<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For quarterly period ended October 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________to__________________
Commission File Number: 0-02788
THE ELDER-BEERMAN STORES CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
OHIO 31-0271980
<S> <C>
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3155 EL-BEE ROAD, DAYTON, OHIO 45439
(Address of principal executive offices) (Zip Code)
</TABLE>
(937) 296-2700
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
- --------------------------------------------------------------------------------
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
As of December 11, 1998, 15,725,186 shares of the issuer's common
stock, without par value, were outstanding.
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<PAGE> 2
THE ELDER-BEERMAN STORES CORP.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of January 31, 1998 and as of
October 31, 1998 (Unaudited)......................................................................1
Condensed Consolidated Statements of Operations for the 13 weeks ended November 1, 1997 and
October 31, 1998 (Unaudited)......................................................................2
Condensed Consolidated Statements of Operations for the 39 weeks ended November 1, 1997 and
October 31, 1998 (Unaudited)......................................................................3
Condensed Consolidated Statements of Cash Flows for the 39 weeks ended November 1, 1997
and October 31, 1998 (Unaudited)..................................................................4
Notes to Condensed Consolidated Financial Statements (Unaudited)..................................5
ITEM 2. Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations.........................................................................7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......................................11
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................................11
ITEM 2. Changes in Securities and Use of Proceeds........................................................11
ITEM 3. Defaults Upon Senior Securities..................................................................11
ITEM 4. Submission of Matters to a Vote of Security Holders..............................................11
ITEM 5. Other Information................................................................................11
ITEM 6. Exhibits and Reports on Form 8-K.................................................................11
SIGNATURES....................................................................................................13
EXHIBIT INDEX.................................................................................................14
</TABLE>
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 31, 1998 Jan. 31, 1998
---------------- -------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,798 $ 6,497
Customer accounts receivable (less allowance for doubtful
accounts: October 31, 1998 - $3,013;
January 31, 1998 - $4,177) 123,985 136,705
Merchandise inventories 221,799 137,507
Other current assets 16,216 12,646
----------------- -----------------
Total current assets 364,798 293,355
Property, fixtures and equipment, less accumulated depreciation
and amortization 66,552 63,256
Other assets 42,737 14,754
----------------- -----------------
Total assets $ 474,087 $ 371,365
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term obligations: $ 1,105 $ 1,105
Accounts payable 65,948 49,005
Other accrued liabilities 30,712 29,186
----------------- -----------------
Total current liabilities 97,765 79,296
Long-term obligations, less current portion 155,236 142,024
Deferred items 7,662 4,534
----------------- -----------------
Total liabilities 260,663 225,854
Shareholders' equity:
Common stock, no par, 15,898,207 shares on October 31, 1998 and
12,583,789 on January 31, 1998 issued and outstanding 266,698 199,351
Unearned compensation - restricted stock, net (2,286) (1,225)
Retained earnings (deficit) (50,988) (52,615)
----------------- -----------------
Total shareholders' equity 213,424 145,511
----------------- -----------------
Total liabilities and shareholders' equity $ 474,087 $ 371,365
================= =================
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
13-weeks ended 13-weeks ended
Oct. 31, 1998 Nov. 1, 1997
----------------- -----------------
<S> <C> <C>
Revenues:
Net sales $ 156,956 $ 144,246
Financing 6,059 6,574
----------------- -----------------
Total revenues 163,015 150,820
Costs & expenses:
Cost of goods sold, occupancy, and buying expenses 110,555 107,617
Selling, general, administrative, and other expenses 43,328 40,342
Provision for doubtful accounts 1,000 1,974
Interest expense 2,913 1,731
Other income -- (778)
Acquisition & integration expense 2,275 --
----------------- -----------------
Total costs & expenses 160,071 150,886
Income (loss) before reorganization items and
income tax expense 2,944 (66)
Reorganization items -- 6,587
----------------- -----------------
Income (loss) before income tax expense 2,944 (6,653)
Income tax expense 1,119 --
----------------- -----------------
Net income (loss) $ 1,825 $ (6,653)
================= =================
Basic net income (loss) per common share $ 0.12 $ (53.64)
Basic weighted average number of shares outstanding 15,586,535 124,036
Diluted net income (loss) per common share $ 0.11 $ (53.64)
Diluted weighted average number of shares outstanding 16,095,837 124,036
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
39-weeks ended 39-weeks ended
Oct. 31, 1998 Nov. 1, 1997
----------------- -----------------
<S> <C> <C>
Revenues:
Net sales $ 409,144 $ 386,179
Financing 18,734 19,801
----------------- -----------------
Total revenue 427,878 405,980
Costs & expenses:
Cost of goods sold, occupancy, and buying expenses 293,384 283,181
Selling, general, administrative, and other expenses 116,637 113,456
Provision for doubtful accounts 3,689 4,187
Interest expense 8,697 4,786
Other income -- (169)
Acquisition & integration expense 2,845 --
----------------- -----------------
Total costs & expenses 425,252 405,441
Income before reorganization items and
income tax expense 2,626 539
Reorganization items 0 12,796
----------------- -----------------
Income (loss) before income tax expense 2,626 (12,257)
Income tax expense 998 --
----------------- -----------------
Net income (loss) $ 1,628 $ (12,257)
================= =================
Basic net income (loss) per common share $ 0.12 $ (98.82)
Basic weighted average number of shares outstanding 13,529,463 124,036
Diluted net income (loss) per common share $ 0.11 $ (98.82)
Diluted weighted average number of shares outstanding 14,287,496 124,036
</TABLE>
3
<PAGE> 6
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
39-weeks ended 39-weeks ended
October 31, 1998 November 1, 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,628 $ (12,257)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 9,735 8,961
Changes in operating assets and liabilities, net (49,752) (13,409)
--------------------- ---------------------
Net cash used in operating activities (38,389) (16,705)
Cash flows from investing activities:
Capital expenditures, net (9,428) (12,498)
Business acquisition, net of cash purchased (19,405) --
Real estate acquired (2,814) --
Proceeds from the sale of fixed assets 5,782 --
--------------------- ---------------------
Net cash used in investing activities (25,865) (12,498)
Cash flows from financing activities:
Net borrowings (payments) under debtor-in-possession agreement -- 31,479
Net borrowings (payments) under asset securitization agreement (15,845) --
Net borrowings (payments) under revolving lines of credit 29,980 --
Payments on long-term obligations (923) (160)
Retirement of assumed debt (17,582) --
Issuance of common stock, net of costs 65,468 --
Other (543) (325)
--------------------- ---------------------
Net cash provided by financing activities 60,555 30,994
Increase (decrease) in cash and equivalents (3,699) 1,791
Cash and equivalents - beginning of period 6,497 7,091
--------------------- ---------------------
Cash and equivalents - end of period $ 2,798 $ 8,882
===================== =====================
Supplemental cash flow information:
Interest paid 8,221 4,639
Income taxes paid 307 295
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Basis Of Presentation
The accompanying unaudited condensed consolidated financial statements
include accounts of The Elder- Beerman Stores Corp. and its wholly-owned
subsidiaries (the "Company"). All intercompany transactions and balances
have been eliminated in consolidation. In the opinion of management, all
adjustments (primarily consisting of normal recurring accruals) considered
necessary for a fair presentation for all periods presented, have been made.
On December 30, 1997, the Company substantially consummated its Third
Amended Joint Plan of Reorganization dated November 17, 1997, as amended,
which was confirmed by an order of the Bankruptcy Court entered on December
16, 1997. Accordingly, the condensed consolidated financial statements as of
and for the thirteen weeks ended November 1, 1997 and the thirty-nine weeks
ended November 1, 1997, are presented in accordance with American Institute
of Certified Public Accountants Statement of Position 90-7, Financial
Reporting by Entities in Reorganization under the Bankruptcy Code. The
reorganization expense for the thirteen weeks ended November 1, 1997 and the
thirty-nine weeks ended November 1, 1997 consists of professional fees and
other bankruptcy related expenses.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company's business
is seasonal in nature and the results of operations for the interim periods
are not necessarily indicative of the results for the full fiscal year. It
is suggested these condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 31,
1998.
2. Per Share Amounts
Basic income (loss) per common share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding. Stock
options, restricted shares, deferred shares, and warrants outstanding
represent potential common shares and are included in computing diluted
income per share when the effect would be dilutive.
Reconciliation of weighted average shares used in the basic and diluted
earnings per share calculation:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
October 31, 1998 November 1, 1997 October 31, 1998 November 1, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 15,586,535 124,036 13,529,463 124,036
Dilutive potential common shares
Warrants 69,627 200,517
Stock Options 241,040 370,005
Restricted Stock 173,160 162,027
Deferred Stock 25,475 25,484
--------------- ----------------
Adjusted weighted average shares 16,095,837 124,036 14,287,496 124,036
</TABLE>
3. Stock-Based Compensation
During the third quarter of 1998, a total of 12,500 stock options with an
exercise price of $18.00 per share were granted to designated employees
under the Company's Equity and Performance Incentive Plan. These options
granted have a maximum term of ten years and vest over a period of five
years.
Nonemployee directors may take all or a portion of their annual base
retainer fee in the form of a discounted stock option. During the third
quarter of 1998 a total of 2,576 stock options, with an exercise price of
$16.735, were granted under this plan. These options vest on January 31,
1999.
5
<PAGE> 8
4. Subsequent Events
On November 23, 1998, the Company acquired Stone & Thomas' customer accounts
receivable portfolio, which was previously owned and serviced by World
Financial Network National Bank. The portfolio totals approximately $12.8
million.
5. Acquisition
On July 27, 1998, the Company acquired Stone & Thomas for a purchase price
of approximately $20.2 million in cash, subject to postclosing adjustments.
Stone & Thomas operated 20 department stores located in West Virginia, Ohio,
Kentucky, and Virginia under the name Stone & Thomas. This transaction will
be accounted for as a purchase.
As part of the Company's acquisition of Stone & Thomas a plan to exit
certain activities resulted in the recording of liabilities for store
closings, employee severance, lease buyouts, and other expenses. A
preliminary accrual of $6.7 million has been recorded at the date of
acquisition. This accrual is expected to be finalized during the fourth
quarter of 1998. The Company has paid $2.1 million subsequent to the date of
acquisition for these costs and the total amount accrued is expected to be
paid by the end of the first half of 1999.
Pro forma summary of operations data (unaudited)
The unaudited pro forma summary of operation data for each of the
thirteen week periods and thirty-nine week periods ending October 31,
1998 and November 1, 1997, have been prepared by combining the
condensed consolidated statement of operations of The Elder-Beerman
Stores Corp. with the consolidated statement of operations of Stone &
Thomas for the same periods. To comply with disclosures required by
generally accepted accounting principles related to acquisitions, the
following unaudited pro forma financial information is presented as
though the acquisition occurred at the beginning of 1997. The
expected synergy of this acquisition after integration with existing
businesses, including the disposition of stores, is not permitted to
be reflected in the pro forma results. Therefore, pro forma results
are not indicative of results of operations in the future or in the
periods presented below. Included in the pro forma is the estimated
purchase price allocation and the issuance of additional common
shares. The net proceeds of the additional common shares were used in
part to purchase Stone & Thomas.
<TABLE>
<CAPTION>
Thirteen weeks ended
October 31, 1998 November 1, 1997
---------------- ----------------
<S> <C> <C>
Net sales $156,956 $172,886
Net Income (loss) $1,825 $(8,774)
Basic net income (loss) per common share $0.12 $(2.62)
Diluted net income (loss) per common share $0.11 $(2.62)
<CAPTION>
Thirty-nine weeks ended
October 31, 1998 November 1, 1997
---------------- ----------------
<S> <C> <C>
Net sales $452,578 $469,748
Net Income (loss) $(6,431) $(20,076)
Basic and diluted net income (loss) per common share $(0.41) $(6.00)
</TABLE>
The above pro forma reflects the operation of all 20 Stone & Thomas
stores up to the date of acquisition. The Company has closed two
stores and has sold seven locations, which did not contribute to net
sales for the thirteen weeks ending October 31, 1998. The pro forma
net sales for Elder-Beerman and the 11 continuing Stone & Thomas
stores are as follows:
<TABLE>
<CAPTION>
October 31, 1998 November 1, 1997
---------------- ----------------
<S> <C> <C>
Thirteen weeks ended $156,956 $166,938
Thirty-nine weeks ended $441,858 $450,936
</TABLE>
6. Comprehensive Income
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. Adoption of
this standard had no impact on the Company's financial statements.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This Quarterly Report may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 (the "Securities Act"). All
statements that address operating performance, events or developments that
management anticipates will occur in the future, including statements related to
future sales, profits, expenses, income and earnings per share, or statements
expressing general optimism about future results, are forward-looking
statements. In addition, words such as "expects," "anticipates," "intends,"
"plans," "believes," "hopes," and "estimates," and variations of such words and
similar expressions are intended to identify forward-looking statements.
Because forward-looking statements are based on a number of beliefs,
estimates and assumptions by management that could ultimately prove inaccurate,
there is no assurance that forward-looking statements will prove to be accurate.
Any number of factors could affect future operations and results, including the
following: increasing price and product competition; fluctuations in consumer
demand and confidence; the ability and mix of inventory; fluctuations in costs
and expenses; the effectiveness of advertising, marketing and promotional
programs; weather conditions that affect consumer traffic in stores; the
effectiveness of the integration of Stone & Thomas into the Company's core
business; the continued availability and terms of financing; the outcome of
pending and future litigation; the continued availability of experienced
information technology personnel to complete Year 2000 readiness efforts; the
timely availability of Year 2000 software upgrades by third-party software
suppliers; the ability of suppliers and service providers to the Company to
complete their own Year 2000 readiness programs; the ability of the Company to
identify and implement Year 2000 contingency plans; consumer debt levels; and
other general economic conditions, such as the rate of employment, inflation
and interest rates and the condition of the capital market. This list of
factors is not exclusive.
Forward-looking statements are subject to the safe harbors created in the
Securities Act. Elder-Beerman undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the 13 week periods ended October 31, 1998 ("Third
Quarter 1998") and November 1, 1997 ("Third Quarter 1997"), and the 39 week
periods ended October 31, 1998 ("Nine Months of 1998") and November 1, 1997
("Nine Months of 1997"). The Company's fiscal year ends on the Saturday closest
to January 31. The discussion and analysis which follows are based upon and
should be read in conjunction with the Condensed Consolidated Financial
Statements and the Notes thereto included in Part I, Item I.
RESULTS OF OPERATIONS
Third Quarter 1998 Compared to Third Quarter 1997
Net sales for the Third Quarter 1998 increased by 8.8% to $157.0
million from $144.2 million for the Third Quarter 1997. The increase includes a
3.2% comparative sales increase for the department store division, and a 3.8%
comparative sales decrease for the Bee-Gee Shoe division. The department store
comparable sales results include the Dayton Mall flagship store relocated from
the Southtown shopping center to the adjacent Dayton Mall in July 1998. Women's
better sportswear, cosmetics, decorative home, and intimate apparel led the
sales increase for the department stores. The department stores acquired from
Stone & Thomas generated $17.9 million in sales.
Financing revenue from the Company's private label credit card for the
Third Quarter 1998 decreased by 7.8% to $6.1 million from $6.6 million for the
Third Quarter 1997. The decline in finance charges is due to a reduction in
outstanding customer accounts receivable.
Cost of goods sold, occupancy, and buying expenses decreased to 70.4%
of net sales for the Third Quarter 1998 from 74.6% of net sales for the Third
Quarter 1997. This improvement is primarily due to a charge last year of $5.6
million to record excess markdowns related to two department store closings. The
improved gross margin performance was partially offset by an increase in the
buying staff payroll as a result of being more fully staffed, and an increase in
depreciation expense due to capital expenditures.
Selling, general, and administrative expenses decreased to 27.6% of net
sales for the Third Quarter 1998 from 28.0% for the Third Quarter 1997. This was
due to improved productivity in the Company's distribution center, reduced
selling payroll, and modification to the Company's fringe benefit plans.
7
<PAGE> 10
Provision for doubtful accounts was 0.6% of net sales for the Third
Quarter 1998 compared to 1.4% of net sales for the Third Quarter 1997. This
improvement is due to fewer delinquent customer accounts and a reduction in
personal bankruptcies affecting the Company.
Interest expense increased to $2.9 million for the Third Quarter 1998
from $1.7 million for the Third Quarter 1997. The increase is due to the
additional financing required to support the payment of bankruptcy obligations
in connection with the consummation of the Company's chapter 11 plan of
reorganization and the acquisition of Stone & Thomas, offset by a reduction
resulting from the Company's issuance of 3,220,000 shares of additional common
stock. See "- Liquidity and Capital Resources."
There was no other income for the Third Quarter 1998 compared to an
income of $0.8 million for the Third Quarter 1997. The income last year was
realized from interest income recorded due to a federal income tax refund,
partially offset by a mark-to-market adjustment on the unhedged portion of swap
agreements in place at that time.
On July 27, 1998 the Company purchased Stone & Thomas, a department
store retailer based in Wheeling, West Virginia. The acquisition and integration
expenses of $2.3 million incurred during the Third Quarter 1998 are
nonrecurring, and relate to interim financing for the purchase transaction as
well as other integration expenses.
Reorganization costs were zero for the Third Quarter 1998 versus $6.6
million for the Third Quarter 1997 because of the Company's emergence from
bankruptcy protection in December 1997.
Income tax expense was recorded in the Third Quarter 1998 at the rate
of 38.0%. An income tax benefit was not recorded in the Third Quarter 1997
because the Company remained under bankruptcy protection.
Nine Months of 1998 Compared to Nine Months of 1997
Net sales for the Nine Months of 1998 increased by 5.9% to $409.1
million from $386.2 million for the Nine Months of 1997. The increase is due to
a 6.4% comparative sales increase for the department store division, and a 0.7%
comparative sales increase for the Bee-Gee Shoe division. The department store
comparable sales results include the relocated Dayton Mall flagship store. In
addition, the department stores acquired from Stone & Thomas generated $17.9
million in sales during the Third Quarter 1998. Women's and men's better
sportswear, furniture, and intimate apparel led the sales increase for the
department stores.
Financing revenue from the Company's private label credit card for the
Nine Months of 1998 decreased by 5.4% to $18.7 million from $19.8 million for
the Nine Months of 1997. The decline in finance charges is due to a reduction in
outstanding customer accounts receivable and has been partially offset by an
increase in late fees charged.
Cost of goods sold, occupancy, and buying expenses decreased to 71.7%
of net sales for the Nine Months of 1998 from 73.3% of net sales for the Nine
Months of 1997. This decrease is primarily due to a charge last year of $5.6
million to record excess markdowns related to two department store closings. In
addition there was improved gross margin performance, which was partially offset
by an increase in the buying staff payroll as a result of being more fully
staffed, and an increase in depreciation due to capital expenditures in 1997.
Selling, general, and administrative expenses decreased to 28.5% of net
sales for the Nine Months of 1998 from 29.4% for the Nine Months of 1997. This
was due to a reduction in the Company's store selling and customer service
expenditures and modification to the Company's fringe benefit plans.
Provision for doubtful accounts decreased to 0.9% of net sales for the
Nine Months of 1998 from 1.1% for the Nine Months of 1997. This improvement is
due to fewer write-offs of delinquent customer accounts and fewer personal
bankruptcies affecting the Company.
Interest expense increased to $8.7 million for the Nine Months of 1998
from $4.8 million for the Nine Months of 1997. The increase is due to the
additional financing required to support the payment of bankruptcy obligations
in connection with the consummation of the Company's chapter 11 plan of
reorganization and the acquisition of Stone & Thomas, offset by a reduction
resulting from the Company's issuance of 3,220,000 shares of additional common
stock. See "- Liquidity and Capital Resources."
8
<PAGE> 11
There was no other income for the Nine Months of 1998 compared to other
income of $0.2 million for the Nine Months of 1997. The income last year was
realized from interest income recorded due to a federal income tax refund,
partially offset by a mark-to-market adjustment on the unhedged portion of swap
agreements in place at that time.
Reorganization costs were zero for the Nine Months of 1998 versus $12.8
million for the Nine Months of 1997 because of the Company's emergence from
bankruptcy protection in December of 1997.
Income tax expense was recorded in the Nine Months of 1998 at the rate
of 38.0%. An income tax benefit was not recorded in the Nine Months of 1997
because the Company remained under bankruptcy protection.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash flow from operations
and borrowings under the Revolving Credit Facility and Receivable Securitization
Facility (collectively, the "Credit Facilities"). The Company's primary ongoing
cash requirements are to fund debt service, make capital expenditures, and
finance working capital. The Company has increased the maximum borrowing amount
under the Revolving Credit Facility to $150 million, and to $175 million under
the Receivable Securitization Facility. The Company increased its Credit
Facilities in part to provide additional borrowing capacity for funding new
customer accounts receivable resulting from the Stone & Thomas acquisition and
to accommodate future growth.
Net cash used in operating activities was $38.4 million for the Nine
Months of 1998, compared to $16.7 million used in the Nine Months of 1997.
During the Nine Months of 1998 approximately $11.8 million in payments were made
for professional fees, other administrative expense payments, lease cure
payments, and other items that were related to the bankruptcy. Trade payables
increased $7.8 million during the Nine Months of 1998, compared to an increase
of $28.5 million for the Nine Months of 1997. The increase in trade payables for
the Nine Months of 1998 reflects increases in inventory levels for the
Elder-Beerman core (i.e., non-Stone & Thomas) department stores and increases in
inventory due to the addition of the Stone & Thomas stores. The increase in
trade payables for the Nine Months of 1997 reflects trade accounts payable
returning to a normalized level following the commencement of the Company's
chapter 11 case. This was partially offset by a $1.6 million net income for the
Nine Months of 1998 compared to a $12.3 million net loss for the Nine Months of
1997.
Net cash used in investing activities was $25.9 million for the Nine
Months of 1998, compared to $12.5 million for the Nine Months of 1997. The Stone
& Thomas acquisition on July 27 required an investment of $19.4 million, net of
cash acquired as part of the Stone & Thomas business. During the Third Quarter
of 1998 the Company sold seven of the stores acquired from Stone & Thomas for
$5.7 million. The Company also purchased for $2.8 million the department store
building that housed the Southtown shopping center store. This department store
was relocated to the Dayton Mall, and the Southtown location has been placed for
sale, with sale closing anticipated occurring in Fiscal 1998. Capital
expenditures for store maintenance, remodeling, and data processing totaled $9.4
million for the Nine Months of 1998 compared to $12.5 million for the Nine
Months of 1997.
For the Nine Months of 1998, net cash provided by financing activities
was $60.6 million compared to $31.0 for the Nine Months of 1997. In August 1998
the Company issued 3,220,000 shares of additional common stock. A net amount of
$65.5 million, after costs, was raised from the offering. The funds provided
by the offering were used to pay down debt and for the purchase of Stone &
Thomas.
The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under the Credit
Facilities, to meet anticipated working capital and capital expenditure
requirements, as well as debt service requirements under the New Credit
Facilities.
The Company may from time to time consider acquisitions of department
store assets and companies. Acquisition transactions, if any, are expected to be
financed through a combination of cash on hand from operations and the possible
issuance from time to time of long-term debt or other securities. Depending upon
the conditions in the capital markets and other factors, the Company will from
time to time consider the issuance of debt or other securities, or other
possible capital market transactions, the proceeds of which could be used to
refinance current indebtedness or for other corporate purposes.
9
<PAGE> 12
YEAR 2000 DISCLOSURE
The term "Year 2000 Issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
reached. These problems arise because most computer hardware and software
historically used only two digits to identify the year in a date, often meaning
that the computer will fail to distinguish dates in the "2000s" from dates in
the "1900s." These problems may also arise from other sources, such as the use
of special codes and conventions in software that make use of dates.
The Company expects to be Year 2000 ready, meaning that (i) critical
systems, devices, applications or business relationships have been or will be
evaluated and are expected to be suitable for continued use into and beyond the
Year 2000 and (ii) contingency plans are or will be in place to mitigate risks
stemming from the failure of other parties to be Year 2000 ready.
The Company began addressing Year 2000 Issues in the early 1990s by
changing its standards for new systems to utilize Year 2000 compliant date
storage. For systems developed prior to the early 1990s, the Company is
conducting a multistep Year 2000 Readiness Project. These steps are inventory,
assessment, remediation and verification, and contingency planning.
The first step, an inventory of critical systems and devices with
potential Year 2000 problems, was completed in July 1998. The next step,
completed in October 1998, was an assessment to determine any necessary changes
to ensure Year 2000 readiness. The assessment confirmed preliminary estimates of
$300,000 to make central computer systems Year 2000 ready, and revealed other
non-information systems and equipment requiring additional remediation costs of
approximately $275,000. To date the Company has incurred $60,000 of these costs.
The Company has completed evaluation, remediation, verification, and
implementation of 75% of its internally developed systems. The Company expects
that its remaining internally developed systems will be completed in the first
quarter of fiscal 1999. The Company is utilizing internal and external resources
in its effort to be Year 2000 ready by mid- 1999.
The Company has also initiated formal communication with third party
information systems suppliers to solicit Year 2000 readiness statements: 74%
indicate that they are compliant now, and 21% indicate that compliant versions
of their products are available, which the Company expects to implement in the
first quarter of fiscal 1999. The Company will replace the remaining
noncompliant suppliers' products during the first quarter of fiscal 1999.
The Company is preparing to issue formal communication to critical
non-information systems service providers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. The Company can not predict the outcome of other companies'
remediation efforts; however, it has no knowledge that any of these companies
will not be Year 2000 ready.
In the first quarter of fiscal 1999, following the implementation of
the remaining systems, the Company will conduct general systems testing to
verify that its systems are Year 2000 ready. The Company will promptly respond
to issues discovered by general systems testing. The Company does not expect to
find material noncompliance. Contingency plans will be prepared so that the
Company's critical business processes can be expected to continue to function on
January 1, 2000 and beyond. The Company's contingency plans will address both
remediation of systems and overall business operating risk. These plans are
intended to mitigate both internal risks and risks of other companies (e.g.,
suppliers) that fail to be Year 2000 ready.
The Company believes that its most reasonably likely worst case
scenario is that key suppliers or service providers fail to meet their
commitments to the Company due to their failure or on the failure of other
underlying business entities to be Year 2000 ready. The company has assessed the
risks associated with such failures and believes that its contingency plans
would mitigate the long-term effect of such a scenario. If a disruption does
occur, the Company expects that it would only be temporary and would not have a
material adverse affect on its financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
10
<PAGE> 13
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently involved in several legal proceedings arising
from its normal business activities and reserves have been established where
appropriate. However, no legal proceedings have arisen or become reportable
events during this quarter, and management believes that none of the remaining
legal proceedings will have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
In addition, as a result of the bankruptcy, the Company remains subject
to the jurisdiction of the Bankruptcy Court for matters relating to the
consummation of the Plan.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are included in this Quarterly Report
on Form 10-Q:
2(a) Third Amended Joint Plan of Reorganization of The
Elder-Beerman Stores Corp. and its Subsidiaries
dated November 17, 1997 (previously filed as Exhibit
2 to the Company's Form 10 filed on November 26, 1997
(the "Form 10"), and incorporated herein by
reference)
3(a) Amended Articles of Incorporation (previously filed
as Exhibit 3(a) to the Form 10-K filed on April 30,
1998 (the "Form 10-K") and incorporated herein by
reference)
3(b) Amended Code of Regulations (previously filed as
Exhibit 3(b) to the Form 10 and incorporated herein
by reference)
4(a) Stock Certificate for Common Stock (previously filed
as Exhibit 4(a) to the Company's Form 10/A-1 filed on
January 23, 1998 (the "Form 10/A-1") and incorporated
herein by reference)
4(b) Rights Agreement By and Between The Elder-Beerman
Stores Corp. and Norwest Bank Minnesota, N.A., dated
as of December 30, 1997 (previously filed as Exhibit
4(c) to the Form 10-K and incorporated herein by
reference)
11
<PAGE> 14
4(c) Warrant Agreement by and Between Beerman-Peal
Holdings, Inc. and the Elder-Beerman Stores Corp. for
249,809 shares of Common Stock at a strike price of
$12.80 per share dated December 30, 1997 (previously
filed as Exhibit 4(d) to the Form 10-K and
incorporated herein by reference)
4(d) Warrant Agreement by and Between Beerman-Peal
Holdings, Inc. and the Elder-Beerman Stores Corp. for
374,713 shares of Common Stock at a strike price of
$14.80 per share dated December 30, 1997 (previously
filed as Exhibit 4(e) to the Form 10-K and
incorporated herein by reference)
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the period.
12
<PAGE> 15
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 ELDER-BEERMAN STORES CORP.,
an Ohio corporation
Dated: December 15, 1998 By: /s/ John A. Muskovich
------------------------ ----------------------------------------
John A. Muskovich
President, Chief Operating Officer and
Chief Financial Officer
(on behalf of the Registrant and as
Principal Financial Officer)
13
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
2(a) Third Amended Joint Plan of Reorganization of The Elder-Beerman
Stores Corp. and its Subsidiaries dated November 17, 1997
(previously filed as Exhibit 2 to the Company's Form 10 filed on
November 26, 1997 (the "Form 10"), and incorporated herein by
reference)
3(a) Amended Articles of Incorporation (previously filed as Exhibit
3(a) to the Form 10-K filed on April 30, 1998 (the "Form 10-K"),
and incorporated herein by reference)
3(b) Amended Code of Regulations (previously filed as Exhibit 3(b) to
the Form 10 and incorporated herein by reference)
4(a) Stock Certificate for Common Stock (previously filed as Exhibit
4(a) to the Company's Form 10/A-1 filed on January 23, 1998 (the
"Form 10/A-1") and incorporated herein by reference)
4(b) Rights Agreement By and Between The Elder-Beerman Stores Corp.
and Norwest Bank Minnesota, N.A., dated as of December 30, 1997
(previously filed as Exhibit 4(c) to the Form 10-K and
incorporated herein by reference)
4(c) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and
the Elder-Beerman Stores Corp. for 249,809 shares of Common
Stock at a strike price of $12.80 per share dated December 30,
1997 (previously filed as Exhibit 4(e) to the Form 10-K and
incorporated herein by reference)
4(d) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and
the Elder-Beerman Stores Corp. for 374,713 shares of Common
Stock at a strike price of $14.80 per share dated December 30,
1997 (previously filed as Exhibit 4(e) to the Form 10-K and
incorporated herein by reference)
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q OF THE ELDER-BEERMAN STORES CORP. FOR THE PERIOD
ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 2,798
<SECURITIES> 0
<RECEIVABLES> 123,985
<ALLOWANCES> 3,013
<INVENTORY> 221,799
<CURRENT-ASSETS> 364,798
<PP&E> 66,552
<DEPRECIATION> 0
<TOTAL-ASSETS> 474,087
<CURRENT-LIABILITIES> 97,765
<BONDS> 155,236
0
0
<COMMON> 266,698
<OTHER-SE> (53,274)
<TOTAL-LIABILITY-AND-EQUITY> 474,087
<SALES> 409,144
<TOTAL-REVENUES> 427,878
<CGS> 293,384
<TOTAL-COSTS> 293,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,689
<INTEREST-EXPENSE> 8,697
<INCOME-PRETAX> 2,626
<INCOME-TAX> 998
<INCOME-CONTINUING> 1,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,628
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
