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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 July 29, 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 September 5, 2000, 14,893,114 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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<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 29, 2000
and as of January 29, 2000 (Unaudited)...................... 1
Condensed Consolidated Statements of Operations for the 13
weeks ended July 29, 2000 and July 31, 1999 (Unaudited)..... 2
Condensed Consolidated Statements of Operations for the 26
weeks ended July 29, 2000 and July 31, 1999 (Unaudited)..... 3
Condensed Consolidated Statements of Cash Flows for the 26
weeks ended July 29, 2000 and July 31, 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............... 8
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 11
ITEM 2. Changes in Securities and Use of Proceeds................... 11
ITEM 3. Defaults Upon Senior Securities............................. 11
ITEM 4. Submission of Matters to a Vote of Security Holders......... 11
ITEM 5. Other Information........................................... 11
ITEM 6. Exhibits and Reports on Form 8-K............................ 11
SIGNATURES............................................................ 13
EXHIBIT INDEX......................................................... 14
</TABLE>
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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>
JULY 29, 2000 JANUARY 29, 2000
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 7,592 $ 8,276
Customer accounts receivable (less allowance for doubtful
accounts: July 29, 2000 -- $2,064; January 29,
2000 -- $2,048)........................................ 121,890 140,356
Merchandise inventories................................... 177,008 165,451
Other current assets...................................... 23,102 20,250
-------- --------
Total current assets.............................. 329,592 334,333
Property, fixtures and equipment, less accumulated
depreciation and amortization............................. 74,009 74,932
Other assets:............................................... 47,194 45,630
-------- --------
Total assets...................................... $450,795 $454,895
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. $ 997 $131,086
Accounts payable.......................................... 32,674 36,556
Other accrued liabilities................................. 22,071 25,892
-------- --------
Total current liabilities......................... 55,742 193,534
Long-term obligations, less current portion................. 146,694 6,130
Deferred items.............................................. 8,980 9,054
-------- --------
Total liabilities................................. 211,416 208,718
Shareholders' equity:
Common stock, no par, 14,888,829 shares on July 29, 2000 and
14,923,846 on January 29, 2000 issued and outstanding..... 259,645 260,171
Unearned compensation -- restricted stock................. (1,007) (1,779)
Deficit................................................... (19,259) (12,215)
-------- --------
Total shareholders' equity........................ 239,379 246,177
-------- --------
Total liabilities and shareholders' equity........ $450,795 $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
JULY 29, 2000 JULY 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Net sales................................................. $ 131,358 $ 129,206
Financing................................................. 6,696 6,221
Leased departments........................................ 535 586
----------- -----------
Total revenues.................................... 138,589 136,013
Costs & expenses:
Cost of merchandise sold, occupancy, and buying
expenses............................................... 96,170 92,230
Selling, general and administrative expenses.............. 42,271 41,925
Provision for doubtful accounts........................... 1,786 927
Interest expense.......................................... 3,092 2,830
Other expense (income).................................... 1,477 (97)
----------- -----------
Total costs & expenses............................ 144,796 137,815
Loss from continuing operations before income tax benefit... (6,207) (1,802)
Income tax benefit.......................................... (2,234) (685)
----------- -----------
Loss from continuing operations............................. (3,973) (1,117)
Discontinued operations..................................... -- (149)
----------- -----------
Net loss.................................................... $ (3,973) $ (1,266)
=========== ===========
Basic and diluted net loss per common share
Continuing operations..................................... $ (0.27) $ (0.07)
Discontinued operations................................... -- (0.01)
----------- -----------
Net loss.................................................... $ (0.27) $ (0.08)
=========== ===========
Weighted average number of shares outstanding............... 14,657,223 15,756,496
</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>
26-WEEKS ENDED 26-WEEKS ENDED
JULY 29, 2000 JULY 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Net sales................................................. $ 272,940 $ 268,860
Financing................................................. 13,466 12,921
Leased departments........................................ 1,127 1,184
----------- -----------
Total revenues.................................... 287,533 282,965
Costs & expenses:
Cost of merchandise sold, occupancy, and buying
expenses............................................... 201,060 194,339
Selling, general, administrative, and other expenses...... 84,540 83,433
Provision for doubtful accounts........................... 2,729 1,859
Interest expense.......................................... 6,020 5,313
Other expense (income).................................... 4,190 (222)
----------- -----------
Total costs & expenses............................ 298,539 284,722
Loss from continuing operations before income tax benefit... (11,006) (1,757)
Income tax benefit.......................................... (3,962) (668)
----------- -----------
Loss from continuing operations............................. (7,044) (1,089)
Discontinued operations..................................... -- (365)
----------- -----------
Net loss.................................................... $ (7,044) $ (1,454)
=========== ===========
Basic and diluted net loss per common share
Continuing operations..................................... $ (0.48) $ (0.07)
Discontinued operations................................... -- (0.02)
----------- -----------
Net loss.................................................... $ (0.48) $ (0.09)
=========== ===========
Weighted average number of shares outstanding............... 14,655,579 15,754,663
</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>
26-WEEKS ENDED 26-WEEKS ENDED
JULY 29, 2000 JULY 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(7,044) $(1,454)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 7,380 7,236
Loss on discontinued operations........................ -- 365
Asset impairment....................................... 504 --
Changes in operating assets and liabilities, excluding
discontinued operations.............................. (3,496) (25,910)
Cash used in discontinued operations...................... -- (799)
------- -------
Net cash used in operating activities................ (2,656) (20,562)
Cash flows from investing activities:
Capital expenditures...................................... (6,486) (5,075)
------- -------
Net cash used in investing activities................ (6,486) (5,075)
Cash flows from financing activities:
Net payments under asset securitization agreement......... (31,062) (5,019)
Net borrowings under revolving lines of credit............ 42,232 31,722
Payments on long-term obligations......................... (695) (674)
Other..................................................... (2,017) --
------- -------
Net cash provided by financing activities............ 8,458 26,029
------- -------
Increase (decrease) in cash and equivalents................. (684) 392
Cash and equivalents -- beginning of period................. 8,276 8,146
------- -------
Cash and equivalents -- end of period....................... $ 7,592 $ 8,538
======= =======
Supplemental cash flow information:
Interest paid............................................. 5,143 4,991
</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 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.
3. STOCK-BASED COMPENSATION
Under the Company's Equity and Performance Incentive Plan (the "Plan")
nonemployee directors may take all or a portion of their annual base retainer
fee in the form of a discounted stock option. During the second quarter of
2000 a total of 17,334 stock options, with an exercise price of $3.75, were
granted under this plan. These options vest on February 5, 2001.
4. DEBT
On May 19, 2000 the Company entered into new three-year Revolving Credit
Facility ("Credit Facility"), and through its financing subsidiary, a new
three-year variable rate securitization loan agreement ("Securitization
Facility") with a commercial bank that expire May 18, 2003. Outstanding
borrowings of $141.3 million on the Credit and Securitization Facilities due
May 2003 are classified as long-term liabilities.
The Credit Facility provides for borrowings 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 receivable 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
5
<PAGE> 8
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
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 first
half of 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. The excess inventory markdowns are included in cost of
merchandise sold, occupancy and buying expenses and all other costs are
included in other expenses. Both store closings were completed during the
second quarter of 2000.
As of July 29, 2000, $0.9 million of the recorded costs remain accrued.
Approximately $0.5 million representing a final inventory adjustment and
other costs will be finalized during the third quarter of 2000. The remaining
$0.4 million relates to the lease settlement for the Charleston location, and
payment is contingent upon the sale of another property owned by the Company.
6. SUBSEQUENT EVENTS
On August 11, 2000 the Company announced that is has completed its evaluation
of strategic alternatives and will implement 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.
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 $2.0 million were incurred during the second
quarter of 2000. The Company expects to incur the balance of the
restructuring charges during the second half of 2000. 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 $0.8 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 $13 million
in additional merchandise markdowns to be incurred to bring the Company's
merchandise assortments into a position consistent with the new merchandising
strategy.
On August 29, 2000 the Company announced its intention to commence a tender
offer for up to 3,333,333 shares of its common stock. Under the terms of the
offer, the Company will offer to purchase the shares at prices not greater
than $6.00 nor less than $4.50. The tender offer will not be conditioned on
any minimum number of shares being tendered, but the Company reserves the
right to purchase more than 3,333,333 shares pursuant to the offer. The
tender offer commenced on September 8, 2000, and will expire on October 5,
2000, unless extended by the Company.
7. DISCONTINUED OPERATIONS
During the fourth quarter of 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 26 week period ending July 31, 1999
was approximately $0.4 million, net of income tax benefits of approximately
$0.2 million. The financial statements and notes have been reclassified for
all periods presented to reflect Bee-Gee as a discontinued operation.
6
<PAGE> 9
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
8. SEGMENT REPORTING
The following table sets forth financial information by segment, ($000's):
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
----------------------------- -----------------------------
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Department Store
Revenues.......................... $131,893 $129,792 $274,067 $270,044
Operating (loss).................. (6,301) (4,446) (9,879) (8,019)
Finance Operations
Revenues.......................... $ 8,575 $ 8,187 17,332 16,865
Operating profit.................. 5,054 5,401 11,128 11,424
Segment Subtotal
Revenues (1)...................... $140,468 $137,979 $291,399 $286,909
Operating profit (loss) (2)....... (1,247) 955 1,249 3,405
</TABLE>
(1) Segment revenues is reconciled to reported revenues as follows:
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
------------------------------ -----------------------------
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Segment revenues..................... $140,468 $137,979 $291,399 $286,909
Intersegment operating charge
eliminated......................... (1,879) (1,966) (3,866) (3,944)
-------- -------- -------- --------
$138,589 $136,013 $287,533 $282,965
======== ======== ======== ========
</TABLE>
(2) Total segment operating profit (loss) is reconciled to loss from continuing
operations before income tax benefit as follows:
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
----------------------------- -----------------------------
JULY 29, 2000 JULY 31, 1999 JULY 29, 2000 JULY 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Segment operating profit (loss)..... $ (1,247) $ 955 $ 1,249 $ 3,405
Store closing costs................. -- -- (4,720) --
Restructuring costs................. (2,014) -- (2,014) --
Interest expense.................... (3,092) (2,830) (6,020) (5,313)
Other............................... 146 73 499 151
-------- ------- -------- -------
$ (6,207) $(1,802) $(11,006) $(1,757)
======== ======= ======== =======
</TABLE>
7
<PAGE> 10
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 merchandising,
advertising, marketing, promotional and expense reduction programs, including
Elder-Beerman's strategic plan; maintenance of the current rate of customer
account write-offs, 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.
The following is a discussion of the financial condition and results of
operations of the Company for the 13 week periods ended July 29, 2000 ("Second
Quarter 2000") and July 31, 1999 ("Second Quarter 1999"), and the 26 week
periods ended July 29, 2000 ("First Half 2000") and July 31, 1999 ("First Half
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
Second Quarter 2000 Compared to Second Quarter 1999
Net sales for the Second Quarter 2000 increased by 1.7% to $131.4 million
from $129.2 million for the Second Quarter 1999. Comparable store sales
decreased by 1.8%. Children's ready-to-wear, men's clothing, cosmetics, intimate
apparel, furniture, and shoes had the most significant sales increases.
Financing revenue from the Company's private label credit card for the
Second Quarter 2000 increased by 7.6% to $6.7 million from $6.2 million for the
Second 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 73.2%
of net sales for the Second Quarter 2000 from 71.4% of net sales for the Second
Quarter 1999. This increase is primarily due to reduced gross margin performance
which resulted from additional markdowns due to poor sales performance.
Selling, general, and administrative expenses decreased to 32.2% of net
sales for the Second Quarter 2000 from 32.4% for the Second Quarter 1999.
Provision for doubtful accounts was 1.4% of net sales for the Second
Quarter 2000 and 0.7% for the Second 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.
8
<PAGE> 11
Interest expense increased to $3.1 million for the Second Quarter 2000 from
$2.8 million for the Second Quarter 1999. The increase is due to transactional
fee increases related to the Credit Facilities and increased interest rates.
Other expense of $1.5 million was incurred during the Second Quarter 2000.
This is for 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 development of the restructuring plan
announced August 11, 2000, partially offset by interest income.
An income tax benefit was recorded in the Second Quarter 2000 at the rate
of 36.0% compared to a benefit recorded in the Second Quarter 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. The loss in the
Second Quarter 1999 was entirely loss from operations. Refer to the Notes to
Condensed Consolidated Financial Statements note number seven.
First Half 2000 Compared to First Half 1999
Net sales for the First Half 2000 increased by 1.5% to $272.9 million from
$268.9 million for the First Half 1999. Comparable store sales decreased by
1.7%. Children's ready-to-wear, men's sportswear, cosmetics, furniture, and
shoes had the most significant sales increases.
Financing revenue from the Company's private label credit card for the
First Half 2000 increased by 4.2% to $13.5 million from $12.9 million for the
First Half 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 73.7%
of net sales for the First Half 2000 from 72.3% of net sales for the First Half
1999. This increase is primarily due to an inventory adjustment of $2.1 million
related to the closing of the Company's Wheeling and Charleston, West Virginia
Stores. In addition, the Company experienced reduced gross margin performance.
Selling, general, and administrative expenses were 31.0% of net sales for
both the First Half 2000 and the First Half 1999.
Provision for doubtful accounts was 1.0% of net sales for the First Half
2000 and 0.7% for the First Half 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 $6.0 million for the First Half 2000 from
$5.3 million for the First Half 1999. The increase is due to transactional fee
increases related to the Credit Facilities and increased interest rates.
Other expense of $4.2 million was incurred during the First Half 2000. This
amount includes $2.0 million for 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 development of
the restructuring plan announced August 11, 2000. Also included is an expense of
$2.6 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, partially offset by interest income.
An income tax benefit was recorded in the First Half 2000 at the rate of
36.0% compared to a benefit recorded in the First Half 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. The loss in the
First Half 1999 was entirely loss from operations. Refer to the Notes to
Condensed Consolidated Financial Statements note number seven.
9
<PAGE> 12
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 $2.7 million for the First Half
2000, compared to $20.6 million used in the First Half 1999. During the First
Half 2000 the seasonal increase in inventory levels was $5.5 million less than
in the First Half 1999. Also, during the First Half 2000 accounts payable
decreased by $2.1 million compared to a decrease of $14.1 million during the
First Half 1999.
Net cash used in investing activities was $6.5 million for the First Half
2000, compared to $5.1 million for the First Half 1999. The Company has spent
$1.4 million more than last year in capital expenditures for store maintenance,
remodeling, and data processing.
For the First Half 2000, net cash provided by financing activities was $8.5
million compared to $26.0 million for the First Half 1999, which represents
reduced borrowing to fund cash used in operating and investing activities.
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.
10
<PAGE> 13
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently involved in several legal proceedings arising from
its normal business activities and reserves have been established where
appropriate. However, no legal proceedings have arisen or become reportable
events during this quarter, and management believes that none of the remaining
legal proceedings will have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
In addition, as a result of the bankruptcy, the Company remains subject to
the jurisdiction of the Bankruptcy Court for matters relating to the
consummation of the Plan.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
As announced by the Company on June 30, 2000, John A. Muskovich, former
President and Chief Operating Officer, is no longer employed by the Company.
Pursuant to the terms of Mr. Muskovich's employment agreement with the Company,
Mr. Muskovich will receive payments equal to the remaining base salary that
would have been distributed to him by the Company under the remaining term of
his employment agreement, which expires on December 30, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are included in this Quarterly Report on Form
10-Q:
<TABLE>
<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)
</TABLE>
11
<PAGE> 14
<TABLE>
<C> <S>
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.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ELDER-BEERMAN STORES CORP.,
an Ohio corporation
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: September 11, 2000
13
<PAGE> 16
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>
14
