<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 30, 1999
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>
<S> <C>
OHIO 31-0271980
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3155 EL-BEE ROAD, DAYTON, OHIO 45439
(Address of principal (Zip Code)
executive offices)
</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 8, 1999, 14,922,221 shares of the issuer's common stock,
without par value, were outstanding.
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THE ELDER-BEERMAN STORES CORP.
INDEX
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<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of October 30, 1999
and as of January 30, 1999 (Unaudited)...................... 1
Condensed Consolidated Statements of Operations for the
13-weeks ended October 30, 1999 and October 31, 1998
(Unaudited)................................................. 2
Condensed Consolidated Statements of Operations for the
39-weeks ended October 30, 1999 and October 31, 1998
(Unaudited)................................................. 3
Condensed Consolidated Statements of Cash Flows for the
39-weeks ended October 30, 1999 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............... 8
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................... 12
ITEM 3. Defaults Upon Senior Securities............................. 12
ITEM 4. Submission of Matters to a Vote of Security Holders......... 12
ITEM 5. Other Information........................................... 12
ITEM 6. Exhibits and Reports on Form 8-K............................ 12
SIGNATURES............................................................ 13
EXHIBIT INDEX......................................................... 14
</TABLE>
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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 30, 1999 JANUARY 30, 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 9,880 $ 8,146
Customer accounts receivable (less allowance for doubtful
accounts: October 30, 1999 -- $2,452; January 30,
1999 -- $4,377)........................................ 130,156 141,205
Merchandise inventories................................... 226,983 163,879
Discontinued operations, net current assets............... 6,304 7,106
Other current assets...................................... 20,320 16,696
-------- --------
Total current assets.............................. 393,643 337,032
Property, fixtures and equipment, less accumulated
depreciation and amortization............................. 72,751 71,492
Other assets:
Discontinued operations, net other assets................. 1,868 2,196
Other..................................................... 40,657 41,640
-------- --------
Total other assets................................ 42,525 43,836
Total assets...................................... $508,919 $452,360
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. $ 951 $ 951
Accounts payable.......................................... 69,521 53,798
Other accrued liabilities................................. 22,589 30,806
-------- --------
Total current liabilities......................... 93,061 85,555
Long-term obligations, less current portion................. 178,994 121,507
Deferred items.............................................. 8,077 7,797
-------- --------
Total liabilities................................. 280,132 214,859
Shareholders' equity:
Common stock, no par, 14,934,067 shares on October 30, 1999
and 15,898,864 on January 30, 1999 issued and
outstanding............................................... 259,641 266,683
Unearned compensation - restricted stock, net............. (1,508) (2,028)
Deficit................................................... (29,346) (27,154)
-------- --------
Total shareholders' equity........................ 228,787 237,501
-------- --------
Total liabilities and shareholders' equity........ $508,919 $452,360
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
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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. 30, 1999 OCT. 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Net sales................................................. $ 153,226 $ 148,514
Financing................................................. 6,178 6,059
----------- -----------
Total revenues.................................... 159,404 154,573
Costs & expenses:
Cost of goods sold, occupancy, and buying expenses........ 109,440 104,385
Selling, general, administrative, and other expenses...... 44,873 41,179
Provision for doubtful accounts........................... 828 1,000
Interest expense.......................................... 3,127 2,821
Acquisition & integration expense......................... -- 2,275
----------- -----------
Total costs & expenses............................ 158,268 151,660
Income from continuing operations before income tax
expense................................................... 1,136 2,913
Income tax expense.......................................... 432 1,107
----------- -----------
Income from continuing operations........................... 704 1,806
Discounted operations....................................... (1,442) 19
----------- -----------
Net income (loss)........................................... $ (738) $ 1,825
=========== ===========
Basic net income (loss) per common share
Continuing operations..................................... $ 0.05 $ 0.12
Discontinued operations................................... $ (0.10) $ --
----------- -----------
Net income (loss)........................................... $ (0.05) $ 0.12
Weighted average number of shares outstanding............... 15,345,183 15,586,535
Diluted net income (loss) per common share
Continuing operations..................................... $ 0.05 $ 0.11
Discontinued operations................................... $ (0.10) $ --
----------- -----------
Net income (loss)........................................... $ (0.05) $ 0.11
Diluted weighted average number of shares outstanding....... 15,415,147 16,095,837
</TABLE>
See notes to condensed consolidated financial statements
2
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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. 30, 1999 OCT. 31 , 1998
-------------- --------------
<S> <C> <C>
Revenues:
Net sales................................................. $ 430,410 $ 385,137
Financing................................................. 19,099 18,734
----------- -----------
Total revenues.................................... 449,509 403,871
Costs & expenses:
Cost of goods sold, occupancy, and buying expenses........ 310,919 275,794
Selling, general, administrative, and other expenses...... 128,084 110,467
Provision for doubtful accounts........................... 2,687 3,689
Interest expense.......................................... 8,440 8,468
Acquisition & integration expense......................... -- 2,845
----------- -----------
Total costs & expenses............................ 450,130 401,263
Income (loss) from continuing operations before income...... (621) 2,608
tax expense (benefit)
Income tax expense (benefit)................................ (236) 991
----------- -----------
Income (loss) from continuing operations.................... (385) 1,617
Discontinued operations..................................... (1,807) 11
----------- -----------
Net income (loss)........................................... $ (2,192) $ 1,628
=========== ===========
Basic net income (loss) per common share
Continuing operations..................................... $ (0.02) $ 0.12
Discontinued operations................................... (0.12) --
----------- -----------
Net income (loss)........................................... $ (0.14) $ 0.12
Weighted average number of shares outstanding............... 15,618,170 13,529,463
Diluted net income (loss) per common share
Continuing operations..................................... $ (0.02) $ 0.11
Discontinued operations................................... (0.12) $ --
----------- -----------
Net income (loss)........................................... $ (0.14) $ 0.11
Diluted weighted average number of shares outstanding....... 15,618,170 14,287,496
</TABLE>
See notes to consolidated financial statements.
3
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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
OCT. 30, 1999 OCT. 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,192) $ 1,628
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 10,966 9,371
Loss (gain) on discontinued operations................. 1,807 (11)
Changes in assets and liabilities, excluding
discontinued operations.............................. (45,944) (46,649)
Cash used in discontinued operations...................... (1,518) (3,508)
------- --------
Net cash used in operating activities.................. (36,881) (39,169)
Cash flows from investing activities:
Capital expenditures, net................................. (11,707) (8,648)
Business acquisition, net of cash purchased............... -- (19,405)
Real estate acquired...................................... -- (2,814)
Proceeds from the sale of fixed assets.................... 403 5,782
------- --------
Net cash used in investing activities.................. (11,304) (25,085)
Cash flows from financing activities:
Net payments under asset securitization agreement......... 29 (15,845)
Net borrowings under revolving lines of credit............ 58,270 29,980
Payments on long-term obligations......................... (812) (923)
Retirement of assumed debt................................ -- (17,582)
Issuance of common stock, net of costs.................... -- 65,468
Payments to acquire treasury stock........................ (7,345) --
Other..................................................... (223) (543)
------- --------
Net cash provided by financing activities.............. 49,919 60,555
------- --------
Increase (decrease) in cash and equivalents................. 1,734 (3,699)
Cash and equivalents -- beginning of period................. 8,146 6,497
------- --------
Cash and equivalents -- end of period....................... $ 9,880 $ 2,798
======= ========
Supplemental cash flow information:
Interest paid............................................. 7,881 8,221
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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, the Company
has made all adjustments (primarily consisting of normal recurring accruals)
considered necessary for a fair presentation for all periods presented.
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 30, 1999.
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. A reconciliation of the
weighted average shares used in the basic and diluted earnings per share
calculation is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------------ -----------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding..................... 15,345,183 15,586,535 15,618,170 13,529,463
Dilutive potential common shares
Warrants........................ -- 69,627 200,517
Stock Options................... 944 241,040 370,005
Restricted Stock................ 6,537 173,160 162,027
Deferred Stock.................. 62,483 25,475 25,484
---------- ---------- ----------
Adjusted weighted average
shares.......................... 15,415,147 16,095,837 15,618,170 14,287,496
</TABLE>
3. STOCK-BASED COMPENSATION
During the third quarter of 1999, a total of 115,000 stock options were
granted at fair market value to designated employees under the Company's
Equity and Performance Incentive Plan (the "Plan"). These options granted
have a maximum term of ten years and vest over periods of three to five
years. In addition, a total of 10,000 shares of restricted stock were
awarded. These shares have a vesting period of three years, and the fair
value of shares awarded is being expensed over the three year vesting period.
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
1999 a total of 8,437 stock options, with an exercise price of $4.594, were
granted under the Plan. These options vest on January 30, 2000.
4. DISCONTINUED OPERATIONS
On September 28, 1999 the Company approved a plan to discontinue The Bee-Gee
Shoe Corp. ("Bee-Gee"), the specialty shoe store operation. The Company will
receive primarily cash and a note receivable
5
<PAGE> 8
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
for the sale of Bee-Gee's net assets. The sale is expected to be complete by
the end of the fourth quarter of fiscal 1999. Loss from operations prior to
September 28, 1999 for the 13-week period ending October 30, 1999 were
nominal and for the 39-week period ending October 30, 1999 were approximately
$0.4 million, net of income tax benefits of approximately $0.3 million.
Estimated losses related to the sale of Bee-Gee's net assets of $1.4 million,
net of income tax benefits of approximately $0.8 million, have been recorded.
Included in the loss on sale are estimated operating losses from September
29, 1999 until the estimated closing date of approximately $0.7 million, net
of taxes. The financial statements and notes have been reclassified for all
periods presented to reflect Bee-Gee as a discontinued operation.
5. ACQUISITION
On July 27, 1998, the Company acquired Stone & Thomas for a purchase price of
approximately $20.2 million in cash, subject to the resolution of certain
liabilities prior to the Company's fiscal 1999 year end. Stone & Thomas
operated 20 department stores located in West Virginia, Ohio, Kentucky, and
Virginia under the name Stone & Thomas. This transaction was 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. The Company
recorded an accrual of $6.8 million at the date of acquisition. The Company
has paid the accrued amount subsequent to the date of acquisition for these
costs.
PRO FORMA SUMMARY OF OPERATIONS DATA $(000'S)
The unaudited pro forma summary of operations data for the 39-week period
ending October 31, 1998, have been prepared by combining the condensed
consolidated statement of operations of the Company with the consolidated
statement of operations of Stone & Thomas for the same period. 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 1998. 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 period presented
below.
<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS ENDED
OCTOBER 31, 1998
-----------------------
<S> <C>
Net sales................................................ $428,571
Net loss................................................. $ (6,431)
Basic and diluted net loss per common share.............. $ (0.41)
</TABLE>
6
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THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
6. SEGMENT REPORTING
The following table sets forth financial information by segment, $(000's):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -----------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Department Store
Revenues................ $153,226 $148,514 $430,410 $385,137
Operating profit
(loss)............... 90 3,512 (7,929) 84
Finance Operations
Revenues................ $ 8,373 $ 8,111 $ 25,238 $ 24,234
Operating Profit........ 5,737 5,431 17,161 15,162
Segment Subtotal
Revenues (1)............ $161,599 $156,625 $455,648 $409,371
Operating Profit (2).... 5,827 8,943 9,232 15,246
</TABLE>
(1) Segment revenues is reconciled to reported revenues as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------------ -----------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Segment revenues........... $161,599 $156,625 $455,648 $409,371
Intersegment operating
charge eliminated........ (2,195) (2,052) (6,139) (5,500)
-------- -------- -------- --------
$159,404 $154,573 $449,509 $403,871
======== ======== ======== ========
</TABLE>
(2) Total segment operating profit is reconciled to income (loss) from
continuing operations before income tax expense (benefit) as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -----------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Segment operating
profit.................. $ 5,827 $ 8,943 $ 9,232 $15,246
Store closing costs....... -- -- -- (728)
Acquisition and
integration............. -- (2,275) -- (2,845)
Interest expense.......... (3,127) (2,821) (8,440) (8,468)
Other..................... (1,564) (934) (1,413) (597)
-------- ------- -------- -------
$ 1,136 $ 2,913 $ (621) $ 2,608
======== ======= ======== =======
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains certain forward-looking
statements that are based on management's current beliefs, estimates and
assumptions concerning the operations, future results and prospects of
Elder-Beerman and the retail industry in general. 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, future finance and capital market
activity, or statements expressing general optimism about future results, are
forward-looking statements. In addition, words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," variations of such words and
similar expressions are intended to identify forward-looking statements.
Actual results may differ materially from those in the forward- looking
statements. Accordingly, there is no assurance that forward-looking statements
will prove to be accurate.
Many factors could affect Elder-Beerman's future operations and results,
such as the following: increasing price and product competition; fluctuations in
consumer demand and confidence; the availability 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 continued availability and terms of financing; the ability to
complete any pending asset disposition transactions; the outcome of pending and
future litigation; and general economic conditions, such as the rate of
employment, inflation and interest rates and the condition of the capital
markets.
Forward-looking statements are subject to the safe harbors created under
the federal securities laws. 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 30, 1999 ("Third
Quarter 1999") and October 31, 1998 ("Third Quarter 1998") and the 39-week
periods ended October 30, 1999 ("Nine Months of 1999") and October 31, 1998
("Nine Months of 1998"). 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 1999 Compared To Third Quarter 1998
Net sales for the Third Quarter 1999 increased by 3.2% to $153.2 million
from $148.5 million for the Third Quarter 1998. The increase includes a 1.5%
comparable sales increase. Women's better sportswear, men's sportswear, special
sizes, cosmetics, children's, and furniture had the most significant sales
increases.
Financing revenue from the Company's private label credit card for the
Third Quarter 1999 increased by 2.0%. The increase in finance charges is due to
an increase in outstanding customer accounts receivable as compared to Third
Quarter 1998, primarily due to the acquisition of the Stone & Thomas accounts
receivable portfolio in November 1998.
Cost of goods sold, occupancy, and buying expenses increased to 71.4% of
net sales for the Third Quarter 1999 from 70.3% of net sales for the Third
Quarter 1998. This increase is primarily due to reduced gross margin performance
primarily in the women's ready-to-wear classifications and increased real estate
expenses.
Selling, general, and administrative expenses increased to 29.3% of net
sales for the Third Quarter 1999 from 27.7% for the Third Quarter 1998. This
increase is primarily because of benefits realized in the Third Quarter 1998 due
to certain modifications to the Company's fringe benefit plans.
8
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Provision for doubtful accounts was 0.5% of net sales for the Third Quarter
1999 compared to 0.7% of net sales for the Third Quarter 1998. This improvement
is due to fewer delinquent customer accounts and a reduction in personal
bankruptcies, which resulted in fewer bad debt write-offs affecting the Company.
Interest expense increased to $3.1 million for the Third Quarter 1999 from
$2.8 million for the Third Quarter 1998. The increase is due to higher average
borrowing for the Third Quarter 1999 compared to the Third Quarter 1998
primarily because of the Company's commencement of a stock repurchase program.
The Third Quarter 1998 acquisition and integration expense of $2.3 million
related to the acquisition of Stone & Thomas, which occurred July 27, 1998.
Income tax expense was recorded in the Third Quarter 1999 and the Third
Quarter 1998 at a rate of 38.0%.
During the Third Quarter 1999 the Company adopted a plan to dispose of
Bee-Gee. For the Third Quarter 1999 the Company recorded a loss of $1.4 million
as compared to a nominal gain from operations during the Third Quarter 1998. The
loss for the Third Quarter 1999 is composed almost entirely of an estimated loss
on disposal. Refer to the Notes to Condensed Consolidated Financial Statements
note number four.
Nine Months Of 1999 Compared To Nine Months Of 1998
Net sales for the Nine Months of 1999 increased by 11.8% to $430.4 million
from $385.1 million for the Nine Months of 1998. The increase includes a 1.6%
comparable sales increase. 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, juniors, cosmetics,
decorative home, and intimate apparel had the most significant sales increase
for the department stores. The department stores acquired from Stone & Thomas in
July 1998 generated $32.2 million in sales during the first 26 weeks of 1999
(the non-comparable period) as compared to no sales during the first 26 weeks of
1998.
Financing revenue from the Company's private label credit card for the Nine
Months of 1999 increased by 1.9%. The increase in finance charges is due to an
increase in outstanding customer accounts receivable as compared to Nine Months
of 1998, primarily due to the acquisition of the Stone & Thomas accounts
receivable portfolio in November 1998.
Cost of goods sold, occupancy, and buying expenses increased to 72.2% of
net sales for the Nine Months of 1999 from 71.6% of net sales for the Nine
Months of 1998. This increase is primarily due to real estate expenses related
to the new Dayton Mall, Erie, and West Virginia stores (former Stone & Thomas
stores), for which sales have not yet matured to Company average productivity
levels.
Selling, general, and administrative expenses increased to 29.8% of net
sales for the Nine Months of 1999 from 28.7% for the Nine Months of 1998. This
was due to increased store payrolls as a percentage of sales, coupled with
benefits realized in the Nine Months of 1998 due to certain modifications to the
Company's fringe benefit plans.
Provision for doubtful accounts was 0.6% of net sales for the Nine Months
of 1999 compared to 1.0% of net sales for the Nine Months of 1998. This
improvement is due to fewer delinquent customer accounts and a reduction in
personal bankruptcies, which resulted in fewer bad debt write-offs affecting the
Company.
Interest expense decreased to $8.4 million for the Nine Months of 1999 from
$8.5 million for the Nine Months of 1998.
The Nine Months of 1998 acquisition and integration expense of $2.8 million
related to the acquisition of Stone & Thomas, which occurred July 27, 1998.
Income tax expense (benefit) was recorded in the Nine Months of 1999 and
the Nine Months of 1998 at the rate of 38.0%.
During the Third Quarter 1999 the Company adopted a plan to dispose of its
Bee-Gee subsidiary. For the Nine Months of 1999 the Company recorded a loss of
$1.8 million compared to a nominal gain from
9
<PAGE> 12
operations during the Nine Months of 1998. The loss for the Nine Months of 1999
includes an estimated loss on disposal. Refer to the Notes to Condensed
Consolidated Financial Statements note number four.
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.
Net cash used in operating activities was $36.9 million for the Nine Months
of 1999, compared to $39.2 million used in the Nine Months of 1998. As of the
Nine Months of 1999 the Company has increased trade account payable due to
higher October net merchandise receipts.
Net cash used in investing activities was $11.3 million for the Nine Months
of 1999, compared to $25.1 million for the Nine Months of 1998. The Company has
spent $3.1 million more than last year in capital expenditures for new stores,
store maintenance, remodeling, and data processing. In the Nine Months of 1998
the Stone & Thomas acquisition required an investment of $19.4 million, net of
cash purchased. The Company sold seven of those stores for $5.8 million. Also,
the Company purchased for $2.8 million the department store building that housed
the Southtown shopping center store. This location was relocated to the Dayton
Mall, and the Southtown location was sold in Fiscal 1998.
For the Nine Months of 1999, net cash provided by financing activities was
$49.9 million compared to $60.6 million for the Nine Months of 1998. The
decrease is due to the elimination of funding required in the Nine Months of
1998 for the Stone & Thomas purchase, partially offset by additional borrowing
of $7.3 million to fund the purchase by the Company of 1,118,200 shares of
outstanding common stock, under its stock repurchase program. In August 1999,
the Company announced a stock repurchase program to acquire up to $24 million in
common shares over a two year period.
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 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, available
borrowings under the Credit Facilities 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.
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
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have 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 the dates in the "1900s". These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date values.
The Company expects to be Year 2000 ready. "Year 2000 ready" means that
critical systems, devices, applications or business relationships have been
evaluated and are expected to be suitable for continued use into and beyond the
Year 2000, and that contingency plans are in place to mitigate risks stemming
from the failure of other parties to be Year 2000 ready.
10
<PAGE> 13
The Company began addressing the Year 2000 issue in the early 1990s by
changing its computer systems development standards for new systems to utilize
Year 2000 compliant date storage techniques. The Company is using a multistep
approach in conducting its 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 estimates of $300,000 to make central
computer systems Year 2000 ready, and revealed other noninformation systems and
equipment requiring additional remediation costs of $275,000. The Company has
completed evaluation, remediation, verification, and implementation of its
internally developed systems. The Company utilized internal and external
resources in its effort to be Year 2000 ready. The Company has completed formal
communication with third party information systems suppliers to solicit Year
2000 readiness statements. Third party information systems suppliers have
certified their Year 2000 compliance. Noninformation systems areas requiring
remediation have been completed. The Company remains alert to external Year 2000
developments and will respond promptly to any issues that may arise. The Company
has issued formal communication to critical noninformation 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. The
Company began systems testing in February 1999. Test results indicate no Year
2000 Issues. The Company will continue 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 be structured to address both remediation efforts of
systems and their components and overall business operating risk. These plans
are intended to mitigate both internal risks as well as potential risks in the
Company's supply chain and in maintaining the confidence of its customers. 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 failure on their part or on the part 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 temporary disruption does occur, the Company
does not expect that it would have a material adverse affect on its financial
position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its variable rate borrowing.
The Company has entered into a variable to fixed rate interest-rate swap
agreement to effectively reduce its exposure to interest rate fluctuations. A
hypothetical 100 basis point change in interest rates would not materially
affect the Company's financial position, liquidity or results of operations.
The Company does not maintain a trading account for any class of financial
instrument and is not directly subject to any foreign currency exchange or
commodity price risk. As a result, the Company believes that its market risk
exposure is not material to the Company's financial position, liquidity or
results of operations.
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
11
<PAGE> 14
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 consummation of the Company's chapter 11
plan of reorganization pursuant to the Third Amended Joint Plan of
Reorganization, dated November 17, 1997, as amended (the "Joint Plan of
Reorganization"), which was confirmed by an order of the United States
Bankruptcy Court for the Southern District of Ohio, Western Division (the
"Bankruptcy Court") entered on December 16, 1997, the Company remains subject to
the jurisdiction of the Bankruptcy Court for matters relating to the
consummation of the Joint Plan of Reorganization.
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.
None.
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:
12
<PAGE> 15
<TABLE>
<S> <C>
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, 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-Q filed on June 14, 1999 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 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 4.1 to the Company's
Registration Statement on Form 8-A filed on November 17,
1998 (the "Form 8-A") 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(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)
4(e) Amendment No. 1 to the Rights Agreement, dated as of
November 11, 1998 (previously filed as Exhibit 4.2 to the
Form 8-A and incorporated herein by reference)
27 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed during the period.
13
<PAGE> 16
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
By: /s/ Scott J. Davido
-------------------------------------
By: Scott J. Davido
Executive Vice President, Chief
Financial Officer and Treasurer
(on behalf of the Registrant and as
Principal Financial Officer)
Dated: December 10, 1999
14
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
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, 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-Q filed on June 14, 1999 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 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 4.1 to the Company's
Registration Statement on Form 8-A filed on November 17,
1998 (the "Form 8-A") 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)
4(e) Amendment No. 1 to the Rights Agreement, dated as of
November 11, 1998 (previously filed as Exhibit 4.2 to the
Form 8-A and incorporated herein by reference)
27 Financial Data Schedule
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORTS ON FORM 10-Q OF THE ELDER-BEERMAN STORES CORP. FOR THE PERIOD
ENDED OCTOBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 9,880
<SECURITIES> 0
<RECEIVABLES> 130,156
<ALLOWANCES> 2,452
<INVENTORY> 226,983
<CURRENT-ASSETS> 393,643
<PP&E> 72,751
<DEPRECIATION> 0
<TOTAL-ASSETS> 508,919
<CURRENT-LIABILITIES> 93,061
<BONDS> 178,994
0
0
<COMMON> 259,641
<OTHER-SE> (30,854)
<TOTAL-LIABILITY-AND-EQUITY> 508,919
<SALES> 430,410
<TOTAL-REVENUES> 449,509
<CGS> 310,919
<TOTAL-COSTS> 310,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,687
<INTEREST-EXPENSE> 8,440
<INCOME-PRETAX> (621)
<INCOME-TAX> (236)
<INCOME-CONTINUING> (385)
<DISCONTINUED> (1,807)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,192)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
