<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 28, 2000
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 (I.R.S. employer
of incorporation or identification no.)
organization)
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 11, 2000, 11,437,326 shares of the issuer's common stock,
without par value, were outstanding.
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<PAGE> 2
THE ELDER-BEERMAN STORES CORP.
INDEX
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<CAPTION>
PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of October 28, 2000
(Unaudited) and as of January 29, 2000...................... 1
Condensed Consolidated Statements of Operations for the 13
weeks ended October 28, 2000 and October 30, 1999
(Unaudited)................................................. 2
Condensed Consolidated Statements of Operations for the 39
weeks ended October 28, 2000 and October 30, 1999
(Unaudited)................................................. 3
Condensed Consolidated Statements of Cash Flows for the 39
weeks ended October 28, 2000 and October 30, 1999
(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............... 9
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 11
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 12
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........................................... 14
ITEM 6. Exhibits and Reports on Form 8-K............................ 14
SIGNATURES............................................................. 15
EXHIBIT INDEX.......................................................... 16
</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)
<TABLE>
<CAPTION>
(UNAUDITED)
OCT. 28, 2000 JAN. 29, 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 8,296 $ 8,276
Customer accounts receivable (less allowance for doubtful
accounts: October 28, 2000 -- $1,753; January 29,
2000 -- $2,048)........................................ 129,999 140,356
Merchandise inventories................................... 214,431 165,451
Other current assets...................................... 21,208 20,250
-------- --------
Total current assets.............................. 373,934 334,333
Property, fixtures and equipment, less accumulated
depreciation and amortization............................. 82,801 74,932
Other assets................................................ 46,628 45,630
-------- --------
Total assets...................................... $503,363 $454,895
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. $ 1,325 $131,086
Accounts payable.......................................... 61,052 36,556
Other accrued liabilities................................. 17,200 25,892
-------- --------
Total current liabilities......................... 79,577 193,534
Long-term obligations, less current portion................. 201,289 6,130
Deferred items.............................................. 8,697 9,054
-------- --------
Total liabilities................................. 289,563 208,718
Shareholders' equity:
Common stock, no par, 11,434,726 shares at October 28,
2000 and 14,923,846 at January 29, 2000 issued and
outstanding............................................ 242,013 260,171
Unearned compensation -- restricted stock, net............ (760) (1,779)
Deficit................................................... (27,453) (12,215)
-------- --------
Total shareholders' equity........................ 213,800 246,177
-------- --------
Total liabilities and shareholders' equity........ $503,363 $454,895
======== ========
</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. 28, 2000 OCT. 30, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Net sales................................................. $ 154,647 $ 149,162
Financing................................................. 6,769 6,178
Leased departments........................................ 513 575
----------- -----------
Total revenues.................................... 161,929 155,915
Costs & expenses:
Cost of merchandise sold, occupancy and buying expenses... 122,357 105,951
Selling, general and administrative expenses.............. 45,817 44,935
Provision for doubtful accounts........................... 1,078 828
Interest expense.......................................... 3,591 3,127
Other expense (income).................................... 1,889 (62)
----------- -----------
Total costs & expenses............................ 174,732 154,779
Income (loss) from continuing operations before income tax
expense (benefit)......................................... (12,803) 1,136
Income tax expense (benefit)................................ (4,609) 432
----------- -----------
Income (loss) from continuing operations.................... (8,194) 704
Discontinued operations..................................... -- (1,442)
----------- -----------
Net loss.................................................... $ (8,194) $ (738)
=========== ===========
Basic net income (loss) per common share
Continuing operations..................................... $ (0.58) $ 0.05
Discontinued operations................................... -- (0.10)
----------- -----------
Net loss.................................................... $ (0.58) $ (0.05)
=========== ===========
Weighted average number of shares outstanding............... 14,026,403 15,345,183
Diluted net income (loss) per common share
Continuing operations..................................... $ (0.58) $ 0.05
Discontinued operations................................... -- (0.10)
----------- -----------
Net loss.................................................... $ (0.58) $ (0.05)
=========== ===========
Diluted weighted average number of shares outstanding....... 14,026,403 15,415,147
</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. 28, 2000 OCT. 30, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Net sales................................................. $ 427,587 $ 418,022
Financing................................................. 20,235 19,099
Leased departments........................................ 1,640 1,759
----------- -----------
Total revenues.................................... 449,462 438,880
Costs & expenses:
Cost of merchandise sold, occupancy and buying expenses... 323,417 300,290
Selling, general and administrative expenses.............. 130,357 128,368
Provision for doubtful accounts........................... 3,807 2,687
Interest expense.......................................... 9,611 8,440
Other expense (income).................................... 6,079 (284)
----------- -----------
Total costs & expenses............................ 473,271 439,501
Loss from continuing operations before income tax benefit... (23,809) (621)
Income tax benefit.......................................... (8,571) (236)
----------- -----------
Loss from continuing operations............................. (15,238) (385)
Discontinued operations..................................... -- (1,807)
----------- -----------
Net loss.................................................... $ (15,238) $ (2,192)
=========== ===========
Basic and diluted net loss per common share
Continuing operations..................................... $ (1.05) $ (0.02)
Discontinued operations................................... -- (0.12)
----------- -----------
Net loss.................................................... $ (1.05) $ (0.14)
=========== ===========
Weighted average number of shares outstanding............... 14,445,854 15,618,170
</TABLE>
See notes to condensed consolidated financial statements
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
OCT. 28, 2000 OCT. 30, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(15,238) $(2,192)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 11,406 10,966
Loss on discontinued operations........................ -- 1,807
Loss on asset impairment............................... 504 --
Changes in assets and liabilities, excluding
discontinued operations.............................. (23,339) (45,944)
Cash used in discontinued operations...................... -- (1,518)
-------- -------
Net cash used in operating activities............. (26,667) (36,881)
Cash flows from investing activities:
Capital expenditures, net................................. (15,941) (11,707)
Proceeds from the sale of fixed assets.................... 10 403
-------- -------
Net cash used in investing activities............. (15,931) (11,304)
Cash flows from financing activities:
Net borrowings (payments) under asset securitization
agreement.............................................. (24,238) 29
Net borrowings under revolving lines of credit............ 88,096 58,270
Payments on long-term obligations......................... (1,469) (812)
Payments to acquire common stock.......................... (17,674) (7,345)
Other..................................................... (2,097) (223)
-------- -------
Net cash provided by financing activities............ 42,618 49,919
Increase (decrease) in cash and equivalents................. 20 1,734
Cash and equivalents -- beginning of period................. 8,276 8,146
-------- -------
Cash and equivalents -- end of period....................... $ 8,296 $ 9,880
======== =======
Supplemental cash flow information:
Interest paid............................................. $ 8,667 $ 7,881
Supplemental non-cash investing and financing activities:
Capital leases............................................ 3,009 --
</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 accounting principles
generally accepted in the United States of America 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 29, 2000.
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 28, 2000 OCTOBER 30, 1999 OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding -
basic.................... 14,026,403 15,345,183 14,445,854 15,618,170
Dilutive potential common
shares:
Warrants.................
Stock options............ 944
Restricted shares........ 6,537
Deferred shares.......... 62,483
---------- ---------- ---------- ----------
Adjusted weighted average
shares - diluted......... 14,026,403 15,415,147 14,445,854 15,618,170
</TABLE>
3. STOCK-BASED COMPENSATION
During the 13 week period ended October 28, 2000 ("Third Quarter 2000"), a
total of 21,000 stock options were granted to nonemployee directors at fair
market value under the Company's Equity and Performance Incentive Plan (the
"Plan"). These options granted have a maximum period of ten years and vest
over 3 years. Also, there were 6,099 restricted shares awarded to nonemployee
directors under the Plan. The fair market value of the restricted shares is
being amortized over the 3-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 2000 a
total of 18,416 and 845 stock options, with exercise prices of $3.258 and
$3.610 respectively, were granted under this plan. These options vest on
February 5, 2001.
5
<PAGE> 8
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
4. DEBT
On May 19, 2000 the Company entered into a three-year Revolving Credit
Facility ("Credit Facility"), and through its financing subsidiary, a
three-year variable rate securitization loan agreement ("Securitization
Facility") with a commercial bank that expires May 18, 2003. Outstanding
borrowings of $194.0 million on the Credit and Securitization Facilities due
May 2003 are classified as long-term liabilities.
The Credit Facility provides for borrowing and letters of credit in an
aggregate amount up to $150 million subject to a borrowing base formula based
primarily on merchandise inventories. There is a $40 million sublimit for
letters of credit. The Company has the option to finance borrowings at either
Prime, plus 25 basis points or LIBOR, plus 175 basis points through January
19, 2001 after which borrowing rates are subject to a leverage ratio.
The Securitization Facility is a revolving agreement whereby the Company can
borrow up to $150 million. The Company's customer accounts receivables are
pledged as collateral under the Securitization Facility. The borrowings under
this facility are subject to a borrowing-based formula based primarily on
outstanding customer accounts receivable. Borrowings bear interest at
approximately one month LIBOR, plus 5 basis points.
Certain financial covenants related to debt are included in the Credit and
Securitization facility agreements. Additionally, there are certain other
restrictive covenants including limitations on the incurrence of additional
liens, indebtedness, payment of dividends, distributions or other payments on
and repurchase of outstanding capital stock, investments, mergers, stock
transfer and sale of assets. Certain ratios related to the performance of the
accounts receivable portfolio are also included.
5. STORE CLOSING
On March 2, 2000 the Company announced its plan to close its downtown
Wheeling and downtown Charleston stores in West Virginia. During the 26 week
period ended July 29, 2000 the Company recorded costs of $0.5 million for
fixed asset impairment and $2.1 million for excess inventory markdowns. In
addition, expense of $2.1 million was recorded for lease settlements,
severance and other costs. Both store closings were completed during the 13
week period ended July 29, 2000. As of October 28, 2000, $0.5 million of the
recorded costs for lease settlements remain accrued. Payment of the lease
settlement for the Charleston location is contingent upon the sale of another
property owned by the Company.
On September 29, 2000 the Company announced its plan to close its Evansville,
Indiana store. During the Third Quarter 2000 the Company recorded costs of
$1.3 million for excess inventory markdowns and $0.1 million for severance
and other costs. As of October 28, 2000 $1.2 million of the recorded costs
remain accrued. The Evansville closing is expected to be completed prior to
fiscal year end.
The excess inventory markdowns are included in cost of merchandise sold,
occupancy, and buying expenses and all other costs are included in selling,
general, administrative and other expenses.
6. STRATEGIC INITIATIVE
On August 11, 2000 the Company announced that it completed an evaluation of
strategic alternatives previously announced on February 28, 2000, and began
implementation of a new three-part strategic plan. The plan calls for a shift
in merchandising strategy to aggressively grow its opening price point and
moderate priced value driven assortments, an acceleration of new concept
store development, and streamlining of the Company's expense structure.
6
<PAGE> 9
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
The Company estimates that, including severance costs for job reductions, the
Company will incur up to $16 million in charges to complete this
restructuring. Charges of $11.3 million have been incurred as of October 28,
2000. The Company expects to incur the balance of the restructuring charges
prior to fiscal year end. These charges reflect: approximately $2 million in
severance pay and other expenses in connection with job reductions, including
severance costs in connection with the termination of the former president
and chief operating officer; approximately $2 million in outside professional
fees and expenses incurred in connection with the development of the
restructuring plan and negotiations with shareholders regarding the Year 2000
proxy; and an estimated $12 million in additional merchandise markdowns to be
incurred to bring the Company's merchandise assortments into a position
consistent with the new merchandising strategy.
7. SHAREHOLDERS' EQUITY
On August 29, 2000 the Company announced its intention to commence a tender
offer for its common stock. In October 2000, the Company completed the tender
offer and purchased 3,462,363 shares of its common stock for $17.7 million,
which includes expenses of approximately $0.4 million.
8. ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". In June 2000, the FASB issued
SFAS No. 138, which amended certain provisions of SFAS No. 133. SFAS No. 133
requires new, more comprehensive disclosures relating to the Company's use of
derivative instruments and its hedging activities. The Company is required to
adopt SFAS No. 133 for its fiscal year beginning after June 15, 2000, which
begins on February 4, 2001.
The Company has formed a team to identify known and embedded derivatives,
evaluate hedge criteria, develop hedge documentation, and address other
derivatives accounting and disclosure issues. The Company is currently
determining the impact of SFAS No. 133, as amended, on its financial
statements. The Company will adopt SFAS No. 133 on February 4, 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements", ("SAB
101"), which provides guidance on applying generally accepted accounting
principles for recognizing revenue. SAB 101, as amended, is effective for the
13 week period ended February 3, 2001. The Company is reviewing the impact of
SAB 101 on its financial statements, and does not believe that its adoption
will have a material impact on the consolidated financial position, results
of operations and cash flows.
9. DISCONTINUED OPERATIONS
During the 13 week period ended January 29, 1999 the company sold its wholly
owned subsidiary, The Bee-Gee Shoe Corp. ("Bee-Gee"), the specialty shoe
store operation. Loss from operations for the 13 week period ending October
30, 1999 ("Third Quarter 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. An estimated loss on disposal of $1.4
million was recorded during the Third Quarter 1999. The financial statements
and notes have been reclassified for all periods presented to reflect Bee-Gee
as a discontinued operation.
7
<PAGE> 10
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
10. SEGMENT REPORTING
The following table sets forth financial information by segment, $(000's):
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THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------------ ------------------------------------
OCTOBER 28, 2000 OCTOBER 30, 1999 OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Department Store
Revenues................ $155,160 $149,737 $429,227 $419,781
Operating profit
(loss)............... (3,227) 90 (13,106) (7,929)
Finance Operations
Revenues................ $ 9,046 $ 8,373 $ 26,378 $ 25,238
Operating profit........ 5,918 5,737 17,046 17,161
Segment Subtotal
Revenues (1)............ $164,206 $158,110 $455,605 $445,019
Operating profit (2).... 2,691 5,827 3,940 9,232
</TABLE>
(1) Segment revenues is reconciled to reported revenues as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------------ ------------------------------------
OCTOBER 28, 2000 OCTOBER 30, 1999 OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Segment revenues......... $164,206 $158,110 $455,605 $445,019
Intersegment operating
charge eliminated..... (2,277) (2,195) (6,143) (6,139)
-------- -------- -------- --------
$161,929 $155,915 $449,462 $438,880
======== ======== ======== ========
</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 28, 2000 OCTOBER 30, 1999 OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Segment operating
profit................ $ 2,691 $5,827 $ 3,940 $9,232
Store closing costs...... (1,353) (6,073)
Restructuring costs...... (9,327) (11,341)
Interest expense......... (3,591) (3,127) (9,611) (8,440)
Other.................... (1,223) (1,564) (724) (1,413)
-------- ------ -------- ------
$(12,803) $1,136 $(23,809) $ (621)
======== ====== ======== ======
</TABLE>
8
<PAGE> 11
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 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 28, 2000 ("Third
Quarter 2000") and October 30, 1999 ("Third Quarter 1999"), and the 39 week
periods ended October 28, 2000 ("Nine Months of 2000") and October 30, 1999
("Nine Months of 1999"). The Company's fiscal year ends on the Saturday closest
to January 31. The discussion and analysis which follow 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 2000 COMPARED TO THIRD QUARTER 1999
Net sales for the Third Quarter 2000 increased by 3.7% to $154.6 million
from $149.2 million for the Third Quarter 1999. Comparable store sales increased
by 0.7%. Men's clothing, intimate apparel, furniture, ladies' moderate
sportswear, and ladies' coats had the most significant sales increases.
Financing revenue from the Company's private label credit card for the
Third Quarter 2000 increased by 9.6% to $6.8 million from $6.2 million for the
Third Quarter 1999. The increase in finance charges is due to an increase in
late fees charged, partially offset by a reduction in carrying charges due to
lower average outstanding accounts receivable.
Cost of merchandise sold, occupancy, and buying expenses increased to 79.1%
of net sales for the Third Quarter 2000 from 71.0% of net sales for the Third
Quarter 1999. This increase is primarily due to inventory adjustments of
approximately $7.6 million relating to the Company's new strategic plan
announced on August 11, 2000, and $1.3 million for the closing of the
Evansville, Indiana store. The Company also experienced reduced merchandise
gross margin performance resulting from additional markdowns to clear slow
moving merchandise.
Selling, general and administrative expenses decreased to 29.6% of net
sales for the Third Quarter 2000 from 30.1% for the Third Quarter 1999. This
reduction is primarily due to the implementation of the expense initiatives
called for in the Company's new strategic plan.
9
<PAGE> 12
Provision for doubtful accounts was 0.7% of net sales for the Third Quarter
2000 and 0.6% for the Third Quarter 1999. This change is caused by an
anticipated increase in write-offs due to an increase in the account balances
because of additional late fees.
Interest expense increased to $3.6 million for the Third Quarter 2000 from
$3.1 million for the Third Quarter 1999. The increase is due to transactional
fee increases related to the Credit Facilities and increased interest rates.
Other expense of $1.9 million was incurred during the Third Quarter 2000.
This is primarily for severance costs and outside professional fees and expenses
incurred in connection with the new strategic plan.
An income tax benefit was recorded in the Third Quarter 2000 at the rate of
36.0% compared to an expense recorded in the Third Quarter 1999 at the rate of
38.0%.
During the Third Quarter 1999 the Company adopted a plan to dispose of
Bee-Gee and consummated the sale in the fourth quarter of 1999. The loss in the
Third Quarter 1999 is almost entirely a loss on disposal. Refer to the Notes to
Condensed Consolidated Financial Statements note 9.
Nine Months of 2000 Compared to Nine Months of 1999
Net sales for the Nine Months of 2000 increased by 2.3% to $427.6 million
from $418 million for the Nine Months of 1999. Comparable store sales decreased
by 0.9%. Men's clothing, furniture, shoes, ladies' moderate sportswear,
cosmetics, and ladies' coats had the most significant sales increases.
Financing revenue from the Company's private label credit card for the Nine
Months of 2000 increased by 5.9% to $20.2 million from $19.1 million for the
Nine Months of 1999. The increase in finance charges is due to an increase in
late fees charged, partially offset by a reduction in carrying charges due to
lower average outstanding accounts receivable.
Cost of merchandise sold, occupancy, and buying expenses increased to 75.6%
of net sales for the Nine Months of 2000 from 71.8% of net sales for the Nine
Months of 1999. This increase is primarily due to inventory adjustments of
approximately $7.6 million relating to the Company's new strategic plan
announced on August 11, 2000, and $3.4 million for the closing of the Wheeling
and Charleston, West Virginia stores, and the Evansville, Indiana store. In
addition, the Company experienced reduced merchandise gross margin performance.
Selling, general, and administrative expenses were 30.5% of net sales for
the Nine Months of 2000 and 30.7% of net sales for the Nine Months of 1999. This
reduction is primarily due to the implementation of the expense initiatives
called for in the Company's new strategic plan.
Provision for doubtful accounts was 0.9% of net sales for the Nine Months
of 2000 and 0.6% for the Nine Months of 1999. This change is caused by an
anticipated increase in write-offs due to an increase in the account balances
because of additional late fees.
Interest expense increased to $9.6 million for the Nine Months of 2000 from
$8.4 million for the Nine Months of 1999. The increase is due to transactional
fee increases related to the Credit Facilities and increased interest rates.
Other expense of $6.1 million was incurred during the Nine Months of 2000.
This amount includes $3.7 million that is for severance costs, including
severance costs in connection with the termination of the former president and
chief operating officer, and outside professional fees and expenses incurred in
connection with the new strategic plan. Also included is an expense of $2.7
million for lease buyout, severance cost, and write-down of fixed assets related
to the closing of the Company's Wheeling and Charleston, West Virginia stores,
and the Evansville, Indiana store, partially offset by interest income.
An income tax benefit was recorded in the Nine Months of 2000 at the rate
of 36.0% compared to a benefit recorded in the Nine Months of 1999 at the rate
of 38.0%.
During the third quarter of 1999 the Company adopted a plan to dispose of
Bee-Gee and consummated the sale in the fourth quarter of 1999. During the Nine
Months of 1999 the Company recorded a loss of $1.8 million. This loss includes
an estimated loss on disposal. Refer to the Notes to Condensed Consolidated
Financial Statements note 9.
10
<PAGE> 13
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 $26.7 million for the Nine Months
of 2000, compared to $36.9 million used in the Nine Months of 1999. During the
Nine Months of 2000 the seasonal increase in inventory levels was $14.1 million
less than in the Nine Months of 1999. Also, during the Nine Months of 2000
accounts payable increased by $24.5 million compared to an increase of $15.7
million during the Nine Months of 1999.
Net cash used in investing activities was $15.9 million for the Nine Months
of 2000, compared to $11.3 million for the Nine Months of 1999. The Company has
spent $4.2 million more than last year in capital expenditures for store
maintenance, remodeling, and data processing, primarily due to the addition of a
third new store opened in 2000 as opposed to two new stores in 1999.
For the Nine Months of 2000, net cash provided by financing activities was
$42.6 million compared to $49.9 for the Nine Months of 1999, which represents
reduced borrowing to fund cash used in operating and investing activities. In
October 2000 the Company completed the tender offer previously announced on
August 29, 2000. The Company purchased 3,462,363 shares of its common stock for
$17.7 million, which includes expenses of approximately $0.4 million.
On May 19, 2000 the Company completed the replacement of its existing
Credit Facilities, which were set to expire in December 2000, with agreements
similar in scope and with 36 month terms. The new Revolving Credit Facility
provides for borrowings and letters of credit in an aggregate amount up to
$150,000,000, subject to a borrowing base formula based on seasonal merchandise
inventories. There is a $40,000,000 sublimit for letters of credit.
The Company's replacement Receivable Securitization Facility provides for
borrowings up to $150,000,000 based on qualified, pledged accounts receivable
balances. The terms and borrowing rates are substantially similar to the
predecessor Receivable Securitization Facility.
The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under the new 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, 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.
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.
11
<PAGE> 14
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.
(1) The Board of Directors recommended that the shareholders elect four
Directors listed below to Class II of the classified Board for a
three-year term expiring in 2003. Because the amendment to Article IX
of the Company's Amended Articles of Incorporation (the "Articles") was
approved by the shareholders at the Annual Meeting (see Item Number 4),
the entire Board of Directors, including the newly elected directors,
must be re-elected at the Company's annual shareholder meeting in 2001.
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Mark F. C. Berner................................. 12,622,096 545,993
Dennis S. Bookshester............................. 12,596,692 571,397
Eugene I. Davis................................... 12,619,739 548,350
Charles H. Turner................................. 12,617,234 550,855
</TABLE>
(2) Shareholders approved an increase by 500,000 the number of shares of
common stock covered by The Elder-Beerman Stores Corp. Equity and
Performance Incentive Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,551,336 1,395,354 221,399 0
</TABLE>
(3) Shareholders approved an amendment to Article X of the Company's
Amended Articles of Incorporation (the "Articles") to reduce from 72%
to a majority of the Company's outstanding shares of common stock the
shareholder approval required to amend or repeal any section of the
Articles.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- ------- ------- ----------------
<S> <C> <C> <C>
11,122,674 153,499 43,463 1,848,453
</TABLE>
(4) Shareholders approved an amendment to Article IX of the Articles to
eliminate the classification of the Company's Board of Directors and to
replace this structure with a single class board of directors under
which all directors of the Company are elected by the shareholders on
an annual basis.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,140,314 139,723 39,599 1,848,453
</TABLE>
12
<PAGE> 15
(5) Shareholders approved the adoption of a new Article XIV to the Articles
pursuant to which Elder-Beerman would opt out of the provisions of
Chapter 1704 of the Ohio Revised Code, which Chapter sets forth certain
restrictions on the ability of an Ohio corporation to engage in certain
business combinations and other transactions that involve shareholders
that have the ability to exercise 10% or more of the voting power of
such corporation.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,079,565 193,360 46,711 1,848,453
</TABLE>
(6) Shareholders approved an amendment to Regulation 34 of the Company's
Amended Code of Regulations (the "Regulations") to lower from 72% to a
majority of the Company's outstanding shares of common stock the
shareholder approval requirement needed to amend or repeal any
Regulation in the Regulations.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,127,676 155,044 36,916 1,848,453
</TABLE>
(7) Shareholders approved an amendment to Regulation 9 of the Regulations
to lower from 72% to a majority of the Company's outstanding shares of
common stock the shareholder approval required to alter the size of the
Board.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,129,409 152,211 38,016 1,848,453
</TABLE>
(8) Shareholders approved an amendment to Regulation 3(a) of the
Regulations to permit a shareholder or shareholders who own 10% rather
than 50% of Elder-Beerman's outstanding shares of common stock to call
special meetings of shareholders.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,105,048 177,902 36,686 1,848,453
</TABLE>
(9) Shareholders approved an amendment to Regulation 7(c) of the
Regulations to provide that any shareholder who desires to bring
business before an annual meeting of Elder-Beerman's shareholders must
notify Elder-Beerman not more than 90 days, but not less than 45 days
in advance of such meeting of its intent to do so and of the nature of
such business.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,138,957 143,893 36,786 1,848,453
</TABLE>
(10) Shareholders approved an amendment to Regulation 12 of the Regulations
to provide that any shareholder who desires to propose any nominees
for election to Elder- Beerman's Board of Directors must notify
Elder-Beerman not more than 90 days, but not less than 45 days in
advance of such meeting of its intent to do so.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,141,461 140,889 37,286 1,848,453
</TABLE>
(11) Shareholders approved the adoption of a new Regulation 35 to the
Regulations, pursuant to which the Company would opt out of the
provisions of the Ohio Control Share Acquisition Act.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- --------- ------- ----------------
<S> <C> <C> <C>
11,095,334 183,932 40,370 1,848,453
</TABLE>
13
<PAGE> 16
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:
<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) Certificate of Amendment to the Amended Articles of
Incorporation
3(c) Amended Code of Regulations
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.
14
<PAGE> 17
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
-------------------------------------
Scott J. Davido
Executive Vice President, Chief
Financial Officer and Treasurer
(on behalf of the Registrant and as
Principal Financial Officer)
Dated: December 11, 2000
15
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<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) Certificate of Amendment to the Amended Articles of
Incorporation
3(c) Amended Code of Regulations
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>
16
