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EX-31.1 - EXHIBIT 31.1 - BON TON STORES INCc02206exv31w1.htm
EX-32.1 - EXHIBIT 32.1 - BON TON STORES INCc02206exv32w1.htm
EX-31.2 - EXHIBIT 31.2 - BON TON STORES INCc02206exv31w2.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
     
For the Quarter ended May 1, 2010   Commission File Number 0-19517
THE BON-TON STORES, INC.
2801 East Market Street
York, Pennsylvania 17402
(717) 757-7660
     
Incorporated in Pennsylvania   IRS No. 23-2835229
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
        (Do not check if a smaller
reporting company)
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of May 28, 2010, there were 16,068,223 shares of Common Stock, $.01 par value, and 2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.
 
 

 

 


 

PART I: FINANCIAL INFORMATION
ITEM 1.  
FINANCIAL STATEMENTS
THE BON-TON STORES, INC.
CONSOLIDATED BALANCE SHEETS
                 
(In thousands except share and per share data)   May 1,     January 30,  
(Unaudited)   2010     2010  
 
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 16,466     $ 18,922  
Merchandise inventories
    676,085       659,399  
Prepaid expenses and other current assets
    73,970       87,690  
 
           
Total current assets
    766,521       766,011  
 
           
 
               
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $618,200 and $594,020 at May 1, 2010 and January 30, 2010, respectively
    736,762       756,618  
Deferred income taxes
    13,423       13,303  
Intangible assets, net of accumulated amortization of $40,663 and $38,477 at May 1, 2010 and January 30, 2010, respectively
    136,608       138,794  
Other long-term assets
    42,013       47,281  
 
           
Total assets
  $ 1,695,327     $ 1,722,007  
 
           
 
               
Liabilities and Shareholders’ Equity
               
Current liabilities:
               
Accounts payable
  $ 189,736     $ 163,671  
Accrued payroll and benefits
    34,917       48,297  
Accrued expenses
    140,189       160,737  
Current maturities of long-term debt
    7,621       7,509  
Current maturities of obligations under capital leases
    5,140       5,044  
Deferred income taxes
    15,346       14,820  
Income taxes payable
    128        
 
           
Total current liabilities
    393,077       400,078  
 
           
 
               
Long-term debt, less current maturities
    957,604       951,315  
Obligations under capital leases, less current maturities
    64,084       65,405  
Other long-term liabilities
    163,143       163,453  
 
           
Total liabilities
    1,577,908       1,580,251  
 
           
 
               
Contingencies (Note 10)
               
 
               
Shareholders’ equity
               
Preferred Stock — authorized 5,000,000 shares at $0.01 par value; no shares issued
           
Common Stock — authorized 40,000,000 shares at $0.01 par value; issued shares of 16,403,023 and 15,942,348 at May 1, 2010 and January 30, 2010, respectively
    164       159  
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at May 1, 2010 and January 30, 2010
    30       30  
Treasury stock, at cost — 337,800 shares at May 1, 2010 and January 30, 2010
    (1,387 )     (1,387 )
Additional paid-in capital
    146,908       149,649  
Accumulated other comprehensive loss
    (50,971 )     (52,912 )
Retained earnings
    22,675       46,217  
 
           
Total shareholders’ equity
    117,419       141,756  
 
           
Total liabilities and shareholders’ equity
  $ 1,695,327     $ 1,722,007  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

2


 

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                 
    THIRTEEN  
    WEEKS ENDED  
(In thousands except per share data)   May 1,     May 2,  
(Unaudited)   2010     2009  
 
               
Net sales
  $ 661,373     $ 644,531  
Other income
    13,838       18,392  
 
           
 
    675,211       662,923  
 
           
 
               
Costs and expenses:
               
Costs of merchandise sold
    414,340       420,366  
Selling, general and administrative
    227,913       236,827  
Depreciation and amortization
    26,224       28,098  
Amortization of lease-related interests
    1,146       1,227  
 
           
Income (loss) from operations
    5,588       (23,595 )
Interest expense, net
    28,513       22,926  
 
           
 
               
Loss before income taxes
    (22,925 )     (46,521 )
Income tax provision (benefit)
    617       (1,080 )
 
           
 
               
Net loss
  $ (23,542 )   $ (45,441 )
 
           
 
               
Per share amounts —
               
Basic:
               
Net loss
  $ (1.33 )   $ (2.67 )
 
           
 
               
Diluted:
               
Net loss
  $ (1.33 )   $ (2.67 )
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

3


 

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    THIRTEEN  
    WEEKS ENDED  
(In thousands)   May 1,     May 2,  
(Unaudited)   2010     2009  
Cash flows from operating activities:
               
Net loss
  $ (23,542 )   $ (45,441 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    26,224       28,098  
Amortization of lease-related interests
    1,146       1,227  
Share-based compensation expense
    1,347       1,117  
(Gain) loss on sale of property, fixtures and equipment
    (11 )     65  
Reclassifications of other comprehensive loss
    1,941       2,290  
Amortization of deferred financing costs
    2,287       1,022  
Amortization of deferred gain on sale of proprietary credit card portfolio
    (603 )     (603 )
Deferred income taxes
    405       3,035  
Changes in operating assets and liabilities
               
Increase in merchandise inventories
    (16,687 )     (25,322 )
Decrease in prepaid expenses and other current assets
    13,720       5,401  
Decrease in other long-term assets
    3,495       4,311  
Increase in accounts payable
    28,802       32,122  
Decrease in accrued payroll and benefits and accrued expenses
    (30,270 )     (24,340 )
Increase in income taxes payable
    128       104  
Increase (decrease) in other long-term liabilities
    779       (1,745 )
 
           
Net cash provided by (used in) operating activities
    9,161       (18,659 )
 
           
 
               
Cash flows from investing activities:
               
Capital expenditures
    (6,592 )     (6,146 )
Proceeds from sale of property, fixtures and equipment
    15       56  
 
           
Net cash used in investing activities
    (6,577 )     (6,090 )
 
           
 
               
Cash flows from financing activities:
               
Payments on long-term debt and capital lease obligations
    (144,889 )     (154,662 )
Proceeds from issuance of long-term debt
    150,065       184,308  
Cash dividends paid
          (866 )
Restricted shares forfeited in lieu of payroll taxes
    (4,083 )      
Deferred financing costs paid
    (515 )      
Decrease in bank overdraft balances
    (5,618 )     (5,371 )
 
           
Net cash (used in) provided by financing activities
    (5,040 )     23,409  
 
           
 
               
Net decrease in cash and cash equivalents
    (2,456 )     (1,340 )
 
               
Cash and cash equivalents at beginning of period
    18,922       19,719  
 
           
 
               
Cash and cash equivalents at end of period
  $ 16,466     $ 18,379  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

4


 

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
                                                         
                                    Accumulated              
                                    Other              
            Class A             Additional     Compre-              
(In thousands)   Common     Common     Treasury     Paid-in     hensive     Retained        
(Unaudited)   Stock     Stock     Stock     Capital     Loss     Earnings     Total  
 
                                                       
BALANCE AT JANUARY 30, 2010
  $ 159     $ 30     $ (1,387 )   $ 149,649     $ (52,912 )   $ 46,217     $ 141,756  
 
                                         
 
                                                       
Comprehensive loss (Note 11):
                                                       
Net loss
                                  (23,542 )     (23,542 )
Pension and postretirement benefit plans
                            970             970  
Cash flow hedges
                            971             971  
 
                                         
Total comprehensive loss
                                                    (21,601 )
 
                                                       
Resticted shares forfeited in lieu of payroll taxes
    (4 )                 (4,079 )                 (4,083 )
Share-based compensation expense
    9                   1,338                   1,347  
 
                                         
BALANCE AT MAY 1, 2010
  $ 164     $ 30     $ (1,387 )   $ 146,908     $ (50,971 )   $ 22,675     $ 117,419  
 
                                         
The accompanying notes are an integral part of these consolidated financial statements.

 

5


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
1. BASIS OF PRESENTATION
The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company incorporated on January 31, 1929. The Bon-Ton Stores, Inc. operates, through its subsidiaries, 278 stores in 23 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s and Younkers nameplates and, in the Detroit, Michigan area, under the Parisian nameplate. The Bon-Ton Stores, Inc. conducts its operations through one business segment.
The accompanying unaudited consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. and its wholly owned subsidiaries (collectively, “the Company”). All intercompany transactions and balances have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of management, all adjustments considered necessary for a fair presentation of interim periods have been included. The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of results for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010.
All references to the “first quarter of 2010” and the “first quarter of 2009” are to the thirteen weeks ended May 1, 2010 and May 2, 2009, respectively. All references to “2010” are to the fifty-two weeks ending January 29, 2011; references to “2009” are to the fifty-two weeks ended January 30, 2010.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions about future events. These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and the reported amounts of revenues and expenses. Such estimates include the valuation of inventories, long-lived assets, intangible assets, insurance reserves, legal contingencies and assumptions used in the calculation of income taxes and retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from further changes in the economic environment will be reflected in the financial statements in future periods.
Certain prior year balances presented in the consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. These reclassifications did not impact the Company’s net loss for the periods presented.
Recently Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which requires new disclosures regarding recurring or nonrecurring fair value measurements. Entities are required to separately disclose significant transfers into and out of Level 1 and Level 2 measurements in the fair value hierarchy and the reasons for the transfers, and to provide information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. In addition, entities must provide fair value measurement disclosures for each class of assets and liabilities and, for Level 2 or Level 3 measurements, disclose the valuation technique and inputs used in determining fair value for each class. ASU 2010-06 impacts disclosure requirements only. The Company adopted ASU 2010-06 in the first quarter of 2010, with the exception of the additional information in the reconciliation of Level 3 assets and liabilities, which will be effective in fiscal 2011. There were no transfers into or out of Level 1 or 2 of the fair value hierarchy during the first quarter of 2010. See Note 3.

 

6


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
2. PER-SHARE AMOUNTS
The following table presents a reconciliation of net loss and weighted average shares outstanding used in basic and diluted earnings (loss) per share (“EPS”) calculations in the first quarter of 2010 and the first quarter of 2009:
                 
    THIRTEEN  
    WEEKS ENDED  
    May 1,     May 2,  
    2010     2009  
 
               
Basic Loss Per Common Share
               
Net loss
  $ (23,542 )   $ (45,441 )
Less: Income allocated to participating securities
           
 
           
Net loss available to common shareholders
  $ (23,542 )   $ (45,441 )
 
           
 
               
Weighted average common shares outstanding
    17,683,005       16,987,939  
 
           
 
               
Basic loss per common share
  $ (1.33 )   $ (2.67 )
 
           
 
               
Diluted Loss Per Common Share
               
Net loss
  $ (23,542 )   $ (45,441 )
Less: Income allocated to participating securities
           
 
           
Net loss available to common shareholders
  $ (23,542 )   $ (45,441 )
 
           
 
               
Average common shares outstanding
    17,683,005       16,987,939  
Common shares issuable — stock options
           
 
           
Weighted average common shares outstanding assuming dilution
    17,683,005       16,987,939  
 
           
 
               
Diluted loss per common share
  $ (1.33 )   $ (2.67 )
 
           
Due to the Company’s net loss position, 1,008,889 and 812,512 unvested restricted shares (participating securities) were excluded from the calculation of both basic and diluted EPS for the first quarter of 2010 and the first quarter of 2009, respectively.
In addition, 1,065,727 and 1,120,111 stock option shares (non-participating securities) were excluded from the calculation of diluted EPS for the first quarter of 2010 and the first quarter of 2009, respectively, as they would have been antidilutive. Certain of these stock option shares were excluded solely due to the Company’s net loss position in the first quarter of 2010 and the first quarter of 2009. Had the Company reported a profit for the first quarter of 2010, these shares would have had an effect of 273,256 dilutive shares for purposes of calculating diluted EPS. Had the Company reported a profit for the first quarter of 2009, these shares would have had no effect on dilutive shares for purposes of calculating diluted EPS.

 

7


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
3. FAIR VALUE MEASUREMENTS
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value and establishes a framework for measuring fair value. ASC 820 establishes fair value hierarchy levels that prioritize the inputs used in valuations determining fair value. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs are primarily quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs based on the Company’s own assumptions.
As of May 1, 2010 and January 30, 2010, the Company held two interest rate swap contracts required to be measured at fair value on a recurring basis (see Note 4). The fair values of these interest rate swap contracts are derived from discounted cash flow analysis utilizing an interest rate yield curve that is readily available to the public or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized these interest rate swap contracts as a Level 2 fair value measurement. There has been no change in the valuation technique used to determine the fair value of the interest rate swap contracts.
The interest rate swap liability comprises the entirety of the Company’s financial assets and liabilities carried at fair value and measured on a recurring basis. The carrying value of the interest rate swap liability as of May 1, 2010 and January 30, 2010 is as follows:
                                 
                    Significant        
            Quoted Prices     Other     Significant  
            in Active     Observable     Unobservable  
    Total Carrying     Markets     Inputs     Inputs  
    Value     (Level 1)     (Level 2)     (Level 3)  
May 1, 2010
  $ 5,404     $     $ 5,404     $  
 
                       
January 30, 2010
  $ 6,319     $     $ 6,319     $  
 
                       
The carrying values of the Company’s cash and cash equivalents, accounts payable and financial instruments reported within prepaid expenses and other current assets and other long-term assets approximate fair value. The carrying value of the Company’s long-term debt, including current maturities but excluding capital leases, was $965,225 and $958,824 at May 1, 2010 and January 30, 2010, respectively, and the estimated fair value was $956,529 and $888,647 at May 1, 2010 and January 30, 2010, respectively. The fair value estimate of the Company’s long-term debt is based on quoted market rates available to the Company or discounted cash flow analysis as appropriate.
The Company did not have any material fair value measurements for its assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis during the first quarter of 2010 or the first quarter of 2009.
4. INTEREST RATE DERIVATIVES
The Company enters into interest rate swap agreements to manage the fixed/variable interest rate mix of its debt portfolio. These derivatives are accounted for in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”).
It is the policy of the Company to identify on a continuing basis the need for debt capital and evaluate financial risks inherent in funding the Company with debt capital. In conjunction with this ongoing review, the debt portfolio and hedging program of the Company is managed to: (1) reduce funding risk with respect to borrowings made or to be made by the Company to preserve the Company’s access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) control the aggregate interest rate risk of the debt portfolio. The Company enters into interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio in order to maintain an appropriate balance of fixed-rate and variable-rate debt.

 

8


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
On the date the derivative instrument is entered into, the Company designates the derivative as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). Changes in the fair value of a derivative that is designated as, and meets all required criteria for, a cash flow hedge are recorded in other comprehensive income or loss (“OCI”) and reclassified into the statement of operations as the underlying hedged item affects earnings, such as when quarterly settlements are made on the hedged forecasted transaction. The portion of the change in fair value of a derivative associated with hedge ineffectiveness or the component of a derivative instrument excluded from the assessment of hedge effectiveness, if any, is recorded in the current statement of operations. Also, changes in the fair value of a derivative that is not designated as a hedge, if any, are entirely recorded in the statement of operations. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions; this process includes relating all derivatives that are designated as cash flow hedges to specific balance sheet assets or liabilities. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the respective derivative. In addition, if the forecasted transaction is no longer likely to occur, any amounts in accumulated other comprehensive income or loss (“AOCI”) related to the derivative are recorded in the statement of operations for the current period.
The Company has two interest rate swap contracts to effectively convert a portion of its variable-rate debt to fixed-rate debt, both of which were entered into on July 14, 2006 and expire on July 14, 2011. These contracts entail the exchange of fixed-rate and floating-rate interest payments periodically over the life of the agreement. The floating-rate interest payments are based on three-month LIBOR rates. The following indicates the notional amounts of these interest rate swap contracts and the range of fixed-rates associated with these contracts:
                 
    May 1,     May 2,  
    2010     2009  
Fixed swaps (notional amount)
    $100,000       $100,000  
Range of pay rate
    5.48%-5.49%       5.48%-5.49%  
On December 4, 2009, the Company amended and restated its senior secured credit facility, at which time the Company de-designated and re-measured its two interest rate swaps and discontinued hedge accounting prospectively in accordance with ASC 815. Specifically, ASC 815 requires the immediate recognition of the expected cumulative ineffectiveness, with the remaining amount to remain in AOCI and be reclassified into the statement of operations as the originally hedged forecasted transactions affect the statement of operations. All changes in fair value after December 4, 2009 are recognized in interest expense.
The following table summarizes the fair value (see Note 3) and presentation in the consolidated balance sheet:
                     
    Balance Sheet Location   Derivative Assets     Derivative Liabilities  
May 1, 2010
  Other Long-Term Liabilities   $     $ 5,404  
January 30, 2010
  Other Long-Term Liabilities   $     $ 6,319  

 

9


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The following table summarizes the effect of the interest rate swaps on the consolidated statement of operations and OCI or AOCI, prior to being de-designated on December 4, 2009:
                                         
                    Amount of     Location of     Amount of  
                    Loss     Loss     Loss  
    Amount of     Location of Loss     Reclassified     Recognized     Recognized  
    Loss     Reclassified from     from AOCI to     in the     in the  
    Recognized     AOCI to the     the Statement     Statement of     Statement of  
    in OCI     Statement of     of Operations     Operations     Operations  
    (effective     Operations     (effective     (ineffective     (ineffective  
    portion)     (effective portion)     portion)     portion)     portion)  
13 Weeks Ended May 2, 2009
  $ 1,925     Interest
Expense, Net
    $ 1,094     Interest
Expense, Net
    $  
The following table summarizes the effect of the interest rate swaps on the consolidated statement of operations and AOCI, after being de-designated on December 4, 2009:
                                 
            Amount of             Amount of  
    Location of Loss     Loss     Location of     Loss  
    Reclassified from     Reclassified     Loss     Recognized  
    AOCI to the     from AOCI to     Recognized in     in the  
    Statement of     the Statement     the Statement     Statement of  
    Operations     of Operations     of Operations     Operations  
13 Weeks Ended May 1, 2010
  Interest
Expense, Net
    $ 971     Interest
Expense, Net
    $ 406  
At May 1, 2010, it is expected that approximately $3,071 of losses in AOCI related to interest rate swaps will be reclassified into the statement of operations within the next 12 months.
5. SUPPLEMENTAL BALANCE SHEET INFORMATION
Prepaid expenses and other current assets were comprised of the following:
                 
    May 1,     January 30,  
    2010     2010  
Prepaid expenses
  $ 37,807     $ 30,778  
Other receivables
    27,994       48,624  
Income tax receivables
    8,169       8,288  
 
           
Total
  $ 73,970     $ 87,690  
 
           

 

10


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
6. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for the periods reported:
                 
    THIRTEEN  
    WEEKS ENDED  
    May 1,     May 2,  
    2010     2009  
 
               
Cash paid for:
               
Interest, net of amounts capitalized
  $ 39,661     $ 36,629  
Income taxes, net of refunds received
    (75 )     176  
 
               
Non-cash investing activities:
               
Decrease in accrued property, fixtures and equipment included in accounts payable and accrued expenses
  $ (774 )   $ (1,241 )
Assets acquired under capital leases
          4,602  
7. EXIT OR DISPOSAL ACTIVITIES
The following table summarizes exit or disposal activities during the first quarter of 2010 related to involuntary associate termination costs associated with the Company’s cost reductions in corporate and store personnel implemented in January 2010 and the first quarter of 2010:
         
    Termination  
    Benefits  
Balance as of January 30, 2010
  $ 1,688  
Provision
    473  
Payments
    (1,980 )
 
     
Balance as of May 1, 2010
  $ 181  
 
     
The above provision was included within selling, general and administrative expense.
8. EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS
The Company provides benefits to certain current and former associates who are eligible under a defined benefit pension plan and various supplemental pension plans (collectively, the “Pension Plans”). Net periodic benefit expense for the Pension Plans includes the following (income) and expense components:
                 
    THIRTEEN  
    WEEKS ENDED  
    May 1,     May 2,  
    2010     2009  
Interest cost
  $ 2,543     $ 2,822  
Expected return on plan assets
    (1,977 )     (1,765 )
Recognition of net actuarial loss
    970       1,219  
 
           
Net periodic benefit expense
  $ 1,536     $ 2,276  
 
           
During the first quarter of 2010, contributions of $185 were made to the Pension Plans. The Company anticipates contributing an additional $580 to fund the Pension Plans in 2010 for an annual total of $765.

 

11


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The Company also provides medical and life insurance benefits to certain former associates under a postretirement benefit plan (“Postretirement Benefit Plan”). Net periodic benefit expense of $81, comprised solely of interest expense, was recorded in the first quarter of 2010. Net periodic benefit expense of $64, comprised of interest expense of $87 and recognition of net actuarial gain of $23, was recorded in the first quarter of 2009. During the first quarter of 2010, payments under the Postretirement Benefit Plan exceeded premiums received by $126. The Company anticipates contributing an additional $802 to fund the Postretirement Benefit Plan in 2010 for a net annual total of $928.
9. INCOME TAXES
The provisions codified within ASC Topic 740, Income Taxes (“ASC 740”), require companies to assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence using a “more likely than not” standard. In accordance with ASC 740, the Company maintained a full valuation allowance throughout 2009 and the first quarter of 2010 on all the Company’s net deferred tax assets. The Company’s deferred tax asset valuation allowance totaled $148,760 and $140,452 at May 1, 2010 and January 30, 2010, respectively.
Given the Company’s valuation allowance position, no tax benefit was recognized on the Company’s loss before income taxes in the first quarter of 2010. The tax expense of $617 recorded in the first quarter of 2010 reflects certain state income tax expense and recognition of deferred tax liabilities associated with indefinite-lived assets. Likewise, no tax benefit was recognized on the Company’s loss before income taxes in the first quarter of 2009. The tax benefit of $1,080 recorded in the first quarter of 2009 includes a $1,633 tax benefit resulting from recognition of uncertain tax positions due to a statute of limitations expiration, partially offset by certain state income tax expense.
Within the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010, the Company disclosed it was reasonably possible that gross unrecognized tax benefits could decrease by $1,236 within the next 12 months. As of May 1, 2010, it is reasonably possible that gross unrecognized tax benefits could decrease by $1,216 within the next 12 months due to the expiration of certain statute of limitations.
10. CONTINGENCIES
The Company is party to legal proceedings and claims that arise during the ordinary course of business. In the opinion of management, the ultimate outcome of any such litigation and claims will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.
11. COMPREHENSIVE LOSS
Comprehensive loss was determined as follows:
                 
    THIRTEEN  
    WEEKS ENDED  
    May 1,     May 2,  
    2010     2009  
Net loss
  $ (23,542 )   $ (45,441 )
Other comprehensive income (loss):
               
Amortization of pension and postretirement benefit plans
    970       1,196  
Cash flow hedge derivative income (loss)
    971       (831 )
 
           
Comprehensive loss
  $ (21,601 )   $ (45,076 )
 
           

 

12


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
As a result of the deferred tax asset valuation allowance maintained throughout 2009 and the first quarter of 2010, the changes recognized within other comprehensive income (loss) in the first quarter of 2010 and the first quarter of 2009 were recorded on a gross basis.
12. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
On March 6, 2006, The Bon-Ton Department Stores, Inc. (the “Issuer”), a wholly owned subsidiary of the Company, entered into an Indenture with The Bank of New York, as trustee, under which the Issuer issued $510,000 aggregate principal amount of its 10-1/4% Senior Notes due 2014. The Notes are guaranteed on a senior unsecured basis by the Company and by each of the Company’s subsidiaries, other than the Issuer, that is an obligor under the Company’s senior secured credit facility. The guarantees are full and unconditional and joint and several.
The condensed consolidating financial information for the Company, the Issuer and the Company’s guarantor and non-guarantor subsidiaries as of May 1, 2010 and January 30, 2010 and for the first quarter of 2010 and the first quarter of 2009 as presented below has been prepared from the books and records maintained by the Company, the Issuer and the guarantor and non-guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor and non-guarantor subsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time.

 

13


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
May 1, 2010
                                                 
    Bon-Ton                                  
    (Parent             Guarantor     Non-Guarantor     Consolidating     Company  
    Company)     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                               
Assets
                                               
Current assets:
                                               
Cash and cash equivalents
  $ 1     $ 8,336     $ 8,129     $     $     $ 16,466  
Merchandise inventories
          328,980       347,105                   676,085  
Prepaid expenses and other current assets
          60,468       12,032       2,076       (606 )     73,970  
 
                                   
Total current assets
    1       397,784       367,266       2,076       (606 )     766,521  
 
                                   
Property, fixtures and equipment at cost, net
          216,533       233,297       286,932             736,762  
Deferred income taxes
          4,303       9,120                   13,423  
Intangible assets, net
          58,230       78,378                   136,608  
Investment in and advances to (from) affiliates
    117,418       508,314       131,667       316       (757,715 )      
Other long-term assets
          36,806       838       4,369             42,013  
 
                                   
Total assets
  $ 117,419     $ 1,221,970     $ 820,566     $ 293,693     $ (758,321 )   $ 1,695,327  
 
                                   
 
                                               
Liabilities and Shareholders’ Equity
                                               
Current liabilities:
                                               
Accounts payable
  $     $ 189,736     $     $     $     $ 189,736  
Accrued payroll and benefits
          25,057       9,860                   34,917  
Accrued expenses
          59,481       79,943       1,371       (606 )     140,189  
Current maturities of long-term debt and obligations under capital leases
          3,686       2,454       6,621             12,761  
Deferred income taxes
          5,851       9,495                   15,346  
Income taxes payable
          80       48                   128  
 
                                   
Total current liabilities
          283,891       101,800       7,992       (606 )     393,077  
 
                                               
Long-term debt and obligations under capital leases, less current maturities
          723,239       54,318       244,131             1,021,688  
Other long-term liabilities
          118,780       43,061       1,302             163,143  
 
                                   
Total liabilities
          1,125,910       199,179       253,425       (606 )     1,577,908  
 
                                   
 
                                               
Shareholders’ equity
    117,419       96,060       621,387       40,268       (757,715 )     117,419  
 
                                   
 
                                               
Total liabilities and shareholders’ equity
  $ 117,419     $ 1,221,970     $ 820,566     $ 293,693     $ (758,321 )   $ 1,695,327  
 
                                   

 

14


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
January 30, 2010
                                                 
    Bon-Ton                                  
    (Parent             Guarantor     Non-Guarantor     Consolidating     Company  
    Company)     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                               
Assets
                                               
Current assets:
                                               
Cash and cash equivalents
  $ 1     $ 9,962     $ 8,959     $     $     $ 18,922  
Merchandise inventories
          339,616       319,783                   659,399  
Prepaid expenses and other current assets
          73,640       11,549       3,035       (534 )     87,690  
 
                                   
Total current assets
    1       423,218       340,291       3,035       (534 )     766,011  
 
                                   
Property, fixtures and equipment at cost, net
          226,915       239,850       289,853             756,618  
Deferred income taxes
          4,277       9,026                   13,303  
Intangible assets, net
          59,332       79,462                   138,794  
Investment in and advances to (from) affiliates
    141,755       489,259       153,717       316       (785,047 )      
Other long-term assets
          38,561       4,263       4,457             47,281  
 
                                   
Total assets
  $ 141,756     $ 1,241,562     $ 826,609     $ 297,661     $ (785,581 )   $ 1,722,007  
 
                                   
 
                                               
Liabilities and Shareholders’ Equity
                                               
Current liabilities:
                                               
Accounts payable
  $     $ 163,671     $     $     $     $ 163,671  
Accrued payroll and benefits
          40,632       7,665                   48,297  
Accrued expenses
          73,953       85,979       1,339       (534 )     160,737  
Current maturities of long-term debt and obligations under capital leases
          3,635       2,409       6,509             12,553  
Deferred income taxes
          5,650       9,170                   14,820  
 
                                   
Total current liabilities
          287,541       105,223       7,848       (534 )     400,078  
 
                                               
Long-term debt and obligations under capital leases, less current maturities
          715,891       54,948       245,881             1,016,720  
Other long-term liabilities
          120,469       41,706       1,278             163,453  
 
                                   
Total liabilities
          1,123,901       201,877       255,007       (534 )     1,580,251  
 
                                   
 
                                               
Shareholders’ equity
    141,756       117,661       624,732       42,654       (785,047 )     141,756  
 
                                   
 
                                               
Total liabilities and shareholders’ equity
  $ 141,756     $ 1,241,562     $ 826,609     $ 297,661     $ (785,581 )   $ 1,722,007  
 
                                   

 

15


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended May 1, 2010
                                                 
    Bon-Ton                                  
    (Parent             Guarantor     Non-Guarantor     Consolidating     Company  
    Company)     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                               
Net sales
  $     $ 287,111     $ 374,262     $     $     $ 661,373  
Other income
          5,591       8,247                   13,838  
 
                                   
 
          292,702       382,509                   675,211  
 
                                               
Costs and expenses:
                                               
Costs of merchandise sold
          179,070       235,270                   414,340  
Selling, general and administrative
          104,597       132,131       24       (8,839 )     227,913  
Depreciation and amortization
          10,422       12,881       2,921             26,224  
Amortization of lease-related interests
          662       484                   1,146  
 
                                   
(Loss) income from operations
          (2,049 )     1,743       (2,945 )     8,839       5,588  
 
                                               
Other income (expense):
                                               
Intercompany rental and royalty income
                1,652       7,187       (8,839 )      
Equity in losses of subsidiaries
    (22,925 )     (112 )                 23,037        
Interest expense, net
          (20,764 )     (3,625 )     (4,124 )           (28,513 )
 
                                   
 
                                               
(Loss) income before income taxes
    (22,925 )     (22,925 )     (230 )     118       23,037       (22,925 )
Income tax provision
    617       617       314             (931 )     617  
 
                                   
 
                                               
Net (loss) income
  $ (23,542 )   $ (23,542 )   $ (544 )   $ 118     $ 23,968     $ (23,542 )
 
                                   

 

16


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Operations
Thirteen Weeks Ended May 2, 2009
                                                 
    Bon-Ton                                  
    (Parent             Guarantor     Non-Guarantor     Consolidating     Company  
    Company)     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                               
Net sales
  $     $ 278,415     $ 366,116     $     $     $ 644,531  
Other income
          7,459       10,933                   18,392  
 
                                   
 
          285,874       377,049                   662,923  
 
                                               
Costs and expenses:
                                               
Costs of merchandise sold
          181,659       238,707                   420,366  
Selling, general and administrative
          107,932       137,625       22       (8,752 )     236,827  
Depreciation and amortization
          11,261       13,844       2,993             28,098  
Amortization of lease-related interests
          709       518                   1,227  
 
                                   
Loss from operations
          (15,687 )     (13,645 )     (3,015 )     8,752       (23,595 )
 
                                               
Other income (expense):
                                               
Intercompany rental and royalty income
                1,565       7,187       (8,752 )      
Equity in losses of subsidiaries
    (46,521 )     (13,248 )                 59,769        
Interest expense, net
          (17,586 )     (1,118 )     (4,222 )           (22,926 )
 
                                   
 
                                               
Loss before income taxes
    (46,521 )     (46,521 )     (13,198 )     (50 )     59,769       (46,521 )
Income tax (benefit) provision
    (1,080 )     (1,080 )     169             911       (1,080 )
 
                                   
 
                                               
Net loss
  $ (45,441 )   $ (45,441 )   $ (13,367 )   $ (50 )   $ 58,858     $ (45,441 )
 
                                   

 

17


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Cash Flows
Thirteen Weeks Ended May 1, 2010
                                                 
    Bon-Ton                                  
    (Parent             Guarantor     Non-Guarantor     Consolidating     Company  
    Company)     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Cash flows from operating activities
  $ 4,083     $ 1,488     $ 4,783     $ 4,141     $ (5,334 )   $ 9,161  
 
                                   
 
                                               
Cash flows from investing activities:
                                               
Capital expenditures
          (4,355 )     (2,237 )                 (6,592 )
Intercompany investing activity
          (29 )                 29        
Proceeds from sale of property, fixtures and equipment
          4       11                   15  
 
                                   
Net cash used in investing activities
          (4,380 )     (2,226 )           29       (6,577 )
 
                                   
 
                                               
Cash flows from financing activities:
                                               
Payments on long-term debt and capital lease obligations
          (142,666 )     (586 )     (1,637 )           (144,889 )
Proceeds from issuance of long-term debt
          150,065                         150,065  
Intercompany financing activity
                (2,801 )     (2,504 )     5,305        
Restricted shares forfeited in lieu of payroll taxes
    (4,083 )                             (4,083 )
Deferred financing costs paid
          (515 )                       (515 )
Decrease in bank overdraft balances
          (5,618 )                       (5,618 )
 
                                   
Net cash (used in) provided by financing activities
    (4,083 )     1,266       (3,387 )     (4,141 )     5,305       (5,040 )
 
                                   
 
                                               
Net decrease in cash and cash equivalents
          (1,626 )     (830 )                 (2,456 )
 
                                   
 
                                               
Cash and cash equivalents at beginning of period
    1       9,962       8,959                   18,922  
 
                                   
 
                                               
Cash and cash equivalents at end of period
  $ 1     $ 8,336     $ 8,129     $     $     $ 16,466  
 
                                   

 

18


 

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
The Bon-Ton Stores, Inc.
Condensed Consolidating Statement of Cash Flows
Thirteen Weeks Ended May 2, 2009
                                                 
    Bon-Ton                                  
    (Parent             Guarantor     Non-Guarantor     Consolidating     Company  
    Company)     Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Cash flows from operating activities
  $ 866     $ (22,892 )   $ 5,884     $ 2,672     $ (5,189 )   $ (18,659 )
 
                                   
 
                                               
Cash flows from investing activities:
                                               
Capital expenditures
          (5,253 )     (893 )                 (6,146 )
Intercompany investing activity
          (814 )                 814        
Proceeds from sale of property, fixtures and equipment
          21       35                   56  
 
                                   
Net cash used in investing activities
          (6,046 )     (858 )           814       (6,090 )
 
                                   
 
                                               
Cash flows from financing activities:
                                               
Payments on long-term debt and capital lease obligations
          (152,071 )     (543 )     (2,048 )           (154,662 )
Proceeds from issuance of long-term debt
          184,308                         184,308  
Intercompany financing activity
          (866 )     (2,885 )     (624 )     4,375        
Cash dividends paid
    (866 )                             (866 )
Decrease in bank overdraft balances
          (5,371 )                       (5,371 )
 
                                   
Net cash (used in) provided by financing activities
    (866 )     26,000       (3,428 )     (2,672 )     4,375       23,409  
 
                                   
 
                                               
Net (decrease) increase in cash and cash equivalents
          (2,938 )     1,598                   (1,340 )
 
                                   
 
                                               
Cash and cash equivalents at beginning of period
    1       10,769       8,949                   19,719  
 
                                   
 
                                               
Cash and cash equivalents at end of period
  $ 1     $ 7,831     $ 10,547     $     $     $ 18,379  
 
                                   

 

19


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 2.  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of the following discussion, references to the “first quarter of 2010” and the “first quarter of 2009” are to the thirteen-week periods ended May 1, 2010 and May 2, 2009, respectively. References to “2010” are to the fifty-two week period ending January 29, 2011; references to “2009” are to the fifty-two week period ended January 30, 2010. References to “the Company,” “we,” “us,” and “our” refer to The Bon-Ton Stores, Inc. and its subsidiaries.
Overview
General
We are one of the largest regional department store operators in the United States, offering a broad assortment of brand-name fashion apparel and accessories for women, men and children. Our merchandise offerings also include cosmetics, home furnishings and other goods. We currently operate 278 stores in 23 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s and Younkers nameplates and, in the Detroit, Michigan area, under the Parisian nameplate, encompassing a total of approximately 26 million square feet.
We operate in the department store segment of the U.S. retail industry, which is a highly competitive and fragmented environment. The department store industry continues to evolve in response to consolidation among merchandise vendors as well as the evolution of competitive retail formats — mass merchandisers, national chain retailers, specialty retailers and online retailers.
Economic Factors and Company Performance
Our operating results and performance, and that of our competitors, depend significantly on economic conditions and their impact on consumer spending. We are cautiously optimistic about the economic environment for 2010. We will continue to focus on sales and marketing initiatives to positively impact our sales performance, particularly when economic conditions improve, and assess options to further reduce our cost structure. On May 20, 2010, we provided the following assumptions with respect to 2010:
   
a comparable store sales increase in the range of 1.0% to 3.0%;
 
   
a gross margin rate in the range of 37.2% to 37.3%, an improvement over the 2009 rate of 37.1%;
 
   
a reduction of $20.0 million to $25.0 million in our selling, general and administrative (“SG&A”) expenses; and
 
   
an effective tax rate of 0%.
Recent Legislation
In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (together, the “2010 Act”) were signed into law. The two measures make sweeping and fundamental changes to the United States health care system, with reform provisions taking effect over the next four years. The 2010 Act changed the tax treatment related to an existing retiree drug subsidy available to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the benefits under Medicare Part D. As a result of the 2010 Act, retiree drug subsidy payments will effectively become taxable in tax years beginning in 2013 by requiring the amount of the subsidy received to be offset against a company’s deduction for health care expenses. As we have not evaluated whether our postretirement benefit plan drug benefit is at least actuarially equivalent to Medicare Part D, our postretirement benefit expense and income tax expense heretofore have not reflected any amount associated with the subsidy. Consequently, the results of our operations will not be affected by this specific application of the 2010 Act. We are currently evaluating the longer-term impacts of the new legislation on our health care expenses.

 

20


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table summarizes changes in selected operating indicators of the Company, illustrating the relationship of various income and expense items to net sales for the respective periods presented (components may not add or subtract to totals due to rounding):
                 
    THIRTEEN  
    WEEKS ENDED  
    May 1,     May 2,  
    2010     2009  
Net sales
    100.0 %     100.0 %
Other income
    2.1       2.9  
 
           
 
    102.1       102.9  
 
           
Costs and expenses:
               
Costs of merchandise sold
    62.6       65.2  
Selling, general and administrative
    34.5       36.7  
Depreciation and amortization
    4.0       4.4  
Amortization of lease-related interests
    0.2       0.2  
 
           
Income (loss) from operations
    0.8       (3.7 )
Interest expense, net
    4.3       3.6  
 
           
Loss before income taxes
    (3.5 )     (7.2 )
Income tax provision (benefit)
    0.1       (0.2 )
 
           
Net loss
    (3.6) %     (7.1 )%
 
           
First Quarter of 2010 Compared with First Quarter of 2009
Net sales: Net sales in the first quarter of 2010 were $661.4 million, an increase of $16.8 million or 2.6% as compared with $644.5 million in the first quarter of 2009. Comparable store net sales increased 3.0% in the period as our customers responded favorably to our merchandise assortment. We believe our value message is resonating with our customers as sales in Coats and Moderate Sportswear (both included in Women’s Apparel), Footwear and Accessories, the best performing merchandise categories in the period, benefited from successful private brand strategies and expanded moderate offerings.
Furniture and Hard Home (both included in Home) performed poorly in the first quarter of 2010 as sales in these merchandise categories continue to be adversely impacted by the challenging housing market. Additionally, Furniture sales have been hampered by what we believe is a continued reluctance by our customer to spend limited discretionary dollars on bigger ticket items. Hard Home sales were particularly impacted by the Company’s decision to reduce its inventory investment in novelty electronic gifts and difficult sales in decorative housewares.
Other income: Other income, which includes income from revenues received under a credit card program agreement with HSBC Bank Nevada, N.A., leased departments and other customer revenues, was $13.8 million, or 2.1% of net sales, in the first quarter of 2010 as compared with $18.4 million, or 2.9% of net sales, in the first quarter of 2009. This decrease primarily reflects reduced leased department income, the result of the conversion in late 2009 of Fine Jewelry to an owned department, and, to a lesser extent, reduced income associated with our proprietary credit card program.

 

21


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Costs and expenses: Gross margin in the first quarter of 2010 was $247.0 million as compared with $224.2 million in the comparable prior year period. The $22.9 million increase reflects both the increased sales volume and an increased gross margin rate. Gross margin as a percentage of net sales increased 260 basis points to 37.4% in the first quarter of 2010 from 34.8% in the same period last year. We improved our merchandise margins primarily through strong inventory management, resulting in decreased net markdowns, and increased sales penetration of private brand and value-priced offerings, both of which typically generate higher net markup and gross margins.
SG&A expense in the first quarter of 2010 was $227.9 million compared with $236.8 million in the first quarter of 2009, a decrease of $8.9 million. The reduction is largely the result of continued cost saving initiatives to promote efficiencies in operations, and primarily reflects decreases in payroll and advertising expenses. The current year expense rate decreased 230 basis points to 34.5% of net sales, compared with 36.7% in the same period last year.
Depreciation and amortization expense and amortization of lease-related interests decreased $2.0 million, to $27.4 million, in the first quarter of 2010 from $29.3 million in the first quarter of 2009, primarily due to the reduced asset base resulting from significant 2009 reductions in capital expenditures (whereby 2009 depreciation expense greatly exceeded asset additions) and, to a lesser extent, asset impairments recorded in 2009.
Income (loss) from operations: Income from operations was $5.6 million in the first quarter of 2010 as compared with a net operating loss of ($23.6) million in the first quarter of 2009.
Interest expense, net: Net interest expense was $28.5 million, or 4.3% of net sales, in the first quarter of 2010, compared with $22.9 million, or 3.6% of net sales, in the first quarter of 2009. The $5.6 million increase is primarily due to increased interest rates and deferred financing fees under our amended and new credit facilities, partially offset by reduced borrowings in the first quarter of 2010.
Income tax provision (benefit): The effective income tax rate in the first quarter of 2010 and the first quarter of 2009 largely reflects the Company’s valuation allowance position against all net deferred tax assets. The $0.6 million net income tax provision in the first quarter of 2010 was primarily due to certain state income tax expense and recognition of deferred tax liabilities associated with indefinite-lived assets. The ($1.1) million benefit in the first quarter of 2009 reflects a ($1.6) million tax benefit resulting from recognition of uncertain tax positions due to a statute of limitations expiration, partially offset by certain state income tax expense.
Net loss: The net loss in the first quarter of 2010 was $23.5 million, or 3.6% of net sales, compared with a net loss of $45.4 million, or 7.1% of net sales, in the first quarter of 2009.
Seasonality
Our business, like that of most retailers, is subject to seasonal fluctuations, with the major portion of sales and income realized during the second half of each fiscal year, which includes the holiday season. Due to the fixed nature of certain costs, SG&A expense is typically higher as a percentage of net sales during the first half of each fiscal year. We typically finance working capital increases in the second half of each fiscal year through additional borrowings under our revolving credit facility.
Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved for a full fiscal year.
Liquidity and Capital Resources
At May 1, 2010, we had $16.5 million in cash and cash equivalents and $407.3 million available under our asset-based revolving credit facility (before taking into account the minimum borrowing availability covenant under such facility of $75.0 million). In anticipation of continued economic uncertainty in 2010, we heightened our focus on maximizing cash flow by reducing operating expenses and continuing to control inventory levels in order to benefit our working capital needs. We anticipate that these actions will positively impact our 2010 cash flow.

 

22


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Typically, cash flows from operations are impacted by the effect on sales of (1) consumer confidence, (2) weather in the geographic markets served by the Company, (3) general economic conditions and (4) competitive conditions existing in the retail industry; a downturn in any single factor or a combination of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate our business. While uncertain economic conditions affect our assessment of short-term liquidity, and while there can be no assurances, we consider our resources, including cash flows from operations supplemented by borrowings under our revolving credit facility, adequate to satisfy our cash needs for at least the next 12 months.
The following table summarizes material measures of the Company’s liquidity and capital resources:
                 
    May 1,     May 2,  
(Dollars in millions)   2010     2009  
 
               
Working capital
  $ 373.4     $ 441.1  
Current ratio
    1.95:1       2.17:1  
Debt to total capitalization (1)
    0.90:1       0.93:1  
Unused availability under lines of credit (2)
  $ 407.3     $ 164.6  
     
(1)  
Debt includes obligations under capital leases. Total capitalization includes shareholders’ equity and debt.
 
(2)  
Subject to a minimum borrowing availability covenant of $75.0 million.
Our primary sources of working capital are cash flows from operations and borrowings under our revolving credit facility, which provides for up to $675.0 million in borrowings (limited by amounts available pursuant to a borrowing base calculation). Our business follows a seasonal pattern; working capital fluctuates with seasonal variations, reaching its highest level in October or November to fund the purchase of merchandise inventories prior to the holiday season. The seasonality of our business historically provides the greatest cash flow from operations during the holiday season, with fourth fiscal quarter net sales generating the strongest profits of our fiscal year. As holiday sales significantly reduce inventory levels, this reduction, combined with net income, historically provides us with strong cash flow from operations at the end of our fiscal year.
Decreases in working capital and the current ratio are primarily the result of the cash receipt in July 2009 (subsequently employed for debt reduction) of a first quarter 2009 income tax receivable relating to a carry-back refund, partially offset by a current year income tax receivable due to deferred tax asset valuation allowance releases associated with implementation of the carry-back provisions of 2009 tax legislation. Working capital and the current ratio were further reduced by an increase in the current year accounts payable balance. The decrease in debt to total capitalization is primarily the result of current year debt reductions due to cash flow generated in 2009 utilized to reduce debt. The increase in unused availability under lines of credit as compared with the prior year largely reflects reduced direct borrowings, the result of our improved operating performance and increased liquidity afforded us by the term loan facility entered into in 2009, which enabled us to pay a portion of the outstanding borrowings under our revolving credit facility.

 

23


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cash provided by (used in) our operating, investing and financing activities is summarized as follows:
                 
    THIRTEEN  
    WEEKS ENDED  
    May 1,     May 2,  
(Dollars in millions)   2010     2009  
 
               
Operating activities
  $ 9.2     $ (18.7 )
Investing activities
    (6.6 )     (6.1 )
Financing activities
    (5.0 )     23.4  
Net cash provided by operating activities was $9.2 million in the first quarter of 2010; net cash used in operating activities was ($18.7) in the first quarter of 2009. The increase in cash provided in the current year primarily reflects an improvement in business performance, resulting in the significant reduction in the current year loss. The current year cash increase also reflects reduced working capital requirements.
Net cash used in investing activities primarily reflects capital expenditures for store remodels and information technology. Capital expenditures totaled $6.6 million and $6.1 million in the first quarter of 2010 and the first quarter of 2009, respectively; these expenditures do not reflect reductions for external contributions of $2.3 million and $1.9 million in the first quarter of 2010 and the first quarter of 2009, respectively. We anticipate our 2010 capital expenditures will not exceed $50.0 million (net of external contributions of $7.0 million), an increase over our 2009 capital investments of $32.3 million (which do not reflect reductions for external contributions of $7.6 million).
Net cash used in financing activities was ($5.0) million in the first quarter of 2010, compared with net cash provided by financing activities of $23.4 million in the comparable prior year period. The change primarily reflects reduced net borrowings due to decreased cash requirements for current year operating activities and the effect of forfeitures of common stock shares by employees in lieu of tax payments.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements required us to make estimates and judgments that affected reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. On an ongoing basis, we evaluate our estimates, including those related to merchandise returns, inventories, intangible assets, income taxes, financings, contingencies, insurance reserves, litigation, and pension and supplementary retirement plans. We base our estimates on historical experience and on various other assumptions that we believe 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. We believe our critical accounting policies are as described below:
Inventory Valuation
Inventories are stated at the lower of cost or market with cost determined by the retail inventory method. Under the retail inventory method, the valuation of inventories at cost and the 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.

 

24


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 the resulting gross margin. These significant estimates, coupled with the fact that the retail inventory method is an averaging process, can, under certain circumstances, result in individual inventory components with cost above related net realizable value. Factors that can lead to this result include applying the retail inventory method to a group of products that is not fairly uniform in terms of its cost, selling price relationship and turnover; or applying the retail inventory method to transactions over a period of time that include different rates of gross profit, such as those relating to seasonal merchandise. In addition, failure to take timely markdowns can result in an overstatement of inventory under the lower of cost or market principle. We believe that the retail inventory method we use provides an inventory valuation that approximates cost and results in carrying inventory in the aggregate at the lower of cost or market.
We regularly review inventory quantities on-hand and record 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 merchandise demand may prove to be inaccurate, in which case we may have understated or overstated the adjustment required for excess or old inventory. If our inventory is determined to be overvalued in the future, we 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, we 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 merchandise demand, any significant unanticipated changes in demand or in economic conditions within our markets could have a significant impact on the value of our inventory and reported operating results.
As of January 30, 2010, approximately 32% of our inventories were valued using a first-in, first-out cost basis and approximately 68% of our inventories were valued using a last-in, first-out (“LIFO”) cost basis. As is currently the case with many companies in the retail industry, our LIFO calculations yielded inventory increases in recent prior years due to deflation reflected in price indices used. The LIFO method values merchandise sold at the cost of more recent inventory purchases (which the deflationary indices indicated 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, we have reduced the carrying value of our LIFO inventories to an estimated realizable value. These reductions totaled $41.7 million as of May 1, 2010 and January 30, 2010. Inherent in the valuation of inventories are significant management judgments and estimates regarding future merchandise selling costs and pricing. Should these estimates prove to be inaccurate, we may have overstated or understated our inventory carrying value. In such cases, operating results would ultimately be impacted.
Vendor Allowances
As is standard industry practice, allowances from merchandise vendors are received 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 allowances are recorded as an adjustment to the cost of merchandise capitalized in inventory and reflected as a reduction of costs of merchandise sold when the related merchandise is sold.

 

25


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Additionally, allowances are received from vendors in connection with cooperative advertising programs and for reimbursement of certain payroll expenses. These allowances are reviewed to ensure reimbursements are for specific, incremental and identifiable advertising or payroll costs incurred to sell the vendor’s products. If a vendor reimbursement exceeds the costs incurred, the excess reimbursement is recorded as a reduction of cost purchases from the vendor and reflected as a reduction of costs of merchandise sold when the related merchandise is sold. All other amounts are recognized as a reduction of the related advertising or payroll costs that have been incurred and reflected in SG&A expense.
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 summarizing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. In addition, we are required to assess whether valuation allowances should be established against our deferred tax assets based on consideration of all available evidence using a “more likely than not” standard. To the extent a valuation allowance is established in a period, an expense must be recorded within the income tax provision in the statement of operations.
We reported net deferred tax liabilities of $1.9 million and $1.5 million at May 1, 2010 and January 30, 2010, respectively. In assessing the realizability of our deferred tax assets, we considered whether it is more likely than not that our deferred tax assets will be realized based upon all available evidence, including scheduled reversal of deferred tax liabilities, historical operating results, projected future operating results, tax carry-back availability and limitations pursuant to Section 382 of the Internal Revenue Code, among others. Significant weight is given to evidence that can be objectively verified. As a result, current or previous losses are given more weight than any projected future taxable income. In addition, a recent three-year historical cumulative loss is considered a significant element of negative evidence that is difficult to overcome.
We evaluate our deferred tax assets each reporting period, including assessment of the Company’s cumulative income or loss over the prior three-year period, to determine if valuation allowances are required. With respect to our reviews during 2009, our three-year historical cumulative loss and the continuation of uncertain near-term economic conditions impeded our ability to rely on our projections of future taxable income in assessing valuation allowance requirements. As such, we concluded that it was necessary to maintain a full valuation allowance on our net deferred tax assets. With respect to our review in the first quarter of 2010, we concluded it was necessary to continue the position of a full valuation allowance on our net deferred tax assets.
Our deferred tax asset valuation allowance totaled $148.8 and $140.5 million at May 1, 2010 and January 30, 2010, respectively. If actual results differ from these estimates or these estimates are adjusted in future periods, the valuation allowance may need to be adjusted, which could materially impact our financial position and results of operations. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more likely than not standard, the valuation allowance would be reversed accordingly in the period that such a conclusion is reached.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interpretations and guidance surrounding income tax laws and regulations change over time, and changes to our assumptions and judgments could materially impact our financial position and results of operations.
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 our business model or capital strategy can result in the actual useful lives differing from estimates. In cases where we determined that the useful life of property, fixtures and equipment should be shortened, we depreciated the net book value in excess of the salvage value over the 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. Our net property, fixtures and equipment amounted to $736.8 million and $756.6 million at May 1, 2010 and January 30, 2010, respectively.

 

26


 

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We are required to test a long-lived asset for recoverability whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Factors that could trigger an impairment review include the following:
   
Significant underperformance of stores relative to historical or projected future operating results,
 
   
Significant changes in the manner of our use of assets or overall business strategy, and
 
   
Significant negative industry or economic trends for a sustained period.
If the undiscounted cash flows associated with the asset are insufficient to support the recorded asset, an impairment loss is recognized for the amount (if any) by which the carrying amount of the asset exceeds the fair value of the asset. Cash flow estimates are based on historical results, adjusted to reflect our best estimate of future market and operating conditions. Estimates of fair value are determined through various techniques, including discounted cash flow models and market approaches, as considered necessary. Should cash flow estimates differ significantly from actual results, an impairment could arise and materially impact our 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 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 expectations, the carrying value of new stores’ long-lived assets may ultimately become impaired.
Intangible Assets
Net intangible assets totaled $136.6 million and $138.8 million at May 1, 2010 and January 30, 2010, respectively. Our intangible assets at May 1, 2010 are principally comprised of $68.9 million of lease interests that relate to below-market-rate leases and $67.7 million associated with trade names, private label brand names and customer lists. The lease-related interests are being amortized using a straight-line method. The customer lists are being amortized using a declining-balance method. At May 1, 2010, trade names and private label brand names of $54.0 million have been deemed as having indefinite lives.
Intangible assets that have indefinite lives are reviewed 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. Fair value is determined using quoted market prices and/or a discounted cash flow analysis, which requires certain assumptions and estimates regarding industry economic factors. Our policy is to conduct impairment testing based on our most current business plans, which reflect anticipated changes in the economy and the industry.
While the carrying value of intangible assets has been substantially reduced, should future results or economic events cause a change in our projected cash flows, future estimates of fair value may not support the carrying amount of these assets. If actual results prove inconsistent with our assumptions and judgments, we could be exposed to a material impairment charge.

 

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THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Insurance Reserve Estimates
We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability and employee-related health care benefits, a portion of which is paid by our associates. We determine the estimates for the liabilities associated with these risks by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. A change in claims frequency and severity of claims from historical experience as well as changes in state statutes and the mix of states in which we operate could result in a change to the required reserve levels.
Pension and Supplementary Retirement Plans
We provide an unfunded supplementary pension plan to certain key executives. Through acquisitions, we acquired a defined benefit pension plan and assumed the liabilities of supplementary pension plans and a postretirement benefit plan. Major assumptions used in accounting for these plans include the discount rate and the expected long-term rate of return on the defined benefit plan’s assets.
The discount rate assumption is evaluated annually. We utilize the Citibank Pension Discount Curve (“CPDC”) to develop the discount rate assumption. The CPDC is developed from a U.S. Treasury par curve that reflects the Treasury Coupon and Strips market. Option-adjusted spreads drawn from the double-A corporate bond sector are layered in to develop a double-A corporate par curve, from which the CPDC spot rates are developed. The CPDC spot rates are applied to expected benefit payments, from which a single constant discount rate can then be developed based on the expected timing of these benefit payments.
We base our asset return assumption on current and expected allocations of assets, as well as a long-term view of expected returns on the plan asset categories. We assess the appropriateness of the expected rate of return on an annual basis and, when necessary, revise the assumption.
Changes in the assumptions regarding the discount rate and expected return on plan assets may result in materially different expense and liability amounts. Actuarial estimations may differ materially from actual results, reflecting many factors including changing market and economic conditions, changes in investment strategies, higher or lower withdrawal rates and longer or shorter life-spans of participants. In addition, while we are not required to make any mandatory contributions to the defined benefit pension plan in 2010, the funded status of this plan and the related cost reflected in our financial statements are affected by various factors that are subject to an inherent degree of uncertainty, particularly in the current economic environment. Under the Pension Protection Act of 2006, losses of asset values may necessitate increased funding of the defined benefit pension plan in the future to meet minimum federal government requirements. Downward pressure on the asset values of the defined benefit pension plan may require us to fund obligations earlier than we forecasted, which would have a negative impact on cash flows from operations.
Forward-Looking Statements
Certain information included in this report and other materials filed or to be filed by the Company with the Securities and Exchange Commission contain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which may be identified by words such as “may,” “could,” “will,” “plan,” “expect,” “anticipate,” “estimate,” “project,” “intend” or other similar expressions, involve important risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. Factors that could cause such differences include, but are not limited to, risks related to retail businesses generally; a significant and prolonged deterioration of general economic conditions which could negatively impact the Company, including the potential write-down of the current valuation of intangible assets and deferred taxes; changes in the terms of the Company’s proprietary credit card program; potential increase in pension obligations; consumer spending patterns, debt levels, and the availability and cost of consumer credit; additional competition from existing and new competitors; inflation; changes in the costs of fuel and other energy and transportation costs; weather conditions that could negatively impact sales; uncertainties associated with expanding or remodeling existing stores; the ability to attract and retain qualified management; the dependence upon relationships with vendors and their factors; a security breach; the ability to reduce SG&A expenses; the incurrence of unplanned capital expenditures; the ability to obtain financing for working capital, capital expenditures and general corporate purposes; the impact of new regulatory requirements including the changes mandated in 2009 to many credit card business practices and the health care legislation enacted in 2010; and the financial condition of mall operators. Additional factors that could cause the Company’s actual results to differ from those contained in these forward-looking statements are discussed in greater detail under Item 1A of the Company’s Form 10-K filed with the Securities and Exchange Commission.

 

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THE BON-TON STORES, INC.
ITEM 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Financial Instruments
Refer to disclosures contained on page 35 of our 2009 Annual Report on Form 10-K. There have been no material changes in our exposures, risk management strategies, or hedging positions since January 30, 2010.
ITEM 4.  
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report and, based on this evaluation, concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes to our internal controls over financial reporting that occurred during the thirteen weeks ended May 1, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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THE BON-TON STORES, INC.
PART II: OTHER INFORMATION
ITEM 6.  
EXHIBITS
(a) The following exhibits are filed pursuant to the requirements of Item 601 of Regulation S-K:
             
Exhibit   Description   Document Location
       
 
   
  10.1    
Amendment No. 2 to Executive Transition Agreement with M. Thomas Grumbacher
  Incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed on February 1, 2010
       
 
   
  10.2    
Form of Restricted Stock Agreement
  Incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed on April 16, 2010 (“4/16/10 Form 8-K”)
       
 
   
  10.3    
Form of Restricted Stock Agreement — Performance Shares
  Incorporated by reference to Exhibit 10.2 to the 4/16/10 Form 8-K
       
 
   
  10.4    
Form of Restricted Stock Unit Agreement
  Incorporated by reference to Exhibit 10.3 to the 4/16/10 Form 8-K
       
 
   
  10.5    
Form of Non-Qualified Stock Option Agreement
  Incorporated by reference to Exhibit 10.4 to the 4/16/10 Form 8-K
       
 
   
  31.1    
Certification of Byron L. Bergren
  Filed herewith
       
 
   
  31.2    
Certification of Keith E. Plowman
  Filed herewith
       
 
   
  32.1    
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Furnished herewith

 

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THE BON-TON STORES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  THE BON-TON STORES, INC.
 
 
DATE: June 10, 2010  BY:   /s/ Byron L. Bergren    
         Byron L. Bergren   
         President and
       Chief Executive Officer 
 
     
DATE: June 10, 2010  BY:   /s/ Keith E. Plowman    
         Keith E. Plowman   
         Executive Vice President,
       Chief Financial Officer and
       Principal Accounting Officer 
 
 

 

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