10-K 1 l93960ae10-k.txt THE ELDER-BEERMAN STORES CORP. 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 02, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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) 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 EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 296-2700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR VALUE (TITLE OF CLASS) SHARE PURCHASE RIGHTS (TITLE OF CLASS) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of April 15, 2002, the aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing sale price of such stock on such date) was approximately $33,545,123.* The number of shares of Common Stock outstanding on April 15, 2002, was 11,528,232. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [X] NO [ ] --------------- * Calculated by excluding all shares that may be deemed to be beneficially owned by executive officers and directors of the registrant, without conceding that all such persons are "affiliates" of the registrant for purposes of the federal securities laws. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE PART I Item 1. Business.................................................... 1 Merchandising............................................. 2 Pricing................................................... 2 Purchasing and Distribution............................... 2 Information Systems....................................... 3 Marketing................................................. 3 Credit Card Program....................................... 4 Customer Service.......................................... 4 Seasonality............................................... 4 Competition............................................... 4 Associates................................................ 5 Item 2. Properties.................................................. 5 Item 3. Legal Proceedings........................................... 7 Item 4. Submission of Matters to a Vote of Security Holders......... 7 PART II Item 5. Market for Common Equity and Related Shareholder Matters.... 7 Item 6. Selected Historical Financial Data.......................... 8 Item 7. Management's Discussions and Analysis of Financial Condition and Results of Operations................................. 10 Item 7a. Quantitative and Qualitative Disclosures About Market Risk...................................................... 14 Item 8. Financial Statements and Supplementary Data................. 15 Table of Contents......................................... 15 Independent Auditors' Report.............................. 16 Consolidated Statement of Operations...................... 17 Consolidated Balance Sheets............................... 18 Consolidated Statements of Shareholders' Equity........... 19 Consolidated Statements of Cash Flows..................... 20 Notes to Consolidated Financial Statements................ 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 37 PART III Item 10. Directors and Executive Officers............................ 37 Directors and Executive Officers.......................... 37 Section 16(a) Beneficial Ownership Reporting Compliance... 39 Item 11. Executive Compensation...................................... 40 Summary Compensation Table................................ 40 Stock Option/SAR Grants................................... 41 Stock Option Exercises and Fiscal Year-End Values......... 41
i
PAGE Employment and Severance Agreements With Certain Officers.................................................. 41 Compensation Committee Report on Executive Compensation... 44 Overview and Philosophy................................ 44 Components of Compensation............................. 45 Base Salary............................................ 45 Annual Bonus........................................... 45 Long-Term Incentive Awards............................. 46 Compensation of Chief Executive Officer During 2001.... 46 2001 Base Salary and Annual Bonus...................... 46 Tax Deductibility of Executive Compensation............ 46 Compensation of Elder-Beerman's Directors................. 47 Compensation Committee Interlocks and Insider Participation............................................. 47 Stock Price Performance................................... 47 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 48 Item 13. Certain Relationships and Related Transactions.............. 50 Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K....................................................... 50 Signatures............................................................ 56
ii PART I This Annual Report on Form 10-K contains "forward-looking statements," including predictions of future operating performance, events or developments such as our future sales, gross margins, profits, expenses, income and earnings per share. In addition, words such as "expects," "anticipates," "intends," "plans," "believes," "hopes," and "estimates," and variations of such words and similar expressions, are intended to identify forward-looking statements. Because forward-looking statements are based on a number of beliefs, estimates and assumptions by management that could ultimately prove inaccurate, there is no assurance that forward-looking statements will prove to be accurate. Many factors could materially affect our actual future operations and results. The national tragedy of September 11, 2001 and subsequent national security threats and warnings could magnify some of those factors. Factors that could materially affect performance include the following: increasing price and product competition; fluctuations in consumer demand and confidence, especially in light of current uncertain general economic conditions; the availability and mix of inventory; fluctuations in costs and expenses; consumer response to the Company's merchandising strategies, advertising, marketing and promotional programs; the effectiveness of management; the timing and effectiveness of new store openings, particularly its new concept stores opened in Fall Season of 2001 (DuBois, PA, Alliance, OH and Kohler, WI) and in Spring Season 2002 (Coldwater, MI); weather conditions that affect consumer traffic in stores; the continued availability and terms of bank and lease financing and trade credit; the outcome of pending and future litigation; consumer debt levels; the impact of any new consumer bankruptcy laws; inflation and interest rates and the condition of the capital markets. Elder-Beerman undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 1. BUSINESS The Elder-Beerman Stores Corp. ("Elder-Beerman" or the "Company;" except where the context otherwise requires, references to the "Company" refer to Elder-Beerman and its subsidiaries, as described below) has been operating department stores since 1847. Elder-Beerman operates department stores that sell a wide range of moderate to better branded merchandise, including women's, men's and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. In addition, the Company operates its private label credit card program through its wholly-owned subsidiary, The El-Bee Chargit Corp. ("Chargit"). See Note N to the Consolidated Financial Statements for financial information about the business segments. As of fiscal year end 2002, Elder-Beerman operated 66 department stores and two furniture stores, principally in smaller Midwestern markets in Ohio, West Virginia, Indiana, Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania. See "Properties." The Company's historical competitive advantage is its niche in smaller cities. In many of these cities, there is only one shopping mall or major shopping center, and the Company is a main department store anchor along with J.C. Penney, Sears, or a discount retailer such as Kohl's, Target or Wal-Mart. The Company seeks to differentiate itself from its competitors through superior service and a fashion-oriented merchandise offering with name brand vendors unavailable to the competition (e.g., cosmetics lines such as Estee Lauder, Clinique, Lancome and Elizabeth Arden; and clothing lines such as Liz Claiborne, Tommy Hilfiger, Sag Harbor, Alfred Dunner, Leslie Fay, Chaps by Ralph Lauren and Izod; and home store lines such as T-Fal, Wamsutta, Pfaltzgraf and Atlantic.) The larger metropolitan department stores have tended to bypass smaller midwestern cities, leaving Elder-Beerman as the dominant department store in many of its smaller markets. The Company's long-term business plan is designed to accomplish its strategy by (a) focusing on its strengths as the major retailer in its smaller markets; (b) competing with traditional department store competitors through emphasis on timely product assortments offering fashion and value, competitive pricing and promotions, and customer service; (c) competing with moderate priced department stores and discounters through merchandise advantages in branded areas and competitive pricing and promotions in appropriate markets and product areas; (d) focusing price/product competition in key basic merchandising areas; (e) emphasizing major vendor partnerships to improve sales and margins; and (f) leveraging technology to enhance customer service and to develop and execute customer marketing programs. Merchandising The Company carries a broad assortment of goods to provide fashion, selection and value found in leading department stores that feature branded merchandise. Although all stores stock similar core assortments, specific types of better goods are distributed to stores based on the particular characteristics of the local market. In addition, through continued efforts to develop better processes and stronger partnerships with its most significant vendors, the Company is using technology and focused merchandising and distribution processes to reduce logistics costs and increase the speed in moving merchandise from the vendor to the selling floor. During the past Fiscal year, the top 25 vendors by dollar volume accounted for approximately 31% of net purchases. Management believes it has good relationships with its suppliers. No vendor accounted for more than 5% of the Company's purchases. The Company believes that alternative sources of supply are available for each category of merchandise it purchases, including private label products. Certain departments in Elder-Beerman's department stores are leased to independent third parties. These leased departments, which include the fine jewelry, beauty salon, and maternity departments, provide high quality service and merchandise where specialization and expertise are critical and the Company's direct participation in the business is not economically justifiable. Management regularly evaluates the performance of the leased departments and requires compliance with established customer service guidelines. For the 52 weeks ending February 2, 2002 ("Fiscal 2001"), the 53 weeks ending February 3, 2001 ("Fiscal 2000"), and the 52 weeks ending January 29, 2000 ("Fiscal 1999"), the Company's percentages of net sales by major merchandise category were as follows: THE ELDER-BEERMAN STORES CORP. RETAIL SALES BY DEPARTMENT
2001 2000 1999 MERCHANDISE CATEGORY % % % -------------------- ----- ----- ----- Women's Ready to Wear & Intimate............................ 32.9% 32.5% 33.0% Accessories, Shoes & Cosmetics.............................. 24.2% 23.6% 23.2% Men's & Children's.......................................... 22.1% 23.1% 23.3% Home Store.................................................. 20.8% 20.8% 20.5% ----- ----- ----- TOTAL RETAIL................................................ 100.0% 100.0% 100.0% ===== ===== =====
Pricing All pricing decisions are made at the Company's corporate headquarters. The Company's pricing strategy is designed to provide superior quality and value appeal by offering competitive prices in all of its businesses. The Company's management information systems provide timely sales and gross margin reports that identify sales and gross margins by item and by store and provide management with the information and flexibility to adjust prices and inventory levels as necessary. Purchasing and Distribution Merchandise is generally shipped from vendors, through three consolidation points, to the Company's 300,000 square foot distribution center in Dayton, Ohio. Nearly 90% of all receipts that flow through the Distribution Center are loaded into trailers for store distribution without need for handling by Distribution Center staff. In addition, nearly 90% of the merchandise is shipped prepackaged and 2 ticketed for immediate placement on the selling floor. Merchandise for individual stores is typically processed through the Distribution Center within 48 hours of its receipt at the Distribution Center. Deliveries are made from the distribution center to each store one to seven times per week depending on the store size and the time of year. Incoming merchandise received at the Distribution Center is inspected for quality control. The Company has formal guidelines for vendors with respect to shipping, receiving and invoicing for merchandise. Vendors that do not comply with the guidelines are charged specified fees depending upon the degree of non-compliance. These fees are intended to be a deterrent to non-compliance as well as to offset higher costs associated with the processing of, and payment for, such merchandise. The Company continues to improve its logistical systems, focusing on the adoption of new technology and operational best practices, with the goals of receiving, processing and distributing merchandise to stores at a faster rate and at a lower cost per unit. For example, the Company recently completed enhancements to its sortation and shipping processes, which have not only improved inventory control and unit tracking, but have increased productivity and reduced time for the supply chain. The Company also put in place in Fiscal 2001 a fully automated, state-of-the-art vendor compliance system to track vendor compliance with the Company's logistics guidelines. Information Systems The Company's merchandising activities are controlled by a series of on-line systems, including a point-of-sale and sales reporting system, a purchase order management system, a receiving system and a merchandise planning system. These integrated systems track merchandise from the order stage through the selling stage and provide valuable supply chain, inventory and sales performance information for management. The Company's core merchandising systems assist in ordering, allocating and replenishing merchandise assortments for each store based on specific characteristics and recent sales trends. The Company's point of sale systems include bar code scanning and electronic credit and check authorization, all of which allow the Company to capture customer specific sales data for use in its merchandising system. Other systems allow the Company to identify and mark down slow moving merchandise and to maintain planned levels of in-stock positions in basic items, such as jeans and underwear. These systems have enabled the Company to more efficiently manage its inventory and reduce costs. The Company has also developed and is currently implementing an automated store personnel scheduling system that analyzes historical hourly and projected sales trends to efficiently schedule sales staff. This system is designed to minimize labor costs while producing a higher level of customer service. The Company has deployed a point of sale system ("POS System") to enhance its customer service by speeding up the transaction at point of service and by taking advantage of technology to support functions at point of service. Marketing The Company's primary target customers are women between the ages of 35 and 55 with annual household incomes of more than $50,000. Advertising messages are focused on communicating the Company's merchandise offering and the strong quality/value relationship in that offering. The Company employs advertising programs that include print and broadcast as well as creative in-store displays, signage and special promotions. The Company uses a database targeting system that allows focused direct mail to our preferred charge customers, those most likely to respond to a merchandise offering. Sunday and weekday newspaper inserts are used each week to reach customers on a repetitive basis that has become a customer expectation. This is an economical method of advertising that has reduced advertising expense. The company also uses television and radio in markets where it is productive and cost efficient. 3 Credit Card Program The Company operates a private label credit card program through its wholly-owned subsidiary, Chargit. The Company promotes its private label credit card, and as a result, approximately 43% of net sales in Fiscal 2001 were attributable to customers using their Company credit card. This is up from approximately 42% for Fiscal 2000. With approximately 900,000 active accounts, the Company considers its private label credit card program to be a critical component of its retailing concept because it (i) enhances customer loyalty, (ii) allows the Company to identify and regularly contact its best customers and (iii) creates a comprehensive database that enables the Company to implement detailed, segmented marketing and merchandising strategies. Frequent credit card users, through the Company's credit card program enjoy an increasing array of benefits. The Company's most active charge customers are awarded a Preferred, Chairman's Preferred or Chairman's Select card based on their level of annual purchases. Depending on their level, holders of these cards receive such benefits as discounted or free gift-wrapping, special promotional discounts, and invitations to private, "Preferred Only" sales. In addition, new holders of the company's credit card receive a 10% discount the first time they use their new card. The Company believes that holders of the Company's credit card tend to buy more merchandise from the Company than those customers who do not have a Company credit card. In Fiscal 2001 the Company issued 300,000 Elder-Beerman credit cards for newly opened accounts. The Company administers its private label credit card program through a dedicated in-house facility and staff located in the Company's corporate office. The Company's fully computerized and highly automated credit systems analyze customer payment histories, automatically approve or reject new sales at point of sale and enable account representatives to efficiently manage delinquent account collections. All phases of the credit card operation are handled by Chargit except the processing of customer mail payments, which is performed pursuant to a retail lockbox agreement with a bank. Decisions whether to issue a credit card to an applicant are made on the basis of a credit scoring system. Customer Service Elder-Beerman has a strong tradition of providing friendly customer service. The Company has enhanced its customer service image and is creating a customer-oriented store environment by (a) centralizing customer service register stations at highly visible points in the store and assuring that they are always staffed; (b) reducing nonselling activities in the stores; (c) using training and recruiting practices to instill a culture of customer helpfulness, friendliness and responsiveness; and (d) deploying a new POS System to expedite the sales completion process and provide additional marketing and sales support functions at point of service, such as a stock locator system that identifies those stores that have a particular item in stock when it is not available in the store in which a customer is shopping. Seasonality The department store business is seasonal, with a high proportion of sales and operating income generated in November and December. Working capital requirements fluctuate during the year, increasing somewhat in mid-summer in anticipation of the fall merchandising season and increasing substantially prior to the Christmas holiday season when the Company must carry significantly higher inventory levels. Consumer spending in the peak retail season may be affected by many factors outside the Company's control, including competition, consumer demand and confidence, weather that affects consumer traffic and general economic conditions. A failure to generate substantial holiday season sales could have a material adverse effect on the Company. Competition The retail industry in general and the department store business in particular is intensely competitive. Generally, the Elder-Beerman department stores compete not only with other department stores in the same geographic markets, but also with numerous other types of retail outlets, including 4 specialty stores; general merchandise stores; off-price and discount stores; manufacturer outlets; and direct to consumer retailers such as catalog and internet retailers. Some of the retailers with which the Company competes have substantially greater financial resources than the Company and may have other competitive advantages over the Company. The Elder-Beerman department stores compete on the basis of quality, value, depth and breadth of merchandise, prices for comparable quality merchandise, customer service and store environment. Associates On February 2, 2002, the Company had approximately 6,990 regular and part-time associates. Because of the seasonal nature of the retail business, the number of associates rises to a peak in the holiday season. None of the Company's associates are represented by a labor union. The Company's management considers its relationships with its associates to be satisfactory. ITEM 2. PROPERTIES As of February 2, 2002, Elder-Beerman operated 66 department stores and two furniture stores, principally in smaller midwestern markets in Ohio, West Virginia, Indiana, Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania. Substantially all of the Company's stores are leased properties. The Company owns, subject to a mortgage, a 302,570 square foot office/warehouse facility located in Dayton, Ohio, which serves as its principal executive offices. The Company also leases an approximately 300,000 square foot distribution center in Fairborn, Ohio. The following table sets forth certain information with respect to Elder-Beerman's department store locations operating as of February 2, 2002, the end of Elder-Beerman's most recently completed fiscal year: THE ELDER-BEERMAN STORES CORP. STORE SUMMARY BY REGION
TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- ------------------------------- ------- ------ --------- OHIO Alliance Carnation Mall 55,552 10/01 Lease Athens University Mall 42,829 09/88 Lease Bowling Green Woodland Mall 40,700 04/87 Lease Chillicothe Chillicothe Mall 55,940 05/81 Lease Home Store 17,609 11/90 Lease Cincinnati Forest Fair Mall 149,462 04/89 Lease Dayton Centerville Place 191,400 08/66 Lease Dayton Fairfield Commons 151,740 10/93 Lease Dayton Southtowne Furniture 121,000 01/76 Lease Dayton Northwest Plaza 217,060 02/66 Lease Dayton Courthouse Plaza 125,390 11/75 Lease Dayton Dayton Mall 212,000 07/98 Lease Dayton Salem Furniture 124,987 11/72 Own Dayton Kettering Town Center 82,078 10/98 Lease Dayton Northpark Center 101,840 10/94 Lease Defiance Northtowne Mall 51,333 04/86 Lease Fairborn Distribution Center 300,000 12/90 Lease
5
TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- ------------------------------- ------- ------ --------- Findlay Findlay Village Mall 74,825 07/90 Lease Franklin Middletown (Towne Mall) 118,000 1977 Own Hamilton Hamilton 167,925 04/74 Lease Heath Indian Mound Mall 73,695 09/86 Lease Lancaster River Valley Mall 52,725 09/87 Lease Lima Lima Mall 103,350 11/65 Lease Marion Southland Mall 74,621 11/84 Lease Moraine Corporate Offices 302,570 06/70 Own New Philadelphia New Towne Mall 52,648 10/88 Lease Piqua Miami Valley Center 59,092 09/88 Lease Sandusky Sandusky Mall 80,398 03/83 Lease Springfield Upper Valley Mall 71,868 10/92 Lease St. Clairsville Ohio Valley Mall 66,545 07/98 Lease Toledo Woodville 100,000 08/85 Lease Toledo Westgate 154,000 08/85 Lease Wooster Wayne Towne Plaza 53,689 06/94 Lease Zanesville Colony Square 70,346 09/85 Own WEST VIRGINIA Beckley Raleigh Mall 50,210 07/98 Lease Bridgeport Meadowbrook Mall 70,789 07/98 Lease Home Store 74,723 07/98 Lease Huntington Huntington Mall 75,640 07/98 Lease Kanawha City Kanawha Mall 41,270 07/98 Lease Morgantown Morgantown Mall 70,790 09/90 Lease Morgantown Mountaineer Mall 70,470 07/98 Lease Vienna Grand Central Mall 106,000 07/98 Lease Winfield Liberty Square Center 67,728 07/98 Lease INDIANA Anderson Mounds Mall 66,703 07/81 Lease Columbus Columbus Mall 73,446 02/90 Lease Elkhart Concord Mall 104,000 11/85 Lease Jasper Germantown Shopping Center 55,000 11/00 Lease Kokomo Kokomo Mall 75,704 10/87 Lease Marion North Park Mall 55,526 11/78 Lease Muncie Muncie Mall 80,000 10/97 Lease Richmond Downtown 100,000 08/74 Lease Terre Haute Honey Creek Mall 70,380 08/73 Lease Warsaw Market Place Center 56,120 10/99 Lease MICHIGAN Adrian Adrian Mall 54,197 08/87 Lease Benton Harbor The Orchards Mall 70,428 10/92 Lease Howell Grand River Plaza 74,873 09/00 Lease Jackson Westwood Mall 70,425 09/93 Lease
6
TOTAL SQUARE DATE STATE/CITY LOCATION FEET OPENED OWN/LEASE ---------- ------------------------------- ------- ------ --------- Midland Midland Mall 64,141 10/91 Lease Monroe Frenchtown Square 98,887 04/88 Lease Muskegon Lakeshore Marketplace 87,185 10/95 Lease ILLINOIS Danville Village Mall 77,300 07/86 Lease Mattoon Cross Country Mall 54,375 03/78 Lease WISCONSIN Beloit Beloit Mall 62,732 10/93 Lease Green Bay Bay Park Square Mall 75,000 09/95 Lease Kohler Deer Trace Plaza 54,541 10/01 Lease Plover Plover Plaza 54,500 03/01 Lease West Bend West Bend Corporate Center 61,011 10/00 Lease KENTUCKY Ashland Cedar Knolls Galleria 70,000 07/98 Lease Frankfort Frankfort 53,954 11/99 Lease Paducah Kentucky Oaks Mall 60,092 08/82 Lease PENNSYLVANIA Dubois The Commons 54,500 09/01 Lease Erie Millcreek Mall 119,800 09/98 Lease
ITEM 3. LEGAL PROCEEDINGS The Company is involved in several legal proceedings arising from its normal business activities and has established reserves where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock, without par value, (the "Common Stock") is listed on the Nasdaq Stock Market ("NASDAQ") and is designated a NASDAQ/National Market System Security trading under the symbol EBSC. The number of shareholders of record as of April 15, 2002 was 1,911. No dividends have been paid on the Common Stock. The Company intends to reinvest earnings in the Company's business to support its operations and expansion. The Company has no present intention to pay cash dividends in the foreseeable future, and will determine whether to declare dividends in the future in light of the Company's earnings, financial condition and capital requirements. In addition, the Company has certain credit agreements that limit the payment of dividends. Pursuant to the Third Amended Joint Plan of Reorganization, as amended (the "Plan of Reorganization") of the Company, confirmed by an order entered by the United States Bankruptcy 7 Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court") on December 16, 1997, the Company issued Common Stock and a Series A Warrant and a Series B Warrant, each convertible into Common Stock, in satisfaction of certain allowed claims against, or interests in, the Company or its subsidiaries. Based upon the exemptions provided by section 1145 under chapter 11 of the United States Bankruptcy Code, as amended, the Company believes that none of these securities are required to be registered under the Securities Act of 1933 (the "Securities Act") in connection with their issuance and distribution pursuant to the Plan of Reorganization. The Company has no recent sales of unregistered securities other than such issuances pursuant to the Plan of Reorganization. The Company's high and low stock prices by quarter for Fiscal 2001 and Fiscal 2000 are set forth below:
2001 2000 ---------------- ---------------- HIGH LOW HIGH LOW ------ ------ ------ ------ First Quarter.............................. 4.00 2.63 6.50 4.19 Second Quarter............................. 4.00 2.86 5.25 3.97 Third Quarter.............................. 4.38 2.75 5.25 3.09 Fourth Quarter............................. 3.30 2.56 4.19 2.47
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA The following table sets forth various selected financial information for the Company as of and for the fiscal years ended February 2, 2002, February 3, 2001, January 29, 2000, January 30, 1999, and January 31, 1998. Such selected consolidated financial information should be read in conjunction with the consolidated financial statements of the Company, including the notes thereto, set forth in Item 8 of 8 this Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in Item 7 of this Form 10-K.
FISCAL YEAR ENDED ------------------------------------------------------------------------- FEB 2, 2002 FEB 3, 2001(a) JAN 29, 2000 JAN 30, 1999 JAN 31, 1998 ----------- -------------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues................. $673,516 $687,630 $667,374 $610,969 $560,509 Earnings (Loss) Before Discontinued Operations and Extraordinary Items (b)...... $ (920) $ (6,824) $ 18,015 $ 25,864 $ (7,530) Net Earnings (Loss)............ $ (920) $ (6,735) $ 15,228 $ 25,461 $(28,952) Diluted Earnings (Loss) Per Common Share: Continuing Operations........ $ (0.08) $ (0.51) $ 1.17 $ 1.79 $ (6.04) Discontinued Operations...... 0.01 (0.18) (0.03) 5.38 Extraordinary Items.......... (22.58) -------- -------- -------- -------- -------- Net Earnings (Loss)... $ (0.08) $ (0.50) $ 0.99 $ 1.76 $ (23.24) ======== ======== ======== ======== ======== Cash Dividends Paid: Common....................... $ -- $ -- $ -- $ -- $ -- Preferred.................... $ -- $ -- $ -- $ -- $ -- BALANCE SHEET DATA Total Assets................... $451,062 $455,317 $454,168 $453,268 $369,068 Short-Term Debt................ 5,531 1,509 131,086 951 1,105 Long-Term Obligations.......... 148,489 165,632 6,130 121,507 142,024 OTHER DATA Sales Increase (Decrease) From Prior Period................. (2.0%) 2.9% 9.6% 9.7% 2.8% Comparable Sales Increase (Decrease) From Prior Period....................... (3.6%) (0.8%) 2.0% 4.1% 3.7%
--------------- Notes to Selected Historical Financial Data: (a) Fiscal Year ended February 3, 2001 includes 53 weeks as compared to 52 weeks for each of the other fiscal years shown. (b) The financial information for The Bee-Gee Shoe Corp. ("Bee-Gee") and Margo's LaMode, Inc. ("Margo's") is included as discontinued operations for all periods. SELECTED QUARTERLY FINANCIAL DATA
FISCAL 2001 --------------------------------------------------------------- FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues...................... $147,347 $137,752 $160,649 $227,768 Net Earnings (Loss)................. $ (212) $ (3,571) $ (6,814) $ 9,677 Diluted Earnings (Loss) Per Common Share:............................ $ (0.02) $ (0.32) $ (0.60) $ 0.84
9
FISCAL 2000 --------------------------------------------------------------- FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Total Revenues...................... $149,105 $138,730 $162,109 $237,686 Net Earnings (Loss)(a).............. $ (3,071) $ (3,973) $ (8,194) $ 8,503 Diluted Earnings (Loss) Per Common Share:............................ $ (0.21) $ (0.27) $ (0.58) $ 0.75
--------------- (a) The financial information for Bee-Gee is included in discontinued operations for all periods. ITEM 7. MANAGEMENT'S DISCUSSIONS 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 Fiscal 2001, Fiscal 2000 and Fiscal 1999. The Company's fiscal year ends on the Saturday closest to January 31. The discussion and analysis that follows is based upon and should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto included in Item 8. RESULTS OF OPERATIONS Fiscal 2001 Compared to Fiscal 2000 Net sales for Fiscal 2001 decreased by 2.0% to $643.1 million from $656.2 million for Fiscal 2000. Comparable store sales, sales for stores opened for 13 months and excluding the 53rd week of sales in Fiscal 2000, decreased 3.6%. Women's special size sportswear, junior sportswear, and furniture had the strongest sales increases. Financing revenue from the Company's private label credit card for Fiscal 2001 decreased by 3.2% to $27.3 million from $28.2 million for Fiscal 2000, primarily due to a decrease in the average outstanding accounts receivable during the year. Other revenue, which is primarily from leased departments, for Fiscal 2001 decreased by $0.1 million to $3.2 million from $3.3 million for Fiscal 2000. Cost of merchandise sold, occupancy, and buying expenses decreased to 71.5% of net sales for Fiscal 2001 from 72.6% of net sales for Fiscal 2000. During Fiscal 2001 merchandise gross margins were reduced 1.0% versus Fiscal 2000 due to additional markdowns to clear excess inventory as a result of the comparable sales decrease. During Fiscal 2000 the Company incurred a charge of $12.1 million related to inventory costs to implement the Company's strategic plan and $2.8 million in charges to record excess markdowns related to the closing of three stores. Selling, general, administrative, and other expenses decreased to 28.2% of net sales for Fiscal 2001 from 29.3% for Fiscal 2000. Fiscal 2001 costs include charges of $3.3 million related to the retirement of the Company's chairman, president, and chief executive officer, and expenses recorded for the search of a new chief executive, and $4.3 million in charges to write down the accounts receivable from Shoebilee (See Note L to the Consolidated Financial Statements), which was offset by expense initiatives that have been implemented as part of the Company's strategic plan, and $0.6 million in income related to recovery of an investment in a cooperative buying group. Fiscal 2000 costs include charges of $3.8 million, primarily severance, to implement the Company's strategic plan, $3.3 million related to the closing of three stores, and income of $0.7 million related to a recovery of an investment in a cooperative buying group. Depreciation and amortization expense for Fiscal 2001 increased $3.4 million to $19.6 million from $16.2 million for Fiscal 2000. The increase is primarily due to increased capital expenditures related to the opening of four new concept stores, and capitalized leases relating to our new point-of-sale cash registers. 10 Interest expense increased to $13.6 million for Fiscal 2001 from $13.0 million for Fiscal 2000. The increase is due to interest recorded from capital leases primarily related to our new point-of-sale cash registers. The Company's effective income tax benefit rate is 8.2% in Fiscal 2001 compared to an effective income tax benefit rate of 31.6% in Fiscal 2000. The effective income tax benefit rate for both years was affected by state tax expense based on gross receipts versus net income and non-deductible goodwill. See Note F to the Consolidated Financial Statements. Fiscal 2000 Compared to Fiscal 1999 Net sales for Fiscal 2000, which includes 53 weeks, increased by 2.9% to $656.2 million from $637.8 million for Fiscal 1999. Comparable store sales, sales for stores opened for 13 months and excluding the 53rd week of sales, decreased 0.8%. Women's moderate sportswear, intimate apparel, cosmetics, and furniture had the strongest sales increases. Financing revenue from the Company's private label credit card for Fiscal 2000 increased by 7.8% to $28.2 million from $26.1 million for Fiscal 1999, primarily due to an increase in late fees charged. Other revenue, which is primarily from leased departments, for Fiscal 2000 decreased by $0.2 million to $3.3 million from $3.5 million for Fiscal 1999. Cost of merchandise sold, occupancy, and buying expenses increased to 72.6% of net sales for Fiscal 2000 from 69.8% of net sales for Fiscal 1999. This increase is primarily due to a charge of $12.1 million related to inventory costs to implement the Company's strategic plan in Fiscal 2000 and $2.8 million in charges to record excess markdowns related to the closing of three stores. Additionally, merchandise gross margins were reduced 0.3% due to additional markdowns to clear excess inventory as a result of the comparable sales decrease. Selling, general, administrative, and other expenses increased to 29.3% of net sales for Fiscal 2000 from 28.7% for Fiscal 1999. Fiscal 2000 costs include charges of $3.8 million, primarily severance, to implement the Company's new strategic plan, $3.3 million related to the closing of three stores, and income of $0.7 million related to a recovery of an investment in a cooperative buying group. Fiscal 1999 costs include a charge of $4.6 million to reflect a write down of amounts related to an investment made several years ago in a cooperative buying group. Depreciation and amortization expense for Fiscal 2000 increased $1.0 million to $16.2 million from $15.2 million for Fiscal 1999 due to increased capital expenditures related to the opening of three concept stores. Interest expense increased to $13.0 million for Fiscal 2000 from $10.9 million for Fiscal 1999. The increase is primarily due to higher average borrowing because of the Company's stock repurchase program, which was completed in October 2000, and higher average interest rates in Fiscal 2000 versus Fiscal 1999. The Company's effective income tax benefit rate is 31.6% in Fiscal 2000 compared to an income tax rate of 41.5% in Fiscal 1999 before adjustments to the Company's deferred tax asset valuation allowance. In Fiscal 1999 the Company reviewed the status of its deferred tax asset valuation allowance at the end of the fiscal year and determined that the valuation allowance should be reduced to reflect the likely utilization of net operating loss carryforwards to offset taxable income generated in future years. This resulted in a net income tax benefit being recorded in Fiscal 1999. See Note F to the Consolidated Financial Statements. During the third quarter of 1999 the Company adopted a plan to dispose of Bee-Gee and consummated the sale in the fourth quarter. During the fourth quarter of 2000 the Company recorded a gain of $0.1 million, net of tax, resulting from the final settlement of the sale. In Fiscal 1999 the Company recorded a loss on disposal of $2.3 million, net of tax. The Company also recorded a loss from 11 operations in Fiscal 1999 of $0.4 million, net of tax. See Note K to the Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of funds are cash flow from operations and borrowings under its $150 million Revolving Credit Facility and $150 million 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. Factors that could affect operating cash flows include, but are not limited to, increasing price and product competition, fluctuations in consumer demand and confidence, the availability and quality of inventory, the availability and terms of bank financing and trade credit, consumer debt levels, a reduction in the finance charges imposed by the Company on its charge card holders. 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. Net cash provided by operating activities was $41.5 million for Fiscal 2001, compared to $17.0 million in Fiscal 2000. A net loss was recorded in Fiscal 2001 of $0.9 million, including pre-tax charges of $3.3 million related to the retirement of the Company's chairman, president, and chief executive officer, and expenses recorded for the search for a new chief executive, and $4.3 million to write down the accounts receivable from Shoebilee, refer to Note L to the Consolidated Financial Statements, compared to a net loss of $6.7 million in Fiscal 2000. Trade payables increased $6.2 million in Fiscal 2001, caused by an increase in inventory in transit of $10.2 million, compared to a decrease of $2.7 million in Fiscal 2000. Even though inventory in transit increased $10.2 million, total inventory decreased in Fiscal 2001 by $2.4 million compared to a decrease of $11.3 million in Fiscal 2000. Net cash used in investing activities was $18.9 million for Fiscal 2001, compared to $23.5 million for Fiscal 2000. Capital expenditures for new stores, store maintenance, remodeling, and data processing totaled $19.1 million for Fiscal 2001 compared to $23.5 million for Fiscal 2000. For Fiscal 2001, net cash used in financing activities was $23.4 million compared to $6.1 million provided by financing activities for Fiscal 2000. In Fiscal 2001 the Company utilized cash provided by operating activities to reduce borrowings made in Fiscal 2000 to purchase shares of the Company's common stock. The Company's current Credit Facilities expire in May 2003. The Company is currently negotiating to replace the current Credit Facilities with new agreements similar in scope. The new Credit Facilities are expected to be effective during the third quarter of Fiscal 2002. 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. 12 CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following data is provided to facilitate an understanding of the Company's contractual obligations and commercial commitments, (000's):
PAYMENTS DUE BY PERIOD -------------------------------------------------- WITHIN 2-3 4-5 AFTER 5 TOTAL 1 YEAR YEARS YEARS YEARS -------- ------- -------- ------- -------- CONTRACTUAL OBLIGATIONS Long-Term Debt..................... $143,248 $ 193 $138,691 $ 2,464 $ 1,900 Capital Lease Obligations.......... 10,772 5,338 4,755 679 -- Operating Leases................... 289,561 25,269 47,472 44,058 172,762 -------- ------- -------- ------- -------- Total Contractual Cash Obligations... $443,581 $30,800 $190,918 $47,201 $174,662
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD ------------------------------------------------- WITHIN 2-3 4-5 AFTER 5 TOTAL 1 YEAR YEARS YEARS YEARS ------ ------ -------- -------- -------- OTHER COMMERCIAL COMMITMENTS Standby Letters of Credit......... $5,288 $5,288 Import Letters of Credit.......... 2,213 2,213 ------ ------ -------- -------- -------- Total Commercial Commitments........ $7,501 $7,501
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company's discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgements on historical experience and other various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's accounting policies are more fully described in Note A to the Consolidated Financial Statements. Management believes the following critical accounting policies affect its more significant judgements and estimates used in the preparation of the consolidated financial statements. Inventory Valuation. Merchandise inventories are valued by the retail inventory method ("RIM") applied on a last-in, first-out ("LIFO") basis and are stated at the lower of cost or market. Under the RIM, the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost-to retail ratio to the retail value of inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality. Inherent in the RIM calculation are certain management judgements and estimates including, but not limited to, merchandise markon, markups, markdowns and shrinkage, which significantly impact the ending inventory valuation and resulting gross margins. These estimates, coupled with the fact that the RIM is an averaging process, can produce distorted cost figures under certain circumstances. Distortions could occur primarily by applying the RIM to a group of products that is not fairly uniform in terms of its cost and selling price relationship and turnover, and applying RIM to transactions over a period of time that include different rates of gross profit, such as seasonal merchandise. To reduce the potential for such distortion in the inventory valuation, the Company's RIM utilizes over 250 departments within 18 LIFO inventory pools in which fairly homogenous classes of merchandise are grouped. Management believes that the Company's RIM provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market. 13 Long-lived Assets. In evaluating the carrying value and future benefits of long-lived assets, including goodwill, management performs a comparison of the anticipated undiscounted future net cash flows of the related long-lived asset, including goodwill, to their carrying amount in accordance with Statement of Financial Accounting Standard ("SFAS") 121. Management believes at this time that the long-lived assets, including goodwill, carrying values and useful lives to be appropriate. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes FASB No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental provisions of that statement. SFAS No. 144 becomes effective for fiscal years beginning after December 15, 2001, with early application encouraged. Management does not believe the adoption of this pronouncement will have a material impact on the financial statements. Effective February 3, 2002, the beginning of the new fiscal year, SFAS 142 will be adopted. SFAS 142 requires that goodwill will no longer be amortized, but will be subject to annual fair value based impairment tests. In addition, a transitional impairment test is required upon the adoption date. These impairment tests are conducted on each business of the Company where goodwill is recorded, and may require two steps. The initial step is designed to identify potential goodwill impairment by comparing an estimate of the fair value for each applicable business to its respective carrying value. For those businesses where the carrying amount exceeds its estimated fair value, a second step is performed to measure the amount of goodwill impairment, if any. The Company is in the process of determining if its existing goodwill is impaired. Goodwill impairment, if any, will be recognized in the first quarter of 2002 and will be classified as a cumulative effect of a change in accounting principle. Customer Accounts Receivable. Customer accounts receivable is shown net of an allowance for uncollectible accounts. The Company calculates the allowance for uncollectible accounts using a model that analyzes factors such as bankruptcy filings, delinquency rates, historical charge-off patterns, recovery rates, and other portfolio data. The Company's calculation is reviewed by management to assess whether, based on recent economic events, the allowance for uncollectible accounts is appropriate to estimate losses inherent in the portfolio. Income Taxes. The Company has generated net operating loss carryforwards ("NOL's") from previous years. Generally accepted accounting principles require that we record a valuation allowance against the deferred tax asset associated with the NOL's if it is more likely than not that the Company will not be able to fully utilize it to offset future taxes. It is possible that we could be profitable in the future at levels which cause management to conclude that it is more likely than not that the Company will be able to fully realize the deferred tax assets associated with the NOL's. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period, although our cash tax payments would remain unaffected until the benefit of the NOL's are realized. RECENT ACCOUNTING PRONOUNCEMENTS In addition to SFAS 142 and SFAS 144 discussed above, in June 2001, SFAS 141 was issued. SFAS 141 primarily requires that all business combinations completed after June 30, 2001 be accounted for using the purchase method and establishes criteria for recognizing acquired intangible assets separately from goodwill. The Company will account for future business combinations under SFAS 141. ITEM 7a. 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 variable to fixed rate interest-rate swap agreements 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. 14 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS
PAGE ----- Independent Auditors' Report................................ 16 Consolidated Financial Statements as of February 2, 2002 and February 3, 2001 and for each of the three fiscal years in the period ended February 2, 2002: Statements of Operations.................................. 17 Balance Sheets............................................ 18 Statements of Shareholders' Equity........................ 19 Statements of Cash Flows.................................. 20 Notes to Consolidated Financial Statements................ 21-36
15 INDEPENDENT AUDITORS' REPORT To the Board of Directors of The Elder-Beerman Stores Corp.: We have audited the accompanying consolidated balance sheets of The Elder-Beerman Stores Corp. and subsidiaries (the "Company") as of February 2, 2002 and February 3, 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 2, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of February 2, 2002 and February 3, 2001 and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended February 2, 2002, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP March 27, 2002 Dayton, Ohio 16 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED ----------------------------------------- FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2002 2001 2000 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Revenues: Net sales......................................... $643,052 $656,164 $637,797 Financing......................................... 27,273 28,162 26,124 Other............................................. 3,191 3,304 3,453 -------- -------- -------- Total revenues............................ 673,516 687,630 667,374 -------- -------- -------- Costs and expenses: Cost of merchandise sold, occupancy and buying expenses....................................... 459,886 476,313 445,365 Selling, general, administrative and other expenses....................................... 181,480 192,078 183,237 Depreciation and amortization..................... 19,578 16,200 15,229 Interest expense.................................. 13,574 13,014 10,927 -------- -------- -------- Total costs and expenses.................. 674,518 697,605 654,758 -------- -------- -------- Earnings (loss) before income tax benefit and discontinued operations............. (1,002) (9,975) 12,616 Income tax benefit.................................. (82) (3,151) (5,399) -------- -------- -------- Earnings (loss) from continuing operations........ (920) (6,824) 18,015 Discontinued operations............................. 89 (2,787) -------- -------- -------- Net earnings (loss)............................... $ (920) $ (6,735) $ 15,228 ======== ======== ======== Earnings (loss) per common share -- basic and diluted: Continuing operations............................. $ (0.08) $ (0.51) $ 1.17 Discontinued operations........................... 0.00 0.01 (0.18) -------- -------- -------- Net earnings (loss)....................... $ (0.08) $ (0.50) $ 0.99 ======== ======== ========
See notes to the consolidated financial statements. 17 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AS OF ------------------------------------ FEBRUARY 2, 2002 FEBRUARY 3, 2001 ---------------- ---------------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and equivalents.................................... $ 7,142 $ 7,878 Customer accounts receivable, net....................... 129,121 135,794 Merchandise inventories................................. 151,761 154,153 Other current assets.................................... 21,435 23,170 --------- --------- Total current assets............................ 309,459 320,995 --------- --------- Property: Land and improvements................................... 996 1,030 Buildings and leasehold improvements.................... 78,461 71,832 Furniture, fixtures, and equipment...................... 130,572 114,644 Construction in progress................................ 1,600 1,177 --------- --------- Total cost.............................................. 211,629 188,683 Less accumulated depreciation and amortization.......... (113,551) (102,233) --------- --------- Property, net................................... 98,078 86,450 --------- --------- Other assets.............................................. 43,525 47,872 --------- --------- $ 451,062 $ 455,317 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long term obligations (Note C)....... $ 5,531 $ 1,509 Accounts payable........................................ 39,108 33,236 Accrued liabilities: Compensation and related items....................... 5,912 5,076 Income and other taxes............................... 7,225 7,213 Rent................................................. 4,071 3,669 Other................................................ 9,611 9,128 --------- --------- Total current liabilities....................... 71,458 59,831 --------- --------- Long-term obligations -- less current portion (Note C).... 148,489 165,632 Deferred items............................................ 13,905 7,873 Commitments and contingencies (Note M) Shareholders' equity: Common stock, no par, 11,494,266 shares at February 2, 2002 and 11,451,953 shares at February 3, 2001 issued and outstanding...................................... 242,273 242,049 Unearned compensation -- restricted stock............... (302) (455) Deficit................................................. (19,870) (18,950) Accumulated other comprehensive loss.................... (4,891) (663) --------- --------- Total shareholders' equity...................... 217,210 221,981 --------- --------- $ 451,062 $ 455,317 ========= =========
See notes to the consolidated financial statements. 18 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNEARNED ACCUMULATED COMMON STOCK COMPENSATION- OTHER COMPREHENSIVE --------------------- RESTRICTED COMPREHENSIVE EARNINGS/ SHARES AMOUNT STOCK, NET DEFICIT LOSS (LOSS) ---------- -------- ------------- -------- ------------- ------------- (DOLLARS IN THOUSANDS) Shareholders' equity -- January 30, 1999...................... 15,898,864 $266,683 $(2,028) $(27,443) Net earnings.................. 15,228 Common stock issued........... 8,309 107 Restricted shares issued...... 151,814 853 (853) Restricted shares forfeited... (1,941) (22) 22 Shares purchased.............. (1,133,200) (7,450) Amortization of unearned compensation................ 1,080 ---------- -------- ------- -------- ------- ------- Shareholders' equity -- January 29, 2000...................... 14,923,846 260,171 (1,779) (12,215) Net loss...................... (6,735) $(6,735) Common stock issued........... 32,021 399 Restricted shares issued...... 42,625 225 (225) Restricted shares forfeited... (84,176) (1,018) 1,018 Shares purchased.............. (3,462,363) (17,728) Amortization of unearned compensation................ 531 Minimum pension liability (net of income tax benefit of $373)....................... $ (663) (663) ---------- -------- ------- -------- ------- ------- Shareholders' equity -- February 3, 2001....................... 11,451,953 242,049 (455) (18,950) (663) $(7,398) ======= Net loss...................... (920) $ (920) Common stock issued........... 29,900 262 Restricted shares issued...... 88,538 258 (258) Restricted shares forfeited... (76,125) (234) 234 Employee stock purchase plan other activity.............. (62) Amortization of unearned compensation................ 177 Minimum pension liability (net of income tax benefit of $222)....................... (395) (395) Net unrealized loss on derivative financial instruments (net of income tax benefit of $2,156)...... (3,833) (3,833) ---------- -------- ------- -------- ------- ------- Shareholders' equity -- February 2, 2002....................... 11,494,266 $242,273 $ (302) $(19,870) $(4,891) $(5,148) ========== ======== ======= ======== ======= =======
See notes to the consolidated financial statements. 19 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED --------------------------------------- FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2002 2001 2000 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net earnings (loss)....................................... $ (920) $(6,735) $15,228 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Provision for doubtful accounts......................... 7,748 6,178 3,906 Deferred income taxes................................... (202) (1,901) (7,748) Depreciation and amortization........................... 19,578 16,200 15,229 Loss (gain) on disposal of assets....................... (67) 276 28 Stock-based compensation expense........................ 402 676 1,640 Shoebilee charges....................................... 4,327 Loss on discontinued operations......................... 2,787 Asset impairment........................................ 281 4,639 Changes in noncash assets and liabilities: (net of amounts acquired) Customer accounts receivable......................... (1,025) (716) (3,057) Merchandise inventories.............................. 2,392 11,298 (1,572) Other current assets................................. 2,338 (1,891) (837) Other long-term assets............................... (734) (2,549) (164) Net assets of discontinued operations................ 1,740 Accounts payable..................................... 6,175 (2,707) (18,549) Accrued liabilities.................................. 1,529 (1,422) (6,685) -------- ------- ------- Net cash provided by operating activities.......... 41,541 16,988 6,585 -------- ------- ------- Cash flows from investing activities: Capital expenditures...................................... (19,094) (23,471) (17,041) Proceeds from sale of property............................ 183 10 587 Proceeds from sale of discontinued operations............. 3,000 -------- ------- ------- Net cash used in investing activities.............. (18,911) (23,461) (13,454) -------- ------- ------- Cash flows from financing activities: Net borrowings (payments) under asset securitization agreement............................................... (5,363) (19,855) 12,430 Net borrowings (payments) on bankers' acceptance and revolving lines of credit............................... (14,188) 47,561 3,279 Payments on long-term obligations......................... (3,753) (1,805) (951) Debt acquisition payments................................. (2,098) (309) Common shares purchased................................... (17,728) (7,450) Employee stock purchase plan other activity............... (62) -------- ------- ------- Net cash provided by (used in) financing activities....................................... (23,366) 6,075 6,999 -------- ------- ------- Increase (decrease) in cash and equivalents................. (736) (398) 130 Cash and equivalents: Beginning of year......................................... 7,878 8,276 8,146 -------- ------- ------- End of year............................................... $ 7,142 $ 7,878 $ 8,276 ======== ======= ======= Supplemental cash flow information: Interest paid............................................. $ 13,002 $12,954 $11,189 Income taxes paid......................................... 321 903 778 Supplemental non-cash investing and financing activities: Capital leases............................................ 10,183 4,024 Issuance of common shares to satisfy deferred compensation............................................ 265 399 25 Receivables acquired in the sale of The Bee-Gee Shoe Corp. .................................................. 3,600
See notes to consolidated financial statements. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of The Elder-Beerman Stores Corp. and subsidiaries, including The El-Bee Chargit Corp., a finance subsidiary (collectively the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR -- The Company's fiscal year ends on the Saturday nearest January 31. Fiscal year 2001 consists of 52 weeks, fiscal year 2000 consists of 53 weeks, and fiscal year 1999 consists of 52 weeks ended February 2, 2002, February 3, 2001 and January 29, 2000, respectively. ESTIMATES -- The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND EQUIVALENTS -- The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. CUSTOMER ACCOUNTS RECEIVABLE are classified as current assets because the average collection period is generally less than one year. MERCHANDISE INVENTORIES are valued by the retail method applied on a last-in, first-out (LIFO) basis and are stated at the lower of cost or market. Current cost, which approximates replacement cost under the first-in, first-out (FIFO) method, is equal to the LIFO value of inventories at February 2, 2002 and February 3, 2001. PROPERTY is stated at cost less accumulated depreciation determined by the straight-line method over the expected useful lives of the assets. Assets held under capital leases and related obligations are recorded initially at the lower of fair market value or the present value of the minimum lease payments. The straight-line method is used to amortize such capitalized costs over the lesser of the expected useful life of the asset or the life of the lease. The estimated useful lives by class of asset are:
Buildings................................................... 25 to 50 years Leasehold improvements...................................... 10 to 20 years Furniture, fixtures and equipment........................... 3 to 10 years
OTHER ASSETS -- Included in other assets is goodwill, which is amortized using the straight-line method over estimated useful lives of 10 to 25 years. The Company periodically evaluates the carrying value of long-lived assets to be held and used, including goodwill, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identified and is less than its carrying value. REVENUE RECOGNITION -- Sales revenues are recognized on merchandise inventory sold upon receipt by the customer. Finance revenue is generated by outstanding customer accounts receivable and recognized as interest is accrued on these outstanding balances. Other revenue consists primarily of leased department revenue. Leased department revenue is recognized as the Company earns commission from the sale of merchandise within leased departments. PRE-OPENING COSTS associated with opening new stores are expensed as incurred. ADVERTISING EXPENSE -- The cost of advertising is expensed the first time the advertising takes place. Advertising costs were $23.3 million, $26.8 million and $27.5 million in Fiscal 2001, 2000 and 1999, 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) respectively. The amounts of prepaid advertising at the end of Fiscal 2001, 2000 and 1999 were $0.7 million, $0.6 million and $0.6 million, respectively. STOCK OPTIONS -- The Company measures compensation cost for stock options issued to employees using the intrinsic value based method of accounting in accordance with Accounting Principles Board Opinion No. 25. FINANCIAL INSTRUMENTS -- The Company utilizes interest rate swap agreements to manage its interest rate risks when receivables are sold under asset securitization programs or other borrowings. The Company does not hold or issue derivative financial instruments for trading purposes. The Company does not have derivative financial instruments that are held or issued and accounted for as hedges of anticipated transactions. Amounts currently due to or from interest swap counter parties are recorded in interest expense in the period in which they accrue. Gains or losses on terminated interest rate swap agreements are included in long-term liabilities or assets and amortized to interest expense over the shorter of the original term of the agreements or the life of the financial instruments to which they are matched. Gains or losses on the mark-to-market for interest rate swap agreements that do not qualify for hedge accounting are recorded as income or expense each period. COMPREHENSIVE INCOME is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The difference between net earnings (loss) and comprehensive earnings (loss) for fiscal year 2001 related to the change in minimum pension liability and the net unrealized loss on derivative financial instruments associated with the adoption of Statement of Financial Accounting Standards ("SFAS") No. 133. The difference between net earnings (loss) and comprehensive earnings (loss) for fiscal year 2000 relates to the change in minimum pension liability for fiscal year 2000. Comprehensive income equals net income for fiscal 1999. ACCOUNTING PRONOUNCEMENTS -- In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 applies to all business combinations completed after June 30, 2001, and requires the use of purchase accounting. SFAS No. 141 also establishes new criteria for determining whether intangible assets should be recognized separately from goodwill. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, companies with fiscal years beginning after March 15, 2001 may elect to adopt the statement early. SFAS No. 142 provides that goodwill and intangible assets with indefinite lives will not be amortized, but rather will be tested for impairment at least on an annual basis. The Company will adopt SFAS No. 142 effective February 3, 2002, which will require the Company to cease amortization of its remaining net goodwill balance and to perform an impairment test of its existing goodwill based on a fair value concept. The Company is in the process of determining if its existing goodwill is impaired. Goodwill impairment, if any, will be recognized in the first quarter of 2002 and will be classified as a cumulative effect of a change in accounting principle. As of February 2, 2002, the Company has net unamortized goodwill of $16 million and amortization expense of $0.9 million, $0.9 million and $0.8 million for the years ended February 2, 2002, February 3, 2001 and January 29, 2000, respectively. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes FASB No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental provisions of that statement. SFAS No. 144 becomes effective for fiscal years beginning after December 15, 2001, with early application encouraged. Management does not believe the adoption of this pronouncement will have a material impact on the financial statements. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. CUSTOMER ACCOUNTS RECEIVABLE Customer accounts receivable represent finance subsidiary receivables. Interest is charged at an annual rate of 21% to 22%, depending on state law. A rollforward of the Company's allowance for doubtful accounts is as follows:
YEARS ENDED --------------------------------------- FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2002 2001 2000 ----------- ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Balance, beginning of year..................... $2,478 $2,048 $4,377 Provision...................................... 7,748 6,178 3,906 Charge offs, net of recoveries................. (7,241) (5,748) (6,235) ------ ------ ------ Balance, end of year........................... $2,985 $2,478 $2,048 ====== ====== ======
Customer accounts receivable result from the Company's proprietary credit card sales to customers residing principally in the midwestern states. As such, the Company believes it is not dependent on a given industry or business for its customer base and therefore has no significant concentration of credit risk. The El-Bee Chargit Corp. ("Chargit" or financing subsidiary) purchases substantially all Elder-Beerman and subsidiaries' proprietary credit card receivables; such receivables are purchased at a 3% discount. Purchase discounts are eliminated in consolidation. C. DEBT Through a commercial bank lending group, the Company has a three-year Revolving Credit Facility ("Credit Facility"), and through its financing subsidiary, a three-year variable rate securitization loan agreement ("Securitization Facility"), both of which expire May 18, 2003. Outstanding borrowings of $138.3 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. 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 commercial paper rates, 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. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-term obligations consists of the following:
FEBRUARY 2, FEBRUARY 3, 2002 2001 ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Mortgage note payable (9.75%)............................. $ 2,374 $ 2,459 Industrial development revenue bond, variable rate based on published index of tax-exempt bonds (1.45%).......... 2,600 3,055 Capital lease obligations (6.42% -- 15.95%)............... 10,772 3,802 Credit facility (4.9%).................................... 36,652 50,840 Securitization facility (6.83%)........................... 101,622 106,985 -------- -------- Total..................................................... 154,020 167,141 Current portion of long-term obligations.................. (5,531) (1,509) -------- -------- Long-term obligations..................................... $148,489 $165,632 ======== ========
Maturities of borrowings are $5,531,000 in 2002, $141,931,000 in 2003, $1,515,000 in 2004, $2,938,000 in 2005, $205,000 in 2006 and $1,900,000 thereafter. Collateral for the industrial development revenue bond, which matures March 2015, and the mortgage note payable, which matures April 2005, is land, buildings, furniture, fixtures and equipment with a net book value of $2.2 million at February 2, 2002. D. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND EQUIVALENTS -- The carrying amount approximates fair value because of the short maturity of those instruments. CUSTOMER ACCOUNTS RECEIVABLE -- The net carrying amount approximates fair value because of the relatively short average maturity of the instruments and no significant change in interest rates. LONG-TERM DEBT -- The carrying amount approximates fair value as a result of the variable-rate-based borrowings. INTEREST RATE SWAP AGREEMENTS -- The fair value of interest rate swaps is based on the quoted market prices that the Company would pay to terminate the swap agreements at the reporting date. The Company uses derivative financial instruments as part of an overall strategy to manage exposure to market risks associated with interest rate fluctuations. The Company does not hold or issue derivative financial instruments for trading purposes. The risk of loss to the Company in the event of nonperformance by any counterparty under derivative financial instrument agreements is not considered significant by management. All counterparties are rated A or higher by Moody's and Standard and Poor's, and the Company does not anticipate nonperformance by any of its counterparties. Effective February 4, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Under SFAS No. 133, all derivative instruments are required to be recorded on the balance sheet as assets or liabilities, measured at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income (loss) and is recognized in the income statement when the hedge item 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) affects earnings. Ineffective portions of changes in the fair value of cash flow hedges and financial instruments not designated as hedges are recognized in earnings. The Company utilizes interest rate swap agreements to effectively establish long-term fixed rates on borrowings under the Securitization Facility, thus reducing the impact of interest rate changes on future income. These swap agreements, which are designated as cash flow hedges, involve the receipt of variable rate amounts in exchange for fixed rate interest payments over the life of the agreements. The fair value of the Company's interest rate swap agreements in the Company's consolidated balance sheet is a $6.0 million liability at February 2, 2002. The estimated fair value of the interest rate swap agreements is a $2.8 million liability and a $1.1 million asset at February 3, 2001 and January 29, 2000, respectively. The Company had outstanding swap agreements with notional amounts totaling $92 million, $100 million and $115 million for the fiscal years ended 2001, 2000 and 1999, respectively. The Company's current swap agreements expire April 2004. These agreements have been matched to the Securitization Facility to reduce the impact of interest rate changes on cash flows. E. LEASES The Company leases retail store properties and certain equipment. Generally, leases are net leases that require the payment of executory expenses such as real estate taxes, insurance, maintenance and other operating costs, in addition to minimum rentals. Leases for retail stores generally contain renewal or purchase options, or both, and generally provide for contingent rentals based on a percentage of sales. Minimum annual rentals, for leases having initial or remaining noncancellable lease terms in excess of one year at February 2, 2002, are as follows:
OPERATING CAPITAL LEASES LEASES --------- ------- (ALL DOLLAR AMOUNTS IN THOUSANDS) FISCAL YEAR 2002...................................................... $ 25,269 $ 6,484 2003...................................................... 24,120 3,885 2004...................................................... 23,352 1,479 2005...................................................... 22,797 740 2006...................................................... 21,261 5 Thereafter................................................ 172,762 -------- ------- Minimum lease payments...................................... $289,561 12,593 ======== Imputed interest............................................ (1,821) ------- Present value of net minimum lease payments................. $10,772 =======
YEARS ENDED --------------------------------------- FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2002 2001 2000 ----------- ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) RENT EXPENSE Operating leases: Minimum...................................... $24,817 $25,474 $24,895 Contingent................................... 1,385 1,763 1,907 ------- ------- ------- Total rent expense............................. $26,202 $27,237 $26,802 ======= ======= =======
25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Assets acquired under capital leases are included in the consolidated balance sheets as property, while the related obligations are included in long-term obligations.
FEBRUARY 2, FEBRUARY 3, 2002 2001 ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) ASSETS HELD UNDER CAPITAL LEASES Buildings................................................. $ 3,442 $3,442 Equipment................................................. 14,442 4,259 Accumulated depreciation and amortization................. (5,376) (3,574) ------- ------ $12,508 $4,127 ======= ======
F. INCOME TAXES Income tax benefit consists of the following:
YEARS ENDED --------------------------------------- FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2002 2001 2000 ----------- ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Current: Federal...................................... $ 10 $ $ 272 State and local.............................. 111 65 471 ------- ------- -------- 121 65 743 ------- ------- -------- Deferred: Net operating losses and tax credit carryforwards............................. 2,228 (4,316) (1,178) Deferred income.............................. (293) 1,024 (268) Valuation allowance.......................... (10,635) Other........................................ (2,138) 127 4,333 ------- ------- -------- (203) (3,165) (7,748) ------- ------- -------- Income tax benefit............................. $ (82) $(3,100) $ (7,005) ======= ======= ========
Income statement classifications:
YEARS ENDED --------------------------------------- FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2002 2001 2000 ----------- ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Current: Continuing operations........................ $(82) $(3,151) $(5,399) Discontinued operations...................... 51 (1,606) ---- ------- ------- Total..................................... $(82) $(3,100) $(7,005) ==== ======= =======
26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the major differences between the actual income tax provision attributable to continuing operations and taxes computed at the federal statutory rates:
FEBRUARY 2, FEBRUARY 3, JANUARY 29, 2002 2001 2000 ----------- ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Federal taxes computed at the statutory rate... $(350) $(3,442) $ 4,416 State and local taxes.......................... 111 65 539 Valuation allowance............................ (10,635) Permanent items................................ 157 226 281 ----- ------- -------- Income tax benefit from continuing operations................................... $ (82) $(3,151) $ (5,399) ===== ======= ========
Deferred income taxes consist of the following:
FEBRUARY 2, FEBRUARY 3, 2002 2001 ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Deferred tax assets: Net operating losses and tax credit carryforwards....... $24,938 $27,166 Deferred income......................................... 405 112 Deferred compensation................................... 1,576 1,593 Bad debts............................................... 1,045 867 Net unrealized loss on derivative financial instruments.......................................... 2,156 Other................................................... 6,508 7,001 ------- ------- 36,628 36,739 Valuation allowance..................................... (3,829) (3,829) ------- ------- Total deferred tax assets............................ 32,799 32,910 ------- ------- Deferred tax liabilities.................................. (6,246) (8,938) ------- ------- Net deferred tax asset............................... $26,553 $23,972 ======= ======= Included in the balance sheets: Other current assets.................................... $12,329 $10,645 Other assets............................................ 14,224 13,327 ------- ------- Net deferred tax assets.............................. $26,553 $23,972 ======= =======
Permanent items consist primarily of nondeductible goodwill. The net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets will result in future benefits only if the Company has taxable income in future periods. In accordance with SFAS No. 109, Accounting for Income Taxes, a valuation allowance has been recorded for the tax effect of a portion of the future tax deductions and tax credit carryforwards. In the fourth quarter of fiscal 1999, the Company reduced the valuation allowance to reflect the likely future utilization of its deferred tax assets. The federal net operating loss carryforward is approximately $63.0 million and is available to reduce federal taxable income through 2020. The tax credit carryforward is approximately $2.9 million, of which $632,000 will expire in 2009 and 2010, and the balance of which is an indefinite carryforward. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. EMPLOYEE BENEFIT PLANS A defined-contribution employee benefit plan (the "Benefit Plan") covers substantially all employees. The Company may contribute to the Benefit Plan based on a percentage of compensation and on a percentage of earnings before income taxes. Contributions of $1.4 million, $1.1 million, and $1.9 million were recorded in fiscal 2001, 2000 and 1999, respectively, for the Company's match to the Benefit Plan. Eligible employees can make contributions to the Benefit Plan through payroll withholdings of one to fifteen percent of their annual compensation. The Benefit Plan includes an employee stock ownership component. Effective February 2, 2002, the Company terminated its Stock Purchase Plan, which provided for its employees to purchase Elder-Beerman common stock at a 15% discount. Employees could make contributions to the Stock Purchase Plan through payroll withholdings of one percent to ten percent of their annual compensation, up to a maximum of $25,000 per year. A total of 625,000 shares of common stock are registered and unissued under the Stock Purchase Plan. With the acquisition of Stone & Thomas, the Company assumed a defined-benefit pension plan, which covered all full-time employees of Stone & Thomas upon completion of one year of service and the attainment of age 21. The benefits were based upon years of service and the earnings. Accrued benefits were frozen as of September 30, 1998, as part of the Company's plan of acquisition. The Company's funding policy is to contribute an amount annually that satisfies the minimum funding requirements of ERISA and that is tax deductible under the Internal Revenue Code. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summary information for the Company's defined-benefit plan is as follows:
FEBRUARY 2, FEBRUARY 3, 2002 2001 ----------- ----------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Change in the projected benefit obligation: Projected benefit obligation at beginning of year....... $(5,008) $(5,119) Interest cost........................................... (363) (372) Actuarial loss.......................................... (38) (206) Benefits paid........................................... 582 689 ------- ------- Projected benefit obligation at end of year............... (4,827) (5,008) ------- ------- Change in the plan assets: Fair value of plan assets at beginning of year.......... 4,674 5,126 Actual return (loss) on plan assets..................... (282) 237 Employer contributions.................................. 150 Benefits paid........................................... (582) (689) ------- ------- Fair value of plan assets at end of year.................. 3,960 4,674 ------- ------- Projected benefit obligation in excess of plan assets..... (867) (334) Reconciliation of financial status of plan to amounts recorded in the Company's balance sheet -- unrecorded effect of net loss arising from differences between actuarial assumptions used to determine periodic pension expense and actual experience Adjustment for minimum pension liability....................................... 1,653 1,036 ------- ------- Net pension asset......................................... $ 786 $ 702 ======= ======= Amounts recognized in the Company's balance sheets consist of: Other assets -- pension asset........................... $ 786 $ 702 Other current liabilities............................... (1,653) (1,036) Other assets -- deferred tax asset...................... 595 373 Accumulated other comprehensive loss.................... 1,058 663 Benefit obligation discount rate.......................... 7.00% 7.25%
The components of net pension loss (income) are as follows:
2001 2000 1999 ----- ----- ----- (ALL DOLLAR AMOUNTS IN THOUSANDS) Interest cost on projected benefit obligation........... $ 363 $ 372 $ 385 Expected return on plan assets.......................... (374) (422) (507) Amortization of unrecorded net loss..................... 76 22 ----- ----- ----- Net pension loss (income)............................... $ 65 $ (28) $(122) ===== ===== =====
Plan assets are held in a trust and are invested primarily in equities and fixed income obligations. The expected long-term rate of return on plan assets used in determining net pension loss (income) was 8.0% in 2001 and 2000 and 8.5% in 1999. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) H. EARNINGS PER SHARE Net earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the year. Stock options, restricted shares, deferred shares and warrants outstanding represent potential common shares and are included in computing diluted earnings per share when the effect is dilutive. Dilutive potential common shares for Fiscal 2001 and 2000 were 133,457 and 120,790, respectively. There was no dilutive effect of potential common shares in fiscal 2001 and 2000. A reconciliation of the weighted average shares used in the basic and diluted earnings per share calculation is as follows:
2001 2000 1999 ---------- ---------- ---------- Weighted average common shares outstanding -- basic...................... 11,320,646 13,598,485 15,371,183 Dilutive potential common shares: Warrants.................................. Stock options............................. 2,953 Restricted shares......................... 4,552 Deferred shares........................... 63,970 ---------- ---------- ---------- Weighted average shares -- diluted.......... 11,320,646 13,598,485 15,442,658 ========== ========== ==========
I. SHAREHOLDERS' EQUITY The Company has authorized 25 million no par common shares. In August 2000, the Company's Board of Directors authorized the repurchase of a targeted 3.3 million common shares at an aggregate repurchase price of $20 million through a self-tender. During fiscal 2000, a total of 3.5 million common shares were repurchased for $17.7 million. In August 1999, the Company's Board of Directors authorized a share repurchase program to repurchase up to $24 million in common shares over a two-year period. During fiscal 1999 pursuant to the share repurchase program, a total of 1.1 million common shares were repurchased for $7.4 million. There were 0.9 million shares held in treasury at February 2, 2002. The Board of Directors has the authority to issue five million shares of preferred stock. At February 2, 2002, these shares are unissued. Warrants of 624,522 are attached to shares outstanding of 624,522. Under a Rights Agreement, each outstanding common share presently has one right attached that trades with the common share. Generally, the rights become exercisable and trade separately after a third party acquires 20% or more of the common shares or commences a tender offer for a specified percentage of the common shares. Upon the occurrence of certain additional triggering events specified in the Rights Agreement, each right would entitle its holder (other than, in certain instances, the holder of 20% or more of the common shares) to purchase common shares of the Company at an exercise price of 50% of the then-current common share market value. The rights expire on December 30, 2007, unless the Board of Directors takes action prior to that date to extend the rights, and are presently redeemable at $.01 per right. J. STOCK-BASED COMPENSATION The Equity and Performance Incentive Plan (the "Incentive Plan") authorizes the Company's Board of Directors to grant restricted shares, stock options, appreciation rights, deferred shares, performance shares and performance units. Awards relating to 2,750,000 shares are authorized for issuance under this plan and awards related to 2,261,275 have been issued as of February 2, 2002. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Officers and key employees have been granted stock options under the Incentive Plan. The options granted have a maximum term of ten years and vest over a period ranging from three to five years. In fiscal 2001, 2000 and 1999, the Company has granted certain discounted stock options, in lieu of directors fees, to outside directors with an exercise price less than the market price of the stock on the grant date. The following table summarizes the Company's stock option activity:
2001 2000 1999 --------------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- --------- --------- --------- --------- --------- Outstanding at beginning of year............... 1,850,263 $8.10 1,666,150 $10.81 938,096 $12.53 Granted: Discounted............ 96,156 2.41 78,763 3.31 30,554 5.39 Undiscounted.......... 353,500 3.02 592,500 3.48 343,000 8.18 Premium............... 460,000 9.71 Canceled................ (430,046) 7.98 (487,150) 10.97 (105,500) 11.10 --------- --------- --------- Outstanding at end of year.................. 1,869,873 $6.88 1,850,263 $ 8.10 1,666,150 $10.81 ========= ========= ========= Exercisable at year end................... 927,816 $9.49 556,082 $10.86 346,965 $11.84 ========= ========= ========= Weighted-average fair value of stock options granted during the year using the Black-Scholes options - pricing model: Discounted......... $2.31 $ 3.50 $ 5.24 Undiscounted....... $2.01 $ 2.63 $ 5.55 Premium............ $ 4.94
2001 2000 1999 ------- ------- ------- Weighted-average assumptions used for grants: Expected dividend yield............................ 0% 0% 0% Expected volatility................................ 64% 79% 63% Risk-free interest rate............................ 4.9% 5.5% 6.3% Expected life...................................... 7 years 7 years 7 years
Total compensation costs charged to earnings from continuing operations before income taxes for all stock-based compensation awards was approximately $0.4 million, $ 0.7 million, and $1.6 million in fiscal 2001, 2000, and 1999, respectively. Had compensation costs been determined based on the fair value method of SFAS No. 123 for all plans, the Company's net earnings (loss) and diluted earnings (loss) per common share would have been the following pro forma amounts:
2001 2000 1999 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Net earnings (loss): As reported...................................... $ (920) $(6,735) $15,228 Pro forma........................................ (1,658) (7,879) 13,868 Net earnings (loss) per common share -- diluted: As reported...................................... (0.08) (0.50) 0.99 Pro forma........................................ (0.15) (0.58) 0.90
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table shows various information about stock options outstanding at February 2, 2002:
OPTIONS OUTSTANDING ---------------------------------------- OPTIONS EXERCISABLE WEIGHTED- ------------------- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE RANGE OF EXERCISE PRICES SHARES LIFE (IN YEARS) PRICE SHARES PRICE ------------------------ --------- ---------------- --------- ------- --------- 2.200 - 6.282 985,778 9.1 $ 3.29 203,021 $ 3.67 6.688 - 10.890 735,941 6.4 9.93 585,641 10.11 11.200 - 16.735 84,046 7.0 11.56 82,046 11.50 18.000 - 21.000 64,108 6.1 20.88 57,108 20.92 --------- ------- 1,869,873 7.8 $ 6.88 927,816 $ 9.49 ========= =======
The Incentive Plan provides for the issuance of restricted common shares to certain employees and nonemployee directors of the Company. These shares have a vesting period of three years. As of February 2, 2002, 131,212 restricted common shares are issued and outstanding under the plan. There were 88,538 and 42,625 shares awarded under this plan in fiscal 2001 and 2000, respectively. The fair value of the restricted shares awarded was $0.3 million and $0.2 million in fiscal 2001 and 2000, respectively, which is recorded as compensation expense over the three-year vesting period. The Incentive Plan also provides for certain employees to elect to defer a portion of their compensation through the purchase of deferred shares. Each deferred share represents an employee's right to a share of the Company's common stock. As of February 2, 2002, 26,192 deferred shares are outstanding. K. DISCONTINUED OPERATIONS During fiscal 1999, the Company sold its wholly-owned subsidiary, The Bee-Gee Shoe Corp. ("Bee-Gee") to B-G Shoe Acquisition Corp., a predecessor of Shoebilee, Inc. ("Shoebilee"). The following are the components of discontinued operations:
2000 1999 ---- ---- (ALL DOLLAR AMOUNTS IN THOUSANDS) Loss from operations of shoe division (net of income tax benefit of $257).......................................... $ $ (447) Gain (loss) on sale of shoe division, including loss on operations during phase-out period of $564 in fiscal 1999 (net of income tax expense (benefit) of $51 and ($1,349) in fiscal years 2000 and 1999, respectively).............. 89 (2,340) --- ------- $89 $(2,787) === =======
L. ASSET IMPAIRMENT AND OTHER EXPENSES During fiscal 1999, the Company sold substantially all of the assets of Bee-Gee to Shoebilee. On October 29, 2001, the Company was informed that Shoebilee was in default under its lending agreement with its working capital lender. Shoebilee is also in default under the loan documents governing the amount Shoebilee owes the Company for the purchase of the Bee-Gee assets, as well as under an agreement pursuant to which the Company provides back office support services to Shoebilee (collectively, the "Company Agreements"). On December 21, 2001, Shoebilee filed for Chapter 11 bankruptcy protection. As a result of Shoebilee's default on the Company's agreements and bankruptcy filing, the Company recorded a pre-tax charge of $4.3 million in selling, general, administrative and 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) other expenses. In addition, the Company has recorded a liability of $0.1 million at February 2, 2002, for guaranteed lease obligations of two Shoebilee, Inc. stores. Effective December 31, 2001 (the "Retirement Date"), Frederick J. Mershad retired as Chairman, President, and Chief Executive Officer of the Company and resigned from the Board of Directors. The Company entered into a Separation and Retirement Agreement (the "Separation Agreement") with Mr. Mershad. The Separation Agreement superceded Mr. Mershad's employment agreement. Pursuant to the terms of the Separation Agreement, until the Retirement Date, Mr. Mershad was entitled to his current base salary and benefits that would have been payable pursuant to the terms of his Employment Agreement. After the Retirement Date, the Company will pay Mr. Mershad (i) his current base salary of $660,000 per year for the period beginning with the Retirement Date and ending on December 31, 2004 (the "Retirement Period") and (ii) his bonus (if any) earned in 2001. During the Retirement Period, Mr. Mershad is also entitled to medical benefits equivalent to those provided to him prior to the Retirement Date and the automobile benefit that he received prior to the Retirement Date. Mr. Mershad's options to purchase shares of common stock and restricted shares that are unvested as of the Retirement Date were forfeited. During fiscal 2001, the Company recorded pre-tax expense of $3.3 million for severance costs and expenses recorded for the search of a new chief executive in selling, general, administrative and other expenses. The liability of $2.2 million remaining at February 2, 2002 for severance and benefits is payable in 2002, 2003 and 2004. During fiscal 2000, the Company recorded a pretax charge of $15.9 million associated with the Company's new strategic plan announced in August 2000. The charges included $12.1 million for inventory costs included in cost of goods sold, occupancy and buying expenses and $3.8 million for severance costs and outside professional fees and expenses included in selling, general, administrative and other expenses. The severance costs related to the termination of 137 salaried and hourly employees, all of who left the Company before February 3, 2001. The liability of $0.5 million remaining at February 2, 2002 is expected to be paid during fiscal 2002. Also in fiscal 2000, the Company recorded an asset impairment of $0.3 million in selling, general, administrative and other expenses for the value of the closed Wheeling store building. The Company determined the fair value of the building based on a real estate assessment. In fiscal 1999, the Company recorded an asset impairment of $4.6 million in selling, general, administrative and other expenses as the result of adverse changes in the operations of a cooperative buying group in which the Company held an investment. The Company determined the fair value of its investment based on an analysis of the expected future cash flows. The asset impairment recorded reflects the write-down of the carrying amount of the investment in the cooperative buying group to its estimated fair value. During 2001 and 2000, income of $0.6 million and $0.7 million, respectively, was recorded in selling, general, administrative and other expenses related to proceeds received upon the disbanding of the cooperative buying group in which the Company held an investment. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary related to the asset impairment and other expenses:
2001 2000 1999 ----- ----- ---- (ALL DOLLAR AMOUNTS IN MILLIONS) Asset impairment -- investment.......................... $(0.6) $(0.7) $4.6 ===== ===== ==== Asset impairment -- Wheeling store...................... $ $ 0.3 $ ===== ===== ==== Inventory costs......................................... $ $12.1 $ ===== ===== ==== SEVERANCE AND OTHER COSTS: Balance at beginning of year............................ $ 1.0 $ $ Charge recorded......................................... 3.8 Used for intended purpose............................... (0.5) (2.8) ----- ----- ---- Balance at year end..................................... $ 0.5 $ 1.0 $ ===== ===== ==== EXECUTIVE RETIREMENT AND OTHER COSTS: Charge recorded......................................... $ 3.3 Used for intended purpose............................... (1.1) ----- ----- ---- Balance at year end..................................... $ 2.2 $ $ ===== ===== ==== Shoebilee charges....................................... $ 4.3 $ $ ===== ===== ====
M. COMMITMENTS AND CONTINGENCIES LITIGATION -- The Company is a party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. Management believes the outcome of any of the litigation matters will not have a material effect on the Company's results of operations, cash flows or financial position. INSURANCE -- The Company is self-insured for employee medical and workers' compensation, subject to limitations for which insurance has been purchased. Management believes that those claims reported and not paid and claims incurred, but not yet reported, are appropriately accrued. LETTERS OF CREDIT -- The Company is required to maintain certain standby letters of credit. These letters of credit will only be drawn on if the Company is unable to make certain payments. The Company also utilizes import letters of credit for the payment of imported merchandise. N. SEGMENT REPORTING Management assesses performance and makes operating decisions based on two reportable segments, Department Store and Finance Operations. The Department Store segment is identified by the merchandise sold and customer base served. The Department Store segment sells a wide range of moderate to better brand merchandise, including women's ready to wear, accessories, cosmetics, men's, children's and home. The Company's retail stores are principally engaged in smaller Midwestern markets in Ohio, Indiana, Illinois, Michigan, 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pennsylvania, Wisconsin, Kentucky, and West Virginia. Net sales by major merchandising category in the Department Store segment are as follows:
2001 2000 1999 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) MERCHANDISE CATEGORY Women's Ready to Wear........................... $211,123 $212,169 $209,821 Accessories, Shoes and Cosmetics................ 156,481 156,854 149,337 Men's and Children's............................ 141,954 150,933 148,175 Home Store...................................... 133,494 136,208 130,464 -------- -------- -------- Total department store.......................... $643,052 $656,164 $637,797 ======== ======== ========
The Finance Operations segment is a private label credit card program operated by the Company through its wholly owned subsidiary, Chargit. Finance Operations segment revenues consist primarily of finance charges earned through issuance of Elder-Beerman proprietary credit cards. All phases of the credit card operation are handled by Chargit except the processing of customer mail payments. The following table sets forth information for each of the Company's segments:
2001 2000 1999 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) DEPARTMENT STORE Revenues........................................ $646,243 $659,468 $641,250 Depreciation and amortization................... 19,133 15,677 14,724 Operating profit (loss)(1)...................... (912) 2,229 2,557 Capital expenditures............................ 19,047 23,459 16,615 Total assets.................................... 338,389 339,446 318,242
2001 2000 1999 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) FINANCE OPERATIONS Revenues(2)..................................... $36,595 $37,560 $34,802 Depreciation and amortization................... 445 523 505 Operating profit(1)............................. 21,191 23,892 24,064 Capital expenditures............................ 47 12 426 Total assets.................................... 112,673 115,871 135,926
--------------- (1) Total segment operating profit is reconciled to earnings (loss) before income tax benefit and discontinued operations as follows: 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2001 2000 1999 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Segment operating profit........................ $ 20,279 $ 26,121 $ 26,621 Chief executive officer retirement.............. (3,259) Shoebilee charges............................... (4,327) Strategic plan costs............................ (15,903) Store closing costs............................. (6,059) Interest expense................................ (13,574) (13,014) (10,927) Reorganization and other........................ (121) (1,120) (3,078) -------- -------- -------- $ (1,002) $ (9,975) $ 12,616 ======== ======== ========
--------------- (2) Finance Operations segment revenues is reconciled to reported financing revenues as follows:
2001 2000 1999 --------- --------- --------- (ALL DOLLAR AMOUNTS IN THOUSANDS) Segment revenues................................ $36,595 $37,560 $34,802 Intersegment operating charge eliminated........ (9,322) (9,398) (8,678) ------- ------- ------- $27,273 $28,162 $26,124 ======= ======= =======
* * * * * * 36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Directors and Executive Officers The following table sets forth information regarding those persons currently serving as the executive officers and directors of the Company. Certain biographical information regarding each of the Company's current directors and executive officers is described below the table.
NAME AGE POSITION ---- --- -------- Byron L. Bergren............ 55 President, Chief Executive Officer and Director Steven C. Mason............. 65 Chairman of the Board Scott J. Davido............. 40 Executive Vice President, Chief Financial Officer, Treasurer and Secretary John S. Lupo................ 55 Executive Vice President, Merchandising and Marketing James M. Zamberlan.......... 55 Executive Vice President, Stores Steven D. Lipton............ 51 Senior Vice President, Controller Mark F.C. Berner............ 48 Director Dennis Bookshester.......... 62 Director Eugene I. Davis............. 46 Director Charles Macaluso............ 58 Director Thomas J. Noonan, Jr. ...... 62 Director Laura H. Pomerantz.......... 54 Director Jack A. Staph............... 56 Director Charles H. Turner........... 45 Director
Byron L. Bergren has served as President, Chief Executive Officer and as a Director since February 2002. Prior to this time, Mr. Bergren served as Chairman of the Southern Division of Belk Stores, Inc. ("Belk") from 1999 to 2002. Prior to that he served as Managing Partner of the Belk Lindsey division of Belk from 1992 to 1999; Senior Vice President Corporate Sales Promotion and Marketing of Belk from 1991 to 1992; and Senior Vice President, Merchandising and Marketing of the Belk Charlotte division from 1988 to 1991. Steven C. Mason has served as a Director of Elder-Beerman since 1997. He was appointed interim President effective January 1, 2002, and served in this role until Mr. Bergren's appointment as President. Mr. Mason was also appointed as non-executive Chairman of the Board in January 2002. Mr. Mason retired from The Mead Corp., a forest products company, in November 1997. Prior to retirement, Mr. Mason served as Chairman of the Board and Chief Executive Officer of The Mead Corp. from April 1992 to November 1997. Mr. Mason also currently serves as a Director of PPG Industries, Inc. and Convergys. Scott J. Davido has served as Executive Vice President, Chief Financial Officer, Treasurer and Secretary since March 1999 and served as Senior Vice President, General Counsel and Secretary of Elder-Beerman from January 1998 through March 1999. Prior to this time, Mr. Davido was a partner with Jones, Day, Reavis & Pogue, a law firm, since December 1996, and was employed as an associate with the firm since September 1987. Mr. Davido also currently serves as a Director of Stage Stores, Inc. and Granite National Bank. John S. Lupo has served as Executive Vice President, Merchandising and Marketing since August 2001. Prior to this time Mr. Lupo served as a principal of Renaissance Partners, LC, a 37 management consulting firm, from January 2000 to July 2001. Mr. Lupo served as an Executive Vice President at Bassett Furniture Industries from December 1998 to December 1999. Mr. Lupo also served as Chief Operating Officer of the Wal-Mart International division of Wal-Mart Stores, Inc. ("Wal-Mart") from 1996 to 1998, and as Senior Vice President and General Merchandise Manager of Wal- Mart from 1990-1996. Mr. Lupo currently serves as a Director of Rayovac Corporation. James M. Zamberlan has served as Executive Vice President, Stores of Elder-Beerman since July 1997. Prior to this time, Mr. Zamberlan served as Executive Vice President of Stores for Bradlee's, Inc. from September 1995 to January 1997 and also served as Senior Vice President of Stores for the Lazarus Division of Federated from November 1989 to August 1995. Steven D. Lipton has served as Senior Vice President, Controller of Elder-Beerman since March 1996. Prior to this time, Mr. Lipton served as Operating Vice President of Payroll for Federated Financial & Credit Services from September 1994 to January 1996 and served as Vice President and Controller of the Lazarus Division of Federated from February 1990 to August 1994. Mark F.C. Berner has served as a Director of Elder-Beerman since September 2000. Mr. Berner is Managing Partner of SDG Resources, L.P., an oil and gas investment fund. From 1996 to 1999, he was a private investment consultant in New York. In 1995, Mr. Berner served as Senior Vice President and Counsel for Turnberry Capital Management, L.P., a private equity fund. His prior position was as a Director of the First Boston Special Situations Fund, a private investment partnership. Mr. Berner also currently serves as a Director of ThinkSheet, Inc., and served as a Director of Renaissance Technologies from 1997 through March 2000. Dennis Bookshester has served as a Director of Elder-Beerman since December 1999. Mr. Bookshester serves as the President and Chief Executive Officer of Fruit of the Loom, a garment manufacturer that filed for protection under chapter 11 of the United States Bankruptcy Code in December 1999. He also currently serves as a Director of Fruit of the Loom and Playboy Enterprises. Eugene I. Davis has served as a Director of Elder-Beerman since September 2000. Mr. Davis is Chairman and Chief Executive Officer of Pirinate Consulting Group, L.L.C., a corporate strategy consulting firm, and of Murdock Communications Corp., a telecommunications enterprise. He also serves as Chief Executive Officer of SmarTalk Teleservices Corp., an independent provider of prepaid calling cards, that filed for protection under chapter 11 of the United States Bankruptcy Code in January 1999, and is currently being liquidated. During 1998 and 1999, Mr. Davis was Chief Operating Officer of Total-Tel Communications, Inc., a long distance telecommunications provider. From 1996 to 1997, Mr. Davis was the Chief Executive Officer of Sport Supply Group, Inc., a sporting goods and athletic equipment distributor. From 1992 to 1997, he served as President of Emerson Radio Corp., a consumer electronics distributor. Mr. Davis also currently serves as a Director of Coho Energy, Inc., Murdock Communications Corp., Tipperary Corporation and Eagle Geophysical Corp. Charles Macaluso has served as a Director of Elder-Beerman since December 1999. Mr. Macaluso is a Principal in East Ridge Consulting, Inc., a management advisory and investment firm he founded in 1999. Prior to this, Mr. Macaluso served as a Principal from 1996 through 1999 in Miller Associates, Inc., a management consulting firm. Prior to this, Mr. Macaluso was a partner with the Airlie Group, L.P. and an analyst for Investment Limited Partners, L.P., both private investment partnerships, from 1986 through 1996. Thomas J. Noonan, Jr. has served as a Director of Elder-Beerman since 1997. Mr. Noonan is the Chief Executive Officer of The Coppergate Group ("Coppergate"), a financial investment and management company, and has served in this capacity since May 1996. Prior to that, he served as a Managing Director of Coppergate from April 1993 through May 1996. He also serves as the Chairman, President and Chief Executive Officer of Intrenet, Inc. ("Intrenet"), a truckload carrier service provider that filed for protection under chapter 11 of the United States Bankruptcy Code in January 2001, and is currently being liquidated. Mr. Noonan has served in his current position at Intrenet since January 2001. He has been a Director of Intrenet since 1991 and was named Chairman in December 2000. 38 Mr. Noonan also serves as the Chief Executive of R&S Liquidating Company, Inc., which was formerly known as WSR, Inc. ("WSR") an automotive aftermarket retailer, and has served in this capacity since April 2000. Prior to that Mr. Noonan was WSR's Chief Restructuring Officer from August 1998 through December 1999. Mr. Noonan served as Executive Vice President and Chief Financial Officer of Herman's Sporting Goods, Inc. from August 1994 through 1999, a sporting goods retailer that filed for protection under chapter 11 of the United States Bankruptcy Code and is currently being liquidated. Laura H. Pomerantz has served as a Director of Elder-Beerman since 1998. Mrs. Pomerantz currently serves as President of LHP Consulting & Management, a real estate consulting firm, and has served in this capacity since 1995. Mrs. Pomerantz is also currently associated with PBS Realty Advisors, LLC as a Principal. Mrs. Pomerantz was also associated with Newmark Real Estate Co., Inc., a commercial real estate company, as Senior Managing Director from August 1996 to September 2001. Prior thereto, Mrs. Pomerantz served as Senior Managing Director of S.L. Green Real Estate Company, a commercial real estate company, from August 1995 to July 1996, and was affiliated with Koeppel Tenor Real Estate Services, Inc., a commercial real estate company, from March 1995 through July 1995. Prior to this time, Mrs. Pomerantz served as Executive Vice President and a Director of the Leslie Fay Companies, Inc. ("Leslie Fay"), from January 1993 to November 1994, and as Senior Vice President and Vice President of Leslie Fay from 1986 through 1992. Jack A. Staph has served as a Director of Elder-Beerman since 1997. Mr. Staph is currently a consultant, lawyer and private investor. He also serves as President of Cleveland Marathon, Inc., and Vice President and Treasurer of Bernadette's Travel, Inc. Mr. Staph has also served in an unrestricted advisory capacity to CVS Corp. since June 1997. Prior to this time, Mr. Staph served as Senior Vice President, Secretary, and General Counsel of Revco D.S., Inc., a retail pharmacy company, from October 1972 to August 1997. Charles H. Turner has served as a Director of Elder-Beerman since September 2000. Mr. Turner is Senior Vice President of Finance and Chief Financial Officer and Treasurer of Pier 1 Imports, Inc., ("Pier 1"), and has served in this capacity since August 1999. Mr. Turner served as Pier 1's Senior Vice President of Stores from July 1994 through August 1999 and served as Controller and Principal Accounting Officer of Pier 1 from January 1992 through August 1994. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers and persons who own more than 10 percent of a registered class of our equity securities to file reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. The Securities and Exchange Commission requires this group to furnish us with copies of all such filings. The Company periodically reminds this group of its reporting obligation and assists in making the required disclosure once the Company is notified that a reportable event has occurred. The Company is required to disclose any failure by any of the above mentioned persons to make timely Section 16 reports. Except as disclosed in the following sentences, based upon its review of such forms received by Elder-Beerman and written representations from the directors and executive officers that no other reports were required, Elder-Beerman is unaware of any instances of noncompliance, or late compliance, with such filings by its directors, executive officers or 10 percent shareholders. Annual Statements of Changes in Beneficial Ownership on Form 5 for the following individuals were filed on March 27, 2002, nine days after the March 18, 2002 deadline: Mark F.C. Berner, Dennis S. Bookshester, Scott J. Davido, Eugene I. Davis, Steven D. Lipton, Charles Macaluso, Steven C. Mason, Thomas J. Noonan, Jr., Laura H. Pomerantz, Jack A. Staph, Charles H. Turner and James M. Zamberlan. In addition, Annual Statements of Changes in Beneficial Ownership on Form 5 were not filed for the fiscal year ended February 3, 2001 for Thomas J. Noonan, Jr. and Laura H. Pomerantz. Changes for that year are reflected in the most recent filing. No open market purchases or sales were reflected in those filings. 39 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The table below shows the before-tax compensation for the years shown for Elder-Beerman's Chief Executive Officer and the four next highest paid executive officers (the "Named Executive Officers") at the end of fiscal year 2001. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION -------------------------------- --------------------------------------------- AWARDS PAYOUTS ----------------------- ------------------- SECURITIES ALL OTHER RESTRICTED UNDERLYING OTHER ANNUAL STOCK OPTIONS/ LTIP COMPEN- SALARY BONUS COMPEN- AWARD(S) SARS PAYOUTS SATION NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION($)(4) ($) (#) ($) ($)(7)(8) --------------------------- ---- ------- ------- ------------ ---------- ---------- ------- --------- Byron L. Bergren(1)-- 2001 142,500 250,000 President and Chief 2000 Executive Officer 1999 Frederick J. Mershad(2)-- 2001 639,992 65,993(9) Former Chairman, 2000 671,539 100,000(6) 9,705 President and Chief 1999 600,000 581,250(5) 300,000(6) 7,665 Executive Officer Scott J. Davido -- 2001 292,199 3,816 Executive Vice President 2000 261,923 37,295 29,690 30,000 4,236 Chief Financial Officer, 1999 217,596 36,000 60,550 45,625 25,000 382 Treasurer and Secretary John S. Lupo(3) -- 2001 212,200 Executive Vice President 2000 Merchandising & Marketing 1999 James M. Zamberlan -- 2001 364,046 3,558 Executive Vice President 2000 351,346 9,703 30,000 4,359 Stores 1999 309,808 53,156 29,690 20,000 2,712 Steven D. Lipton-- 2001 220,821 6,480 Sr. Vice President 2000 203,538 43,315 11,876 15,000 6,660 Controller 1999 180,115 35,830 10,000 5,801
--------------- (1) Mr. Bergren was elected as President and Chief Executive Officer of the Company, effective February 11, 2002. As part of his employment contract, Mr. Bergren was issued options and shares of restricted stock upon the execution of his employment agreement, which occurred during the Company's 2001 fiscal year. (2) Mr. Mershad retired from the Company on December 31, 2001. (3) Mr. Lupo joined the Company in August 2001. (4) Moving expense reimbursement. (5) This restricted share grant was cancelled on December 31, 2001 pursuant to the terms of the restricted share agreement. (6) Mr. Mershad's unvested option grants were cancelled on December 31, 2001, pursuant to the terms of the option agreements. He has a total of 420,201 options at prices ranging from $3.125 to $21.00 that will cancel if unexercised by December 31, 2002. (7) Includes life insurance premium payments paid by the Company in 2001 in the following amounts: Mr. Mershad $2,640, Mr. Zamberlan $3,558, Mr. Davido $3,276, and Mr. Lipton $2,430. (8) Includes matching contributions paid by the Company in 2001 under the Company's Retirement Savings Plan in the following amounts: Mr. Mershad $2,430, Mr. Davido $540 and Mr. Lipton $4,050. (9) Includes severance payments of $60,923 pursuant to the separation agreement entered into by the Company and Mr. Mershad. 40 STOCK OPTION/SAR GRANTS The following table sets forth information concerning stock option grants made to the Named Executive Officers during fiscal year 2001 pursuant to the Company's Equity and Performance Incentive Plan (the "Plan"). OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE ------------------------------------------------------- AT ASSUMED ANNUAL PERCENT OF RATE NUMBER OF TOTAL OF STOCK PRICE SECURITIES OPTIONS/SARS APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM OPTIONS/SARS EMPLOYEES IN OF BASE EXPIRATION --------------------- NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($) ---- ------------- ------------ ----------- ---------- -------- ---------- Byron L. Bergren........ 250,000 70.72 2.85 01/23/12 448,087 1,135,541
--------------- (1) Options vest annually in one-third increments beginning one year from date of grant. STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES The following table sets forth information about stock options exercised during fiscal year 2001 by the Named Executive Officers and the fiscal year-end value of unexercised options held by the Named Executive Officers. All of such options were granted under the Plan. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS HELD AT OPTIONS/SARS HELD AT SHARES VALUE FEBRUARY 2, 2002(#) FEBRUARY 2, 2002($)(1) ACQUIRED ON REALIZED --------------------------- --------------------------- NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ------------ -------- ----------- ------------- ----------- ------------- Byron L. Bergren......... 0 $0.00 0 250,000 $0.00 $0.00 Frederick J. Mershad(2)............. 0 $0.00 420,201 0 $0.00 $0.00 Scott J. Davido.......... 0 $0.00 32,800 43,200 $0.00 $0.00 James M. Zamberlan....... 0 $0.00 71,800 54,200 $0.00 $0.00 Steven D. Lipton......... 0 $0.00 23,800 22,200 $0.00 $0.00
--------------- (1) Based on the closing price on NASDAQ of the Company's Common Stock on February 2, 2002 (the last trading day in fiscal year 2001) of $2.70. (2) Mr. Mershad's options will expire on December 31, 2002 if he does not exercise them before that date pursuant to the terms of the option agreements. EMPLOYMENT AND SEVERANCE AGREEMENTS WITH CERTAIN OFFICERS The Company has entered into employment agreements with Byron L. Bergren, President and Chief Executive Officer, Frederick J. Mershad, who retired as Chairman, President and Chief Executive Officer, John A. Muskovich, who departed as President and Chief Operating Officer and the other executive officers as described below (the "Employment Agreements"). Mr. Bergren's Employment Agreement sets forth (a) Mr. Bergren's compensation and benefits, subject to increases at the discretion of the Board of Directors; (b) the Company's right to terminate Mr. Bergren for "cause" (as defined in the Employment Agreement) or otherwise; (c) the amounts to be paid by the Company in the event of Mr. Bergren's termination, death or disability while rendering services; (d) Mr. Bergren's duty of strict confidence and to refrain from conflicts of interest; (e) Mr. Bergren's obligations not to compete for the term of the agreement plus one year unless the Company terminates Mr. Bergren other than for cause or Mr. Bergren terminates his employment at any time following a "change in control" (as defined in the Employment Agreement); and (f) Mr. Bergren's right to receive severance payments. In general, the Employment Agreement provides 41 that if Mr. Bergren is terminated for any reason, other than for cause, by reason of death or disability or following a change in control, he will receive payments equal to the remaining base salary that would have been paid to him by the Company for the longer of one year or the remaining term of his Employment Agreement, provided that he signs a release of any claims he may have against the Company arising from his employment. If Mr. Bergren is terminated within two years of a change in control without cause or for "good reason" (as defined in the Employment Agreement), he will receive a severance payment equal to 2.99 times the Internal Revenue Code "base amount" as described in Section 280G of the Internal Revenue Code (provided that he signs a release of any claims he may have against the Company arising from his employment) and his options to purchase shares of Common Stock and restricted shares that are unvested as of the date of the change in control will automatically vest. A tax gross-up on excise taxes also will be paid if the severance pay exceeds the limits imposed by the Internal Revenue Code. Mr. Mershad, the Company's former Chairman, President and Chief Executive Officer, retired from the Company effective December 31, 2001. Prior to his retirement, the Company entered into a Separation and Retirement Agreement (the "Separation Agreement") with Mr. Mershad. The Separation Agreement superceded Mr. Mershad's Employment Agreement and sets forth the payments and benefits Mr. Mershad is entitled to (i) from the date of the Separation Agreement until his retirement as Chairman, President and Chief Executive Officer and resignation as a Director on December 31, 2001 (the "Retirement Date") and (ii) following the Retirement Date. Pursuant to the terms of the Separation Agreement, until the Retirement Date, Mr. Mershad was entitled to his current base salary and benefits that would have been payable pursuant to the terms of his Employment Agreement. After the Retirement Date, the Company will pay to Mr. Mershad (i) his current base salary for the period beginning with the Retirement Date and ending on December 31, 2004 (the "Retirement Period") and (ii) his bonus (if any) earned in 2001. During the Retirement Period, Mr. Mershad is also entitled to medical benefits equivalent to those provided to him prior to the Retirement Date and the automobile benefit that he received prior to the Retirement Date. After the Retirement Period, Mr. Mershad shall be entitled to purchase medical and dental coverage until March 1, 2008 at the rate provided for in the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended. After the Retirement Date, Mr. Mershad will be entitled to the employee discount made available to other retired employees and any post-retirement eligibility for benefits provided for under the Company's 401(k) Plan. Mr. Mershad's options to purchase shares of Common Stock and restricted shares that were unvested as of the Retirement Date were forfeited. The options and restricted shares that were vested as of the Retirement Date are subject to the stock option agreements and restricted share agreements entered into by the Company and Mr. Mershad in connection with the grant of such options and restricted shares. The option agreements provide that Mr. Mershad has one year from the Retirement Date to exercise the options that were vested on the Retirement Date. The Company will pay all of the legal fees and costs incurred by Mr. Mershad in connection with any enforcement or defense of his rights under the Separation Agreement. Mr. Muskovich, the former President and Chief Operating Officer of the Company, was terminated by the Company on June 30, 2000. Pursuant to the terms of Mr. Muskovich's Employment Agreement, the Company was required to give Mr. Muskovich notice six months prior to December 30, 2000 if the Company elected not to renew his Employment Agreement. The Company gave Mr. Muskovich notice on June 29, 2000 that the Company would terminate his Employment Agreement and his employment. Pursuant to the terms of his Employment Agreement, Mr. Muskovich will receive payments equal to the remaining base salary that would have been paid to him by the Company under the remaining term of his Employment Agreement, which expires on December 30, 2002. In 2001, the Company paid $467,500 to Mr. Muskovich under the terms of his Employment Agreement. The Company has also entered into Employment Agreements that include severance pay provisions with each of Messrs. Zamberlan, Davido and Charles P. Shaffer, Senior Vice President and General Merchandise Manager. These Employment Agreements set forth (a) the executive's compensation and benefits, subject to review at the discretion of the Board of Directors, (b) the Company's right to terminate the executive for cause or otherwise; (c) the amounts to be paid by the Company in the event 42 of the executive's termination, death or disability while rendering services; (d) the executive's duty of strict confidence and to refrain from conflicts of interest; (e) the executive's obligations not to compete for the term of the agreement plus one year unless the executive terminated his employment for good reason or the employer terminates the executive other than for cause; and (f) the executive's right to receive severance payments if he (i) is terminated within two years of a change in control without cause, (ii) voluntarily terminates for defined good reasons within two years of a change of control, (iii) terminates his employment for any reason, or without reason, during the thirty-day period immediately following the first anniversary of a change in control, or (iv) is terminated in connection with but prior to a change in control and termination occurs following the commencement of any discussions with any third party that ultimately results in a change in control. Specifically, under the Employment Agreements, the amount of any severance payment by the Company in the circumstances outlined in clause (e) in the preceding sentence will be the greater of 2.99 times the Internal Revenue Code "base amount" as described in Section 280G of the Internal Revenue Code or two times his most recent base salary and bonus. Severance payments made under the Employment Agreements will reduce any amounts that would be payable under any other severance plan or program, including the Company's severance pay plan. A tax gross-up on excise taxes also will be paid if the severance pay exceeds the limit imposed by the Internal Revenue Code. In addition, the executive will continue to be eligible for health benefits, perquisites, and fringe benefits generally made available to senior executives for two years following his termination, unless the executive waives such coverage, fails to pay any amount required to maintain such coverage, or obtains new employment providing substantially similar benefits. Mr. Shaffer's Employment Agreement expired on August 22, 2001 and the Company did not elect to renew it. Messrs. Zamberlan's and Davido's Employment Agreements also provide for the executive's (or his estate's) right to receive severance payments (i) if he is terminated by the Company at any time without cause and (ii) upon his death. The amount of such severance will be equal to (i) the executive's base salary in effect at the time of termination, payable (i) for the longer of one year or (ii) through the remaining term of the Employment Agreement, (ii) any bonus paid on or prior to the termination date and (iii) payment for any of the executive's accrued, unused vacation days on or prior to the termination date. The Company has also entered into an Employment Agreement that includes severance pay provisions with Mr. Lipton. Mr. Lipton's Employment Agreement sets forth (a) his compensation and benefits, subject to review at the discretion of the Board of Directors, (b) the Company's right to terminate him for cause or otherwise; (c) the amounts to be paid by the Company in the event of his termination, death or disability while rendering services; (d) his duty of strict confidence and to refrain from conflicts of interest; (e) his obligations not to compete for the term of the agreement plus one year unless he terminated his employment for good reason or the employer terminates him other than for cause; and (f) his right to receive severance payments if he (i) is terminated within two years of a change in control without cause, (ii) voluntarily terminates for defined good reasons within two years of a change of control, (iii) terminates his employment for any reason, or without reason, during the thirty-day period immediately following the first anniversary of a change in control, or (iv) is terminated in connection with but prior to a change in control and termination occurs following the commencement of any discussions with any third party that ultimately results in a change in control. Specifically, under the Mr. Lipton's Employment Agreement, the amount of any severance payment by the Company will be 1.5 times his most recent base salary and bonus. Severance payments made under Mr. Lipton's Employment Agreement will reduce any amounts that would be payable under any other severance plan or program, including the Company's severance pay plan. A tax gross-up on excise taxes also will be paid if the severance pay exceeds the limit imposed by the Internal Revenue Code. In addition, Mr. Lipton will continue to be eligible for health benefits, perquisites, and fringe benefits generally made available to executives for eighteen months following his termination, unless Mr. Lipton waives such coverage, fails to pay any amount required to maintain such coverage, or obtains new employment providing substantially similar benefits. Mr. Lipton's Employment Agreement also provides for him (or his estate's) right to receive severance payments (i) if he is terminated by the Company at any time without 43 cause and (ii) upon his death. The amount of such severance will be equal to (i) Mr. Lipton's base salary in effect at the time of termination, payable (i) for the longer of one year or (ii) through the remaining term of the Employment Agreement, (ii) any bonus paid on or prior to the termination date and (iii) payment for any of Mr. Lipton's accrued, unused vacation days on or prior to the termination date. The Company has also entered into an agreement with Renaissance Partners, LLP regarding John Lupo's service as Executive Vice President, Merchandising and Marketing. Mr. Lupo's agreement provides for his compensation, termination of the agreement by the parties thereto and Mr. Lupo's right to receive success fees upon any termination of the agreement. The Company has also entered into Indemnification Agreements with each current member of the Board of Directors as well as each of the Company's executive officers, except for Mr. Bergren and Mr. Lupo. These agreements provide that, to the extent permitted by Ohio law, the Company will indemnify the director or officer against all expenses, costs, liabilities and losses (including attorneys' fees, judgments, fines or settlements) incurred or suffered by the director or officer in connection with any suit in which the director or officer is a party or is otherwise involved as a result of the individual's service as a member of the Board of Directors or as an officer so long as the individual's conduct that gave rise to such liability meets certain prescribed standards. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION OVERVIEW AND PHILOSOPHY The Compensation Committee of the Board of Directors (the "Committee") has responsibility for setting and administering the policies that govern executive compensation. The Committee has authority, among other things, to review, analyze and recommend compensation programs to the Board and to administer and grant awards under the Plan. The Committee is composed entirely of outside directors. Reports of the Committee's actions and decisions are recommended to the full Board. The purpose of this report is to summarize the philosophical principles, specific program objectives and other factors considered by the Committee in reaching its determination regarding the executive compensation of the Chief Executive Officer and the Company's executive officers. The Committee's goal is to ensure the establishment and administration of executive compensation policies and practices that will enable Elder-Beerman to attract, retain and motivate the management talent necessary to achieve the Company's goals and objectives. The Committee's philosophy is that executive compensation should include the following: - A competitive mix of short-term (base salary and annual incentive bonus) and long-term (stock options and restricted and deferred shares) compensation that helps the Company attract and retain executive talent. - Cash compensation that generally reflects competitive industry levels, with annual incentive bonus opportunities that may produce total compensation at or above competitive levels if performance against predetermined objectives exceeds expectations. - Opportunities for ownership of Elder-Beerman's Common Stock that align the interests of Company executives with the long-term interests of shareholders. The Company's executive compensation is comprised primarily of (i) salaries, (ii) annual cash incentive bonuses and (iii) long-term incentive compensation in the form of stock options, deferred shares and restricted shares granted under the Plan. The Committee reviews market data and assesses the Company's competitive position for each of these three components. To assist in benchmarking the competitiveness of its compensation programs, the Committee periodically retains a third-party consultant to compile an executive compensation survey for comparably sized retail companies. Because the Committee believes that compensation in the retail industry is more directly tied to the size of enterprise than the type of retail business, these surveys also include comparably sized retailers outside of the department store business. Each of the components of executive compensation is discussed below. 44 COMPONENTS OF COMPENSATION Base Salary Base salaries for Company executives were initially established in each of the executive's employment agreements. The Committee reviews base salaries annually and makes adjustments on the basis of the performance of both the individual executive and the Company, the executive's level of responsibility in the Company, the executive's importance to the Company and the general level of executive compensation in the retail industry. The base salaries and increases in the base salaries of the Company's executive officers (other than the Chief Executive Officer) are reviewed and approved by the Committee after considering recommendations made by the Chief Executive Officer in light of the criteria discussed above. Annual Bonus - General Parameters Annual bonus awards are designed to promote the achievement of the Company's business objectives. In setting the bonus award targets each year that the Company must meet before it can make any bonus payments, the Committee considers the Company's prior year's performance and objectives, as well as its expectations for the upcoming year. Bonus program participants receive no payments unless minimum thresholds of Company financial performance or individual performance are achieved. Bonus targets are fixed as a percentage of annual base salary based on comparable incentives paid by other retail companies. Target bonus percentages for the executive officers ranged from 35% to 50%. The target percentage increases with the level of responsibility of the executive. Bonus payments may range from 0% to 150% of the target annual bonus, with payments increasing as performance improves. - Deferred Shares and Restricted Shares An executive may elect to defer up to 50% of his annual bonus in the form of deferred shares. Deferred shares are subject to a deferral period of at least three years, which is accelerated in the event of death, permanent disability, termination of employment or change in control of Elder-Beerman. Holders of deferred shares do not have voting rights for their deferred shares, but the terms of the deferred shares may provide for dividend equivalents. The Company matches 25% of the deferred shares in restricted shares. Restricted shares vest in three years from the date of grant, which is accelerated in the event of death, permanent disability or a change in control of Elder-Beerman. Prior to vesting, restricted shares are forfeitable upon termination of employment. The restricted shares provide for dividend equivalents and voting rights. The deferred shares and restricted shares are granted to executives in accordance with the Company's Equity and Performance Incentive Plan (the "Plan"). - 2001 Bonus Objectives For bonus eligible executives below the level of Senior Vice President, annual bonuses for 2001 were based on meeting weighted objectives for corporate operating profit and financial goals in the applicable executive's area of responsibility. For Senior Vice Presidents, Executive Vice Presidents and the Chief Executive Officer (the "Senior Bonus Level Executives"), annual bonuses for Fiscal 2001 were based solely on meeting a corporate operating profit goal. For 2001, the Company did not achieve the target award level established for operating profit and therefore, the Company did not pay any amounts for this component of bonuses. As a result, the Senior Bonus Level Executives did not earn any bonus for Fiscal 2001. Many executives also failed to achieve any of their respective area of responsibility or individual performance goals, which resulted in these executives earning no bonus. Thirty-seven lower level executives were able to achieve some or all of their respective area of responsibility and individual performance goals, which resulted in these executives earning in total between approximately 8% and 72% of each executive's respective target bonus amounts. 45 Long-Term Incentive Awards - Stock Options, Deferred Shares and Restricted Shares The Committee administers the Plan, which provides for long-term incentives to executive officers in the form of stock options, deferred shares and restricted shares. The awards of stock options, deferred shares and restricted shares provide compensation to executives only if shareholder value increases. To determine the number of stock options, deferred shares and restricted shares awarded, the Committee periodically reviews a survey prepared by a third-party consultant of awards made to individuals in comparable positions at other retail companies and the executive's past performance, as well as the number of long-term incentive awards previously granted to the executive. The deferred shares and restricted shares are subject to the terms and conditions described above. COMPENSATION OF CHIEF EXECUTIVE OFFICER DURING 2001 The base salary and increases in the base salary of the Chief Executive Officer are reviewed annually and approved by the Committee and the nonemployee members of the Board of Directors after review of the Chief Executive Officer's performance against predetermined performance criteria set by the nonemployee Directors. Mr. Mershad's base salary was not adjusted in Fiscal 2001. 2001 Base Salary and Annual Bonus Mr. Mershad's annual base salary was $660,000. Mr. Mershad was also eligible in Fiscal 2001 for an annual bonus of up to 50% of his base salary. Mr. Mershad's bonus is determined in the same manner described above for the executive officers. For fiscal year 2001, Mr. Mershad received no bonus because the Company failed to meet its bonus threshold corporate operating profit. On December 5, 2000, pursuant to the Plan, the Committee granted Mr. Mershad options to purchase 100,000 shares of Common Stock. The exercise price of the options is equal to the closing price of the Common Stock on the date of grant. The options will vest in 20,000 share increments on each of the first through fifth anniversaries of the date of grant. On Mr. Mershad's retirement date, 20,000 of the options were vested and the remaining 80,000 were unvested and forfeited. Mr. Mershad has until December 31, 2002 to exercise the 20,000 vested options, as well as 400,201 options granted in prior years. TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION Under Section 162(m) of the Internal Revenue Code, the Company is precluded from deducting compensation in excess of $1 million per year paid to each of the Named Executive Officers. Qualified performance-based compensation is excluded from this deduction limitation if certain requirements are met. The Plan is designed to permit (but not require) the Committee to grant awards that will qualify as performance-based compensation that is excluded from the limitation in Section 162(m). The Committee believes that Section 162(m) should not cause the Company to be denied a deduction for Fiscal 2001 compensation paid to the Named Executive Officers. The Committee will work to structure components of its executive compensation package to achieve maximum deductibility under Section 162(m) while at the same time considering the goals of its executive compensation policies. The foregoing is the report of the Compensation Committee of the Board of Directors. Mark F.C. Berner Steven C. Mason Jack A. Staph 46 COMPENSATION OF ELDER-BEERMAN'S DIRECTORS Directors who are employees of Elder-Beerman do not receive any separate fees or other remuneration for serving as a director or a member of any Committee of the Board. For fiscal year 2001, nonemployee directors were paid an annual retainer of $20,000 for their service on the Board of Directors. Nonemployee directors may elect to take their annual retainer as cash or in the form of discounted stock options. At the beginning of each fiscal year, nonemployee directors also receive an annual grant of restricted shares with a market value of $10,000 on the date of grant. When first joining the board, a nonemployee director also receives an initial grant of 1,300 restricted shares and options to purchase 7,000 shares of Common Stock. Nonemployee committee chairpersons are paid an additional $5,000 fee for their services on their respective committees. Nonemployee directors are also each paid a meeting fee of $1,500 for each board meeting attended, plus $500 for each committee meeting attended, other than members of the Executive Committee, which has the fee structure described in the next paragraph. During Fiscal 2001, after the announcement of Mr. Mershad's retirement, the Board of Directors charged the Executive Committee with additional duties regarding the search for a new Chief Executive Officer and President and general oversight of the Company's business and financial position pending the naming of a new Chief Executive Officer and President. As a result of these increased responsibilities, compensation for members of the Executive Committee, all of whom are nonemployee directors, was changed in September 2001 to the following schedule: in person meetings, $2,500; telephonic meetings, $1,000; and independent work conducted at the request of the Executive Committee, $300 per hour. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Except as noted in the following sentence, none of the members of the Compensation Committee was or ever has been an officer or employee of Elder-Beerman or engaged in transactions with Elder-Beerman (other than in his capacity as a director). During Mr. Mason's tenure as interim President from January 1, 2002 until Mr. Bergren's appointment as President on February 11, 2002, Mr. Mason remained on the Compensation Committee. During this time, the Compensation Committee neither met nor acted on any matters. None of Elder-Beerman's executive officers serves as a director or member of the compensation committee of another entity, one of whose executive officers serves as a member of the Compensation Committee or a director of Elder-Beerman. STOCK PRICE PERFORMANCE The following graph depicts the value of $100 invested in Elder-Beerman stock beginning February 17, 1998, through February 2, 2002, fiscal year end. Comparisons are made to: 1. The Standard & Poor's SmallCap 600 Index, a market-value weighted index of 600 domestic companies with an average equity market value of approximately $400 million. 2. A Regional Department Store Peer Group, consisting of The Bon-Ton Stores, Inc., Goody's Family Clothing, Inc., Gottschalks Inc., and Jacobson Stores Inc. The return for this group was 47 calculated assuming an equal dollar amount was invested in each retailer's stock based on closing prices as of February 17, 1998. [ELDER-BEERMAN LINE GRAPH]
REGIONAL S&P DEPT STORE SMALLCAP PEER GROUP QUARTER-END 600 INDEX INDEX EBSC ----------- --------- ---------- ---- February 17, 1998.................................. 100 100 100 May 2, 1998........................................ 107 118 165 August 1, 1998..................................... 93 112 140 October 31, 1998................................... 84 64 71 January 30, 1999................................... 93 70 54 May 1, 1999........................................ 91 61 51 July 31, 1999...................................... 97 68 37 October 30, 1999................................... 93 64 41 January 29, 2000................................... 103 46 30 April 29, 2000..................................... 109 44 28 July 29, 2000...................................... 106 42 26 October 28, 2000................................... 110 32 24 February 3, 2001................................... 120 36 18 May 5, 2001........................................ 117 33 19 August 4, 2001..................................... 121 27 24 November 3, 2001................................... 109 24 18 February 2, 2002................................... 123 20 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company's Common Stock is the only outstanding class of voting securities. The following table sets forth information regarding ownership of the Company's Common Stock as of April 19, 2002 (except as otherwise noted) by: (a) each person who owns beneficially more than 5% of Common Stock of the Company to the extent known to management, (b) each executive officer and director of the Company, and (c) all directors and executive officers as a group. Except as noted, all information with 48 respect to beneficial ownership has been furnished by each director or officer or is based on filings with the Securities and Exchange Commission.
AMOUNT AND NATURE OF BENEFICIAL PERCENT BENEFICIAL OWNER OWNERSHIP(1) OF CLASS ---------------- ----------------- -------- Snyder Capital Management, Inc. ........................... 2,874,700(2) 24.9% 350 California Street, Suite 1460 San Francisco, CA 94104.................................. PPM America, Inc. ......................................... 1,966,868(3) 17.06% 225 West Wacker Drive, Suite 1200 Chicago, IL 60606 Dimensional Fund Advisors Inc.............................. 620,200(4) 5.38% 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 Byron L. Bergren........................................... 55,200 * Mark F.C. Berner........................................... 11,474(5) * Dennis S. Bookshester...................................... 33,474(5) * Eugene I. Davis............................................ 11,474(5) * Charles Macaluso........................................... 60,576(5) * Steven C. Mason............................................ 76,165(5) * Thomas J. Noonan, Jr. ..................................... 36,564(5) * Laura H. Pomerantz......................................... 28,929(5) * Jack A. Staph.............................................. 47,735(5) * Charles H. Turner.......................................... 31,519(5) * James M. Zamberlan......................................... 98,866(5) * Scott J. Davido............................................ 52,148(5) * Steven D. Lipton........................................... 33,035(5) * ------------------------------------------------------------------------------------------ All directors and executive officers as a group:........... 534,086 4.63%
--------------- * less than 1% (1) Information with respect to beneficial ownership is based on information furnished to the Company by each shareholder included in this table. "Beneficial ownership" is a technical term broadly defined by the Securities and Exchange Commission to mean more than ownership in the usual sense. So, for example, you not only "beneficially" own the Elder-Beerman Common Stock that you hold directly, but also the Elder-Beerman Common Stock that you indirectly (through a relationship, a position as a director or trustee, or a contract or understanding), have (or share) the power to vote or sell or that you have the right to acquire within 60 days. (2) Snyder Capital Management, Inc. ("SCMI") is the general partner of Snyder Capital Management, L.P. ("SCMLP"), a registered investment advisor. SCMI and SCMLP reported the beneficial ownership (as of April 11, 2002) of such shares in a Form 13G dated April 12, 2002. (3) PPM America, Inc. ("PPM"), a registered investment advisor, reported the beneficial ownership (as of December 31, 2001) of such shares in a Form 13f dated February 14, 2001. All such shares are held in portfolios of PPM America Special Investments Fund, L.P. ("SIF I") and PPM America Special Investments CBO II, L.P. ("CBO II"). PPM serves as investment advisor to both SIF I and CBO II. PPM, PPM America CBO II Management Company (general partner of CBO II) and PPM American Fund Management GP, Inc. (general partner of SIF I) disclaim beneficial ownership of all such shares. (4) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment advisor, reported the beneficial ownership of such shares in a Schedule 13G filed on February 12, 2002. All such shares are owned by investment companies, trusts or separate accounts (the "Funds"). Dimensional is an investment advisor or manager to all of the Funds and possesses voting and/or investment power over the shares. Dimensional disclaims beneficial ownership of all shares. (5) These amounts include shares of Common Stock that the following persons had a right to acquire within 60 days after April 19, 2002. 49
STOCK OPTIONS EXERCISABLE NAME BY JUNE 18, 2002 ---- ---------------- Mr. Berner.................................................. 2,334 Mr. Bookshester............................................. 22,790 Mr. Davis................................................... 2,334 Mr. Macaluso................................................ 49,892 Mr. Mason................................................... 64,655 Mr. Noonan.................................................. 25,054 Ms. Pomerantz............................................... 13,419 Mr. Staph................................................... 35,825 Mr. Turner.................................................. 18,379 Mr. Zamberlan............................................... 78,800 Mr. Davido.................................................. 37,800 Mr. Lipton.................................................. 25,800
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following documents are filed as part of this Annual Report on Form 10-K: Consolidated Financial Statements as of February 2, 2002 and February 3, 2001 and for each of the three fiscal years in the period ended February 2, 2002: Statements of Operations Balance Sheets Statements of Shareholders' Equity Statements of Cash Flows Notes to Consolidated Financial Statements
(a)(2) All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are included in the consolidated financial statements, are not required under the related instructions, or are inapplicable, and therefore have been omitted. (a)(3) The following Exhibits are included in this Annual Report on Form 10-K: 2(a) Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and its Subsidiaries dated November 17, 1997 (previously filed as Exhibit 2 to the Company's Form 10 filed on November 26, 1997 (the "Form 10"), and incorporated herein by reference) 2(b) Agreement and Plan of Merger by and Among The Elder-Beerman Stores Corp., The Elder-Beerman Acquisition Corp., Stone & Thomas and G. Ogden Nutting and Wilbur S. Jones, Jr., as Representatives dated June 18, 1998 (previously filed as Exhibit 2(b) to the Company's Registration Statement on Form S-1 (File No. 333-57447) (the "Form S-1") and incorporated herein by reference) 2(c) First Amendment to Agreement and Plan of Merger, dated as of July 27, 1998, By and Among Stone & Thomas, The Elder-Beerman Stores Corp., The Elder-Beerman Acquisition Corp. and G. Ogden Nutting and Wilbur S. Jones, Jr., as Representatives dated as of July 27, 1998 (previously filed as Exhibit 2(c) to the Form S-1 and incorporated herein by reference) 3(a) Amended Articles of Incorporation of The Elder-Beerman Stores Corp. (previously filed as Exhibit 3(a) to the Form 10-K filed on April 30, 1998 (the "1997 Form 10-K"), and incorporated herein by reference)
50 3(b) Certificate of Amendment By Shareholders to the Articles of Incorporation of The Elder-Beerman Stores Corp. (previously filed as Exhibit 3(b) to the Company's Form 10-Q for the quarterly period ended October 28, 2000 ("2000 3rd Quarter 10-Q") and incorporated herein by reference) 3(c) Amended Code of Regulations (previously filed as Exhibit 3(c) to the 2000 3rd Quarter 10-Q and incorporated herein by reference) 4(a) Stock Certificate for Common Stock (previously filed as Exhibit 4(a) to the Company's Form 10/A-1 filed on January 23, 1998 (the "Form 10/A-1") and incorporated herein by reference) 4(b) Form of Registration Rights Agreement (previously filed as Exhibit 4(b) to the Form 10 and incorporated herein by reference) 4(c) Rights Agreement, By and Between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., as Rights Agent dated as of December 30, 1997 (the "Rights Agreement") (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(d) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and The Elder-Beerman Stores Corp. for 249,809 of the outstanding shares of common stock at an exercise price of $12.80 per share dated December 30, 1997 (previously filed as Exhibit 4(d) to the 1997 Form 10-K and incorporated herein by reference) 4(e) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and The Elder-Beerman Stores Corp. for 374,713 of the outstanding shares of common stock at an exercise price of $14.80 per share dated December 30, 1997 (previously filed as Exhibit 4(e) to the 1997 Form 10-K and incorporated herein by reference) 4(f) 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) 10(a)(i) Elder-Beerman Master Trust Pooling and Servicing Agreement, dated December 30, 1997, Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company (previously filed as Exhibit 10(a)(i) to the Form 10/A-1 and incorporated herein by reference) 10(a)(ii) Elder-Beerman Master Trust Series 1997-1 Supplement, dated December 30, 1997, Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company (previously filed as Exhibit 10(a)(ii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(iii) Series 1997-1 Certificate Purchase Agreement, dated December 30, 1997, Among The El-Bee Receivables Corporation, Corporate Receivables Corporation, The Liquidity Providers Named Herein, CitiCorp North American, Inc. and Bankers Trust Company, as Trustee, (previously filed as Exhibit 10(a)(iii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(iv) Elder-Beerman Master Trust Series 1997-1 Loan Agreement, dated as of December 30, 1997, Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp., Bankers Trust Company, The Collateral Investors Parties Hereto and CitiCorp North America, Inc. (previously filed as Exhibit 10(a)(iv) to the Form 10/A-1 and incorporated herein by reference) 10(a)(v) Intercreditor Agreement dated as of December 30, 1997, By and Among Citicorp North America, Inc., The El-Bee Receivables Corporation, The El-Bee Chargit Corporation, The Elder-Beerman Stores Corp., Bankers Trust Company and Citicorp USA, Inc. (previously filed as Exhibit 10(a)(v) to the Form 10/A-1 and incorporated herein by reference)
51 10(a)(vi) Parent Undertaking Agreement dated as of December 30, 1997, Among The Elder-Beerman Stores Corp. and Bankers Trust Company (previously filed as Exhibit 10(a)(vi) to the Form 10/A-1 and incorporated herein by reference) 10(a)(vii) Purchase Agreement, dated as of December 30, 1997, Among The El-Bee Chargit Corp., and The El-Bee Receivables Corporation, (previously filed as Exhibit 10(a)(vii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(viii) Purchase Agreement, dated as of December 30, 1997, Among The Elder-Beerman Stores Corp., as Seller, and The El-Bee Chargit Corp., (previously filed as Exhibit 10(a)(viii) to the Form 10/A-1 and incorporated herein by reference) 10(a)(ix) The El-Bee Receivables Corporation Subordinated Note Between The El-Bee Receivables Corporation and The El-Bee Chargit Corp., dated December 30, 1997 (previously filed as Exhibit 10(a)(ix) to the Form 10/A-1 and incorporated herein by reference) 10(b)(i) Borrower Pledge Agreement, dated December 30, 1997, Made by The Elder-Beerman Stores Corp. to Citibank, N.A., (previously filed as Exhibit 10(b)(ii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(ii) Chargit Pledge Agreement, dated December 30, 1997, Made By The El-Bee Chargit Corp. to Citibank, N.A., (previously filed as Exhibit 10(b)(iii) to the Form 10/A-1 and incorporated herein by reference) 10(b)(iii) Subsidiary Guaranty, dated December 30, 1997, Made by The El-Bee Chargit Corp., (previously filed as Exhibit 10(b)(v) to the Form 10/A-1 and incorporated herein by reference) 10(b)(iv) Subsidiary Guaranty, dated December 30, 1997, Made by The Bee-Gee Shoe Corp., (previously filed as Exhibit 10(b)(vi) to the Form 10/A-1 and incorporated herein by reference) 10(b)(v) Letter Agreement, dated December 30, 1997, Re: Assignment of Account By and Among The Elder-Beerman Stores Corp., CitiCorp USA, Inc., and Bankers Trust Company, (previously filed as Exhibit 10(b)(viii) to the Form 10/A-1 and incorporated herein by reference) 10(c) Form of Employment Agreement for Senior Vice Presidents between The Elder-Beerman Stores Corp. and the Executive Named therein (previously filed as Exhibit 10(c) to the Form 10 and incorporated herein by reference)* 10(d) Form of Employment Agreement for Executive Vice Presidents between The Elder-Beerman Stores Corp. and the Executive Named therein (previously filed as Exhibit 10(d) to the Form 10 and incorporated herein by reference)* 10(f) Form of Director Indemnification Agreement made by and between The Elder Beerman Stores Corp. and a director of the Company (previously filed as Exhibit 10(f) to the Form 10 and incorporated herein by reference)* 10(g) Form of Officer Indemnification Agreement (previously filed as Exhibit 10(g) to the Form 10 and incorporated herein by reference)* 10(h) Form of Director and Officer Indemnification Agreement made by and between The Elder-Beerman Stores Corp. and a director and an officer of the Company (previously filed as Exhibit 10(h) to the Form 10 and incorporated herein by reference)* 10(i) The Elder-Beerman Stores Corp. Equity and Performance Incentive Plan, as amended and restated as of September 21, 2000 (previously filed as Annex A to the Company's Proxy Statement dated August 21, 2000 and incorporated herein by reference)* 10(j) Form of Restricted Stock Agreement for Non-Employee Director (previously filed as Exhibit 10(j) to the Form 10 and incorporated herein by reference)*
52 10(k) Form of Restricted Stock Agreement (previously filed as Exhibit 10(k) to the Form 10 and incorporated herein by reference)* 10(l) Form of Deferred Shares Agreement (previously filed as Exhibit 10(l) to the Form 10 and incorporated herein by reference)* 10(m) Form of Nonqualified Stock Option Agreement for Non-Employee Director (previously filed as Exhibit 10(m) to the Form 10 and incorporated herein by reference)* 10(n) Form of Nonqualified Stock Option Agreement (previously filed as Exhibit 10(n) to the Form 10 and incorporated herein by reference)* 10(o) Comprehensive Settlement Agreement, dated as of December 30, 1997, By and Among The Debtors, The ESOP and the ESOP Committee and the Shareholders of The Elder-Beerman Stores Corp., (previously filed as Exhibit 10(p) to the 1997 Form 10-K and incorporated herein by reference) 10(p) Tax Indemnification Agreement Made and Entered into By and Among The Elder-Beerman Stores Corp., the Direct and Indirect Subsidiaries of Elder-Beerman, Beerman-Peal Holdings, Inc., The Beerman-Peal Corporation, Beerman Investments, Inc., The Beerman Corporation and The Individuals, Partnerships and Trusts named Therein dated as of December 15, 1997 (previously filed as Exhibit 10(q) to the Form 10 and incorporated herein by reference) 10(q) Tax Sharing Agreement Made and Entered into By and Among The Elder-Beerman Stores Corp., The Bee-Gee Shoe Corp. and The El-Bee Chargit Corp. dated as of December 30, 1997 (previously filed as Exhibit 10(r) to the Form 10 and incorporated herein by reference) 10(r) Employment Agreement, dated December 30, 1997, Between The Elder-Beerman Stores Corp. and John A. Muskovich, (previously filed as Exhibit 10(s) to the 1997 Form 10-K and incorporated herein by reference)* 10(s) Amended and Restated Employment Agreement, dated as of December 30, 1997, Between The Elder-Beerman Stores Corp. and James M. Zamberlan, (previously filed as Exhibit 10(u) to the Company's Form 10-K for the year ended January 30, 1999 (the "1998 Form 10-K") and incorporated herein by reference)* 10(t) Employment Agreement, dated as of December 30, 1997, Between The Elder-Beerman Stores Corp. and Scott J. Davido, (previously filed as Exhibit 10(v) to the 1998 Form 10-K and incorporated herein by reference)* 10(u) Amended and Restated Employment Agreement, dated March 15, 1999, Between The Elder-Beerman Stores Corp. and Scott J. Davido, (previously filed as Exhibit 10(w) to the 1998 Form 10-K and incorporated herein by reference)* 10(v) Employment Agreement Between The Elder-Beerman Stores Corp. and Steven D. Lipton, dated December 30, 1997 (previously filed as Exhibit 10(x) to the 1998 Form 10-K and incorporated herein by reference)* 10(w) Amended and Restated Security Agreement, dated July 27, 1998, Made By The Elder-Beerman Stores Corp., Elder-Beerman West Virginia, Inc., The El-Bee Chargit Corp., and The Bee-Gee Shoe Corp. in favor of CitiCorp USA, Inc., (previously filed as Exhibit 10(b)(iv) to the Form S-1 and incorporated herein by reference) 10(x) Elder-Beerman West Virginia, Inc. Guaranty, dated July 27, 1998, Made by Elder-Beerman West Virginia, Inc. in favor of the Guaranteed Parties (previously filed as Exhibit 10(b)(vii) to the Form S-1 and incorporated herein by reference)
53 10(y) Amendment No. 1 to The Elder-Beerman Master Trust Series 1997-1 Supplement, dated as of November 25, 1998, Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company (previously filed as Exhibit 10(ee) to the Company's Form 10-K for the year ended January 29, 2000 (the "1999 Form 10-K") and incorporated herein by reference) 10(z) Amendment No. 2 to The Elder-Beerman Master Trust Series 1997-1 Supplement, dated as of November 24, 1999, Among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company (previously filed as Exhibit 10(ff) to the 1999 Form 10-K and incorporated herein by reference) 10(aa) Amendment No. 1 to The Series 1997-1 Certificate Purchase Agreement, dated as of November 25, 1998, Among The El-Bee Receivables Corporation, Corporate Receivables Corporation, The Liquidity Providers Named Therein, Citicorp North America Inc. and Bankers Trust Company (previously filed as Exhibit 10(ii) to the 1999 Form 10-K and incorporated herein by reference) 10(bb) Guaranty, dated December 30, 1999, Made by Elder-Beerman Holdings, Inc., Elder-Beerman Operations, LLC and Elder-Beerman Indiana, L.P., (previously filed as Exhibit 10(jj) to the 1999 Form 10-K and incorporated herein by reference) 10(cc) Amendment No. 1 to The Elder-Beerman Master Trust Pooling and Servicing Agreement, dated as of May 19, 2000, among The El-Bee Receivables Corporation, The El-Bee Chargit Corp. and Bankers Trust Company (previously filed as Exhibit 10(a) to the Company's Form 10-Q for the quarterly period ended April 29, 2000 (the "2000 1st Quarter 10-Q" and incorporated hereby by reference) 10(dd) Elder-Beerman Master Trust Series 2000-1 Supplement, dated as of May 19, 2000, among the El-Bee Receivables Corporation, as Transferor, The El-Bee Chargit Corp., as Servicer, and Bankers Trust Company, as Trustee (previously filed as Exhibit 10(b) to the 2000 1st Quarter 10-Q and incorporated herein by reference) 10(ee) Series 2000-1 Certificate Purchase Agreement, dated May 19, 2000, among the El-Bee Receivables Corporation, as Seller, the Conduit Purchasers Named Therein, the Committed Purchasers Named Therein, the Managing Agents Named Therein, Citicorp North America, Inc., as Program Agent for the Purchasers and Bankers Trust Company, as Trustee (previously filed as Exhibit 10(c) to the 2000 1st Quarter 10-Q and incorporated herein by reference) 10(ff) Intercreditor Agreement, dated May 19, 2000, among Citicorp North America, Inc., as Program Agent, The El-Bee Receivables Corporation, as Transferor, The El-Bee Chargit Corp., as Originator and Servicer, The Elder-Beerman Stores Corp., as Borrower and Originator, Bankers Trust Company, as Trustee and Citicorp USA, Inc., as Bank Agent (previously filed as Exhibit 10(d) to the 2000 1st Quarter 10-Q and incorporated herein by reference) 10(gg) Amended and Restated Credit Agreement, dated as of May 19, 2000, among The Elder-Beerman Stores Corp., as Borrower and the Lenders Party Thereto, Citibank, N.A., as Issuer and Citicorp USA, Inc., as Agent and Swing Loan Bank (previously filed as Exhibit 10(e) to the 2000 1st Quarter 10-Q and incorporated herein by reference) 10(hh) Form of Amended and Restated Revolving Credit Note (previously filed as Exhibit 10(f) to the 2000 1st Quarter 10-Q and incorporated herein by reference) 10(ii) Separation and Retirement Agreement, dated as of September 4, 2001, by and between The Elder-Beerman Stores Corp. and Frederick J. Mershad (previously filed as Exhibit 10(a) to the Company's Form 10-Q for the quarterly period ended August 4, 2001 and incorporated herein by reference)*
54 10(jj) Modification Agreement, dated June 15, 2001, between The Elder-Beerman Stores Corp. and Scott J. Davido (previously filed as Exhibit 10(a) to the Company's Form 10-Q for the quarterly period ended November 3, 2001 ("2001 3rd Quarter 10-Q") and incorporated herein by reference)* 10(kk) Modification Agreement, dated June 15, 2001, between The Elder-Beerman Stores Corp. and Steven D. Lipton (previously filed as Exhibit 10(b) to the 2001 3rd Quarter 10-Q and incorporated herein by reference)* 10(ll) Modification Agreement, dated June 15, 2001, between The Elder-Beerman Stores Corp. and James M. Zamberlan (previously filed as Exhibit 10(c) to the 2001 3rd Quarter 10-Q and incorporated herein by reference)* 10(mm) Employment Agreement, dated January 23, 2002, by and between the Company and Byron Bergren* 10(nn) Consulting Agreement, dated August 1, 2001 between the Company and Renaissance Partners, L.C.* 21 Subsidiaries of the Company 23 Independent Auditors' Consent 24 Powers of Attorney
(b) Reports on Form 8-K There were no reports on Form 8-K filed for the three-months ended February 2, 2002. (c) The response to this portion of Item 14 is included in Section 14(a)(3) of this Annual Report on Form 10-K. * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. (d) Financial Statement Schedules All financial statement schedules are included in the consolidated financial statements herein. 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 19th day of April, 2002. THE ELDER-BEERMAN STORES CORP. By: /s/ SCOTT J. DAVIDO -------------------------------------- Scott J. Davido Executive Vice President, Chief Financial Officer, Treasurer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated and on April 12, 2002.
SIGNATURE TITLE --------- ----- * Chief Executive Officer, Director -------------------------------------------------------- (Principal Executive Officer) Byron Bergren * Executive Vice President, Chief -------------------------------------------------------- Financial Officer, Treasurer and Scott J. Davido Secretary (Principal Financial Officer) * Senior Vice President, Controller -------------------------------------------------------- (Principal Accounting Officer) Steven D. Lipton * Director -------------------------------------------------------- Mark F. C. Berner * Director -------------------------------------------------------- Dennis S. Bookshester * Director -------------------------------------------------------- Eugene I. Davis * Director -------------------------------------------------------- Charles Macaluso * Director -------------------------------------------------------- Steven C. Mason
56
SIGNATURE TITLE --------- ----- * Director -------------------------------------------------------- Thomas J. Noonan, Jr * Director -------------------------------------------------------- Laura H. Pomerantz * Director -------------------------------------------------------- Jack A. Staph * Director -------------------------------------------------------- Charles H. Turner
* The undersigned, pursuant to certain Powers of Attorney executed by each of the directors and officers noted above and previously filed or filed herewith contemporaneously with the Securities and Exchange Commission, by signing his name hereto, does hereby sign and execute this report on behalf of each of the persons noted above, in the capacities indicated. Dated: April 19, 2002 By: /s/ SCOTT J. DAVIDO -------------------------------------- Scott J. Davido Attorney-in-Fact 57