SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

		For the Quarter ended October 28, 2006		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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer o                      Accelerated filer þ                      Non-accelerated filer o

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

As of December 1, 2006, there were 14,448,529 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

THE BON-TON STORES, INC.
CONSOLIDATED BALANCE SHEETS

(In thousands except share and per share data)		October 28,				January 28,
(Unaudited)		2006				2006
Assets
Current assets:
Cash and cash equivalents		$	22,847			$	9,771
Merchandise inventories			944,488				284,584
Prepaid expenses and other current assets			83,781				28,412
Deferred income taxes			8,300				7,126
Total current assets			1,059,416				329,893
Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $286,103 and $216,740 at October 28, 2006 and January 28, 2006, respectively			928,802				167,679
Deferred income taxes			66,345				46,453
Goodwill			17,095				2,965
Intangible assets, net of accumulated amortization of $9,502 and $5,776 at October 28, 2006 and January 28, 2006, respectively			162,634				5,013
Other long-term assets			36,440				9,340
Total assets		$	2,270,732			$	561,343
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	392,279			$	87,318
Accrued payroll and benefits			63,128				18,986
Accrued expenses			141,038				52,692
Current maturities of long-term debt			5,425				961
Current maturities of obligations under capital leases			1,907				74
Income taxes payable			13,408				26,743
Total current liabilities			617,185				186,774
Long-term debt, less current maturities			1,256,602				42,491
Obligations under capital leases, less current maturities			70,110				24
Other long-term liabilities			73,210				39,960
Total liabilities			2,017,107				269,249
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 14,448,529 and 14,195,664 shares at October 28, 2006 and January 28, 2006, respectively			144				142
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding 2,951,490 shares at October 28, 2006 and January 28, 2006			30				30
Treasury stock, at cost - 337,800 shares at October 28, 2006 and January 28, 2006			(1,387	)			(1,387	)
Additional paid-in-capital			128,587				129,614
Deferred compensation			—				(6,663	)
Accumulated other comprehensive loss			(1,327	)			(5	)
Retained earnings			127,578				170,363
Total shareholders’ equity			253,625				292,094
Total liabilities and shareholders’ equity		$	2,270,732			$	561,343

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

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

		THIRTEEN								THIRTY-NINE
		WEEKS ENDED								WEEKS ENDED
(In thousands except share and per share data)		October 28,				October 29,				October 28,				October 29,
(Unaudited)		2006				2005				2006				2005
Net sales		$	804,100			$	285,676			$	2,112,646			$	822,555
Other income			22,859				2,126				57,646				6,098
			826,959				287,802				2,170,292				828,653
Costs and expenses:
Costs of merchandise sold			509,829				189,229				1,347,342				530,692
Selling, general and administrative			273,581				97,759				731,722				285,848
Depreciation and amortization			29,587				7,508				76,672				21,525
Income (loss) from operations			13,962				(6,694	)			14,556				(9,412	)
Interest expense, net			27,929				2,804				79,082				9,710
Loss before income taxes			(13,967	)			(9,498	)			(64,526	)			(19,122	)
Income tax benefit			(3,066	)			(3,198	)			(23,015	)			(6,965	)
Net loss		$	(10,901	)		$	(6,300	)		$	(41,511	)		$	(12,157	)
Per share amounts –
Basic:
Net loss		$	(0.66	)		$	(0.39	)		$	(2.53	)		$	(0.75	)
Basic weighted average shares outstanding			16,439,314				16,218,717				16,420,082				16,175,790
Diluted:
Net loss		$	(0.66	)		$	(0.39	)		$	(2.53	)		$	(0.75	)
Diluted weighted average shares outstanding			16,439,314				16,218,717				16,420,082				16,175,790

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

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

		THIRTY-NINE
		WEEKS ENDED
(In thousands)		October 28,				October 29,
(Unaudited)		2006				2005
Cash flows from operating activities:
Net loss		$	(41,511	)		$	(12,157	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			76,672				21,525
Bad debt provision			—				1,510
Stock-based compensation expense			3,834				1,728
Tax benefit of stock option exercises			—				533
Gain on sale of property, fixtures and equipment			(687	)			(132	)
Amortization of deferred financing costs			5,469				1,164
Amortization of deferred gain on sale of proprietary credit card portfolio			(1,810	)			(742	)
Deferred income tax benefit			(2,919	)			(11,362	)
Net transfers of receivables to accounts receivable facility			—				(244,000	)
Proceeds from sale of proprietary credit card portfolio			—				315,445
Loss on sale of proprietary credit card portfolio			—				596
Changes in operating assets and liabilities, net of effect of acquisition:
Increase in merchandise inventories			(204,649	)			(121,973	)
(Increase) decrease in prepaid expenses and other current assets			(40,355	)			21,354
(Increase) decrease in other long-term assets			(6,633	)			42
Increase in accounts payable			111,677				70,435
Increase (decrease) in accrued expenses			13,758				(11,116	)
Decrease in income taxes payable			(13,335	)			(1,833	)
Increase in other long-term liabilities			1,513				577
Net cash (used in) provided by operating activities			(98,976	)			31,594
Cash flows from investing activities:
Capital expenditures			(72,954	)			(19,094	)
Acquisition, net of cash acquired			(1,047,120	)			—
Proceeds from sale of property, fixtures and equipment			1,557				102
Net cash used in investing activities			(1,118,517	)			(18,992	)
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations			(590,246	)			(280,742	)
Proceeds from issuance of long-term debt			1,807,739				256,000
Cash dividends paid			(1,274	)			(1,249	)
Proceeds from stock options exercised			936				825
Excess tax benefit from exercise of stock options			868				—
Deferred financing costs paid			(27,798	)			(123	)
Decrease in bank overdraft balances			40,344				4,224
Net cash provided by (used in) financing activities			1,230,569				(21,065	)
Net increase (decrease) in cash and cash equivalents			13,076				(8,463	)
Cash and cash equivalents at beginning of period			9,771				22,908
Cash and cash equivalents at end of period		$	22,847			$	14,445
Supplemental Cash Flow Information:
Interest paid		$	64,330			$	8,420
Net income taxes paid		$	16,585			$	9,876

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

THE BON-TON STORES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

																						Accumulated
																						Other
						Class A								Additional				Deferred				Compre-
(In thousands except per share data)		Common				Common				Treasury				Paid-in				Compen-				hensive				Retained
(Unaudited)		Stock				Stock				Stock				Capital				sation				Loss				Earnings				Total
BALANCE AT JANUARY 28, 2006		$	142			$	30			$	(1,387	)		$	129,614			$	(6,663	)		$	(5	)		$	170,363			$	292,094
Comprehensive loss:
Net loss			—				—				—				—				—				—				(41,511	)			(41,511	)
Change in fair value of cash flow hedges, net of $753 tax effect			—				—				—				—				—				(1,322	)			—				(1,322	)
Total comprehensive loss																															(42,833	)
Adoption of SFAS No. 123R (Note 3)			(5	)			—				—				(6,658	)			6,663				—				—				—
Dividends to shareholders, $0.075 per share			—				—				—				—				—				—				(1,274	)			(1,274	)
Stock options exercised			1				—				—				935				—				—				—				936
Stock-based compensation expense			6				—				—				3,828				—				—				—				3,834
Tax benefit of stock options and restricted shares			—				—				—				868				—				—				—				868
BALANCE AT OCTOBER 28, 2006		$	144			$	30			$	(1,387	)		$	128,587			$	—			$	(1,327	)		$	127,578			$	253,625

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

THE BON-TON STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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, and operates, through its subsidiaries, 271 department stores and seven furniture galleries in twenty-three 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, effective October 29, 2006, four additional stores 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 all of its wholly owned subsidiaries (collectively, the “Company,” unless the context otherwise indicates the term refers to The Bon-Ton Stores, Inc.). 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 by generally accepted accounting principles. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair presentation of interim periods have been included. The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of results for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006.

     All references to the “third quarter of 2006” and the “third quarter of 2005” are to the thirteen weeks ended October 28, 2006 and October 29, 2005, respectively. All references to “fiscal 2006” and “fiscal 2005” are to the fifty-three weeks ending February 3, 2007 and the fifty-two weeks ended January 28, 2006, respectively.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Certain prior year balances have been reclassified to conform with the current year presentation.

2. CARSON’S ACQUISITION

     Effective March 5, 2006, pursuant to the October 29, 2005 purchase agreement with Saks Incorporated (“Saks”), as amended, the Company acquired all of the outstanding securities of two subsidiaries of Saks that were solely related to the business of owning and operating the 142 retail department stores that operated under the names Carson Pirie Scott, Younkers, Herberger’s, Boston Store and Bergner’s (collectively, “Carson’s”). The stores are located in twelve states in the Midwest and upper Great Plains regions.

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

     Under the terms of the purchase agreement, the Company paid $1,040,188 in cash. The Company financed the Carson’s acquisition, payment of related fees and expenses and the payoff of its existing indebtedness through the issuance of 10-1/4% Senior Notes due 2014 in the aggregate principal amount of $510,000, entry into a $1,000,000 senior secured revolving credit facility led by Bank of America, N.A. (“Bank of America”) as agent, and entry into a $260,000 mortgage loan facility with Bank of America as lender (see Note 5).

     Company management believes the acquisition of Carson’s will enable the Company to enhance its product offerings, strengthen its vendor and customer relationships and increase its profitability.

     The Company’s consolidated financial statements for the thirty-nine weeks ended October 28, 2006 include Carson’s operations for the period from March 5, 2006 through October 28, 2006. Carson’s operations reflect preliminary purchase accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” whereby the purchase price was preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. The estimated purchase price and purchase price allocation, as reflected in the following table, are subject to the final fair value determination of certain assets and liabilities:

     Preliminary Purchase Price

Cash purchase		$	1,040,188
Carson’s severance			514
Professional fees incurred			11,582
Total		$	1,052,284

     Preliminary Purchase Price Allocation

Cash and cash equivalents		$	3,110
Merchandise inventories			455,255
Prepaid expenses			15,014
Property, fixtures and equipment			762,527
Deferred income taxes			17,397
Goodwill			14,130
Intangible assets			161,530
Other assets			10
Total assets acquired			1,428,973
Accounts payable			(158,310	)
Accrued payroll and benefits			(34,136	)
Other accrued expenses			(79,347	)
Obligations under capital leases			(73,000	)
Other liabilities			(31,896	)
Total liabilities assumed			(376,689	)
Net assets acquired		$	1,052,284

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

     The Company has filed an election under section 338(h)(10) of the Internal Revenue Code. This election enables a buyer to account for a stock purchase as an asset purchase for income tax purposes.

     Goodwill in the amount of $14,130 has been recorded in conjunction with the acquisition. The Company expects that substantially all goodwill will be deductible for income tax purposes.

     Intangible assets are comprised of lease-related interests of $75,530 that relate to below-market-rate leases; trade names totaling $66,200, none of which will be subject to amortization; and customer lists and relationships totaling $19,800. The lease-related interests and customer lists and relationships were assigned weighted-average amortization lives of nineteen years and nine years, respectively.

     Deferred tax assets of $17,397 have been recorded as part of the preliminary purchase accounting. This balance represents a reduction in the Company’s pre-acquisition valuation allowances against certain net operating losses acquired as part of the October 2003 acquisition of The Elder-Beerman Stores Corp. This valuation allowance reduction was a result of the projected additional federal net operating loss utilization based on the projected accretive impact from Carson’s on the Company’s long-term pre-tax income.

     The Company has not completed its assessment of the fair values of the acquired assets and assumed liabilities and has not finalized its plans regarding the integration of computer software. The Company is currently in the process of obtaining third-party valuations for certain acquired assets and assumed liabilities. Consequently, the purchase price allocation may be subsequently adjusted to reflect the final valuation of acquired assets and assumed liabilities. Such revisions could have a material impact on the Company’s results of operations for fiscal 2006.

     During the thirteen weeks ended July 29, 2006, $514 was paid for Carson’s-related severance.

     The Company’s headquarters remains in York, Pennsylvania and is comprised of various corporate executive, administrative and back-office functions. All merchandising and marketing functions operate from Carson’s former headquarters in Milwaukee, Wisconsin.

     In conjunction with this acquisition, the Company entered into a transition services agreement with Saks pursuant to which Saks provides the Company with various services related to Carson’s, including, among other things, credit operations, procurement, accounting, bank card processing, store planning, construction, facilities maintenance and energy, information technology and human resources activities. These services will be provided by Saks for periods ranging from six months to twelve months from the date of the acquisition of Carson’s, subject to extension at the Company’s discretion.

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

     The following unaudited pro forma consolidated financial data give effect to the Carson’s acquisition as if it had occurred as of the beginning of the periods presented:

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

     The pro forma information for the thirteen weeks ended October 28, 2006 is identical to the actual results reported by the Company, as Carson’s was included in the consolidated operations of the Company for the entire period.

     The pro forma information for the thirty-nine weeks ended October 28, 2006 includes the following actual non-recurring charges: $11,887 of integration costs recorded in selling, general and administrative expense, which includes severance and relocation expense related to the transition of the Company’s merchandising and marketing staff to Milwaukee, Wisconsin in the amount of $5,443; $2,319 of charges in interest expense related to the write-off of deferred financing fees associated with the previous credit agreement; and $4,500 included in interest expense related to the write-off of commitment fees associated with a bridge loan in connection with the Carson’s acquisition.

     The pro forma information does not purport to be indicative of the results that actually would have been achieved if the operations were combined during the periods presented and is not intended to be a projection of future results or trends.

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

3. STOCK-BASED COMPENSATION

     The Company’s Amended and Restated 2000 Stock Incentive and Performance-Based Award Plan (“2000 Stock Plan”), as amended through June 20, 2006, provides for the granting of common stock options, restricted shares and restricted stock units to certain employees, officers, directors, consultants and advisors. A maximum of 2,600,000 shares may be granted under the 2000 Stock Plan, of which 1,180,812 shares remain available as of October 28, 2006. Vesting periods for the awards are at the discretion of the Company’s board of directors.

     The Company’s Amended and Restated 1991 Stock Option and Restricted Stock Plan (“1991 Stock Plan”), as amended through June 17, 1997, provided for the granting of common stock options, performance-based common stock options as part of a long-term incentive plan for selected officers and common stock restricted shares. A maximum of 1,900,000 shares were available under the 1991 Stock Plan; no shares remain available as of October 28, 2006.

     Stock options granted during the thirty-nine weeks ended October 28, 2006 were granted with an exercise price equal to the market value of the underlying stock on the grant date, vest over three to four years and have a contractual term of seven years. Stock options granted before January 29, 2006 generally vest over two to four years and have a contractual term of seven or ten years.

     Restricted shares granted during the thirty-nine weeks ended October 28, 2006 vest over one to three years. Employees granted restricted shares are not required to pay for the shares; however, they must remain employed with the Company until the restrictions on the shares lapse. Restricted shares granted before January 29, 2006 generally vest over two to four years.

     Employees and directors who are granted restricted stock units are not required to pay for the shares but must remain employed by the Company, or continue to serve as a member of its board of directors, until the restrictions on the shares lapse. In addition, vesting of restricted stock units awarded to a senior executive during the thirty-nine weeks ended October 28, 2006 is subject to the achievement of specified criteria based on Company performance. Performance achievement will be evaluated based on full fiscal year results, at which point some or all of the restricted stock units will be cancelled if award performance criteria are not met.

     Refer to Note 15 in the Company’s Annual Report on Form 10-K for the year-ended January 28, 2006 for additional information regarding these plans. Plan descriptions for the Phantom Equity Replacement Plan and Management Incentive Plan were excluded from this Quarterly Report on Form 10-Q due to immateriality.

     The Company generally issues new stock to satisfy share-based award exercises.

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

Adoption of SFAS No. 123R

     Effective January 29, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), which revised SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123R requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize that cost over the period that an employee is required to provide service in exchange for the award. Any awards of liability instruments to employees would be measured at fair value at each reporting date through settlement.

     Prior to adopting SFAS No. 123R, the Company followed the intrinsic value method of accounting for stock-based employee compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company adopted SFAS No. 123R using the modified prospective application method, which requires that provisions of SFAS No. 123R are applied only to share-based awards granted, modified, repurchased, or cancelled on January 29, 2006 and thereafter. For those grants made prior to January 29, 2006 that are nonvested and outstanding as of January 29, 2006, the Company started recognizing the remaining unrecognized compensation cost of these awards over the remaining service period as required by SFAS No. 123R. Accordingly, the results of prior periods have not been restated. The adoption of SFAS No. 123R did not have a material effect on the Company’s results of operations, cash flows, or financial position.

     The following table illustrates the effect on net loss and loss per share for grants issued prior to October 30, 2005 had the Company applied the fair value recognition provisions of SFAS No. 123 to those grants in fiscal 2005:

		THIRTEEN				THIRTY-NINE
		WEEKS ENDED				WEEKS ENDED
		October 29,				October 29,
		2005				2005
Net loss, as reported		$	(6,300	)		$	(12,157	)
Add: Stock-based compensation expense included in net loss, net of income tax of $168 and $630 for the thirteen and thirty-nine weeks, respectively			378				1,098
Deduct: Total stock-based compensation expense determined under fair-value-based method for all awards, net of income tax of $318 and $931 for the thirteen and thirty-nine weeks, respectively			(607	)			(1,626	)
Pro forma net loss		$	(6,529	)		$	(12,685	)
Net loss per share:
Basic                        As reported		$	(0.39	)		$	(0.75	)
Pro forma			(0.40	)			(0.78	)
Diluted                      As reported		$	(0.39	)		$	(0.75	)
Pro forma			(0.40	)			(0.78	)

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

     The compensation cost that has been charged against income for the Company’s share-based award plans was $1,756 and $3,834 for the thirteen and thirty-nine weeks ended October 28, 2006, respectively; and $546 and $1,728 for the thirteen and thirty-nine weeks ended October 29, 2005, respectively. The total income tax benefit recognized in the statements of operations for stock-based award compensation was $659 and $1,438 for the thirteen and thirty-nine weeks ended October 28, 2006, respectively; and $168 and $630 for the thirteen and thirty-nine weeks ended October 29, 2005, respectively.

     Cash received from exercise under all share-based payment arrangements was $936 and $825 for the thirty-nine weeks ended October 28, 2006 and October 29, 2005, respectively. The incremental tax benefit realized for the tax deductions from exercise of the share-based payment arrangements was $868 and $533 for the thirty-nine weeks ended October 28, 2006 and October 29, 2005, respectively.

     Awards with graded vesting are recognized using the straight-line method.

     Based upon an examination of forfeiture rates for the various classes of stock options, restricted stock units and restricted shares, Company management does not believe that the total number of options or shares that are vested and expected to vest as of October 28, 2006 are materially different from the respective number of options or shares outstanding as of October 28, 2006.

Stock Options

     The fair value of each option award was estimated on the grant date using the Black-Scholes option valuation model and the weighted average assumptions noted in the following table:

		THIRTY-NINE
		WEEKS ENDED
		October 28,				October 29,
		2006				2005
Weighted average grant date fair value		$	13.75			$	8.99
Weighted average risk-free interest rate			4.9%				4.1%
Weighted average expected volatility			51.7%				48.8%
Weighted average expected dividend yield			0.3%				0.5%
Weighted average expected term (years)			4.6				5.1

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

     The risk-free interest rates used in the thirty-nine weeks ended October 28, 2006 and October 29, 2005 were based on the zero-coupon U.S. Treasury bond, with a term equal to the expected term of the stock options. The volatility used in the thirty-nine weeks ended October 28, 2006 and October 29, 2005 represents the historical volatility of the Company’s common shares over a period that approximates the expected term of the stock options. The expected dividend yields used in the thirty-nine weeks ended October 28, 2006 and October 29, 2005 were estimated based on historical dividend yields. The expected terms of options granted in the thirty-nine weeks ended October 28, 2006 and October 29, 2005 were estimated using the average of the vesting date and the contractual term, in accordance with guidance provided within Securities and Exchange Commission Staff Accounting Bulletin No. 107.

     The Company’s stock options include stock options granted under the 2000 Stock Plan, the 1991 Stock Plan and the Phantom Equity Replacement Plan.

     A summary of the status of the stock options under the Company’s stock option plans as of October 28, 2006 and changes during the thirty-nine weeks ended October 28, 2006 is presented below:

										Weighted
						Weighted				Average
						Average				Remaining
		Shares				Per-Share				Contractual				Aggregate
		Under				Exercise				Term				Intrinsic
		Option				Price				(Years)				Value
Outstanding as of January 28, 2006			546,030			$	13.15
Granted			207,500				29.23
Exercised			(114,196	)			8.22
Forfeited			(10,000	)			19.82
Outstanding as of October 28, 2006			629,334				19.25				6.17			$	10,636
Exercisable as of October 28, 2006			170,167			$	10.58				4.73			$	4,351

     The total intrinsic value of options exercised was $2,377 and $1,563 during the thirty-nine weeks ended October 28, 2006 and October 29, 2005, respectively. As of October 28, 2006, there was $3,984 of total unrecognized compensation cost related to unvested stock options; that cost is expected to be recognized over a weighted average period of 1.26 years.

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

Restricted Stock Units

     Restricted stock units consist of those units granted under the 2000 Stock Plan, as discussed above. The fair value of each restricted stock unit award is calculated using the stock price at the date of grant. A summary of the status of the restricted stock units as of October 28, 2006 and changes during the thirty-nine weeks ended October 28, 2006 is presented below:

										Weighted Average
		Restricted Stock Units								Grant-Date Fair Value
		Future								Future
		Performance				Future				Performance				Future
		and Service				Service				and Service				Service
		Required				Required				Required				Required
Outstanding as of January 28, 2006			—				46,375				—			$	15.09
Granted			20,259				16,849			$	21.90				24.92
Outstanding as of October 28, 2006			20,259				63,224				21.90				17.71

     As of October 28, 2006, there was $356 of total unrecognized compensation cost related to restricted stock units that is expected to be recognized over a weighted-average period of 0.25 years.

     No restricted stock units vested during the thirty-nine weeks ended October 28, 2006 and October 29, 2005. The weighted-average grant date fair value of restricted stock units granted during the thirty-nine weeks ended October 28, 2006 was $23.27 per unit, compared with $17.89 per unit during the thirty-nine weeks ended October 29, 2005.

     The Company pays cash dividend equivalents on most outstanding restricted stock units.

Restricted Shares

     The Company’s restricted shares consist of restricted shares granted under the 2000 Stock Plan, as discussed above. The fair value of each restricted share award is calculated using the stock price at the date of grant. A summary of the status of restricted share awards as of October 28, 2006 and changes during the thirty-nine weeks ended October 28, 2006 is presented below:

						Weighted
						Average
		Restricted				Grant-Date
		Shares				Fair Value
Outstanding as of January 28, 2006			471,647			$	17.58
Granted			149,269				27.86
Forfeited			(10,500	)			17.86
Outstanding as of October 28, 2006			610,416				20.10

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

     As of October 28, 2006, there was $8,391 of total unrecognized compensation cost related to restricted shares that is expected to be recognized over a weighted average period of 2.53 years. No restricted shares vested during the thirty-nine weeks ended October 28, 2006. The total fair value of shares vested during the thirty-nine weeks ended October 29, 2005 was $314.

     The Company pays cash dividends on all outstanding restricted shares.

4. PER-SHARE AMOUNTS

     The presentation of earnings per share (“EPS”) requires a reconciliation of numerators and denominators used in basic and diluted EPS calculations. The numerator, net loss, is identical in both calculations. The following table presents a reconciliation of weighted average shares outstanding for the respective calculations for each period presented in the accompanying consolidated statements of operations:

		THIRTEEN								THIRTY-NINE
		WEEKS ENDED								WEEKS ENDED
		October 28,				October 29,				October 28,				October 29,
		2006				2005				2006				2005
Basic calculation			16,439,314				16,218,717				16,420,082				16,175,790
Effect of dilutive shares –
Restricted shares and restricted stock units			—				—				—				—
Options			—				—				—				—
Diluted calculation			16,439,314				16,218,717				16,420,082				16,175,790

     The following securities were antidilutive and, therefore, were not included in the computation of diluted EPS for the periods indicated:

		THIRTEEN								THIRTY-NINE
		WEEKS ENDED								WEEKS ENDED
		October 28,				October 29,				October 28,				October 29,
		2006				2005				2006				2005
Antidilutive shares –
Restricted shares and restricted stock units			661,878				506,432				603,619				454,255
Options			620,092				618,778				569,562				571,533

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

     Certain of the securities noted above were excluded from the computation of dilutive shares solely due to the Company’s net loss position in the thirteen and thirty-nine weeks ended October 28, 2006 and October 29, 2005. The following table shows the approximate effect of dilutive securities had the Company reported a profit for these periods:

		THIRTEEN								THIRTY-NINE
		WEEKS ENDED								WEEKS ENDED
		October 28,				October 29,				October 28,				October 29,
		2006				2005				2006				2005
Effect of dilutive securities –
Restricted shares and restricted stock units			282,650				140,082				246,240				117,070
Options			95,891				174,411				90,792				191,418

5. DEBT

     On March 6, 2006, The Bon-Ton Department Stores, Inc., a wholly owned subsidiary of The Bon-Ton Stores, Inc., and certain of its subsidiaries, Bank of America and certain other lenders entered into a Loan and Security Agreement (“New Senior Secured Credit Facility”) which provides for up to $1,000,000 of revolver borrowings. The New Senior Secured Credit Facility includes a last-in, first-out revolving credit facility of up to $900,000 and a first-in, last-out revolving credit facility of up to $100,000 and has a sub-limit of $150,000 for the issuance of standby and documentary letters of credit. All borrowings under the New Senior Secured Credit Facility are limited by amounts available pursuant to a borrowing base calculation, which is based on percentages of eligible inventory, real estate and fixed assets, with a reduction for applicable reserves. The New Senior Secured Credit Facility is guaranteed by The Bon-Ton Stores, Inc. and certain of its subsidiaries. As part of the New Senior Secured Credit Facility, Bank of America and the other lenders will make available certain swing line loans in an aggregate amount not to exceed $75,000 outstanding at any one time. Borrowings under the New Senior Secured Credit Facility will bear interest at either (i) the prime rate established by Bank of America, from time to time, plus the applicable margin (the ‘‘Prime Rate’’) or (ii) the LIBOR rate from time to time, plus the applicable margin. The applicable margin will be determined based upon the excess availability under the New Senior Secured Credit Facility. The swing line loans will bear interest at the same rate applicable to last in, first out Prime Rate loans. The Company is required to pay a commitment fee to the lenders for unused commitments at a rate of 0.25% to 0.30% per annum, based on excess availability under the New Senior Secured Credit Facility. The New Senior Secured Credit Facility expires March 6, 2011. Financial covenants contained in the New Senior Secured Credit Facility require that the minimum excess availability be greater than $75,000 at all times. In addition, there are certain restrictions against the incurrence of additional indebtedness, pledge or sale of assets, payment of dividends and distributions, and other similar restrictions. Dividends paid by the Company may not exceed $15,000 over the life of the agreement, or $4,000 in any single year. Capital expenditures are limited to $125,000 per year, with a one-year

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

carryover of any prior year unused amount. The available borrowing capacity under the New Senior Secured Credit Facility will be used in the future for general corporate purposes.

     On March 6, 2006, The Bon-Ton Department Stores, Inc. entered into an indenture (the “Indenture”) with The Bank of New York, as trustee, under which The Bon-Ton Department Stores, Inc. issued $510,000 aggregate principal amount of its 10-1/4% Senior Notes due 2014 (the “Notes”). The Notes are guaranteed on a senior unsecured basis by The Bon-Ton Stores, Inc. and by each of its subsidiaries that is an obligor under the New Senior Secured Credit Facility. The Notes mature on March 15, 2014. The Notes may not be redeemed prior to March 15, 2010, except that the Company may redeem up to 35% of the Notes prior to March 15, 2009 through the proceeds of an equity offering. The interest rate of the Notes is fixed at 10-1/4% per year. Interest on the Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2006. The Indenture includes covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional debt, pay dividends and make distributions, make certain investments, enter into certain types of transactions with affiliates, use assets as security in other transactions, and sell certain assets or merge with or into other companies.

     On March 6, 2006, certain bankruptcy remote special purpose entities (each an “SPE” and, collectively, the “SPEs”) that are indirect wholly owned subsidiaries of The Bon-Ton Stores, Inc. entered into loan agreements with Bank of America, pursuant to which Bank of America provided a new mortgage loan facility in the aggregate principal amount of $260,000 (the “New Mortgage Loan Facility”). The New Mortgage Loan Facility has a term of ten years and is secured by mortgages on twenty-three retail stores and one distribution center owned by the SPEs. Each SPE entered into a lease with each of The Bon-Ton Stores, Inc. subsidiaries operating on such SPE’s properties. A portion of the rental income received under these leases will be used to pay the debt service under the New Mortgage Loan Facility. The New Mortgage Loan Facility requires level monthly payments of principal and interest based on an amortization period of twenty-five years and the balance outstanding at the end of ten years will then become due and payable. The interest rate for the New Mortgage Loan Facility is a fixed rate of 6.2125%. Financial covenants contained in the New Mortgage Loan Facility require that the SPEs maintain certain financial thresholds, as defined in the agreements.

     The Company used the net proceeds of the Notes offering and the New Mortgage Loan Facility, along with initial borrowings under its New Senior Secured Credit Facility, to finance the acquisition of Carson’s, pay related fees and expenses in connection with the acquisition and related financing transactions, and pay the outstanding balance under the Company’s previous revolving credit agreement.

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

6. EXIT OR DISPOSAL ACTIVITIES

     In conjunction with the Carson’s acquisition, the Company entered into a transition services agreement (“TSA”) with Saks pursuant to which Saks provides the Company with various services related to Carson’s (see Note 2). The Company determined that, for the accounting and procurement services portion of the TSA, a benefit would no longer be received and the payments related to those services for the remaining term of the TSA should be accrued. Accordingly, the Company recorded a charge within selling, general and administrative expenses of $1,155 during the thirteen weeks ended October 28, 2006, of which $231 was paid during the thirteen weeks ended October 28, 2006. The Company expects to pay the balance of $924 over the remaining contract period ending in February 2007.

     On August 25, 2006 the Company announced that it will close its Carson Pirie Scott store at One South State Street in Chicago, Illinois by March 2007. In connection with the closing of this store, the Company developed plans resulting in involuntary associate terminations with a total expected cost of $2,304. During the thirteen weeks ended October 28, 2006, the Company recognized $768 of the total expected costs; these costs are included within selling, general and administrative expense. The Company expects to record total remaining costs of $1,152 and $384 during the fourteen weeks ending February 3, 2007 and thirteen weeks ending May 5, 2007, respectively. The Company expects to pay all of the associate termination payments during the thirteen weeks ending May 5, 2007.

     On January 28, 2006, the Company closed its Great Northern and Shoppingtown stores in the Syracuse, New York area, its Walden Galleria store in Buffalo, New York and its Lebanon, Pennsylvania store. In connection with the closing of these four stores, the Company developed plans resulting in involuntary associate terminations and a lease termination fee. Activities during the thirty-nine weeks ended October 28, 2006 related to these costs are as follows:

		Involuntary
		Termination				Lease
		Benefits				Termination				Total
Balance as of January 28, 2006		$	122			$	782			$	904
Payments:
Thirteen weeks ended April 29, 2006			(117	)			(168	)			(285	)
Thirteen weeks ended July 29, 2006			(5	)			(90	)			(95	)
Thirteen weeks ended October 28, 2006			—				(90	)			(90	)
Balance as of October 28, 2006		$	—			$	434			$	434

     The Company expects to pay the balance of the lease termination fee through February 1, 2008.

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

     In connection with the sale of its credit card accounts in July 2005, the Company developed plans resulting in involuntary associate terminations and contract terminations, with total costs of $534 and $200, respectively. The Company expects to pay the balance of the associate termination payments by August 4, 2007, while the liability for the contract termination costs will be paid over the remaining contract periods ending in May 2007. Activities during the thirty-nine weeks ended October 28, 2006 related to these costs are as follows:

		Involuntary
		Termination				Contract
		Benefits				Termination				Total
Balance as of January 28, 2006		$	168			$	168			$	336
Provision:
Thirteen weeks ended April 29, 2006			15				—				15
Payments:
Thirteen weeks ended April 29, 2006			(107	)			(31	)			(138	)
Thirteen weeks ended July 29, 2006			—				(42	)			(42	)
Thirteen weeks ended October 28, 2006			—				(32	)			(32	)
Balance as of October 28, 2006		$	76			$	63			$	139

The above provision was included within selling, general and administrative expense.

7. INTEGRATION ACTIVITIES

     In connection with the acquisition of Carson’s, the Company developed integration plans, including the transfer of Bon-Ton’s existing merchandising and marketing functions to Carson’s former headquarters in Milwaukee, Wisconsin, resulting in involuntary terminations with a total expected cost of $4,831. The Company expects to pay the balance of the involuntary termination costs by August 4, 2007. Activities during the thirty-nine weeks ended October 28, 2006 related to these costs are as follows:

		Involuntary
		Termination
		Benefits
Provision:
Thirteen weeks ended April 29, 2006		$	3,066
Thirteen weeks ended July 29, 2006			1,064
Thirteen weeks ended October 28, 2006			701
Payments:
Thirteen weeks ended July 29, 2006			(104	)
Thirteen weeks ended October 28, 2006			(3,937	)
Balance as of October 28, 2006		$	790

     The above provision was included within selling, general and administrative expense.

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

     In connection with the acquisition of The Elder-Beerman Stores Corp. in October 2003, the Company developed integration plans resulting in lease terminations. The liability balance as of January 28, 2006 for the lease terminations was $1,075. Additional payments of $24 have been made during each of the thirteen weeks ended April 29, 2006 and July 29, 2006, and $20 was made during the thirteen weeks ended October 28, 2006. As of October 28, 2006, the liability balance for lease terminations was $1,007, which will be paid over the remaining contract periods ending in 2030.

8. COMPREHENSIVE LOSS

     Comprehensive loss was determined as follows:

		THIRTEEN								THIRTY-NINE
		WEEKS ENDED								WEEKS ENDED
		October 28,				October 29,				October 28,				October 29,
		2006				2005				2006				2005
Net loss		$	(10,901	)		$	(6,300	)		$	(41,511	)		$	(12,157	)
Other comprehensive (loss) income:
Cash flow hedge derivative (loss) income, net of tax			(885	)			87				(1,322	)			362
Comprehensive loss		$	(11,786	)		$	(6,213	)		$	(42,833	)		$	(11,795	)

9. EMPLOYEE BENEFIT PLANS

          The Company provides eligible employees with retirement benefits under a 401(k) salary reduction and retirement contribution plan (the “Plan”). The Company made an annual contribution of $4,054 to the Plan during the thirteen weeks ended April 29, 2006. The Company recorded Plan expense of $3,432 and $935 during the third quarters of 2006 and 2005, respectively, and expense of $8,250 and $2,610 during the thirty-nine weeks ended October 28, 2006 and October 29, 2005, respectively.

     The Company provides the Bon-Ton supplementary pension plan to certain key executives and former employees. Net periodic benefit expense includes the following expense (income) components:

		THIRTEEN								THIRTY-NINE
		WEEKS ENDED								WEEKS ENDED
		October 28,				October 29,				October 28,				October 29,
		2006				2005				2006				2005
Experience gain		$	—			$	—			$	—			$	(20	)
Service cost			20				18				60				54
Interest cost			53				55				158				164
Net periodic benefit expense		$	73			$	73			$	218			$	198

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

     During the thirty-nine weeks ended October 28, 2006, contributions of $194 have been made to the Bon-Ton supplementary pension plan. The Company anticipates contributing an additional $74 to fund the Bon-Ton supplementary pension plan in fiscal 2006 for an annual total of $268.

     As part of the Carson’s acquisition (see Note 2), the Company acquired a defined benefit plan and supplemental pension plans. Net periodic benefit income for these plans includes the following expense (income) components:

		THIRTEEN				PERIOD FROM
		WEEKS				MARCH 5, 2006
		ENDED				THROUGH
		October 28,				October 28,
		2006				2006
Service cost		$	29			$	73
Interest cost			3,170				7,963
Expected return on plan assets			(3,723	)			(9,352	)
Net periodic benefit income		$	(524	)		$	(1,316	)

     During the period from March 5, 2006 through October 28, 2006, contributions of $2,178 have been made to the Carson’s defined benefit and supplemental pension plans. The Company anticipates contributing an additional $139 to fund these pension plans in fiscal 2006 for an annual total of $2,317.

     The Company also acquired a retiree health care plan as part of the Carson’s acquisition. Net periodic benefit interest expense of $92 and $231 has been recorded for the thirteen weeks ended October 28, 2006 and the period from March 5, 2006 through October 28, 2006, respectively. During the period from March 5, 2006 through October 28, 2006, contributions of $109 have been made to the Carson’s retiree health care plan. The Company anticipates contributing an additional $198 to fund this plan in fiscal 2006 for an annual total of $307.

10. CONTINGENCIES

     The Company is involved in various legal matters arising in the ordinary course of business. In the opinion of Company management, the outcome of such proceedings and litigation will not have a material adverse impact on the Company’s financial position, results of operations or liquidity.

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

11. SUBSEQUENT EVENT

     On October 25, 2006, the Company entered into an asset purchase agreement with Belk, Inc. (“Belk”) pursuant to which the Company agreed to purchase assets in connection with the following four department stores, all operated under the Parisian nameplate (the “Parisian Stores”): Fairfield Commons, Beavercreek, Ohio; Circle Centre, Indianapolis, Indiana; Meadowbrook Mall, Rochester Hills, Michigan; and Laurel Park Place, Livonia, Michigan. The Company also acquired the rights to construct a new Parisian store at Partridge Creek Fashion Park, Clinton Township, Michigan. The purchase price was $22,000 in cash, subject to adjustment based upon, among other things, the value of inventory as of the closing date. In addition, the Company agreed to assume specific liabilities and obligations of Belk and its affiliates with respect to the Parisian Stores. The acquisition of the Parisian Stores was effective as of October 29, 2006.

     On November 22, 2006, the Company announced a quarterly cash dividend of $0.025 per share on Class A Common Stock and Common Stock, payable January 16, 2007 to shareholders of record as of January 2, 2007.

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 Bon-Ton Department Stores, Inc. issued $510,000 aggregate principal amount of its 10-1/4% Senior Notes due 2014 (see Note 5). The Notes are guaranteed on a senior unsecured basis by the Company and by each of the Company’s wholly owned subsidiaries, other than The Bon-Ton Department Stores, Inc., that are obligors under the New Senior Secured Credit Facility. The guarantees are full and unconditional and joint and several.

     The condensed consolidating financial information for the Company, 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.

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

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

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

Thirteen Weeks Ended October 28, 2006

		Bon-Ton
		(Parent								Guarantor				Non-Guarantor				Consolidating				Company
		Company)				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	138,192			$	665,908			$	—			$	—			$	804,100
Other income			—				4,468				18,391				—				—				22,859
			—				142,660				684,299				—				—				826,959
Costs and expenses:
Costs of merchandise sold			—				91,687				418,142				—				—				509,829
Selling, general and administrative			—				61,965				221,052				—				(9,436	)			273,581
Depreciation and amortization			—				6,407				20,053				3,127				—				29,587
Income (loss) from operations			—				(17,399	)			25,052				(3,127	)			9,436				13,962
Other income (expense):
Intercompany rental and royalty income			—				—				2,177				7,259				(9,436	)			—
Equity in earnings (losses) of subsidiaries			(13,967	)			21,480				—				—				(7,513	)			—
Interest expense, net			—				(18,048	)			(5,209	)			(4,672	)			—				(27,929	)
Income (loss) before income taxes			(13,967	)			(13,967	)			22,020				(540	)			(7,513	)			(13,967	)
Income tax provision (benefit)			(3,066	)			(3,002	)			6,981				(102	)			(3,877	)			(3,066	)
Net income (loss)		$	(10,901	)		$	(10,965	)		$	15,039			$	(438	)		$	(3,636	)		$	(10,901	)

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

Thirteen Weeks Ended October 29, 2005

		Bon-Ton
		(Parent								Guarantor				Non-Guarantor				Consolidating				Company
		Company)				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	148,837			$	136,839			$	—			$	—			$	285,676
Other income			—				1,211				915				—				—				2,126
			—				150,048				137,754				—				—				287,802
Costs and expenses:
Costs of merchandise sold			—				97,831				91,398				—				—				189,229
Selling, general and administrative			1				56,243				46,925				—				(5,410	)			97,759
Depreciation and amortization			—				5,827				1,355				326				—				7,508
Income (loss) from operations			(1	)			(9,853	)			(1,924	)			(326	)			5,410				(6,694	)
Other income (expense):
Intercompany interest income			2,549				—				—				—				(2,549	)			—
Intercompany rental and royalty income			—				—				4,748				662				(5,410	)			—
Equity in earnings (losses) of subsidiaries			(12,046	)			1,491				—				—				10,555				—
Interest expense, net			—				(3,684	)			(1,147	)			(522	)			2,549				(2,804	)
Income (loss) before income taxes			(9,498	)			(12,046	)			1,677				(186	)			10,555				(9,498	)
Income tax provision (benefit)			(3,198	)			(4,056	)			565				(63	)			3,554				(3,198	)
Net income (loss)		$	(6,300	)		$	(7,990	)		$	1,112			$	(123	)		$	7,001			$	(6,300	)