and January 31, 2004, respectively.

          In January 2004, the Company entered into a new off-balance-sheet accounts receivable facility. This agreement has a funding limit of $250.0 million and was scheduled to expire in October 2004. During October 2004, this agreement was amended to extend the expiration date from October 2004 to October 2005. Availability under the accounts receivable facility is calculated based on the dollar balance and performance of the Company’s proprietary credit card portfolio. At January 29, 2005 and January 31, 2004, accounts receivable totaling $244.0 million and $228.5 million, respectively, were sold under the accounts receivable facility.

          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.

          The Company is exposed to market risk associated with changes in interest rates. To provide some protection against potential rate increases associated with its variable-rate facilities, the Company has entered into a derivative financial transaction in the form of an interest rate swap. This interest rate swap, used to hedge a portion of the underlying variable-rate facilities, matures in February 2006.

          The accounts receivable facility and credit agreement expire in October 2005 and October 2007, respectively. The Company anticipates that it will be able to renew or replace these agreements with agreements on substantially comparable terms. Failure to renew or replace these agreements on substantially comparable terms would have a material adverse effect on the Company’s financial condition.

          The Company paid a quarterly cash dividend of $0.025 per share on shares of Class A common stock and common stock to shareholders on each of July 15, 2003; October 15, 2003; January 15, 2004; April 15, 2004; July 15, 2004; October 15, 2004 and January 15, 2005 to shareholders of record as of July 1, 2003; October 1, 2003; January 1, 2004; April 1, 2004; July 1, 2004; October 1, 2004 and January 1, 2005, respectively. Additionally, the Company declared a quarterly cash dividend of $0.025 per share, payable April 15, 2005 to shareholders of record as of April 1, 2005. The Company’s Board of Directors will consider dividends in subsequent periods as it deems appropriate.

          Capital expenditures for fiscal 2005 are planned at a range of $28.0 million to $32.0 million. The Company anticipates increasing store selling space in fiscal 2005 by expanding existing store locations.

          The Company anticipates its cash flows from operations, supplemented by borrowings under its credit agreement and proceeds from its accounts receivable facility, will be sufficient to satisfy its operating cash requirements for at least the next twelve months.

          Cash flows from operations are impacted by consumer confidence, weather in the geographic markets served by the Company, and economic and 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 the Company’s ability to generate sufficient cash flows to operate its business.

          The Company has not identified any probable circumstances that would likely impair its ability to meet its cash requirements or trigger a default or acceleration of payment of the Company’s debt.

Contractual Obligations and Commitments

          The following tables reflect the Company’s contractual obligations and commitments:

Contractual Obligations

          Debt within the “2-3 Years” category includes $160.4 million of amounts currently outstanding under the revolving credit agreement, which expires in 2007.

          In addition, the Company expects to make cash contributions to its supplementary pension plans in the amount of $0.2 million, $0.3 million, $0.3 million, $0.3 million and $0.3 million for fiscal 2005, 2006, 2007, 2008 and 2009, respectively, and $1.7 million in the aggregate for the five fiscal years thereafter. Note 13 in the Notes to Consolidated Financial Statements provides a more complete description of the Company’s supplementary pension plans.

          Import letters of credit are primarily issued to support the importing of merchandise, which includes the Company’s private brand goods. Standby letters of credit are primarily issued as collateral for obligations related to general liability and workers’ compensation insurance. Surety bonds are primarily for previously incurred and expensed obligations related to workers’ compensation.

          In the ordinary course of business, the Company enters into arrangements with vendors to purchase merchandise up to twelve months in advance of expected delivery. These purchase orders do not contain any significant termination payments or other penalties if cancelled.

Off-Balance Sheet Arrangements

          The Company engages in securitization activities involving the Company’s proprietary credit card portfolio as a source of funding. Off-balance sheet proprietary credit card securitizations provide a significant portion of the Company’s funding and are one of its primary sources of liquidity. At January 29, 2005, off-balance sheet securitized receivables represented 57.7% of the Company’s funding. Gains and losses from securitizations are recognized in the Consolidated Statements of Income when the Company relinquishes control of the transferred financial assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125” (“SFAS No. 140”), and other related pronouncements. The gain or loss on the sale of financial assets depends in part on the previous carrying amount of the assets involved in the transfer, allocated between the assets sold and the retained interests based upon their respective fair values at the date of sale. Based on the term of the securitization agreement (less than one year) and the fact that the credit card receivables that comprise the retained interests are short-term in nature, the Company has classified its retained interests as a current asset.

          The Company sells undivided percentage ownership interests in certain of its credit card accounts receivable to unrelated third-parties under a $250.0 million accounts receivable facility, which is described in further detail below and in Note 8 of the Notes to Consolidated Financial Statements. The unrelated third-parties, referred to as the conduit, have purchased a $244.0 million interest in the accounts receivable under this facility at January 29, 2005. The Company is responsible for servicing these accounts, retains a servicing fee and bears the risk of non-collection (limited to its retained interests in the accounts receivable). Associated off-balance-sheet assets and related debt were $244.0 million at January 29, 2005 and $228.5 million at January 31, 2004. Upon the facility’s termination, the conduit would be entitled to all cash collections on the accounts receivable until its investment ($244.0 million at January 29, 2005) and accrued discounts are repaid. Accordingly, upon termination of the facility, the assets of the facility would not be available to the Company until all amounts due to the conduit have been paid in full.

          Based upon the terms of the accounts receivable facility, the accounts receivable transactions qualify for “sale treatment” under generally accepted accounting principles. This treatment requires the Company to account for transactions with the conduit as a sale of accounts receivable

Critical Accounting Policies

          The Company’s discussion and analysis of financial condition and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles. Preparation of these financial statements requires the Company to make estimates and judgments that affect reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of its financial statements. On an ongoing basis, the Company evaluates its estimates, including those related to merchandise returns, bad debts, inventories, intangible assets, income taxes, financings, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially lead to materially different results under different assumptions and conditions. The Company believes its critical accounting policies are described below. For a discussion of the application of these and other accounting policies, see Notes to Consolidated Financial Statements.

Allowance for Doubtful Accounts

          The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit-worthiness. The Company continually monitors collections and payments from customers and maintains an allowance for estimated credit losses based upon its historical experience, how delinquent accounts ultimately charge-off, aging of accounts and any specific customer collection issues identified (e.g., bankruptcy). While such credit losses have historically been within expectations and provisions established, the Company cannot guarantee that it will continue to experience the same credit loss rates as in the past. If circumstances change (e.g., higher than expected defaults or bankruptcies), the Company’s estimates of the recoverability of amounts due the Company could be materially reduced. The allowance for doubtful accounts and sales returns was $6.4 million and $6.3 million at January 29, 2005 and January 31, 2004, respectively.

Inventory Valuation

          As discussed in Note 1 of the Notes to Consolidated Financial Statements, inventories are stated at the lower of cost or market with cost determined by the retail inventory method using a last-in, first-out (“LIFO”) cost basis. Under the retail inventory method, the valuation of inventories at cost and resulting gross margin is derived by applying a calculated cost-to-retail ratio to the retail value of inventories. The retail inventory method is an averaging method that has been widely used in the retail industry. Use of the retail inventory method will result in valuing inventories at the lower of cost or market if markdowns are taken timely as a reduction of the retail value of inventories.

          Inherent in the retail inventory method calculation are certain significant management judgments and estimates including, among others, merchandise markups, markdowns and shrinkage, which significantly impact both the ending inventory valuation at cost and resulting

          The Company regularly reviews inventory quantities on-hand and records an adjustment for excess or old inventory based primarily on an estimated forecast of merchandise demand for the selling season. Demand for merchandise can fluctuate greatly. A significant increase in the demand for merchandise could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand. Additionally, estimates of future merchandise demand may prove to be inaccurate, in which case the Company may have understated or overstated the adjustment required for excess or old inventory. If the Company’s inventory is determined to be overvalued in the future, the Company would be required to recognize such costs in costs of goods sold and reduce operating income at the time of such determination. Likewise, if inventory is later determined to be undervalued, the Company may have overstated the costs of goods sold in previous periods and would recognize additional operating income when such inventory is sold. Therefore, although every effort is made to ensure the accuracy of forecasts of future merchandise demand, any significant unanticipated changes in demand or in economic conditions within the Company’s markets could have a significant impact on the value of the Company’s inventory and reported operating results.

          As is currently the case with many companies in the retail industry, the Company’s LIFO calculations have yielded inventory increases in recent years due to deflation reflected in price indices used. This is the result of the LIFO method whereby merchandise sold is valued at the cost of more recent inventory purchases (which the deflationary indices indicate to be lower), resulting in the general inventory on-hand being carried at the older, higher costs. Given these higher values and the promotional retail environment, the Company reduced the carrying value of its LIFO inventories to a net realizable value (“NRV”). These reductions totaled $20.2 million and $16.1 million at January 29, 2005 and January 31, 2004, respectively. Inherent in these NRV assessments are significant management judgments and estimates regarding future merchandise selling costs and pricing. Should these estimates prove to be inaccurate, the Company may have overstated or understated its inventory carrying value. In such cases, the Company’s operating results would ultimately be impacted.

Vendor Allowances

          As is standard industry practice, the Company receives allowances from merchandise vendors as reimbursement for charges incurred on marked-down merchandise. Vendor allowances are generally credited to costs of goods sold, provided the allowance is: (1) collectable, (2) for merchandise either permanently marked down or sold, (3) not predicated on a future purchase, (4) not predicated on a future increase in the purchase price from the vendor, and (5) authorized by internal management. If the aforementioned criteria are not met, the Company reflects the allowances as an adjustment to the cost of merchandise capitalized in inventory.

          Additionally, the Company receives allowances from vendors in connection with cooperative advertising programs. The Company reviews advertising allowances received from each vendor to ensure reimbursements are for specific, incremental and identifiable advertising costs incurred by the Company to sell the vendor’s products. If a vendor reimbursement exceeds the costs

Income Taxes

          Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against net deferred tax assets. The process involves the Company summarizing temporary differences resulting from differing treatment of items (e.g., allowance for doubtful accounts) for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. The Company must then assess the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and, to the extent the Company does not believe recovery of the deferred tax asset is more-likely-than-not, a valuation allowance must be established. To the extent the Company establishes a valuation allowance in a period, an expense must be recorded within the income tax provision in the statement of income.

          Net deferred tax assets were $29.7 million and $33.1 million at January 29, 2005 and January 31, 2004, respectively. In assessing the realizability of the deferred tax assets, the Company considered whether it was more-likely-than-not that the deferred tax assets, or a portion thereof, will not be realized. The Company considered the scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and limitations pursuant to Section 382 of the Internal Revenue Code (“Section 382”). As a result, the Company concluded that a valuation allowance against a portion of the net deferred tax assets was appropriate. A total valuation allowance of $58.1 million and $56.6 million was recorded at January 29, 2005 and January 31, 2004, respectively. The valuation allowance increase was due to final purchase accounting adjustments during the third quarter of fiscal 2004 and the impact of general operations and tax deductions in fiscal 2004. If actual results differ from these estimates or these estimates are adjusted in future periods, the Company may need to adjust its valuation allowance, which could materially impact its financial position and results of operations.

          The Company recorded $86.6 million of net deferred tax assets in connection with the October 24, 2003 acquisition of Elder-Beerman; a valuation allowance of $47.7 million was established against these deferred tax assets. Any future reduction to the valuation allowance established against deferred tax assets acquired in connection with the acquisition of Elder-Beerman would first reduce intangible assets and then, to the extent the valuation allowance reduction exceeds the current book value of intangible assets (approximately $3.8 million at January 29, 2005), would reduce the current income tax provision.

          As of January 29, 2005, the Company had federal and state net operating loss carry-forwards of $75.6 million and $358.3 million, respectively, which are available to offset future federal and state taxable income — subject to certain limitations imposed by Section 382. These net operating losses will expire at various dates beginning in fiscal 2009 through fiscal 2023. The Company acquired federal and state net operating loss carry-forwards of $76.0 million and $195.8 million, respectively, in connection with the acquisition of Elder-Beerman.

          As of January 29, 2005, the Company had alternative minimum tax credits and general business credits in the amount of $2.1 million and $0.6 million, respectively. Both credits are also subject to the limitations imposed by Section 382. The alternative minimum tax credits are available indefinitely, and the general business credits expire in fiscal 2007 and fiscal 2008. The Company acquired these alternative minimum tax credits and general business credits in connection with the acquisition of Elder-Beerman.

Long-lived Assets

          Property, fixtures and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in the Company’s business model or capital strategy can result in the actual useful lives differing from the Company’s estimates. In cases where the Company determines that the useful life of property, fixtures and equipment should be shortened, the Company depreciates the net book value in excess of the salvage value over its revised remaining useful life, thereby increasing depreciation expense. Factors such as changes in the planned use of fixtures or leasehold improvements could also result in shortened useful lives. Net property, fixtures and equipment amounted to $168.3 million and $177.6 million at January 29, 2005 and January 31, 2004, respectively.

          The Company assesses, on a store-by-store basis, the impairment of identifiable long-lived assets — primarily property, fixtures and equipment — whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include the following:

          SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), requires the Company to recognize an impairment loss if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those items. Cash flow estimates are based on historical results adjusted to reflect the Company’s best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. Estimates of fair value represent the Company’s best estimate based on industry trends and reference to market rates and transactions. Should cash flow estimates differ significantly from actual results, an impairment could arise and materially impact the Company’s financial position and results of operations. Given the seasonality of operations, impairment is not conclusive, in many cases, until after the holiday period in the fourth quarter is concluded.

          Newly opened stores may take time to generate positive operating and cash flow results. Factors such as store type, store location, current marketplace awareness of the Company’s private label brands, local customer demographic data and current fashion trends are all considered in determining the time-frame required for a store to achieve positive financial results. If conditions prove to be substantially different from the Company’s expectations, the carrying value of new stores’ long-lived assets may ultimately become impaired.

          In fiscal 2004 and 2003, the Company evaluated the recoverability of its long-lived assets in accordance with SFAS No. 144. As a result, impairment losses of approximately $0.9 million and $0.8 million were recorded in depreciation and amortization expense in fiscal 2004 and 2003, respectively. Included in the impairment loss in fiscal 2004 is $0.3 million related to the write-down of an intangible asset at one store location.

Goodwill and Intangible Assets

          Goodwill was $3.0 million at January 29, 2005 and January 31, 2004. Intangible assets are principally comprised of lease interests that relate to below-market-rate leases acquired in store acquisitions completed in fiscal years 1992 through 2003, which were adjusted to reflect fair market value. These lease-related interests are being amortized on a straight-line method. At January 29, 2005, these lease-related interests had average remaining lives of seventeen years for amortization purposes. Net intangible assets totaled $9.4 million and $6.4 million at January 29, 2005 and January 31, 2004, respectively.

          In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), the Company reviews goodwill and other intangible assets that have indefinite lives for impairment at least annually or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. The Company determines fair value using a discounted cash flow analysis methodology, which requires certain assumptions and estimates regarding industry economic factors and future profitability of acquired businesses. It is the Company’s policy to conduct impairment testing based on its most current business plans, which reflect anticipated changes in the economy and the industry. If actual results prove inconsistent with Company assumptions and judgments, the Company could be exposed to a material impairment charge. The Company completed a review of the carrying value of goodwill, in accordance with SFAS No. 142, at January 29, 2005 and determined that goodwill was not impaired.

Securitizations

          A significant portion of the Company’s funding is through off-balance-sheet credit card securitizations via sales of certain accounts receivable through an accounts receivable facility (the “facility”). The sale of receivables is to The Bon-Ton Receivables Partnership, LP (“BTRLP”), a special purpose entity as defined by SFAS No. 140. BTRLP is a wholly owned subsidiary of the Company. BTRLP may sell accounts receivable with a purchase price up to $250.0 million through the facility to a conduit on a revolving basis.

          The Company sells accounts receivable through securitizations with servicing retained. When the Company securitizes, it surrenders control over the transferred assets and accounts for the transaction as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. The Company allocates the previous carrying amount of the securitized receivables between the assets sold and retained interests, based on their relative estimated fair values at the date of sale. Securitization income is recognized at the time of the sale, and is equal to the excess of the fair value of the assets obtained (principally cash) over the allocated cost of the assets sold and transaction costs. During the revolving period of each accounts receivable securitization, securitization income is recorded representing estimated gains on the sale of new receivables to the conduit on a continuous basis to replenish the investors’ interest in securitized receivables that have been repaid by the credit card account holders. Fair value estimates used in the recognition of securitization income require certain assumptions of payment, default, servicing costs (direct and indirect) and interest rates. To the extent actual results differ from those estimates, the impact is recognized as a component of securitization income.

          The Company estimates the fair value of retained interests in securitizations based on a discounted cash flow analysis. The cash flows of the interest-only strip are estimated as the excess of the weighted average finance charge yield on each pool of receivables sold over the sum of the interest rate paid to the note holder, the servicing fee and an estimate of future credit losses over

          The Company recognized securitization income of $9.1 million, $8.0 million and $8.9 million for fiscal 2004, 2003, and 2002, respectively. The increase in income in fiscal 2004 relative to fiscal 2003 was principally due to increased sales of accounts receivable through the facility, resulting in a $13.6 million finance charge income increase, largely offset by higher interest costs, credit losses, and servicing fees. The decreased securitization income in fiscal 2003 relative to fiscal 2002 was principally a reflection of decreased sales of accounts receivable, resulting in a $1.9 million decrease in finance charge income, partially offset by a $1.0 million reduction in interest costs.

Operating Leases

          The Company leases a majority of its retail stores under operating leases. Many of the lease agreements contain rent holidays, rent escalation clauses and contingent rent provisions — or some combination of these items. The Company recognizes rent expense on a straight-line basis over the accounting lease term, which includes cancelable option periods where failure to exercise such options would result in an economic penalty. In calculating straight-line rent expense, the Company utilizes an accounting lease term that equals or exceeds the time period used for depreciation. Additionally, the commencement date of the accounting lease term reflects the earlier of the date the Company becomes legally obligated for the rent payments or the date the Company takes possession of the building for initial construction and setup.

          In a February 2005 letter to the American Institute of Certified Public Accountants, the SEC clarified its position regarding certain lease accounting practices. The SEC’s letter specifically addressed the depreciable life of leasehold improvements, rent holidays and landlord-tenant incentives. Similar to other retailers, the Company reviewed its historical treatment of these lease issues. After assessing its findings using the guidelines in SEC Staff Accounting Bulletin No. 99, the Company recorded a cumulative pre-tax expense of $0.5 million in the fourth quarter of fiscal 2004 and concluded that restatement of the Company’s financial statements for prior years would not be required.

          In December 2004, the Financial Accounting Standards Board issued SFAS 123R, “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R revises SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and it supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS No. 123R will require compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS No. 123R is effective as of the beginning of the Company’s third quarter of fiscal 2005. The full impact of SFAS No. 123R adoption cannot be predicted at this time as it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123R in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income

          The Company is exposed to market risk associated with changes in interest rates. Based on the variable-rate facilities outstanding at January 29, 2005, a 100 basis-point increase in interest rates would result in an approximate $1.3 million charge to interest expense. To provide some protection against potential rate increases associated with its variable-rate facilities, the Company entered into a derivative financial transaction in the form of an interest rate swap. The interest rate swap is used to hedge a portion of the underlying variable-rate facilities. The swap is a qualifying hedge and the interest rate differential is reflected as an adjustment to interest expense over the life of the swap. The Company currently holds a “variable-to-fixed” rate swap with a notional amount of $30.0 million with one financial institution. The notional amount does not represent amounts exchanged by the parties; rather, it is used as the basis to calculate amounts due and to be received under the rate swap. During fiscal 2004 and 2003, the Company did not enter into or hold derivative financial instruments for trading purposes.

          The following table provides information about the Company’s derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including debt obligations and interest rate swaps. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates at January 29, 2005. For interest rate swaps, the table presents notional amounts and weighted average pay and receive interest rates by expected maturity date. For additional discussion of the Company’s interest rate swap, see Note 6 in the Notes to Consolidated Financial Statements.

          The Company’s 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 back-to-school and holiday seasons. See Note 15 in the Notes to Consolidated Financial Statements for the Company’s quarterly results for fiscal 2004 and 2003. Due to the fixed nature of certain costs, selling, general and administrative expenses are typically higher as a percentage of net sales during the first half of each fiscal year.

          The Company does not believe inflation had a material effect on operating results during the past three years. However, there can be no assurance that the Company’s business will not be affected by inflationary adjustments in the future.

          Information called for by this item is set forth in the Company’s Consolidated Financial Statements and Financial Statement Schedule contained in this report and is incorporated herein by this reference. See index at page F-1.

          None.

          Attached as exhibits to this Form 10-K are certifications of the Company’s Chief Executive Officer and Chief Financial Officer, which are required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications. This section should be read in conjunction with the certifications for a more complete understanding of the topics presented.

          The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed pursuant to 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 the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s 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 the Company’s disclosure controls and procedures are effective.

          The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable

          Management assessed the Company’s internal control over financial reporting as of January 29, 2005, the end of the Company’s fiscal year. Management based its assessment on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and the Company’s overall control environment.

          Based on its assessment, management has concluded that the Company’s internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. The results of management’s assessment were reviewed with the Audit Committee of the Company’s Board of Directors.

          KPMG LLP audited management’s assessment and independently assessed the effectiveness of the Company’s internal control over financial reporting. KPMG LLP has issued an attestation report concurring with management’s assessment, which is included below.

The Board of Directors and Shareholders

The Bon-Ton Stores, Inc.:

          We have audited management’s assessment, included in the Management Report on Internal Control over Financial Reporting presented above, that The Bon-Ton Stores, Inc. maintained effective internal control over financial reporting as of January 29, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bon-Ton Stores, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

          We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

          A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unau-

          Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          In our opinion, management’s assessment that The Bon-Ton Stores, Inc. maintained effective internal control over financial reporting as of January 29, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, The Bon-Ton Stores, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 29, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

          We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Bon-Ton Stores, Inc. and subsidiaries as of January 29, 2005 and January 31, 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended January 29, 2005, and the related financial statement schedule, and our report dated April 12, 2005 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.

/s/ KPMG LLP

Philadelphia, Pennsylvania

April 12, 2005

          The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls or internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

          Other than as described below, there has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

          Throughout the fourth quarter of fiscal 2004, the Company was in the process of integrating the operations of Elder-Beerman. As part of the integration, the Company modified the functional areas or locations responsible for certain transaction processing and certain processes over financial data collection, consolidation and reporting. As a result, the Company modified the design and operation of certain elements of its internal control over financial reporting. Integration efforts and related modifications, as described above, continued into the first quarter of fiscal 2005, including certain changes to merchandise inventory tracking and costing systems, merchandise sales price management systems and general ledger interfaces. The Company believes it has taken the necessary steps to monitor and maintain appropriate internal control over financial reporting during this period of change.

          The Company inadvertently failed to file a Report on Form 8-K in October 2003 in connection with a blackout period on participants in the Company’s 401(k) plan from October 13, 2003 to October 17, 2003 resulting from a change in the funds available to participants in the 401(k) plan.

PART III

          As part of our system of corporate governance, our Board of Directors has adopted a Code of Ethical Standards and Business Practices applicable to all directors, officers and associates. This Code is available on our website at www.bonton.com.

          The information regarding executive officers is included in Part I under the heading “Executive Officers.” The remainder of the information called for by this Item will be contained in the Company’s Proxy Statement and is hereby incorporated by reference thereto.

          The information called for by this Item will be contained in the Company’s Proxy Statement and is hereby incorporated by reference thereto (other than the information called for by Items 402(k) and (l) of Regulation S-K, which is not incorporated herein by reference).

          The information called for by this Item will be contained in the Company’s Proxy Statement and is hereby incorporated by reference thereto.

          The information called for by this Item will be contained in the Company’s Proxy Statement and is hereby incorporated by reference thereto.

          The information called for by this Item will be contained in the Company’s Proxy Statement and is hereby incorporated by reference thereto.

PART IV

          (a) The following documents are filed as part of this report:

          (b) The following are exhibits to this Form 10-K and, if incorporated by reference, the Company has indicated the document previously filed with the Commission in which the exhibit was included.

SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: April 12, 2005

          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

AND FINANCIAL STATEMENT SCHEDULE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

The Bon-Ton Stores, Inc.:

          We have audited the accompanying consolidated balance sheets of The Bon-Ton Stores, Inc. and subsidiaries as of January 29, 2005 and January 31, 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended January 29, 2005. In connection with our audits of the consolidated financial statements, we also have audited the related financial statement schedule, Valuation and Qualifying Accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

          We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Bon-Ton Stores, Inc. and subsidiaries as of January 29, 2005 and January 31, 2004, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended January 29, 2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

          We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The Bon-Ton Stores, Inc.’s internal control over financial reporting as of January 29, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 12, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Philadelphia, Pennsylvania

April 12, 2005

THE BON-TON STORES, INC.

CONSOLIDATED BALANCE SHEETS

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

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY