Quarterly Report

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 November 1, 2008

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

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

As of November 28, 2008, there were 14,746,642 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)	November 1,			February 2,
(Unaudited)	2008			2008
Assets
Current assets:
Cash and cash equivalents	$	16,795		$	21,238
Merchandise inventories		978,689			754,802
Prepaid expenses and other current assets		122,856			78,332
Deferred income taxes		17,317			17,536

Total current assets		1,135,657			871,908


Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $499,500 and $418,279 at November 1, 2008 and February 2, 2008, respectively		870,429			885,455
Deferred income taxes		88,759			87,357
Goodwill		—			17,767
Intangible assets, net of accumulated amortization of $28,730 and $21,917 at November 1, 2008 and February 2, 2008, respectively		158,647			165,872
Other long-term assets		35,153			39,272

Total assets	$	2,288,645		$	2,067,631


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	374,252		$	220,158
Accrued payroll and benefits		38,212			49,902
Accrued expenses		159,748			166,603
Current maturities of long-term debt		5,967			5,656
Current maturities of obligations under capital leases		2,482			2,239
Income taxes payable		—			899

Total current liabilities		580,661			445,457


Long-term debt, less current maturities		1,248,981			1,079,841
Obligations under capital leases, less current maturities		65,542			67,217
Other long-term liabilities		109,161			112,055

Total liabilities		2,004,345			1,704,570


Contingencies (Note 9)

Shareholders’ equity:
Preferred Stock — authorized 5,000,000 shares at $0.01 par value; no shares issued		—			—
Common Stock — authorized 40,000,000 shares at $0.01 par value; issued shares of 15,085,964 and 14,614,111 at November 1, 2008 and February 2, 2008, respectively		151			146
Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at November 1, 2008 and February 2, 2008		30			30
Treasury stock, at cost - 337,800 shares at November 1, 2008 and February 2, 2008		(1,387	)		(1,387	)
Additional paid-in-capital		143,404			139,805
Accumulated other comprehensive income		3,257			799
Retained earnings		138,845			223,668

Total shareholders’ equity		284,300			363,061

Total liabilities and shareholders’ equity	$	2,288,645		$	2,067,631

The accompanying notes are an integral part of these consolidated 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)	November 1,			November 3,			November 1,			November 3,
(Unaudited)	2008			2007			2008			2007

Net sales	$	724,927		$	780,839		$	2,098,559		$	2,227,020
Other income		22,742			24,797			67,030			69,946

		747,669			805,636			2,165,589			2,296,966


Costs and expenses:
Costs of merchandise sold		466,791			508,802			1,361,253			1,438,672
Selling, general and administrative		261,916			265,430			764,084			781,428
Depreciation and amortization		29,770			30,107			88,680			87,306
Amortization of lease-related interests		1,220			1,280			3,634			3,841
Goodwill impairment		—			—			17,767			—

(Loss) income from operations		(12,028	)		17			(69,829	)		(14,281	)
Interest expense, net		24,681			27,383			73,419			82,281


Loss before income taxes		(36,709	)		(27,366	)		(143,248	)		(96,562	)
Income tax benefit		(22,375	)		(8,004	)		(61,025	)		(32,926	)


Net loss	$	(14,334	)	$	(19,362	)	$	(82,223	)	$	(63,636	)


Per share amounts —
Basic:
Net loss	$	(0.85	)	$	(1.17	)	$	(4.90	)	$	(3.86	)


Basic weighted average shares outstanding		16,805,600			16,533,957			16,793,125			16,504,678

Diluted:
Net loss	$	(0.85	)	$	(1.17	)	$	(4.90	)	$	(3.86	)


Diluted weighted average shares outstanding		16,805,600			16,533,957			16,793,125			16,504,678

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

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


	THIRTY-NINE
	WEEKS ENDED
(In thousands)	November 1,			November 3,
(Unaudited)	2008			2007
Cash flows from operating activities:
Net loss	$	(82,223	)	$	(63,636	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		88,680			87,306
Amortization of lease-related interests		3,634			3,841
Goodwill impairment		17,767			—
Share-based compensation expense		4,021			5,372
Excess tax benefit from share-based compensation		—			(548	)
Loss on sale of property, fixtures and equipment		644			409
Amortization of deferred financing costs		3,124			2,987
Amortization of deferred gain on sale of proprietary credit card portfolio		(1,810	)		(1,810	)
Deferred income taxes		(3,522	)		1,771
Cancellation of restricted shares		—			(4	)
Changes in operating assets and liabilities:
Increase in merchandise inventories		(223,887	)		(249,366	)
Increase in prepaid expenses and other current assets		(52,074	)		(29,914	)
Decrease in other long-term assets		1,263			1,163
Increase in accounts payable		149,440			192,982
Decrease in accrued payroll and benefits and accrued expenses		(14,668	)		(32,866	)
Decrease in income taxes payable		(899	)		(34,013	)
Increase in other long-term liabilities		12,367			11,377

Net cash used in operating activities		(98,143	)		(104,949	)


Cash flows from investing activities:
Capital expenditures		(76,639	)		(89,052	)
Acquisition, net of cash acquired		—			(62	)
Proceeds from sale of property, fixtures and equipment		322			2,715

Net cash used in investing activities		(76,317	)		(86,399	)


Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		(458,345	)		(503,519	)
Proceeds from issuance of long-term debt		626,364			674,971
Cash dividends paid		(1,882	)		(2,575	)
Proceeds from stock options exercised		—			484
Excess tax benefit from share-based compensation		—			548
Deferred financing costs paid		(268	)		(284	)
Increase in bank overdraft balances		4,148			20,966

Net cash provided by financing activities		170,017			190,591


Net decrease in cash and cash equivalents		(4,443	)		(757	)

Cash and cash equivalents at beginning of period		21,238			24,733

Cash and cash equivalents at end of period	$	16,795		$	23,976

Supplemental Cash Flow Information:
Interest paid	$	82,134		$	92,746
Income taxes paid (net of refunds)	$	5,516		$	39,677

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

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


											Accumulated
											Other
			Class A					Additional			Compre-
(In thousands except per share data)	Common		Common		Treasury			Paid-in			hensive		Retained
(Unaudited)	Stock		Stock		Stock			Capital			Income		Earnings			Total

BALANCE AT FEBRUARY 2, 2008	$	146	$	30	$	(1,387	)	$	139,805		$	799	$	223,668		$	363,061

Comprehensive loss (Note 10):
Net loss		—		—		—			—			—		(82,223	)		(82,223	)
Amortization of pension plan amounts, net of $144 tax effect		—		—		—			—			238		—			238
Change in fair value of cash flow hedges, net of $1,591 tax effect		—		—		—			—			2,220		—			2,220

Total comprehensive loss																	(79,765	)

Dividends to shareholders, $0.15 per share		—		—		—			—			—		(2,600	)		(2,600	)
Share-based compensation expense		5		—		—			4,016			—		—			4,021
Excess tax shortfall from share-based compensation		—		—		—			(417	)		—		—			(417	)


BALANCE AT NOVEMBER 1, 2008	$	151	$	30	$	(1,387	)	$	143,404		$	3,257	$	138,845		$	284,300

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

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

1. BASIS OF PRESENTATION

The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company incorporated on January 31, 1929. The Bon-Ton Stores, Inc. operates, through its subsidiaries, 281 stores, which includes 12 furniture galleries, 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, under the Parisian nameplate, stores in the Detroit, Michigan area. 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 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 February 2, 2008.

References to “second quarter of 2008” are to the thirteen-week period ended August 2, 2008. References to “third quarter of 2008” and “third quarter of 2007” are to the thirteen-week periods ended November 1, 2008 and November 3, 2007, respectively. References to “2008” are to the fifty-two weeks ending January 31, 2009.

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 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 income for the periods presented.

Future Accounting Changes

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in hedged positions. The statement also requires companies to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities;” and how the hedges affect the entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for years beginning after November 15, 2008. The Company is in the process of evaluating what effect, if any, adoption of SFAS No. 161 may have on the consolidated financial statements.

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

2. 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
	November 1,		November 3,		November 1,		November 3,
	2008		2007		2008		2007

Basic calculation		16,805,600		16,533,957		16,793,125		16,504,678
Effect of dilutive shares —		—		—		—		—
Restricted shares and restricted stock units		—		—		—		—
Stock options		—		—		—		—

Diluted calculation		16,805,600		16,533,957		16,793,125		16,504,678

The following securities were antidilutive and, therefore, were excluded from the computation of diluted EPS for the periods indicated:


	THIRTEEN				THIRTY-NINE
	WEEKS ENDED				WEEKS ENDED
	November 1,		November 3,		November 1,		November 3,
	2008		2007		2008		2007

Antidilutive shares —

Restricted shares and restricted stock units		688,903		766,668		626,650		732,283

Stock options		1,150,142		706,822		1,074,348		692,134

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 November 1, 2008 and November 3, 2007. 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
	November 1,		November 3,		November 1,		November 3,
	2008		2007		2008		2007

Effect of dilutive securities —

Restricted shares and restricted stock units		165,835		435,066		201,672		420,085

Stock options		1,195		105,261		3,541		187,343

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

3. GOODWILL IMPAIRMENT

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), the Company is required to review goodwill for impairment at the reporting unit level at least annually or when events or changes in circumstances indicate it is more likely than not that the carrying value of goodwill exceeds its implied fair value. Based on its reporting structure, management has determined the Company has one reporting unit for purposes of applying SFAS No. 142. The economic environment as of the second quarter of 2008 depressed stock values for many companies, including that of the Company. This factor, coupled with the expectation that the economic challenges would impede near-term recovery in the retail sector, led the Company to determine that its goodwill should be reviewed for impairment during the second quarter of 2008.

In evaluating goodwill for impairment, the estimated fair value of the Company’s single reporting unit is compared to its carrying amount. If the estimated fair value is less than its carrying amount, an impairment loss is recorded in accordance with the provisions of SFAS No. 142 to the extent that the implied fair value of the goodwill is less than its carrying amount. The fair value of the Company’s single reporting unit was estimated using a combination of its common stock trading value as of the end of the second quarter of 2008, a discounted cash flow analysis and other generally accepted valuation methodologies.

As a result of the goodwill impairment review, the Company determined that its goodwill was fully impaired and, accordingly, recorded a goodwill impairment charge of $17,767 during the second quarter of 2008.

4. FAIR VALUE MEASUREMENTS

SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements; however, it does not require any new fair value measurements. Effective February 3, 2008, the Company adopted the provisions of SFAS No. 157 for financial assets and liabilities that are measured at fair value on a recurring basis. The adoption of SFAS No. 157 for financial assets and liabilities that are measured at fair value on a recurring basis did not have a material impact on the Company’s consolidated financial statements.

Pursuant to the option for a one-year deferral of SFAS No. 157’s fair-value measurement requirements for non-financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis, the Company elected to defer application of SFAS No. 157 to, among others, goodwill, fixed asset and intangible asset impairment testing, and liabilities for exit or disposal activities initially measured at fair value. The Company is evaluating what effect, if any, the full adoption of SFAS No. 157 may have on the consolidated financial statements.

SFAS No. 157 establishes fair value hierarchy levels which prioritize the inputs used in valuations determining fair value. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs are primarily quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs based on the Company’s own assumptions.

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

As of November 1, 2008, the Company held two interest rate swap contracts required to be measured at fair value on a recurring basis. 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.

The following table presents the Company’s assets and liabilities that are carried at fair value and measured on a recurring basis as of November 1, 2008:

Fair Value Measurements at November 1, 2008 Using:

Significant

Total Carrying

Quoted Prices

Other

Significant

Value at

in Active

Observable

Unobservable

November 1,

Markets

Inputs

2008

(Level 1)

(Level 2)

(Level 3)

Interest rate swap liabilities

3,914

—

3,914

—

In addition, effective February 3, 2008, the Company adopted the provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. SFAS No. 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that select different measurement attributes for similar types of assets and liabilities.

In accordance with SFAS No. 159 implementation options, the Company chose not to elect the fair value option for its financial assets and liabilities that had not been previously measured at fair value. Therefore, material financial assets and liabilities, such as the Company’s short and long-term debt obligations, are reported at their carrying amounts.

5. SUPPLEMENTAL BALANCE SHEET INFORMATION

Prepaid expenses and other current assets were comprised of the following:


	November 1,		February 2,
	2008		2008
Prepaid expenses	$	40,860	$	35,384
Other current assets		81,996		42,948

Total	$	122,856	$	78,332

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

Other long-term liabilities were comprised of the following:


	November 1,		February 2,
	2008		2008
Deferred income	$	47,666	$	35,223
Other long-term liabilities		61,495		76,832

Total	$	109,161	$	112,055

6. EXIT OR DISPOSAL ACTIVITIES

The following table summarizes exit or disposal activities during the thirty-nine weeks ended November 1, 2008 related to the closing of the Company’s Morgantown East store in Morgantown, West Virginia:


	Termination			Other
	Benefits			Costs			Total
Balance as of February 2, 2008	$	20		$	—		$	20
Provision:
Thirteen weeks ended May 3, 2008		(2	)		24			22
Payments:
Thirteen weeks ended May 3, 2008		(18	)		(24	)		(42	)

Balance as of November 1, 2008	$	—		$	—		$	—

The above provision and other adjustment were included within selling, general and administrative expense.

In connection with the acquisition of The Elder-Beerman Stores Corp. in October 2003, the Company incurred expenses related to the termination of a lease. The Company made payments of $19 in the third quarter of 2008 and payments of $68 during the thirty-nine weeks ended November 1, 2008 related to this termination. The liability for this lease termination was $827 as of November 1, 2008 and will be paid over the remaining contract period ending in 2030.

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

7. 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 (income) for the Pension Plans includes the following components:


	THIRTEEN						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
	November 1,			November 3,			November 1,			November 3,
	2008			2007			2008			2007
Service cost	$	38		$	33		$	116		$	98
Interest cost		2,935			3,041			8,805			9,124
Expected return on plan assets		(3,076	)		(3,668	)		(9,227	)		(11,005	)
Recognition of prior service cost		1			1			3			3
Recognition of net actuarial loss		127			79			379			237

Net periodic benefit expense (income)	$	25		$	(514	)	$	76		$	(1,543	)

During the thirty-nine weeks ended November 1, 2008, contributions of $594 were made to the Pension Plans. The Company anticipates contributing an additional $802 in 2008 to fund the Pension Plans, for an annual total of $1,396.

The Company also provides medical and life insurance benefits to certain former associates under a postretirement benefit plan (“Postretirement Benefit Plan”). Net periodic benefit interest expense of $95 and $103 was recorded in the third quarter of 2008 and 2007, respectively. During the thirty-nine weeks ended November 1, 2008 and November 3, 2007, the Company recorded net periodic benefit interest expense of $285 and $308, respectively. During the thirty-nine weeks ended November 1, 2008, payments under the plan exceeded participant premiums received by $420. The Company anticipates contributing an additional $511 in 2008 to fund the Postretirement Benefit Plan, for a net annual total of $931.

8. INCOME TAXES

For the third quarter of 2008 and the thirty-nine weeks ended November 1, 2008, the effective income tax rate was calculated based on the projected full fiscal-year results consistent with the prior year periods. The income tax benefit in the third quarter of 2008 and the thirty-nine weeks ended November 1, 2008 includes a tax benefit adjustment, pursuant to the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” of $7,038 resulting from a statute-of-limitations expiration.

9. CONTINGENCIES

On December 8, 2005, Adamson Apparel, Inc. filed a purported class action lawsuit against Saks Incorporated (“Saks”) in the United States District Court for the Northern District of Alabama. In its complaint the plaintiff asserted breach of contract claims and alleged that Saks improperly assessed chargebacks, timely payment discounts and deductions for merchandise returns against members of the plaintiff class. The lawsuit sought compensatory and incidental damages and restitution. Under the terms of the purchase agreement relating to the acquisition of the Northern Department Store Group from Saks in March 2006, the Company had an obligation to indemnify Saks for any damages incurred by Saks under this lawsuit by Adamson Apparel, Inc. solely to the extent that such damages related to the business the Company acquired from Saks.

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

A settlement of this action was reached in the second quarter of 2008. The outcome of this matter had no material effect on the Company’s financial condition, results of operations or liquidity.

In addition, the Company is party to legal proceedings and claims that arise during the ordinary course of business. In the opinion of management, the ultimate outcome of any such litigation and claims will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

10. COMPREHENSIVE LOSS

Comprehensive loss was determined as follows:


	THIRTEEN						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
	November 1,			November 3,			November 1,			November 3,
	2008			2007			2008			2007

Net loss	$	(14,334	)	$	(19,362	)	$	(82,223	)	$	(63,636	)

Other comprehensive income (loss):
Amortization of pension plan amounts, net of tax		79			51			238			152
Cash flow hedge derivative income (loss), net of tax		679			(1,121	)		2,220			(1,296	)

Comprehensive loss	$	(13,576	)	$	(20,432	)	$	(79,765	)	$	(64,780	)

11. SUBSEQUENT EVENT

On November 18, 2008, the Company’s Board of Directors declared a quarterly cash dividend of $0.05 per share on Class A Common Stock a nd Common Stock, payable February 2, 2009 to shareholders of record as of January 15, 2009.

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 November 1, 2008 and February 2, 2008 and for the third quarter of 2008 and 2007 and the thirty-nine weeks ended November 1, 2008 and November 3, 2007 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
(In thousands except share and per share data)

The Bon-Ton Stores, Inc.
Condensed Consolidating Balance Sheet
November 1, 2008


	Bon-Ton
	(Parent				Guarantor			Non-Guarantor		Consolidating			Company
	Company)		Issuer		Subsidiaries			Subsidiaries		Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	1	$	8,758	$	8,036		$	—	$	—		$	16,795
Merchandise inventories		—		479,100		499,589			—		—			978,689
Prepaid expenses and other current assets		—		101,062		21,288			506		—			122,856
Deferred income taxes		—		—		21,822			—		(4,505	)		17,317

Total current assets		1		588,920		550,735			506		(4,505	)		1,135,657

Property, fixtures and equipment at cost, net		—		288,497		274,665			307,267		—			870,429
Deferred income taxes		—		24,475		64,284			—		—			88,759
Intangible assets, net		—		65,964		92,683			—		—			158,647
Investment in and advances to (from) affiliates		286,506		830,397		(148,932	)		489		(968,460	)		—
Other long-term assets		—		23,779		6,590			4,784		—			35,153

Total assets	$	286,507	$	1,822,032	$	840,025		$	313,046	$	(972,965	)	$	2,288,645


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	374,252	$	—		$	—	$	—		$	374,252
Accrued payroll and benefits		—		26,006		12,206			—		—			38,212
Accrued expenses		—		82,366		75,914			1,468		—			159,748
Current maturities of long-term debt and obligations under capital leases		—		288		2,194			5,967		—			8,449
Deferred income taxes		—		4,505		—			—		(4,505	)		—

Total current liabilities		—		487,417		90,314			7,435		(4,505	)		580,661

Long-term debt and obligations under capital leases, less current maturities		—		1,002,675		57,933			253,915		—			1,314,523

Other long-term liabilities		2,207		65,401		40,385			1,168		—			109,161

Total liabilities		2,207		1,555,493		188,632			262,518		(4,505	)		2,004,345


Shareholders’ equity		284,300		266,539		651,393			50,528		(968,460	)		284,300


Total liabilities and shareholders’ equity	$	286,507	$	1,822,032	$	840,025		$	313,046	$	(972,965	)	$	2,288,645

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
February 2, 2008


	Bon-Ton
	(Parent				Guarantor		Non-Guarantor		Consolidating			Company
	Company)		Issuer		Subsidiaries		Subsidiaries		Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	1	$	9,604	$	11,633	$	—	$	—		$	21,238
Merchandise inventories		—		375,162		379,640		—		—			754,802
Prepaid expenses and other current assets		—		75,188		9,027		578		(6,461	)		78,332
Deferred income taxes		—		—		21,566		—		(4,030	)		17,536

Total current assets		1		459,954		421,866		578		(10,491	)		871,908

Property, fixtures and equipment at cost, net		—		304,128		265,250		316,077		—			885,455
Deferred income taxes		—		22,136		65,221		—		—			87,357
Goodwill		—		8,488		9,279		—		—			17,767
Intangible assets, net		—		69,772		96,100		—		—			165,872
Investment in and advances to affiliates		365,267		700,704		5,710		318		(1,071,999	)		—
Other long-term assets		—		28,518		7,948		2,806		—			39,272

Total assets	$	365,268	$	1,593,700	$	871,374	$	319,779	$	(1,082,490	)	$	2,067,631


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	—	$	220,158	$	—	$	—	$	—		$	220,158
Accrued payroll and benefits		—		37,037		12,865		—		—			49,902
Accrued expenses		—		86,586		79,930		87		—			166,603
Current maturities of long-term debt and obligations under capital leases		—		260		1,979		5,656		—			7,895
Income taxes payable		—		—		7,360		—		(6,461	)		899
Deferred income taxes		—		4,030		—		—		(4,030	)		—

Total current liabilities		—		348,071		102,134		5,743		(10,491	)		445,457

Long-term debt and obligations under capital leases, less current maturities		—		829,648		59,413		257,997		—			1,147,058
Other long-term liabilities		2,207		66,660		42,082		1,106		—			112,055

Total liabilities		2,207		1,244,379		203,629		264,846		(10,491	)		1,704,570


Shareholders’ equity		363,061		349,321		667,745		54,933		(1,071,999	)		363,061

Total liabilities and shareholders’ equity	$	365,268	$	1,593,700	$	871,374	$	319,779	$	(1,082,490	)	$	2,067,631

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 November 1, 2008


	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	312,593		$	412,334		$	—		$	—		$	724,927
Other income		—			9,399			13,343			—			—			22,742

		—			321,992			425,677			—			—			747,669

Costs and expenses:
Costs of merchandise sold		—			203,747			263,044			—			—			466,791
Selling, general and administrative		—			120,760			149,975			21			(8,840	)		261,916
Depreciation and amortization		—			14,270			12,563			2,937			—			29,770
Amortization of lease-related interests		—			750			470			—			—			1,220

Loss from operations		—			(17,535	)		(375	)		(2,958	)		8,840			(12,028	)

Other income (expense):
Intercompany rental and royalty income		—			—			1,797			7,043			(8,840	)		—
Equity in losses of subsidiaries		(36,709	)		(627	)		—			—			37,336			—
Interest expense, net		—			(18,547	)		(1,863	)		(4,271	)		—			(24,681	)


Loss before income taxes		(36,709	)		(36,709	)		(441	)		(186	)		37,336			(36,709	)
Income tax benefit		(22,375	)		(22,375	)		(5,799	)		—			28,174			(22,375	)


Net (loss) income	$	(14,334	)	$	(14,334	)	$	5,358		$	(186	)	$	9,162		$	(14,334	)

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 November 3, 2007


	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	148,237		$	632,602		$	—		$	—		$	780,839
Other income		—			4,714			20,083			—			—			24,797

		—			152,951			652,685			—			—			805,636

Costs and expenses:
Costs of merchandise sold		—			97,291			411,511			—			—			508,802
Selling, general and administrative		—			55,824			218,685			19			(9,098	)		265,430
Depreciation and amortization		—			9,768			17,383			2,956			—			30,107
Amortization of lease-related interests		—			112			1,168			—			—			1,280

(Loss) income from operations		—			(10,044	)		3,938			(2,975	)		9,098			17

Other income (expense):
Intercompany rental and royalty income		—			—			2,055			7,043			(9,098	)		—
Equity in (losses) earnings of subsidiaries		(27,366	)		1,717			—			—			25,649			—
Interest expense, net		—			(19,039	)		(3,982	)		(4,362	)		—			(27,383	)


(Loss) income before income taxes		(27,366	)		(27,366	)		2,011			(294	)		25,649			(27,366	)
Income tax (benefit) provision		(8,004	)		(8,004	)		748			—			7,256			(8,004	)


Net (loss) income	$	(19,362	)	$	(19,362	)	$	1,263		$	(294	)	$	18,393		$	(19,362	)

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
Thirty-Nine Weeks Ended November 1, 2008


	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	897,209		$	1,201,350		$	—		$	—		$	2,098,559
Other income		—			28,478			38,552			—			—			67,030

		—			925,687			1,239,902			—			—			2,165,589

Costs and expenses:
Costs of merchandise sold		—			584,596			776,657			—			—			1,361,253
Selling, general and administrative		—			350,888			439,690			62			(26,556	)		764,084
Depreciation and amortization		—			41,518			38,351			8,811			—			88,680
Amortization of lease-related interests		—			2,255			1,379			—			—			3,634
Goodwill impairment		—			8,488			9,279			—			—			17,767

Loss from operations		—			(62,058	)		(25,454	)		(8,873	)		26,556			(69,829	)

Other income (expense):
Intercompany rental and royalty income		—			—			5,283			21,273			(26,556	)		—
Equity in losses of subsidiaries		(143,248	)		(26,762	)		—			—			170,010			—
Interest expense, net		—			(54,428	)		(6,104	)		(12,887	)		—			(73,419	)


Loss before income taxes		(143,248	)		(143,248	)		(26,275	)		(487	)		170,010			(143,248	)
Income tax benefit		(61,025	)		(61,025	)		(16,773	)		—			77,798			(61,025	)


Net loss	$	(82,223	)	$	(82,223	)	$	(9,502	)	$	(487	)	$	92,212		$	(82,223	)

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
Thirty-Nine Weeks Ended November 3, 2007


	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net sales	$	—		$	428,857		$	1,798,163		$	—		$	—		$	2,227,020
Other income		—			13,657			56,289			—			—			69,946

		—			442,514			1,854,452			—			—			2,296,966

Costs and expenses:
Costs of merchandise sold		—			277,652			1,161,020			—			—			1,438,672
Selling, general and administrative		—			162,810			646,578			(616	)		(27,344	)		781,428
Depreciation and amortization		—			24,404			54,019			8,883			—			87,306
Amortization of lease-related interests		—			338			3,503			—			—			3,841

Loss from operations		—			(22,690	)		(10,668	)		(8,267	)		27,344			(14,281	)

Other income (expense):
Intercompany rental and royalty income		—			—			5,950			21,394			(27,344	)		—
Equity in losses of subsidiaries		(96,562	)		(17,394	)		—			—			113,956			—
Interest expense, net		—			(56,478	)		(11,573	)		(14,230	)		—			(82,281	)


Loss before income taxes		(96,562	)		(96,562	)		(16,291	)		(1,103	)		113,956			(96,562	)
Income tax benefit		(32,926	)		(32,926	)		(6,060	)		—			38,986			(32,926	)


Net loss	$	(63,636	)	$	(63,636	)	$	(10,231	)	$	(1,103	)	$	74,970		$	(63,636	)

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
Thirty-Nine Weeks Ended November 1, 2008


	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:	$	1,882		$	(131,173	)	$	36,104		$	7,693		$	(12,649	)	$	(98,143	)


Cash flows from investing activities:
Capital expenditures		—			(44,982	)		(31,657	)		—			—			(76,639	)
Proceeds from sale of property, fixtures and equipment		—			251			71			—			—			322

Net cash used in investing activities		—			(44,731	)		(31,586	)		—			—			(76,317	)


Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		—			(453,310	)		(1,265	)		(3,770	)		—			(458,345	)
Proceeds from issuance of long-term debt		—			626,364			—			—			—			626,364
Intercompany financing activity		—			(1,882	)		(6,850	)		(3,917	)		12,649			—
Cash dividends paid		(1,882	)		—			—			—			—			(1,882	)
Deferred financing costs paid		—			(262	)		—			(6	)		—			(268	)
Increase in bank overdraft balances		—			4,148			—			—			—			4,148

Net cash (used in) provided by financing activities		(1,882	)		175,058			(8,115	)		(7,693	)		12,649			170,017


Net decrease in cash and cash equivalents		—			(846	)		(3,597	)		—			—			(4,443	)

Cash and cash equivalents at beginning of period		1			9,604			11,633			—			—			21,238


Cash and cash equivalents at end of period	$	1		$	8,758		$	8,036		$	—		$	—		$	16,795

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
Thirty-Nine Weeks Ended November 3, 2007


	Bon-Ton
	(Parent						Guarantor			Non-Guarantor			Consolidating			Company
	Company)			Issuer			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:	$	2,091		$	(147,891	)	$	45,591		$	9,363		$	(14,103	)	$	(104,949	)


Cash flows from investing activities:
Capital expenditures		—			(51,268	)		(37,784	)		—			—			(89,052	)
Acquisition, net of cash acquired		—			(62	)		—			—			—			(62	)
Proceeds from sale of property, fixtures and equipment		—			52			168			2,495			—			2,715

Net cash (used in) provided by investing activities		—			(51,278	)		(37,616	)		2,495			—			(86,399	)


Cash flows from financing activities:
Payments on long-term debt and capital lease obligations		—			(494,634	)		(1,445	)		(7,440	)		—			(503,519	)
Proceeds from issuance of long-term debt		—			674,971			—			—			—			674,971
Intercompany financing activity		—			(2,091	)		(7,602	)		(4,410	)		14,103			—
Cash dividends paid		(2,575	)		—			—			—			—			(2,575	)
Proceeds from stock options exercised		484			—			—			—			—			484
Excess tax benefit from share-based compensation		—			548			—			—			—			548
Deferred financing costs paid		—			(276	)		—			(8	)		—			(284	)
Increase in bank overdraft balances		—			20,966			—			—			—			20,966

Net cash (used in) provided by financing activities		(2,091	)		199,484			(9,047	)		(11,858	)		14,103			190,591


Net increase (decrease) in cash and cash equivalents		—			315			(1,072	)		—			—			(757	)

Cash and cash equivalents at beginning of period		1			7,384			17,348			—			—			24,733


Cash and cash equivalents at end of period	$	1		$	7,699		$	16,276		$	—		$	—		$	23,976

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 “second quarter of 2008” are to the thirteen-week period ended August 2, 2008. References to “third quarter of 2008” and “third quarter of 2007” are to the thirteen-weeks ended November 1, 2008 and November 3, 2007, respectively. References to “2008” and “2007” are to the thirty-nine weeks ended November 1, 2008 and November 3, 2007, respectively. References to “fiscal 2008” and “fiscal 2007” are to the fifty-two weeks ending January 31, 2009 and the fifty-two weeks ended February 2, 2008, respectively. References to “the Company,” “we,” “us,” and “our” refer to The Bon-Ton Stores, Inc. and its subsidiaries.

Overview

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. Due primarily to the acquisition of The Elder-Beerman Stores Corp. in October 2003 and the acquisition of the Northern Department Store Group (“Carson’s”) from Saks Incorporated in March 2006, we have grown dramatically in recent years. Sales increased from $713 million in fiscal 2002 to $3.4 billion in fiscal 2007, and the number of stores increased from 72 stores operating in nine states in the Northeast to our current 281 stores in 23 states in the Northeast, Midwest and upper Great Plains. These stores, which include 12 furniture galleries and encompass a total of approximately 26 million square feet, are operated 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.

We compete in the department store segment of the U.S. retail industry. The department store industry continues to evolve in response to ongoing consolidation among merchandise vendors as well as the evolution of competitive retail formats — mass merchandisers, national chain retailers, specialty retailers and online retailers. Our segment of the retail industry is highly competitive, and we foresee competitive pressures continuing in the future. In addition, the economic environment has been challenging in 2008 and we expect it to remain so in the near-term. As such, in fiscal 2008 we expect a comparable store sales decrease of 6.5 to 7.5 percent, a reduced gross margin rate and reduced selling, general and administrative (“SG&A”) expense as compared with fiscal 2007 results. Further deterioration of general economic conditions could negatively impact our expected operating results.

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						THIRTY-NINE
	WEEKS ENDED						WEEKS ENDED
	November 1,			November 3,			November 1,			November 3,
	2008			2007			2008			2007
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Other income		3.1			3.2			3.2			3.1

		103.1			103.2			103.2			103.1

Costs and expenses:
Costs of merchandise sold		64.4			65.2			64.9			64.6
Selling, general and administrative		36.1			34.0			36.4			35.1
Depreciation and amortization		4.1			3.9			4.2			3.9
Amortization of lease-related interests		0.2			0.2			0.2			0.2
Goodwill impairment		—			—			0.8			—

(Loss) income from operations		(1.7	)		—			(3.3	)		(0.6	)
Interest expense, net		3.4			3.5			3.5			3.7

Loss before income taxes		(5.1	)		(3.5	)		(6.8	)		(4.3	)
Income tax benefit		(3.1	)		(1.0	)		(2.9	)		(1.5	)

Net loss		(2.0	)%		(2.5	)%		(3.9	)%		(2.9	)%

Third Quarter of 2008 Compared with Third Quarter of 2007

Net sales : Net sales in the third quarter of 2008 were $724.9 million, compared with $780.8 million in the third quarter of 2007, reflecting a decrease of $55.9 million, or 7.2%. The Company’s comparable store sales decreased 8.3% in the third quarter of 2008. We believe the comparable store sales decline was due to recent events in the financial markets and their impact on the wider economy, resulting in further weakened consumer confidence which has pressured consumer spending.

The best performing merchandise categories in the third quarter of 2008 were Coats (included in Women’s Apparel) and Children’s Apparel. Sales in Coats were driven by the arrival of seasonal weather and promotional activity in the period. Children’s Apparel sales benefited from expanded and improved product selection in outerwear and branded playwear. The poorest performing categories in the period were Furniture (included in Home) and Petites, Better Sportswear and Dresses (all of which are included in Women’s Apparel). Furniture sales were impacted by the continued deterioration in consumer spending for more expensive items. Apparel sales in Petites, Better Sportswear and Dresses remain difficult as economic concerns have resulted in reduced discretionary spending by our customer.

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 $22.7 million, or 3.1% of net sales, in the third quarter of 2008 as compared with $24.8 million, or 3.2% of net sales, in the third quarter of 2007. The decrease was primarily due to reduced sales volume in the period.

Costs and expenses : Gross margin in the third quarter of 2008 decreased $13.9 million to $258.1 million, as compared with $272.0 million in the comparable prior year period. The decrease in gross margin dollars is attributable to decreased sales volume. Gross margin as a percentage of net sales increased 0.8 percentage point to 35.6% in the third quarter of 2008 from 34.8% in the same period last year, primarily due to a decreased net markdown rate on reduced levels of inventory, improved aging of inventory and reduced distribution costs.

SG&A expense in the third quarter of 2008 was $261.9 million as compared with $265.4 million in the third quarter of 2007, reflecting a decrease of $3.5 million. The decrease primarily resulted from expense reductions in payroll and benefits in response to our sales trend, partially offset by incremental advertising expenditures in the period. The current year expense rate increased 2.1 percentage points to 36.1% of net sales, compared with 34.0% for the same period last year, as we were unable to leverage our expense savings due to the shortfall in sales.

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

Depreciation and amortization expense and amortization of lease-related interests decreased $0.4 million, to $31.0 million in the third quarter of 2008 from $31.4 million in the third quarter of 2007.

(Loss) income from operations : The loss from operations in the third quarter of 2008 was ($12.0) million, or 1.7% of net sales, as compared with minimal income from operations in the comparable prior year period.

Interest expense, net : Net interest expense was $24.7 million, or 3.4% of net sales, in the third quarter of 2008 as compared with $27.4 million, or 3.5% of net sales, in the third quarter of 2007. The $2.7 million decrease primarily reflects decreased borrowing levels and reduced interest rates.

Income tax benefit : The income tax benefit reflects an effective tax rate of 61.0% in the third quarter of 2008, as compared with 29.2% in the third quarter of 2007. The current year increase resulted primarily from a favorable adjustment, pursuant to the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), of $7.0 million resulting from a statute-of-limitations expiration and, to a lesser extent, the impact on state income taxes from changes to the mix of taxable income and losses within various subsidiaries of the Company.

Net loss : Net loss in the third quarter of 2008 was $14.3 million, or 2.0% of net sales, compared with a net loss of $19.4 million, or 2.5% of net sales, in the third quarter of 2007.

2008 Compared with 2007

Net sales : Net sales in 2008 were $2,098.6 million, compared with $2,227.0 million in 2007, reflecting a decrease of $128.5 million, or 5.8%. Comparable store sales decreased 6.3% in 2008. We believe the comparable store sales decline reflects the challenging economic environment throughout the thirty-nine week period — largely the result of mortgage and credit market concerns, a weak housing market and rising energy prices — which has pressured consumer spending.

The best performing categories in 2008 were Coats (included in Women’s Apparel) and Children’s Apparel. Sales in Coats benefited from a strong third quarter performance, primarily due to seasonal weather and promotional activity. Sales increases in Children’s Apparel primarily reflect growth within our private brand labels as well as expanded and improved product selection in key categories. The poorest performing categories in the period were Moderate Sportswear and Dresses (both included in Women’s Apparel) and Furniture (included in Home). Sales in Moderate Sportswear and Dresses have been impacted by the challenging economic environment, which has resulted in reduced consumer spending on discretionary items. Moderate Sportswear was also affected by the decision made in fiscal 2007 by certain of our key vendors to exit the moderate sportswear business. We began receiving merchandise from new, replacement vendors in the third quarter of 2008, including some brands that are exclusive to Bon-Ton in our markets. Furniture sales were impacted by the continued deterioration in consumer spending for big-ticket purchases.

Other income : Other income was $67.0 million, or 3.2% of net sales, in 2008 as compared with $69.9 million, or 3.1% of net sales, in 2007. The decrease primarily reflects reduced sales volume.

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

Costs and expenses : Gross margin in 2008 was $737.3 million as compared with $788.3 million in 2007, reflecting a decrease of $51.0 million. The decrease in gross margin dollars is due to the decreased sales volume in the period and the reduction in the gross margin rate. Gross margin as a percentage of net sales decreased 0.3 percentage point to 35.1% in the current year from 35.4% last year, primarily due to an increased net markdown rate.

SG&A expense in 2008 was $764.1 million compared with $781.4 million in 2007, reflecting a decrease of $17.3 million. The decrease primarily resulted from expense reductions in payroll, benefits and advertising in response to our sales trend. Other expense reductions were due to increased efficiencies in operations and prior year store closing expenses. Despite the expense savings, the expense rate in 2008 increased 1.3 percentage points to 36.4% of net sales, compared with 35.1% in 2007, due to the reduced sales volume.

Depreciation and amortization expense and amortization of lease-related interests increased $1.2 million, to $92.3 million in 2008 from $91.1 million in 2007, primarily the result of increased expense associated with prior year asset additions.

The Company recorded a non-cash goodwill impairment charge of $17.8 million in the second quarter of 2008 in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Intangible Assets” (“SFAS No. 142”) as, based upon our review, the fair value of the Company’s single reporting unit, estimated using a combination of our common stock trading value as of the end of the second quarter of 2008, a discounted cash flow analysis and other generally accepted valuation methodologies, was less than the carrying amount. See Note 3 in Notes to Consolidated Financial Statements.

Loss from operations : The loss from operations in 2008 was $69.8 million, or 3.3% of net sales, as compared with $14.3 million, or 0.6% of net sales, in 2007.

Interest expense, net : Net interest expense was $73.4 million, or 3.5% of net sales, in 2008 as compared with $82.3 million, or 3.7% of net sales, in 2007. The $8.9 million decrease principally reflects decreased borrowing levels and reduced interest rates in 2008, as well as $1.0 million of prior year expense incurred for the early extinguishment of debt.

Income tax benefit : The income tax benefit reflects an effective tax rate of 42.6% in 2008, as compared with 34.1% in 2007. The current year increase resulted primarily from a favorable adjustment, pursuant to the provisions of FIN No. 48, of $7.0 million resulting from a statute-of-limitations expiration and, to a lesser extent, the impact on state income taxes from changes to the mix of taxable income and losses within various subsidiaries of the Company.

Net loss : Net loss in 2008 was $82.2 million, or 3.9% of net sales, compared with a net loss of $63.6 million, or 2.9% of net sales, in 2007.

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.

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

Liquidity and Capital Resources

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


	November 1,		November 3,
(Dollars in millions)	2008		2007

Working capital	$	555.0	$	550.1
Current ratio		1.96:1		1.86:1
Debt to total capitalization ⁽¹⁾		0.82:1		0.83:1
Unused availability under lines of credit ⁽²⁾	$	213.7	$	253.6


(1)		Debt includes obligations under capital leases. Total capitalization includes shareholders’ equity, debt and obligations under capital leases.

(2)		Subject to a minimum borrowing availability covenant of $75 as of November 1, 2008 and November 3, 2007.

Our primary sources of working capital are cash flows from operations and borrowings under our revolving credit facility, which provides for up to $1.0 billion in borrowings.

The decrease in unused availability under lines of credit as compared with the prior year primarily reflects our ability to utilize our liquidity position to support certain vendors, primarily those smaller in size, while taking advantage of discount terms that have been offered on short-term accelerated payments to benefit gross margin in subsequent periods. These short-term accelerated payments are expected to continue through the holiday season. We expect our excess borrowing capacity to increase in the fourth quarter, consistent with the prior year pattern, which will support the working capital and operational needs of our business.

Net cash used in operating activities was $98.1 million and $104.9 million in 2008 and 2007, respectively. The decrease primarily reflects reduced working capital requirements, most notably in income taxes payable and accrued expenses.

Net cash used in investing activities was $76.3 million in 2008, as compared with $86.4 million in 2007, primarily the result of reduced capital expenditures in the current year.

Net cash provided by financing activities was $170.0 million in 2008, as compared with $190.6 million in the prior year. The change primarily reflects reduced net borrowings due to decreased cash requirements for current year operating activities and reduced capital expenditures.

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

We paid a quarterly cash dividend of $0.05 per share on shares of Class A Common Stock and Common Stock on May 1, 2008, August 1, 2008 and November 3, 2008 to shareholders of record as of April 15, 2008, July 15, 2008 and October 15, 2008, respectively. Additionally, a quarterly cash dividend of $0.05 per share was declared on November 18, 2008, payable February 2, 2009 to shareholders of record as of January 15, 2009. Our Board of Directors will consider dividends in subsequent periods as it deems appropriate.

Capital expenditures for 2008, which do not reflect landlord contributions of approximately $14.7 million, totaled $76.6 million. Capital expenditures for fiscal 2008, reduced by landlord contributions, are planned at approximately $70.0 million. Included in these planned amounts are expenditures relating to the opening of two new stores, expansions of two stores and renovation of an existing store as well as expenditures relating to information systems.

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

We anticipate that our cash flows from operations, supplemented by borrowings under our revolving credit facility, will be sufficient to satisfy our operating cash requirements for at least the next twelve months.

Cash flows from operations are impacted by consumer confidence, weather in the geographic markets served by the Company, and economic and competitive conditions existing in the retail industry. A downturn in any single factor or a combination of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate our business.

We have not identified any probable circumstances that would likely impair our ability to meet our cash requirements or trigger a default or acceleration of payment of our debt.

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 U.S. generally accepted accounting principles. Preparation of these financial statements requires us to make estimates and judgments that affect reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. On an ongoing basis, we evaluate our estimates, including those related to merchandise returns, inventories, goodwill, 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. Our critical accounting policies are 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.

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 or 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.

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

We regularly review inventory on-hand and record an adjustment for excess or old inventory based primarily on a 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 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.

Prior to the Carson’s acquisition, we utilized the last-in, first-out (“LIFO”) cost basis for all our inventories. In connection with the Carson’s acquisition, we evaluated the inventory costing for the acquired inventories and elected the first-in, first-out (“FIFO”) cost basis for the majority of the acquired Carson’s locations. As of February 2, 2008, approximately 32% of our inventories were valued using a FIFO cost basis and approximately 68% of our inventories were valued using a 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 $37.0 million as of November 1, 2008 and February 2, 2008. 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 reflected as an adjustment to the cost of merchandise capitalized in inventory.

Additionally, allowances are received from vendors in connection with cooperative advertising programs and for reimbursement of certain payroll expenses. These allowances received from each vendor 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.

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

Income Taxes

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and valuation allowances 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. We must then assess the likelihood that deferred tax assets will be recovered from future taxable income or tax carry-back availability and, to the extent we do not believe recovery of the deferred tax asset is more likely than not, a valuation allowance must be established. 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.

Our net deferred tax assets were $106.1 million and $104.9 million at November 1, 2008 and February 2, 2008, respectively. In assessing the realizability of the deferred tax assets, we considered whether it was more likely than not that the deferred tax assets, or a portion thereof, will be realized. As part of our assessment, we evaluated and weighted the various components of positive and negative evidence as prescribed by SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) including, among others, the scheduled reversal of deferred tax liabilities, projected future taxable income and limitations pursuant to Section 382 of the Internal Revenue Code, and loss carry-back capacity. As a result, we concluded that a valuation allowance against a portion of the net deferred tax assets was appropriate. Valuation allowances of $8.7 million and $14.3 million were recorded at November 1, 2008 and February 2, 2008, 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. Specifically, if future measurements indicate that the negative evidence, including the three-year cumulative loss provision of SFAS No. 109, outweighs the positive evidence, this could lead to a need for valuation allowances against most or all of our deferred tax assets.

Effective February 4, 2007, we adopted the provisions of FIN No. 48, which prescribes a recognition and derecognition threshold and measurement element for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Accordingly, we establish reserves for certain tax positions that we believe are supportable, but are potentially subject to successful challenge by applicable taxing authorities. However, interpretations and guidance surrounding income tax laws and regulations change over time. Changes in our assumptions and judgments could materially impact our financial position and results of operations. In the third quarter of 2008, we recorded an income tax benefit of $7.0 million reflecting a reduction of certain tax exposure reserves resulting from a statute-of-limitations expiration. This $7.0 million includes a decrease of approximately $5.1 million in valuation allowances relating to deferred tax assets reduced concurrently with this statute-of-limitations expiration.

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 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 $870.4 million and $885.5 million at November 1, 2008 and February 2, 2008, respectively.

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

SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” requires us 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 under-performance 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 represent our best estimate based on industry trends and reference to market rates and transactions, if available. 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. A continued slowdown in the economy could potentially result in adjustments to the current valuation of certain long-lived assets.

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.

Goodwill and Intangible Assets

Net intangible assets totaled $158.6 million and $165.9 million at November 1, 2008 and February 2, 2008, respectively. Our intangible assets at November 1, 2008 are principally comprised of $79.0 million of lease interests that relate to below-market-rate leases and $79.6 million associated with trade names, private label brand names and customer lists. The lease-related interests and the portion of private label brand names subject to amortization are being amortized using a straight-line method. The customer lists are being amortized using a declining-balance method. At November 1, 2008, trade names and private label brand names of $62.2 million have been deemed as having indefinite lives.

In accordance with SFAS No. 142, goodwill and other 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 available quoted market prices, a discounted cash flow analysis and/or other generally accepted valuation methodologies, which requires certain assumptions and estimates regarding industry economic factors and future profitability. Our policy is to conduct impairment testing based on observable market data and/or our most current business plans, which reflect anticipated changes in the economy and the industry. If actual results prove inconsistent with our assumptions and judgments, we could be exposed to a material impairment charge.

In the second quarter of 2008 we completed a review of the carrying value of goodwill in accordance with SFAS No. 142 and, as a result, recorded a goodwill impairment charge of $17.8 million. The charge reduced the balance of goodwill to zero at November 1, 2008 from the $17.8 million balance at February 2, 2008. Other indefinite-lived intangible assets were reviewed in the second quarter of 2008 as well, with the determination that no impairment adjustments were required on these assets at that time. A continued or incremental slowdown in the economy or an uncertain economic outlook could potentially result in adjustments to the current valuation of intangible assets.

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 the cost of the latter 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 three 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, utilizing the Citibank Pension Discount Curve (“CPDC”). 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.

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. The economic environment has negatively impacted the value of plan assets such that the recognition of greater expense and the acceleration of funding contributions may be required in the future.

Future Accounting Changes

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in hedged positions. The statement also requires companies to disclose more information about the location and amounts of derivative instruments in financial statements; how derivatives and related hedges are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities;” and how the hedges affect the entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for years beginning after November 15, 2008. We are in the process of evaluating what effect, if any, adoption of SFAS No. 161 may have on our consolidated financial statements.

THE BON-TON STORES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 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 tax assets; consumer spending patterns and debt levels; 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 opening new stores or expanding or remodeling existing stores; the ability to attract and retain qualified management; the dependence upon vendor relationships; the ability to reduce SG&A expenses and the ability to obtain financing for working capital, capital expenditures and general corporate purposes. Additional factors that could cause the Company’s actual results to differ from those contained in these forward-looking statements are discussed in greater detail under Item 1A of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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 33 of our 2007 Annual Report on Form 10-K. There have been no material changes in our exposures, risk management strategies, or hedging positions since February 2, 2008.

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 November 1, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

THE BON-TON STORES, INC.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As disclosed in the Company’s Quarterly Report filed on Form 10-Q with the Securities and Exchange Commission on September 10, 2008, a settlement of this action was reached in the second quarter of 2008. The outcome of this matter had no material effect on the Company’s financial condition, results of operations or liquidity.

ITEM 6. EXHIBITS

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


Exhibit	Description	Document Location
31.1	Certification of Byron L. Bergren	Filed herewith.

31.2	Certification of Keith E. Plowman	Filed herewith.

32.1	Certification Pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934	Furnished herewith.

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: December 10, 2008	BY:	/s/ Byron L. Bergren
		Byron L. Bergren
		President and Chief Executive Officer

DATE: December 10, 2008	BY:	/s/ Keith E. Plowman
		Keith E. Plowman
		Executive Vice President, Chief Financial Officer and Principal Accounting Officer

THE BON-TON STORES, INC.

EXHIBIT INDEX


Exhibit	Description	Document Location
31.1	Certification of Byron L. Bergren	Filed herewith.

31.2	Certification of Keith E. Plowman	Filed herewith.

32.1	Certification Pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934	Furnished herewith.

EXHIBIT 31.1

CERTIFICATION OF BYRON L. BERGREN

I, Byron L. Bergren, certify that:

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

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

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

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

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

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

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

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

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

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

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


DATE: December 10, 2008	By:	/s/ Byron L. Bergren
		Byron L. Bergren
		President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF KEITH E. PLOWMAN

I, Keith E. Plowman, certify that:

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

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

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

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

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

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

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

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

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

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


DATE: December 10, 2008	By:	/s/ Keith E. Plowman
		Keith E. Plowman
		Executive Vice President, Chief Financial Officer and Principal Accounting Officer

Exhibit 32.1

CERTIFICATIONS PURSUANT TO RULES 13a-14(b) and 15d-14(b) OF THE
SECURITIES EXCHANGE ACT OF 1934

In connection with the Quarterly Report of The Bon-Ton Stores, Inc. on Form 10-Q for the period ended November 1, 2008, as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned officers of The Bon-Ton Stores, Inc., certifies pursuant to 18 U.S.C. Section 1350, that, to his respective knowledge:

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

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


DATE: December 10, 2008	By:	/s/ Byron L. Bergren
		Byron L. Bergren
		President and Chief Executive Officer


	By:	/s/ Keith E. Plowman
		Keith E. Plowman
		Executive Vice President, Chief Financial Officer and Principal Accounting Officer

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